BILL ANALYSIS
CONFERENCE REPORT COMMITTEE ANALYSIS
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Bill No: AB 1890
Author: Brulte, Conroy, Kuykendall, & Martinez
(Principal Assembly Coauthors: Conroy, Kuykendall, &
Martinez)
(Principal Senate Coauthors: Leonard, Peace & Sher)
(Assembly Coauthors: Ackerman, Alby, Alpert, Baca, Baldwin,
Battin, Baugh, Boland, Brown, Bustamante, Cunneen, Davis,
Ducheny, Escutia, Frusetta, Gallegos, Goldsmith, Harvey,
Hauser, Hawkins, House, Kaloogian, Katz, Knowles, Machado,
Margett, Mazzoni, McPherson, Miller, Morrissey, Morrow,
Kevin Murray, Willard Murray, Napolitano, Olberg,
Poochigian, Pringle, Rainey, Richter, Rogan, Takasugi, and
Woods)
(Senate Coauthors: Alquist, Ayala, Calderon, Costa,
Craven, Dills, Haynes, Hughes, Johannessen, Johnston,
Kelly, Killea, Knowles, Kopp, Leslie, Maddy, Marks,
Monteith, Petris, Polanco, Rosenthal, Russell & Solis)
RN: 9628401
Report date:August 27, 1996
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SUBJECT: Electric Industry Restructuring
Were the Conference amendments heard in committee? Yes.
If yes, were they defeated? No.
SUMMARY: This bill provides the legislative foundation for
transforming the regulatory framework of California's
electric industry.
Through this bill, the Legislature wishes to ensure that
California's transition to a more competitive electricity
market structure allows its citizens and businesses to
achieve the economic benefits of industry restructuring at
the earliest possible date, creates a new market structure
that provides competitive, low cost and reliable electric
service, provides assurances that electricity consumers in
the new market will have sufficient information and
protection, and preserves California's commitment to
developing diverse, environmentally sensitive electricity
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resources.
See attached analysis for details.
By: Senate Committee on Energy, Utilities &
Communications
John Rozsa
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SENATE RULES COMMITTEE AB 1890
Office of Senate Floor Analyses
1020 N Street, Suite 524
(916) 445-6614 Fax: (916) 327-4478
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CONFERENCE COMPLETED
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Bill No: AB 1890
Author: Brulte (R), et al
Amended: Conference Report No. 1, 8/27/96
Vote: 21
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SENATE ENERGY, U. & C. COMMITTEE: 7-0, 6/11/96
AYES: Alquist, Hughes, Kelley, Leonard, Mountjoy,
Rosenthal, Russell, Peace
NOT VOTING: Hayden
SENATE APPROPRIATIONS COMMITTEE: Senate Rule 28.8
SENATE FLOOR: 40-0, 6/24/96
AYES: Alquist, Ayala, Beverly, Boatwright, Calderon,
Costa, Craven, Dills, Greene, Hayden, Haynes, Hughes,
Hurtt, Johannessen, Johnson, Johnston, Kelley, Killea,
Kopp, Leonard, Leslie, Lewis, Lockyer, Maddy, Marks,
Mello, Monteith, Mountjoy, O'Connell, Peace, Petris,
Polanco, Rogers, Rosenthal, Russell, Sher, Solis,
Thompson, Watson, Wright
CONFERENCE COMMITTEE VOTE: 6-0, 8/27/97
AYES: Conroy, Brulte, Martinez , Peace, Sher, and
Leonard
ASSEMBLY FLOOR: 73-0, 7/24/95 (Passed on Consent)
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SUBJECT: Public utilities: restructuring of the
electric industry
SOURCE: Author
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DIGEST: This bill provides the legislative foundation
for transforming the regulatory framework of California's
electric industry.
Conference Committee Amendments delete the legislative
intent language and insert all provisions providing for the
restructuring of the electric industry.
