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