BILL ANALYSIS Ó SENATE COMMITTEE ON ENERGY, UTILITIES AND COMMUNICATIONS Senator Ben Hueso, Chair 2015 - 2016 Regular Bill No: SB 286 Hearing Date: 4/21/2015 ----------------------------------------------------------------- |Author: |Hertzberg | |-----------+-----------------------------------------------------| |Version: |4/14/2015 As Amended | ----------------------------------------------------------------- ------------------------------------------------------------------ |Urgency: |No |Fiscal: |Yes | ------------------------------------------------------------------ ----------------------------------------------------------------- |Consultant:|Jay Dickenson | | | | ----------------------------------------------------------------- SUBJECT: Electricity: direct transactions DIGEST: This bill doubles the limit on Direct Access (DA) service to allow a greater number of nonresidential customers of the electrical investor-owned utilities (IOUs) receive electric service from an entity other than an IOU. ANALYSIS: Existing law: 1. Suspends the ability of retail end-use customers of the IOUs to receive electrical service from an entity other than an IOU. This arrangement commonly is referred to as DA, while "other providers of electrical service" are known as Electric Service Providers (ESPs). 2. Makes an exception to this general DA suspension by directing the California Public Utilities Commission (CPUC) to allow individual retail nonresidential end-use customers of the IOUs to acquire electric service from ESPs in each electrical corporation's distribution service territory, up to a maximum allowable total kilowatt hours (KWhs) annual limit. Statute sets the annual limit at the maximum total KWhs supplied by all ESPs to distribution customers of each electrical corporation during any sequential 12-month period between April 1, 1998, and October 11, 2009. 3. Makes ESPs subject to the same requirements that are applicable to the state's three largest IOUS for resource adequacy, the renewables portfolio standard (RPS) and the SB 286 (Hertzberg) PageB of? requirements for the electricity sector adopted by the California Air Resources Board (ARB) pursuant to the California Global Warming Solutions Act of 2006. (Public Utilities Code §356.1 et seq.) 4. State's the intent of the Legislature to prevent any shifting of recoverable costs between IOU customers. (Public Utilities Code §366.1(d)(1).) This bill: 1. Doubles the limit on DA. The bill directs the CPUC, as of January 1, 2016, to adopt a schedule that phases in new DA transactions for individual retail nonresidential end-use customers over a period of not more than three years. The bill establishes a new limit on DA transactions that is twice the DA limit in current law. The bill requires that not less than 51 percent of new DA transactions be for electricity products from renewable energy resources eligible for RPS credit. 2. Requires each IOU to continue to provide DA customers with support functions, including, but not limited to, billing, customer service, call centers, support services, and line clearance tree trimming, through its own employees, except that construction of distribution system equipment and line clearance tree trimming may be performed pursuant to contracts between the electrical corporation and another entity. The bill prohibits an ESP from offering consolidated billing. Background Direct Access Suspended . DA allows customers of each IOU to elect to receive electric service from a provider other than the IOU. Such providers are knows as ESPs. ESPS rely on the use of IOU transmission lines to deliver electricity to DA customers. DA was first offered as part of efforts to restructure the electricity markets to provide more competition. These efforts were codified in AB 1890 (Brulte, Chapter 854, Statutes of 1996). In 2000 and 2001, the state experienced extraordinary wholesale electricity prices in what has become known as the California electricity crisis. Pacific Gas and Electric (PG&E) declared bankruptcy; Southern California Edison nearly did so. SB 286 (Hertzberg) PageC of? Unsure of the exact causes of the crisis, state government took a number of actions to stabilize the electricity market. Among those actions was suspension of DA. No new customers would be allowed to sign DA contracts; existing DA contracts, however, would continue in effect. Direct Access Reopened . In 2009, the Legislature passed SB 695 (Kehoe, Chapter 337, Statutes of 2009), which reopened DA. More specifically, SB 695 directed the CPUC to allow nonresidential end-use customers to acquire electric service from ESPs in each IOUs service territory, up to a specified limit. SB 695 set the limit for each IOU equal to the maximum total KWhs supplied by all ESPs to DA customers of the IOU during any sequential 12-month period between April 1, 1998, and October 11, 2009 (the date the bill - and urgency measure - took effect). The CPUC, in implementing the bill, determined the DA limit for each IOU and the then-existing DA load for each. With these two amounts, the CPUC then determined the additional amount of DA service that could occur in each IOU territory, as shown in the following table. -------------------------------------------------- |SB 965 Direct Access Limits<1> | | | -------------------------------------------------- |-----------------+--------+------+-------+-------| | | PG&E | SCE | SDG&E | Total | |-----------------+--------+------+-------+-------| | SB 695 Limit| 9,520|11,710| 3,562| 