BILL ANALYSIS � 1
SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE
ALEX PADILLA, CHAIR
SB 383 - Wolk Hearing Date: May 3, 2011 S
As Amended: April 25, 2011 FISCAL B
3
8
3
DESCRIPTION
Current law authorizes individual retail, non-residential,
end-use customers to acquire electric service from other
providers in each electrical corporation's (IOU) distribution
service territory, up to the historically highest amount of
kilowatt-hours (kWh) of annual sales for each utility.
Increases authorized in 2009 require a phase-in period for new
customer enrollments of not less than three years and not more
than five years. The program is commonly referred to as "direct
access."
Current law establishes a general exception to the cap on direct
access for community choice aggregation (CCA) undertaken by
cities and counties serving their own residents and businesses,
with electricity secured from the market or energy producers
under contract with the CCA to provide service to IOU customers
choosing to enroll.
Current law requires an electric service provider (ESP) that is
a non-utility entity that offers electric service to customers
within the service territory of an IOU to register with, and be
subject to, the jurisdiction of the CPUC. The ESP is required
to undergo background checks and provide proof of financial
viability and technical and operational ability in addition to
other fees, bonds, and reporting requirements to the CPUC and to
the customer's served.
This bill allows an independent energy producer to use
generation from an eligible renewable resource sized up to 20
megawatts to supply electricity directly to the customer of an
investor-owned (IOU) or local publicly owned (POU) electric
utility. The generation would be metered from the facility on
time of use rates and credited to the customer's utility charges
for generation at the time of use rate charged the customer for
generation either when the electricity is generated or delivered
to the customer. Rates paid to the generator are not specified
and the generation would not count toward the utility's goals
under the Renewable Portfolio Standard (RPS).
Current law permits local governments who are IOU customers to
generate renewable energy from a facility they own or lease and
credit excess electricity exported to the grid against the
generation charges of that same local government customer's
other facilities.
This bill eliminates that program.
BACKGROUND
Deregulation - California's experiment with deregulation was
launched in 1996 when the Legislature passed AB 1890 (Brulte,
1996), to restructure the electric industry. One of the key
features of electrical restructuring was the authorization of
retail competition within IOU service areas. AB 1890 ended the
service monopoly of utilities and authorized retail customers to
purchase energy directly from suppliers. These transactions are
known as "direct access." Community aggregation is a form of
direct access where, for example, a city may act as a purchasing
agent on behalf of its residents.
Before the energy crisis in 2001, non-IOU providers (direct
access providers) had enrolled customers but then failed to
provide the power ordered. The customers returned to the IOUs
for service but the utilities did not have the electric
generation resources to serve those customers because they had
left IOU service. In response a comprehensive framework has
been developed by the Legislature and the CPUC to ensure that,
in the case of direct transactions between energy suppliers and
utility customers, sufficient electric resources are maintained
to serve all customers, that IOU customers not served by
independent suppliers are held indifferent as to the cost
impacts of those transactions, and that the grid is reliable.
Post Deregulation - Two programs remain available for electric
customers to secure power from an entity other than IOU - Direct
Access and Community Choice Aggregation. It is critical to note
that under these programs the utility is ultimately and always
responsible for providing electricity to every customer in its
service territory if the customer changes his/her mind or the
alternative avenue of purchase used by the customer terminates
or fails to provide service. Consequently both the CCA and DA
programs have been subject to years of painstaking review,
analysis, and litigation at the CPUC to try to provide a
framework under which these alternative mechanisms can operate
and the remaining ratepayers of the IOU are held indifferent as
to the financial impacts of the departing load.
As a result all customers participating in CCAs pay a customer
reliability surcharge; all direct access customers pay a power
charge indifference amount.
COMMENTS
1. Author's Purpose . SB 383 seeks to establish an
innovative new program which allows local governments,
businesses, residents and schools to invest in cost
effective clean renewable energy and create local jobs. The
bill allows all power customers to choose to get a portion
of their power from an off-site renewable energy facility,
and also removes the significant obstacles facing schools
and local governments which have tried to pursue off-site
solar opportunities.
2. Current Options . As indicated in the background, two
programs are currently available which allow IOU customers
to secure power outside the utility. However the
frameworks of those programs which ensure grid reliability
and ratepayer indifference are largely absent from this
bill. Customers can come and go between the utility and
the renewable generator without restriction, there are no
delivery or resource adequacy rules on the renewable
generator and there is no requirement on the renewable
generator that they register or work with the Independent
System Operator to schedule the delivery of power to the
grid.
Renewable generators can currently register as electric
service providers (ESP) and sell power to non-residential
customers under the capped and structured program of direct
access. The cap was doubled for that program in 2009 and
implementation continues by the CPUC.
Should the Legislature determine that direct transactions
between renewable generators and residential customers
should be authorized the appropriate structure for delivery
of that service is the direct access program which would
have to be expanded to include residential customers.
3. Resource Adequacy & Grid Reliability . Under this bill,
after the renewable generator has delivered electricity to
the grid, the generator would inform the utility of the
percentage of electricity generated by the facility that
should be assigned to the customer and inform the utility.
