BILL ANALYSIS
AB 1890
Page 1
PROPOSED CONFERENCE REPORT NO. 1 - August 28, 1996
AB 1890 (Brulte, Conroy, Martinez, Peace, Leonard, Sher)
As Amended June 16, 1996
2/3 vote. Urgency
ASSEMBLY: 73-0 (June 27, 1996) SENATE: 40-0 (June 24, 1996)
ASSEMBLY CONFERENCE: 3-0 SENATE CONFERENCE: 3-0
Ayes: Martinez, Conroy, Brulte Ayes: Peace, Leonard, Sher
Original Committee Reference: U. & C.
SUMMARY: Restructures the electrical services industry in
California in order to transition to competitive markets by
December 31, 2001, to lower the cost of electricity, retain and
attract jobs, and to reduce power outages.
Maintains funding for benefits to many specified classes of
providers and consumers of electricity. Reallocates existing funds
within existing PUC ordered utility expenditures and PUC approved
rates. Finances rate reductions through $5 to $10 billion in Rate
Reduction Bonds. Does not expose taxpayers to "the full faith and
credit" of the state because the bonds sold will be revenue, as
opposed to general obligation bonds.
Freezes rates from June 10, 1996 through December 31, 1996,
reduces rates by 10 percent for residential and small commercial
ratepayers by January 1, 1998, requires the Public Utilities
Commission, PUC, to cut rates an additional 10 percent by June 30,
2002, cumulating in $3.2 billion in rate relief for residential
and small commercial customers. Provides a "firewall" insulating
residential customers from rate shifts from other classes of
customers.
Specifies retraining, retirement and other benefits for displaced
utility workers and protects the investments of the shareholders
of investor-owned utilities and the ratepayers of municipal owned
utilities.
Phases out and/or buys down existing subsidies for and seeks to
move above market energy sources, such as renewables and
Qualifying Facilities, QFs, toward a competitive market. Provides
specified benefits and exemptions for particular irrigation
districts, Bay Area Rapid Transit, BART, specified UC projects,
the state water project, producers of above market energy from
wind, solar, fuel cells, bio-mass, cogeneration and other sources,
public benefit programs such as research and development, energy
efficiency programs, and low income energy assistance.
Specifies systems reliability standards to avoid power failures.
Provides direct customer access to electricity through competitive
generators and a competitive Power Exchange. Under a politically
appointed Oversight Board, an Independent Systems Operator, ISO,
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maintains the reliability and unbiased scheduling of electricity
transmission over a statewide transmission grid composed of the
transmission assets of investor-owned utilities and municipal
utilities.
Out of existing PUC ordered utility expenditures and approved
rates, this bill designates certain nonbypassable Competitive
Transition Charges, CTCs, on all
customer bills. Segregated CTC funds are to be used by utilities
to recover and/or reduce potential losses of having to sell,
divest, or buy down certain uneconomic costs, "stranded" assets,
such as above market contracts for power plants, fuel, or
alternative sources of energy.
Specifically, the conference committee amendments detail the
transition from the current regulated monopolies to a competitive
market by specifying recovery of transition costs, organization of
the new market, funding of current public purpose programs and
creating new consumer protections.
This bill details the RECOVERY OF TRANSITION COSTS:
1) Defines "transition costs" as the "stranded" costs of utility
power plants and power purchase contracts that cannot be recovered
in a competitive generation market.
2) Provides for the recovery of these costs both because they are
costs imposed by regulations and they are costs currently imposed
and included in utility rates.
3) Accelerates the recovery of transition costs out of a
nonbypassable charge, CTC, which is levied on all consumers
according to their use of electricity, except that no customer
shall pay higher rates than they paid on June 10, 1996, and that
investor-owned utilities have through December 31, 2001, to
complete the accelerated recovery of most of their uneconomic
costs.
4) Authorizes publicly-owned utilities also to accelerate
recovery of their uneconomic costs if they make their transmission
available to statewide grid.
5) "Nonbypassable" assumes that everyone should share in paying
for these stranded costs, with few exemptions in the statute.