24,792| | | | | | | | | | | | | |-----------------+--------+------+-------+-------| | Existing DA | 5,574| 7,764| 3,100| 16,438| | Contracts| | | | | |-----------------+--------+------+-------+-------| |New DA Allowance | 3,946| 3,946| 462| 8,354| | (line 1 less | | | | | | line 2)| | | | | ------------------------------------------------- -------------------------------------------------- | | | --------------------------- <1> CPUC Decision 10-03-22. SB 286 (Hertzberg) PageD of? |1) Gigawatt hours. | | -------------------------------------------------- The CPUC noted that the newly eligible DA allowance resulting from SB 695 represented a relatively small portion of each IOU's portfolio: collectively, less than six percent of the entire load of all the IOUs, and amount "much less than the annual variation in electricity consumption across the state due to weather and the economy." The overall SB 695 DA limit represents approximately 13 percent of the IOUs total load. Nonresidential customers quickly enrolled in all available DA service made newly available by SB 695. The CPUC reports that, today, there are 44,420 DA customers, representing 0.40 percent of IOU customers<2>. DA load, however, totals 24,852 GWh and represents nearly 13 percent of IOU load, concomitant with the current DA limit. Commercial entities by far make up the majority of DA participants, both in terms of the number of DA enrollees and DA load. ----------------------------------------------------------- |Direct Access Participation | | | ----------------------------------------------------------- |---------+-------+--------+--------+-------+--------+------| | |Residen|Commerci|Commerci|Industr|Agricult|Total | | | tial | al <20 |al 20 - |ial | ural | | | | | kW | 500 kW | | | | | | | | | > | | | | | | | |500 kW | | | |---------+-------+--------+--------+-------+--------+------| | Direct | 9,671| 17,230| 15,742| 1,351| 426|44,420| | Access | | | | | | | |Customers| | | | | | | | | | | | | | | --------------------------- <2> CPUC Energy Division Direct Access Annual Status Report On the Enrollment Process for 2013 (May 26, 2014). SB 286 (Hertzberg) PageE of? |---------+-------+--------+--------+-------+--------+------| | % of | 0.1%| 1.5% | 6.2%| 22.5%| 0.4%|0.4% | | Total | | | | | | | | IOU | | | | | | | |Customers| | | | | | | | | | | | | | | |---------+-------+--------+--------+-------+--------+------| | Direct | 77| 250 | 9,268| 15,139| 117|24,851| | Access | | | | | | | | Load | | | | | | | | (GWh)| | | | | | | |---------+-------+--------+--------+-------+--------+------| | % of | 0.1%| 1.6% | 16.7%| 34.4%| 1.0%|12.85%| | Total | | | | | | | |IOU Load | | | | | | | | (GWh)| | | | | | | ----------------------------------------------------------- No customer may newly contract with an ESP for DA service unless an existing customer drops out of DA. As of 2014, there was a considerable queue for DA service, as shown below: ----------------------------------------------------------- |Direct Access Queue as of Close of 2013 | | | ----------------------------------------------------------- |------------------------------+------+-----+------+------| | | PG&E | SCE |SDG&E |Total | |------------------------------+------+-----+------+------| | Number of Customers on | 435| 255| 155| 845| | Waiting List| | | | | |------------------------------+------+-----+------+------| | GWh of associated load |4,2351|1,351| 545|6,131 | | | | | | | --------------------------------------------------------- Direct Access Reopened, Again . This bill requires the CPUC to reopen DA, so that, over a period of three years, additional nonresidential IOU customers may contract for DA service. The bill caps this additional DA access at two times the SB 695 cap. In other words, the bill would eventually result a DA cap just under 50,000 gigawatt hours (GWh), or approximately 26 percent of total IOU electricity load. Such an increase of more than 24,000 GWh would more than accommodate the 845 customers SB 286 (Hertzberg) PageF of? awaiting 6,131 GWhs of service on the DA queue. The IOUs and the CPUC have managed the 8,000 GWh DA cap increase that followed SB 695. Electricity prices have not skyrocketed. Service has not been interrupted. Yet, many remain scarred by the electricity crisis. Reviews of the electricity crisis do not attribute the 2000-01 wholesale price increases to the existence of DA. Still, the experience warrants caution. A doubling of the DA cap may be too much, too soon. The author and committee may wish to amend the bill to limit the DA cap increase to an amount sufficient to accommodate the existing DA queue. Such an approach has two advantages. First, it allows a moderate expansion of DA in line with the last, successful expansion of DA that followed SB 695. Second, it allows the Legislature to revisit the DA cap. Should another DA queue develop following the DA expansion this bill provides, the Legislature could consider reopening DA, yet again. More Renewable that the RPS . The bill additionally requires at least 51 percent of the DA transactions made newly available by this bill come from RPS-eligible renewable energy resources. This requirement goes beyond the current statutory obligation that all load serving entities, including ESPs, procure at least 33 percent of their electricity from RPS-eligible renewable resources by 2020. Indifference Required . Current law requires that IOU customers be financially indifferent to other customers departing bundled IOU service. To achieve this indifference, the CPUC established the Power Charge