BILL ANALYSIS 1
SENATE COMMITTEE ON ENERGY, UTILITIES AND COMMUNICATIONS
STEVE PEACE, CHAIRMAN
A
AB 1890 - Brulte Hearing Date: June 11, 1996B
As Amended: April 8, 1996 FISCAL
1
8
9
0
DESCRIPTION
AB 1890 would provide for the implementation of the
CPUC-developed competitive electric generation market consistent with
its electric restructuring policy decision, D.95-12-063. That
decision called for the creation of a power exchange and independent
system operator, and called for the establishment of a nonbypassable
competition transition charge. Per the CPUC order, the new
structure is set to begin January 1, 1998.
BACKGROUND
Under existing law, the Legislature authorizes the California
Public Utilities Commission (CPUC) to supervise and regulate every
public utility in the state and to do all things necessary and
convenient in the exercise of its power and jurisdiction including
the approval of utility expenses and the establishment of rates.
In an effort to move the electric services industry to a more
competitive environment, on December 20, 1995, the CPUC ordered the
implementation of the deregulation of the electrical services
industry in California. This measure is the legislative embodiment
of the CPUC order.
Specifically, this measure contains findings and declarations
that seek to validate and support the need for approval of the
Independent System Operator/Power Exchange (ISO/PX) before the
Federal Energy Regulatory Commission (FERC). Public utility
generation assets owned prior to 1/1/98 would continue to be subject
to CPUC regulation until those assets undergo market valuation. The
ISO is to be an independent entity, regulated by FERC, separate from
the PX and will not be owned or controlled in any manner by a utility
owning generation, transmission or distribution facilities. Its
principal responsibility will be the scheduling of power
transactions, managing transmission congestion, and proving
non-discriminatory and comparable access to the transmission grids of
the stateos utilities. The PX will be an independent entity separate
from the utilities and the ISO. The ISO is responsible for managing
a spot market auction for power supplies. The PX will establish a
pool for short-term generation transactions in which all buyers and
sellers may participate. Although all buyers may participate in the
PX, the IOUos are mandated to bill all of their generation into the
poll consistent with performance based ratemaking programs approved
by the CPUC.
Under the bill, the PUC is required to facilitate authorization
from FERC for the creation and operation of an ISO and PX; authorize
direct transactions between generators and customers; implement a
nonbypassable charge; phase in, in under 5 years, all customers to
direct access; determine the obright lineo between transmission and
distribution facilities subject to PUC jurisdiction; approve a cost
recovery mechanism to collect a nonbypassable CTC; permit voluntary
aggregation of loads of residential and small business customers;
identify and determine uneconomic assets and costs to be collected on
a nonbypassable basis; ensure recovery of transition costs and
establish a mechanism to do so; and establish a permanent oexit feeo
to be paid to the home utility prior to engaging in direct access.
COMMENTS
Findings and declarations: Contained within the measureos findings
and declarations are provisions that competition in the electric
generation market will encourage innovation, efficiency and better
service and reduce regulatory oversight. In its orders, the CPUC
said this the goal of restructuring was to lower rates for
consumers. There are no provision in this bill that directly
addresses how consumers rates will be lowered through the passage
of this bill.
Any restructuring plan adopted by the State should articulate
strategies to address lowering rates for all consumers, as well as
assurances that standards of safety and reliability will not be
compromised. It is not clear from this measure how the benefits
from restructuring will accrue to all classes of customers,
especially small commercial and residential customers. Proponents
state that the electric service industry restructuring is supposed
to address these issues, however, it is unclear how this bill
addresses them.
Given the uncertain FERC implementation and review timeframe it is
unclear that markets will be open to competition by January 1,
1998.
There are several measures before the Committee that address
aggregation. Aggregation has been targeted as the only manner in
which small commercial and residential customers, who do not have
large loads, will have access to lower cost electricity. The
measures before the Legislature are this measure, AB 2885 (Brulte)
and AB 1123 (Sher). If these various vehicles are any indication,
aggregation will and should be one of the issues discussed within
the context of conference committee discussions.
Analysis of this bill indicates that the PUC is allowed to levy a fee
or charge on self-generating electricity consumers and other under
certain conditions as prescribed in the bill. It could be argued
that this form of levy might be seen as a tax. If this is in fact
a tax measure, wouldnot it require a two-thirds vote for approval?