6) Exemptions from CTCs are provided in a number of
circumstances: an exemption for agricultural and state water
project pumping; allowing certain Irrigation Districts to become
electric utilities under megawatt and money limitations; allows
the Merced district to sell to new retail customers from a
substation constructed prior to the 12/20/96 PUC decision; extends
CTCs for Qualified Facilities (QF's) beyond the December 31, 2001;
deadline for collecting most CTCs; extended CTCs to pay for
transitional employee costs; exempts planned "pipeline"
co-generation projects; allows PUC to decide on other proposed
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exemptions, micro-generation.
This bill provides safeguards for RESIDENTIAL AND SMALL COMMERCIAL
customers:
1) Immediately reduces rates for residential and small commercial
consumers of no less than 10% from January 1, 1998, until March
31, 2002.
2) Funds rate reductions by monetizing a portion of the CTC
through the California Infrastructure and Development Bank of Rate
Reduction Bonds.
3) Provides that residential and small commercial customers
receive a cumulative rate reduction of no less than 20% by April
1, 2002.
4) Establishes a "firewall" protecting residential and small
business
consumers from paying for any large business exemptions to the
CTC.
5) Reduces CTC costs by as much as $500 million; provides capital
for discounted buy-down of stranded long-term costs and funnels
the savings of $600 million to residential and small commercial
customers; retains interest rate float of $120 million; and
provides the possibility of a savings of $875 million in interest
and hoped tax-exemptions.
This bill protects DISPLACED UTILITY EMPLOYEES by allowing
reasonable employee costs for severance, retraining, early
retirement, and outplacement.
This bill RESTRUCTURES THE EXISTING MONOPOLY MARKET:
1) Accelerates the recovery of transition costs to transition
sooner toward a competitive market structure, free of monopoly
power with open market prices.
2) Provides that customers may choose among competing providers
of electricity.
3) Establishes two new independent public benefit, non-profit
market institutions, an Independent System Operator, ISO, and a
Power Exchange, PX.
4) Requires the ISO to control the state-wide transmission grid
and ensure efficient use and reliable operation of the
transmission system. Allows municipals to join the ISO when
equitably compensated for the use of their transmission lines as
decided at the Federal Energy Regulatory Commission, FERC.
5) Requires the PX to provide an efficient, competitive,
non-discriminatory electric energy auction and to match its
auction prices to private direct access contracts for electricity.
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6) Creates a five-member Oversight Board over the ISO and the PX,
of three gubernatorial appointees subject to Senate confirmation,
a non-voting member of the Senate appointed by the Senate Rules
Committee, and a non-voting member of the Assembly appointed by
the Speaker of the Assembly.
7) Provides the Oversight Board the authority to oversee the ISO
and PX and appoint their governing Boards representative of
California electricity users and providers.
8) Requires California's publicly-owned electric utilities and
investor-owned electric utilities to commit control of their
transmission facilities to the ISO and to advocate to FERC an
equitable return on capital investment.
9) Authorizes direct transactions between competing electricity
suppliers and electricity customers no later than January 1, 1998,
provided that transactions require the payment of CTCs and an
equitable PUC developed phase-in schedule.
10) Allows any person to aggregate individual customers to make
direct sales to them, but provides that the incumbent supplier
remain until a customer initiates a change to a new supplier.
This bill takes steps to improve SYSTEMS RELIABILITY to prevent
major power failures.
1) Directs the ISO to seek, and the PUC to support, authorization
by FERC for the ISO to secure the rources to maintain reliability.
2) Requires both the ISO and the PUC to adopt standards for
maintenance of the transmission facilities reliability.
3) Requires, in the event of a power failure that affects more
than 10 percent of a service area, that the ISO conduct a review
of the outage and consider levying sanctions.
4) Requires the ISO in consultation with the California Energy
Commission (CEC), the PUC and Western states, to conduct a study
of the interconnected transmission and report to the Legislature,
recommending improvements to system reliability.
5) Expresses Legislative intent to enter into a compact with
Western Region states to develop enforceable standards of
reliability.
This bill provides for the CONTINUATION OF PUBLIC PURPOSE
PROGRAMS:
1) Preserves programs such as energy efficiency and conservation,
in-state renewable energy resources, development and low income
energy assistance.
2) Requires the PUC to administer energy efficiency and
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conservation and public goods RD&D.
3) Requires the CEC to recommend market-based mechanisms for
renewable energy and administers part of RD&D funds.
4) Allows publicly-owned utilities to retain their authority over
these programs.
5) Unbundles, details the separate charges for continued funding
of these programs on consumer bills.
