BILL ANALYSIS Ó
SB 286
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Date of Hearing: July 13, 2015
ASSEMBLY COMMITTEE ON UTILITIES AND COMMERCE
Anthony Rendon, Chair
SB
286 (Hertzberg) - As Amended June 2, 2015
SENATE VOTE: 34-2
SUBJECT: Electricity: direct transactions.
SUMMARY: Requires the California Public Utilities Commission
(CPUC) to allow individual retail nonresidential end-use
customers to contract directly for their electricity supplies,
also known as "direct access ," (DA) as specified.
Specifically, this bill:
1)Expands the existing direct access program to allow 8,000
gigawatt-hours (GWh) of new direct access customers over a
period of three years.
2)Allocates the 8,000 GWh proportionally among electrical
corporation service areas.
3)Specifies the electricity under this program meet the
definition of renewable energy as defined in the California
Renewable Portfolio Standard (RPS), including procurement in
excess of the RPS.
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4)Specifies that electrical corporations shall continue to
provide services on behalf of direct access customers,
including billing, customer service, call centers, support
services, and line clearance tree trimming through its own
employees.
5)Allows construction of distribution system equipment and line
clearance tree trimming to be performed pursuant to contracts
between the electrical corporation and another entity.
EXISTING LAW:
1)Suspends the ability of retail end-use customers of the
investor-owned utilities (IOU) to receive electrical service
from an entity other than an IOU unless authorized by the
Legislature. This arrangement commonly is referred to as DA.
(Public Utilities Code Section 365.1(a))
2)Allows a limited enrollment into DA for new nonresidential
customers based on historical enrollment volumes. (Public
Utilities Code Section 365.1(b))
3)Requires DA providers to meet the same requirements as the
IOUs for resource adequacy, the RPS, and the requirements for
the electricity sector adopted by the California Air Resources
Board (CARB) pursuant to the California Global Warming
Solutions Act of 2006. (Public Utilities Code Section 365.1
(c)
4)States the intent of the Legislature to prevent any shifting
of recoverable costs between IOU customers. (Public Utilities
Code Section 366.1(d)(1))
5)Requires retail sellers of electricity - IOUs, community
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choice aggregators, energy service providers, and
publicly-owned utilities (POU) - to increase purchases of
renewable energy such that at least 33% of retail sales are
procured from renewable energy resources by December 31, 2020.
This is known as the RPS. The CPUC establishes the RPS for
retail sellers and ensures they progress in achieving it, and
levies penalties for failure. The governing board of each POU
establishes its own RPS. The California Energy Commission
(CEC) may issue a notice of violation against a POU for
failure to adequately progress in meeting RPS targets and
refer the POU to the CARB, which may assess penalties against
it. The RPS provides numerous cost containment provisions and
exceptions to compliance obligations. (Public Utilities Code
Section 399.11, et seq.)
6)Requires all renewable electricity products to meet the
minimum and maximum quantities of three product categories,
which includes renewable resources directly connected to a
California balancing authority or provided in real time
without substitution from another energy source, energy not
connected or delivered in real time yet still delivering
electricity, and unbundled renewable energy credits (RECs).
(Public Utilities Code Section 399.16.)
FISCAL EFFECT: According to the Senate Appropriations
Committee, this bill will have initial costs of at least
$400,000 annually for 1.5 years, then $250,000 annually ongoing
from the Public Utilities Reimbursement Account for increased
oversight and management of a larger DA service program.
COMMENTS:
1)Author's Statement: "Senate Bill 286 allows commercial and
industrial customers to choose alternative electricity service
with 100% renewable energy, and sign contracts for delivery of
electricity separate from the local utility company. The bill
will encourage competition and reduce prices for electricity.
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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 meeting the state's renewable energy and
greenhouse gas reduction goals."
2)Background: DA allows individual retail nonresidential
end-use customers to contract directly for their electricity
supplies from a supplier other than the incumbent IOU. In
2001, during the electricity crisis, the CPUC suspended the
right to enter into new contracts for DA service after
September 20, 2001, but allowed preexisting direct access
contracts to continue. As a condition of remaining on DA, the
CPUC assessed DA customers a "cost responsibility surcharge"
(CRS) for their fair share of Department of Water Resources
and other procurement-related costs, as required by the
statute.
Following the CPUC's decision, a statute enacted in 2001
formally suspended DA. As a result of subsequent legislation
allowing limited DA enrollment, the amount of DA generation
has returned to nearly the same level as before the
electricity crisis.