Transition cost recovery: The PUC does not presently have the
authority to mandate nonbypassable transition costs, a neccesary
component of the entire restructuring effort. This measure would
confer that authority upon the CPUC. While the CPUC has opened
investigations and rulemakings to address the various issues that
arise from the restructuring of the electric services industry,
many of the key critical issues remain unresolved. Paramount is
the actual magnitude of the utilityos stranded costs to be
recovered as a result of this legislation. To date, the PUC has
not definitively determined the actual magnitude of these costs
even though they have guaranteed 100% recovery of them and
advocated that the costs by non-bypassable. The last Energy
Commission estimate range of these costs were from $10.2 billion to
$17.8 billion, but that was with a very narrowly defined CTC. These
costs could rise so high as to exceed the potential savings being
promised to consumers. Other measures before this committee seek
to incorporate additional CTC components. They are AB 2597 (Alby)
and AB 3153 (Martinez)
The supporters of this measure, including all of the stateos
investor-owned utilities, promote it as the vehicle for the
implementation of the CPUCos December 20, 1995 order for the
restructuring of the electric services industry. The proponents
support the concepts of establishing a CTC, encouraging the
approval of an ISO and PX and generally encourage a competitive
marketplace
One primary objection to this measure, expressed in the opposition by
the Western States Petroleum Association (WSPA), is that the
proposed statute and its nonbypassable CTC imposes a harsh penalty
on customers who have chosen to pursue self-generation,
cogeneration or purchases from a supplier who is located
immediately adjacent to their property. WSPA argues that with this
measure, customers who continue to pursue options undertaken prior
to December 20, 1995 will be penalized by the imposition of a CTC.
Whereas customers could have chosen these options prior to December
20, 1995 without a tax or penalty, under this bill they are charged
a CTC to embark on the very same option. WSPA argues that the
option to self or cogenerate does not presently and should not have
anything to do with recovery of the cost of past utility
investments.
Clearly the CPUC decision was a watershed event in the restructuring
of the electric services market. Following the event, most
stakeholders are vying to be made whole in light of that event. As
a policy, the state is contemplating that some who were affected be
made whole through the CTC and other mechanisms. CTC recovery
should be administered judiciously and the Legislature must
determine which entities knowingly operated without regulatory
mandates prior to the CPUC decision and which entities are now only
claiming harm to compensate for perceived inequities in cost
recovery and returns. The stateos policy toward CTC recovery should
reflect and acknowledge that dichotomy.
SoCal Gas opposes the measure believing that CTCos should only be
applied to those customers who switch from one provider of
electricity to another. For those customer who switch from
electricity to gas or cogeneration or self-generation - the Gas
Company believes they should not be responsible for paydown of the
CTC. SoCal Gas believes that if you charge an electric customer
who may consider switching to natural gas as a fuel source a CTC,
you have effectively removes that customerso energy choices. SoCal
Gas believes this is unfair and anticompetitive.
The California Manufactureros Association supports the measure but
indicates that the CTC should not apply to fuel choices exercised
within a facility, such as fuel switching, changes in production,
plant closure, or self-generation, and suggests that the bill be
clarified to reflect this exemption.
Electric restructuring conference committee. It should be noted that
any measure that has passed out of the Assembly relative to
restructuring of the electric industry has done so with the
understanding and representation that the issue will ultimately be
resolved in a conference committee. The Senate has chosen two
vehicles for this purpose (SB 1139 by Senator Mountjoy and SB 1142
by Senator Costa). The Assembly Utilities and Commerce Committee
has chosen AB 1890 by Assemblyman Brulte and AB 3153 by
Assemblywoman Martinez.
ASSEMBLY VOTES
(Previous versions of the bill)
Assembly Utilities & Commerce Committee (15-0)
Assembly Floor (73-0)
POSITIONS
Support:
California Cogeneration Council
California Large Energy Consumers Association
California Manufacturers Association
California Public Utilities Commission
Californians for Competitive Electricity
Independent Energy Producers Association
San Diego Gas & Electric
Southern California Edison Company
Oppose:
Agricultural Energy Consumers Association (AECA)
California Independent Petroleum Association (CIPA)
Toward Utility Rate Normalization (TURN)
Western States Petroleum Association (WSPA)
Roderick A. Campbell
AB 1890 Analysis
Hearing Date: June 11, 1996