6) Continues subsidies for renewable energy producers (solar,
wind, biomass, geothermal, except small hydro) which they received
in a regulated market, but encourages buy-outs, buy-downs, and
movement toward market prices.
7) Requires the CEC to study market mechanisms and to recommends
allocations of funds to renewable resources projects to encourage
renewables to go close to market prices.
8) Sunsets all programs, other than low-income programs, on
December 31, 2001.
The bill creates NEW FORMS OF CONSUMER PROTECTION:
1) Requires that electricity consumers be provided with
information to compare electric services.
2) Requires registration, not licensing, of sellers, marketers
and aggregators to residential and small commercial customers.
3) Defines information provided to consumers, provides for the
investigation of complaints, creates "anti-slammning", "cooling
off" protections, and private attorney general entitlements.
4) Requires aggregators to use third party verification when
signing up a customer to a new electric supplier which is the
anti-slamming language used for telephone sales.
5) Assigns consumer protection to the PUC and sunsets these
provisions on December 31, 2001.
The Senate amendments were inconsequential. The Conference
Committee product reflects the work of both houses in refining the
Legislature's necessary role in guiding the PUC and the FERC in
restructuring the electrical services industry.
FISCAL EFFECT: Unknown
EXISTING LAW vests the PUC with regulatory authority over public
utilities.
AS PASSED BY THE ASSEMBLY, this bill required the PUC's decision
to restructure the electrical services industry, and the orders
implementing that decision, comply with specific criteria, such
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as: 1) establishing a definite period for the transition to a
competitive market; and 2) establishing a methodology for CTC
determination and recovery.
BACKGROUND: Electricity is a $23 billion industry in California
critical to the productivity, jobs and wealth of all Californians.
All are threatened by some of the highest rates in the nation.
The Congress began the deregulation process in 1992, the PUC
ordered it on December 20, 1995, an industry-utility coalition
proposed improvements to PUC actions, and the FERC recently issued
Order 888 to accelerate the process. Over the last several years
the California Manufacturers Association and other large energy
consumers have conducted an education program around the Capitol
attempting to inform the Legislature about the high cost of
electricity as a major negative to California businesses. In
recent weeks a broad coalition of stakeholders presented detailed
proposals to the California Legislature. This conference report is
a result of all these prior efforts.
Buying out the "stranded" uneconomic assets of IOUs and Munis has
been subject to much controversy. The utilities claim that without
restructuring, these costs would be $36 billion. Under the PUC
decision they would be $34 billion with $0.9 billion
distributed to residential and small commercial and $1.1 billion
to large commercial and industrial. Under this bill the
distribution would be $29 billion, $3.2 billion, and $3.8 billion.
ARGUMENTS IN SUPPORT:
The Conference Committee has passed an historic restructuring of
the Electrical Industry in California with major benefits to
almost all energy producers and consumers. Without a rate freeze
and phased-in rate reductions, consumers would be paying off those
"stranded" costs for upwards of twenty years, instead of ten.
This bill uses funds in existing PUC approved utility expenditures
and rates for electricity; guarantees an immediate 10 percent rate
reduction to residents and small business and guarantees a second
rate reduction of 10
percent in five years, a total of 20 percent reduction in six
years; provides an absolute rate cap during the transition period
through December 31, 2001, when no electric rates will be
increased; creates a market in which industrial users will receive
unknown, but comparable cuts in their rates for electricity;
protects the investments of shareholders, including institutional
investors like pension funds, in the state's three investor-owned
utilities; seeks to protect California jobs by giving a clear
signal to Wall Street that our investor-owned utilities will
remain viable entities, and thereby by discouraging hostile
out-of-state take-over attempts; protects workers from
displacements in a competitive market; protects consumers from
"slamming" and other marketplace fraud; seeks the competitive
commercialization of California produced alternative energy
sources such as bio-mass, geothermal, wind, and solar; finances
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the retraining or early retirement of displaced utility workers;
and provides a competitive environment to lower energy costs to
California industries to allow them to shop for the most
competitive supplies of energy after a short transition period.
The bill is widely supported by the utilities (IOU and Muni),
large energy consumers, manufacturers, retailers, agriculture,
independent energy producers, labor, and environmental groups.
No organized group has expressed opposition.
ARGUMENTS IN OPPOSITION: None
Analysis prepared by: Roger Canfield / auc / (916) 445-4246
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