BILL ANALYSIS                                                                                                                                                                                                    1





                                   

      SENATE COMMITTEE ON ENERGY, UTILITIES AND COMMUNICATIONS 
                        STEVE PEACE, CHAIRMAN

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AB 1890 - Brulte                   Hearing Date:  June 11, 1996B
As Amended:  April 8, 1996         FISCAL
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                              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