Indifference Adjustment (PCIA). The PCIA allows an IOU to recovers the above market costs of resource commitments incurred by the IOU on behalf of bundled customers that subsequently depart bundled service, for DA service, for example. The IOUs complain that the PCIA, process, despite the intentions of the CPUC, does not leave the IOUs whole. Rather, they contend, the calculations behind the PCIA are complex and assumptions imperfect. The result, according to the IOUs, is millions of dollars in costs to IOU bundled customers. It is also worth noting that the ESPs and community choice aggregators (another class of service providers to which IOU customers switch) have formally complained to the CPUC that the PCIA inaccurately accounts for cost, but to the enrichment of SB 286 (Hertzberg) PageG of? the IOUs. The Work Is Yours . The bill also contains two previsions regarding work supporting provision of electricity service. First, the bill states that an IOU shall continue to provide direct access customers with support functions, including, but not limited to, billing, customer service, call centers, support services, and line clearance tree trimming, through its own employees, except that construction of distribution system equipment and line clearance tree trimming may be performed pursuant to contracts between the electrical corporation and another entity. This provision seems geared to allay the concerns of organized labor, whose members are employed by the IOUs, though it is not clear that ESPs are authorized to perform the activities described above in any case. Nor is it clear why the bill provides an exception to the requirement only for construction of distribution system equipment and line clearance tree trimming. Similarly, the bill prohibits ESPs from providing their customers with consolidated billing. This means the IOUs, and their employees, will need to provide billing services to DA customers. Several major labor organizations oppose the bill despite these provisions. Prior/Related Legislation SB 350 (De Leon) would, among other things, require load-serving entities to procure at least 50 percent of their electricity from renewable resources by 2030. The bill passed this committee on a vote of 8-3 and is pending consideration in the Senate Environmental Quality Committee. SB 695 (Kehoe, Chapter 337, Statutes of 2009) directed the CPUC to allow nonresidential end-use customers to acquire electric service from ESPs in each IOU service territory, up to a specified limit. SB 695 set the limit for each IOU equal to the maximum total KWhs supplied by all ESPs to DA customers of the IOU during any sequential 12-month period between April 1, 1998, and October 11, 2009 (the date the bill - and urgency measure - took effect). FISCAL EFFECT: Appropriation: No Fiscal SB 286 (Hertzberg) PageH of? Com.: Yes Local: Yes SUPPORT: 3Phases Renewables AES Albertsons/Safeway Alliance for Retail Energy Markets Alta Dena Dairy, A Dean Foods Company Aviva Energy Corp Bericap Boral Industries, Inc. California Biomass Energy Alliance California Grocers Association California Manufacturers and Technology Association California Retailers Association California State Universities California Wind Energy Association, if amended Calpine Corporation Cargill, Inc. Cinemark USA, Inc. Commerce Energy, Inc. SUPPORT (continued): Community College League of California COMPETE Coalition Constellation NewEnergy, Inc. Covanta Energy Direct Access Customer Coalition Direct Energy Business, LLC Dynegy, Inc. eBay, Inc. Ecom-Energy of California, Inc. Energy Users Forum Fabrica International, Inc. Gas and Power Technologies, Inc. Guardian Industries Corp. IBM Corp. IGS Energy JDS Uniphase Just Energy Group, Inc. Kings Canyon Unified School District Large-Scale Solar Association SB 286 (Hertzberg) PageI of? Lehigh Hanson Liberty Power Corp., LLC Lineage Logistics Macy's, Inc. Noble Americas Energy Solutions, LLC Nordic Energy Services, LLC Oakley, Inc. Owen-Illinois Qualcomm Retail Energy Supply Association RockTenn Company School Project for Utility Rate Reduction Shell Energy North America (US), LP Solar City Solar Energy Industries Association Stanford University Staples Steelscape TES Energy Services, LP TechNet Think Wire Energy Services, Inc. SUPPORT (continued): Tiger Natural Gas United States Cold Storage, Inc. Walmart Western Power Trading Forum Western States Petroleum Association OPPOSITION: California State Association of Electrical Workers California State Pipe Trades Council Coalition of California Utility Workers San Diego Gas & Electric Southern California Edison The Utility Reform Network Western States Council of Sheet Metal Workers ARGUMENTS IN SUPPORT: The author contends this bill will encourage competition and reduce prices for electricity. This, in turn, will give California businesses the necessary tools to make cost-effective energy decisions and make California more business friendly, while providing new flexible options for SB 286 (Hertzberg) PageJ of? meeting the state's renewable energy and greenhouse gas reduction goals. ARGUMENTS IN OPPOSITION: Opponents argue that ESPs rely on a short-term business model that undercuts the long-term planning needed to meet California's ambitious energy and environmental goals, as well as to finance its capital-intensive energy infrastructure. The IOUs also argue that the migration of customers to DA service saddles IOU ratepayers with millions in stranded costs, despite the existence of a CPUC process to allocate such costs. -- END --