Under current law and CPUC rules, to ensure grid
reliability and that adequate resources exist to serve all
customers, any entity supplying electricity to the grid
must have an agreement in place with the ISO, the utility
and customer which commits the generator to serving that
electric load and the amount of electric load to be served
in advance. Under this bill there would be no such
agreements required which would leave the utility in limbo
as to its requirements to serve the electric load of the
designated customer and the ISO and utility with no
knowledge of the electricity that would be delivered to the
grid and when and where. It is this type of electric limbo
that reduces reliability and causes the lights to go out.
It appears that the utility, under its current resource
adequacy requirements, would be required to secure
generation for that customer even if they have contracted
with the renewable generator. The later notice that the
renewable generator also served that load would be a
stranded cost someplace - likely on the utility's remaining
ratepayers.
4. Payment to Renewable Generator . There is no mechanism
in the bill that the utility or the customer pay the
renewable generator for the cost of generation. It can be
inferred that the generator is to be paid based on the
customer's time of use rates because a meter on the
generator is required that measures this generation.
However there is no detail. It can also be inferred from
the bill that the utility is in a position of a "must-take"
contract or feed-in-tariff which requires the utility to
take all generation at specified prices, with no
negotiation.
5. Direct Access and POUs . Throughout deregulation and the
electricity crisis, there has never been a mandate that
POUs allow direct transactions between their customers and
independent electricity providers. These municipal
entities are required to meet the Renewables Portfolio
Standard, are prohibited from entering into long term
contracts that do not meet the state's greenhouse gas
emission standards for electric generation and to meet
energy efficiency goals. However there are few other
mandates or restrictions on POUs.
The mandate of direct transactions required in this bill
could be a violation of the municipal affairs doctrine
which is derived from Section 5(a) of Article XI of the
California Constitution. This doctrine provides that
municipalities have the exclusive authority to regulate
within their jurisdiction. The Legislature can preempt
municipal authority where the mandate has been determined
to be a matter of statewide concern.
6. Time of Use Rates . Unlike other direct transactions,
the rates to be charged the customer for the renewable
electricity authorized by this bill appear to be the same
as the utility's generation rates charged for each customer
class based on time of use. The mandate of rates in the
bill is also inconsistent with the primary purpose of
direct access which is to promote retail competition.
Additionally, if those rates are also to be used as a basis
to pay the renewable generator, then the fixed rates are
inconsistent with acquisition of power by the utilities
which is generally based on prices secured from a
competitive wholesale market.
The basis for calculation of the value of the renewable
generation is a time of use rate. For the residential
customers of most utilities this would be problematic
because time of use rates are not used for this customer
class. Residential rates are based on volumetric, tiered
pricing structures and commonly broken down into three to
five tiers. Additionally utilities are not capable of
implementing time of use rates unless the utility has or
will deploy smart meters for its customers. The three
largest IOUs have been mandated to do so but those
installations will not be complete for another one to two
years. In the POU territories, only a few POUs have begun
to use the meters including SMUD which started its
deployment earlier this year.
7. Stranded Costs/Ratepayer Indifference . A fundamental
aspect of the community choice aggregation and direct
access programs is that the remaining customers of the IOUs
must be indifferent as to the costs associated with the
departing load of the CCA or DA customers.
Although the bill requires the CPUC or POUs to ensure that
the bill credit mechanism of this bill does not result in
cost shifting to other ratepayers, there does not appear to
be authority for the CPUC or POU to require that customers
pay departing load charges and other costs associated with
direct transactions that have been determined to be
necessary to meet the cost indifference standard.
Additionally, the bill specifically exempts the renewable
generation credited to the customer from the costs of
electricity secured by the Department of Water Resources.
These costs are for power already delivered to customers as
a result of the electricity crisis and are required to be
paid by all IOU, DA and CCA customers. This restriction
appears to result in a direct cost shift to remaining IOU
ratepayers as well as those served by DA and CCA.
8. No RPS Credit . The renewable generation delivered to
customers under this bill could not be counted toward the
IOU's or POU's RPS requirements. Under current practice
the individual or entity paying for the renewable
generation retains the renewable energy credit (REC) or
environmental attributes. This bill is silent on whether
the REC would stay with the generator or the customer who
is buying the power.
9. Technical Amendment . The cross reference for the POUs
RPS requirements, at page 7, line 29, should be Public
Utilities Code Section 399.30.
POSITIONS
Sponsor:
City of Davis
Clean Path Ventures
State Superintendent of Public Instruction
Support:
California League of Conservation Voters
Environmental Defense Fund
Environmental Entrepreneurs
Natural Resources Defense Council
The Vote Solar Initiative
Oppose:
Brotherhood of Electrical Workers Local 18
California Coalition of Utility Employees
California Municipal Utilities Association
Pacific Gas and Electric Company
PacifiCorp
Southern California Public Power Authority
The Utility Reform Network (unless amended)
Kellie Smith
SB 383 Analysis
Hearing Date: May 3, 2011