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 --