The CPUC estimates 2014 DA enrollment at about 25,000 GWh,
approximately 12.9% of the total utilities load. They also
estimate about 6,100 GWh of DA requests on the CPUC's waiting
list. The majority of the requests, 4,200 GWh, are in PG&E
service area.
In addition to DA customers, Community Choice Aggregation
(CCA) also allows customers to elect to receive electricity
service from a supplier other than the incumbent IOU. In
addition to the 25,000 GWh of electricity load served by DA
providers, there is an additional 4,000 GWh served by CCA
providers.
3)8.000 GWhs of Renewable Energy: According to a recent
scenario analysis by the California Independent System
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Operator (CAISO),<1> California will be seeing increasing
numbers of hours each year where unscheduled renewable
generation is placed on the grid in excess of the amount of
energy needed to meet California's electricity load. IOU
ratepayers pay for this generation, whether it is excess or
not. During periods of excess generation, the energy must be
disposed of by losing it to ground, curtailing the generation,
or selling to a willing buyer out of state.
If the new renewable DA supply results in contracts from a
single (or predominantly single) source of renewable
generation, it could have the inadvertent impact of increasing
the number of hours per year when Californian has excess
renewable generation.
The author may wish to consider an amendment to require the
CPUC to ensure balanced procurement among renewable generation
technologies through this program in order to minimize
over-generation and maximize usable generation.
365.1(b) (2) The commission shall adopt and implement a second
direct transactions reopening schedule that commences January
1, 2016, and phases in new direct transactions for individual
retail nonresidential end-use customers over a period of not
more than three years, raising the allowable limit of
kilowatthours that can be supplied by other providers in each
electrical corporation's distribution service territory by
that electrical corporation's proportionate share of an
aggregate of 8,000 gigawatthours, apportioned to each
electrical corporation based upon its share of retail sales.
--------------------------
<1>
http://www.caiso.com/Documents/May8_2015_DeterministicStudies_nocurtailment_ExistingTrajectory_40percentRPS_R13-12-010.pdf
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For each electric service provider, 100% of retail sales
associated with each direct transaction under this paragraph
shall be procured from eligible renewable energy resources.
Procurement of eligible renewable energy resources in excess
of the renewable portfolio standard shall be subject to the
same minimum product content requirements specified in Section
399.16 for procurement credited toward each renewable
portfolio standard compliance period. The commission shall
enforce the eligible renewable energy resource procurement
requirements of this section as part of the California
Renewables Portfolio Standard Program (Article 16 (commencing
with Section 399.11)). The commission shall ensure that
retail sales associated with direct transactions under this
paragraph do not contribute to resource curtailment or
over-generation.
4)Nonbypassable Charges: Current law requires that IOU
customers be financially indifferent to other customers
departing from receiving IOU generation service. DA
customers, like any other IOU customer, reimburse the IOU for
transmission and delivery services. They pay their DA
provider for their electricity.
IOUs are required to enter into contracts to ensure that
electricity supplies are always available in sufficient
quantities to meet customer needs. When an IOU customer
becomes a DA customer, the power procurement costs could be
shifted to the remaining customers. To make the remaining
customers indifferent to the loss of the DA customer, the CPUC
established a Power Charge Indifference Adjustment (PCIA).
In 2012, a stakeholder group of DA and CCA providers
petitioned the CPUC to review and reform cost allocation
practices used to determine nonbypassable charges imposed on
departing load. In the CPUC decision denying the petition,
the CPUC stated: "For these reasons, we find that current
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cost allocation and indifference charge calculation
determinations are reasonable and consistent with state law,
and it is not necessary to open a new proceeding to
re-evaluate them. Existing cost allocation and fee structures
may be re-examined in the future in response to changed
circumstances or additional information ?"
The PCIA addresses the generation contracts, but other charges
should also continue to be assessed, such as the Public
Purpose Program charges. Public Purpose Program charges
provide support for low-income customers in the form of bill
discounts and limited energy efficiency improvements at no
cost to the low-income customer.
The author may wish to consider an amendment requiring the
CPUC to ensure that DA customers will continue to be
responsible for remitting nonbypassable charges.
(c)(3) Notwithstanding any other law, customers of other
providers shall be responsible for their proportionate share
of programs authorized pursuant to sections 381, 399.15, and
379.5.
5)DA, RPS, and Risk: Several bills introduced this session seek
to enact a goal articulated by Governor Brown to increase
renewable energy generation to 50%. Two of these bills would
increase the states RPS from 33% by 2020 to 50% by 2030. The
percentages are based on retail electricity sales. As the
IOUs increase the amount of variable (energy output that
varies due to wind speeds) and intermittent (energy output
that varies due to cloud cover or hours of available daylight)
generation, it reduces the amount of energy procured from
resources that are not variable or intermittent.
