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
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          |Author:    |Hertzberg                                            |
          |-----------+-----------------------------------------------------|
          |Version:   |4/14/2015    As Amended                              |
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          |Urgency:   |No                     |Fiscal:      |Yes             |
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          |Consultant:|Jay Dickenson                                        |
          |           |                                                     |
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          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.









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          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.








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           |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).








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           |---------+-------+--------+--------+-------+--------+------|
           |    % 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  









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          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  









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          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  









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          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 --