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DA providers were added to the entities subject to the RPS
statute in 2011, when the RPS increased from 20% to 33%.
IOUs are required to enter into long-term contracts (20 years)
for RPS compliance. The RPS statute does not currently
require that DA providers meet the same contract requirements
that are required of the IOUs. In other words, DA providers
have more flexibility in how they procure generation. As a
result, DA providers may be receiving an inadvertent
competitive advantage because the IOUs must enter into
long-term contracts that may result in over-generation that
must be paid by ratepayers. These over-generation conditions
could provide opportunities for DA providers to purchase
excess generation at discounted prices from the IOUs. The
IOUs sell the over-generation at a discount in order to reduce
the costs passed on to ratepayers. The discounted generation
is then sold to DA customers at a price lower than is
available from the incumbent IOU.
As long as less-expensive generation is available to DA
providers, the conditions for DA are favorable. If generation
becomes scarce and/or prices increase (for renewable or fossil
generation), DA customers may elect to return to receiving
generation from the incumbent IOU. A similar issue occurred
during the electricity crisis where a significant amount of DA
customers returned to IOU service, leading to the suspension
of DA. As a result of legislation allowing limited DA
enrollment, the amount of DA generation has returned to nearly
the same level as before the electricity crisis.
The CPUC has addressed some of this by requiring a transition
period and specific rates to address the additional costs, if
any, of returning load when a DA customer returns to IOU
generation service.
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What has not yet been considered is how the effects of
departing or returning load will be considered in determining
whether retail sellers are in compliance or out of compliance
with the RPS. It is possible that if a DA customer returns,
an IOU could be put in a situation where it has under-procured
its RPS obligation. Conversely, if load departs, the IOU could
be in a situation where it over-procures to meet its RPS
obligation. Because the RPS requires long-term contracts, the
over-procurement could result in significant amounts of excess
generation - the cost for which much be paid by the IOU
customers.
The author may wish to consider an amendment that requires the
commission to limit the amount of DA generation that can be
procured via short-term contracts in order to reduce the
likelihood that there would be unexpected shifts in load
between DA providers and the incumbent IOUs.
In 365.1(c) (2), insert the following language:
Ensure that other providers procure at least 50% of the retail
sales associated with each direct transaction shall be
procured under the terms of a contract that is ten years or
longer in duration,
6)Technical Amendment: SB 286 was amended in the Senate to
include language clarifying support for distribution system
equipment. It was placed in Section 365.1(f) of the Public
Utilities Code that addresses direct access.
The author may wish to consider amending the bill to remove
the language in 365.1(f) and instead place the language in the
area of the Public Utilities Code relating to distributed
energy resources.
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Strike 365.1(f).
Amend Section 769 to read:
(a) For purposes of this section,
(1) "distributed resources" means distributed renewable
generation resources, energy efficiency, energy storage,
electric vehicles, and demand response technologies.
(2) "distribution system equipment" means the portion of the
electric delivery system beginning with equipment that
operates at voltages lower than that controlled by the
California Independent System Operator up to and including the
customer meter.
(3) "distribution system support functions" means the
functions currently provided by the electrical corporations
including but not limited to billing, customer service, call
centers, other support services, and line clearance tree
trimming.
(b) Not later than July 1, 2015, each electrical corporation
shall submit to the commission a distribution resources plan
proposal to identify optimal locations for the deployment of
distributed resources. Each proposal shall do all of the
following:
(1) Evaluate locational benefits and costs of distributed
resources located on the distribution system. This evaluation
shall be based on reductions or increases in local generation
capacity needs, avoided or increased investments in
distribution infrastructure, safety benefits, reliability
benefits, and any other savings the distributed resources
provide to the electrical grid or costs to ratepayers of the
electrical corporation.
(2) Propose or identify standard tariffs, contracts, or other
mechanisms for the deployment of cost-effective distributed
resources that satisfy distribution planning objectives.
(3) Propose cost-effective methods of effectively coordinating
existing commission-approved programs, incentives, and tariffs
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to maximize the locational benefits and minimize the
incremental costs of distributed resources.
(4) Identify any additional utility spending necessary to
integrate cost-effective distributed resources into
distribution planning consistent with the goal of yielding net
benefits to ratepayers.
(5) Identify barriers to the deployment of distributed
resources, including, but not limited to, safety standards
related to technology or operation of the distribution circuit
in a manner that ensures reliable service.
(c) The commission shall review each distribution resources
plan proposal submitted by an electrical corporation and
approve, or modify and approve a distribution resources plan
for the corporation. The commission may modify any plan as
appropriate to minimize overall system costs and maximize
ratepayer benefit from investments in distributed resources.
(d) Any electrical corporation spending on distribution
infrastructure necessary to accomplish the distribution
resources plan shall be proposed and considered as part of the
next general rate case for the corporation. The commission
may approve proposed spending if it concludes that ratepayers
would realize net benefits and the associated costs are just
and reasonable. The commission may also adopt criteria,
benchmarks, and accountability mechanisms to evaluate the
success of any investment authorized pursuant to a
distribution resources plan.
(e) The electrical corporations shall continue to construct,
own and operate distribution system equipment, and shall
continue to provide distribution system support functions
directly with its own employees, provided that construction of
distribution system equipment and line clearance tree trimming
may be performed under contract to the electrical corporation.
7)Support and Opposition:
Supporters state SB 286:
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Sophisticated electricity users need and want creative
and innovative ways to manage their energy costs and comply
with the state's increasing carbon reduction goals,
Allows institutions to take control of managing their
electricity needs and costs, and makes the DA program
available for more business and institutions,
Provides customers with a more cost effective, flexible
and individualized way to meet carbon reduction goals and
RPS goals,
Encourages competition, reduces electricity prices, and
makes California more business friendly,
Will attract well-paying middle-class jobs, and
Develops a more competitive electricity market and helps
facilitate the mutual goals of economic and environmental
balance.
Opponents state SB 286:
Will lead to market volatility and cost shifting for
residential electrical corporation customers,
Not coordinated with the State's overarching energy
vision, and would set isolated energy policy for the
benefit of a very specific group of electric customers,
DA entails many complex issues that need to be addressed
before it is expanded,
Will reinstate electric utility deregulation -
California made this mistake before as can be seen in the
2000-2001 energy crisis,
Threatens system reliability and renewable energy goals,
DA providers have no obligation to serve customers, and
have no motivation to make long-term commitments or to
provide reliable, safe and non-discriminatory service- need
for long-term commitments to safe and reliable electricity
supplies, and
Allows one group of customers to benefit from more
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lenient procurement rules.
1)Related Legislation:
SB 350 (De León) 2015: This bill would, among other things,
require load-serving entities to procure at least 50% of their
electricity from renewable resources by 2030.
AB 697 (Roger Hernández) 2014: This bill permits the PUC to
give priority direct access power purchase rights to public
entities cleaning up polluted Superfund ground water. Held in
Senate Appropriations Committee.
2)Prior Legislation:
SB 695 (Kehoe) 2009: Made several changes to the state's
regulation of electricity, including increasing the ability of
retail customers to purchase electricity directly from
generators. Chaptered by Secretary of State - Chapter 337,
Statutes of 2009.
AB 1X (Keely) 2001 : Suspended direct access until the
Department of Water Resources no longer provides power.
Chaptered by Secretary of State - Chapter 4, Statutes of 2001
REGISTERED SUPPORT / OPPOSITION:
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Support
Alliance for Retail Energy Markets
Alta Deana Dairy, A Dean Foods Company
Boral Industries Inc.
Building Owners and Managers Association
California Business Properties Association
California Manufacturers and Technology Association
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California Manufacturers and Technology Association
California Association of Sanitation Agencies
California State Universities
Commerce Energy, Inc.
COMPETE Coalition
Constellation (an Exelon Company)
Direct Energy Business, LLC
eBay Inc.
Energy Research Consulting Group
Just Energy Group, Inc.
Liberty Power Corp., LLC
Lineage Logistics
Noble Americas Energy Solutions LLC
Nordic Energy Services, LLC
Owen-Illinois
Owens Corning
Recurrent Energy
Retail Energy Supply Association
RockTenn
School Project for Utility Rate Reduction (SPURR)
San Diego County Water Authority
Solar City
Swisstex California
TechNet
Western States Petroleum Association
Wilmar Oils and Fats Stockton
Opposition
California State Association of Electrical Workers
California State Pipe Trades Council
Coalition of California Utility Workers
Natural Resources Defense Council
Pacific Gas and Electric Company
San Diego Gas and Electric
Southern California Edison
Western States Council of Sheet Metal Workers
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Analysis Prepared by:Sue Kateley / U. & C. / (916)
319-2083