ANALYSIS: The restructuring of the California
electricity industry has been driven by changes in Federal
Law intended to increase competition in the provision of
electricity. Through this bill, the Legislature wishes to
ensure that California's transition to a more competitive
electricity market structure allows its citizens and
businesses to achieve the economic benefits of industry
restructuring at the earliest possible date, creates a new
market structure that provides competitive, low cost and
reliable electric service, provides assurances that
electricity consumers in the new market will have
sufficient information and protection, and preserves
California's commitment to developing diverse,
environmentally sensitive electricity resources.
This bill provides the legislative foundation for
transforming the regulatory framework of California's
electric industry. Under the current framework, electric
energy is sold to retail customers principally by regulated
utilities with exclusive service monopolies. This framework
is partially responsible for California's electricity rates
being some 50% higher than the national average. This bill
would help create a new electricity market structure,
ending the utility monopoly on generation and opening the
generation market to competition, so that retail customers
could choose among alternative electric energy suppliers.
The transmission and distribution of electric energy would
continue to be regulated monopoly services.
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The key issues in the transition from the current
regulatory framework to a competitive market structure are:
(1) how to handle the recovery of transition costs; (2)
how the new market structure should be organized; (3) how
system reliability should be ensured, (4) how the funding
of current public purpose programs should be continued, and
(5) how consumers should be protected in the new
electricity market.
Transition Costs:
Transition costs, also known as stranded costs, consist
primarily of continuing obligations for past utility power
plant investments and power purchase contracts that will
not be recovered in a competitive generation market. The
bill finds that these costs should be recovered because
utilities assumed the original obligations under the
previous regulatory structure in which they had the
exclusive obligation to provide electric service to all
consumers in their territories. These costs are currently
included in utility rates.
The bill provides that such transition costs shall be
subjected to accelerated recovery through a nonbypassable
charge, called the Competition Transition Charge (CTC),
levied on all consumers in proportion to the amount of
electricity they use, subject to two broad restrictions.
The first restriction is that no customer shall pay a
higher rate for electricity than they paid on June 10,
1996. The second restriction is that investor-owned
utilities have through December 31, 2001 to complete the
accelerated recovery of all but a few of their uneconomic
costs. Publicly-owned utilities are also authorized to
accelerate recovery of their uneconomic costs within a
framework and schedule that comports with their unique
governance and fiscal circumstances.
To further safeguard the interests of the residential and
small commercial customers of investor-owned utilities,
This bill does the following:
1.Provides for immediate rate savings for residential and
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small commercial consumers by mandating a no less than
10% rate reduction beginning January 1, 1998 and lasting
until March 31, 2002.
2.Makes these rate reductions possible by creating a unique
financing mechanism that will permit "securitization" of
a portion of the CTC amounts that are already being paid
by customers. This portion of CTC will be financed over
approximately 10 years, producing immediate savings for
residential and small commercial customers without
creating a debt or liability for the state of California.
3.Provides that securitization of the CTC creates
significant additional benefits for residential and small
commercial customers that could total more than $2
billion by: (a) reducing their total CTC costs by at
least $500 million; (b) providing capital for the
restructuring by investor-owned utilities of stranded
long-term obligations and funneling savings from such
restructurings, conservatively estimated at $600 million,
directly to residential and small commercial customers,
(c) guarding against the imposition of hidden financing,
transaction and service fees; (d) retaining interest rate
float benefits, conservatively estimated at $120 million,
and (e) providing the opportunity to achieve additional
savings of up to $875 million through variable interest
provisions and possible federal tax-exempt treatment.
4.Establishes a "fire wall" that completely protects
residential and small business consumers from having to
pay for any statewide policy exemptions to the CTC that
are necessary for reasons of equity or business
development and retention.
5.Through implementation of this bill, ensures that
residential and small commercial ratepayers will receive
a total cumulative rate reduction of no less than 20% by
April 1, 2002 from rates in effect on June 10, 1996,
excluding the costs of energy and monetization.
6.Protects the interests of utility employees who might
otherwise be economically displaced in a restructured
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industry by allowing the recovery of reasonable employee
costs for severance, retraining, early retirement, and
outplacement.
Market Structure:
Critical to realizing the benefits of electric industry
restructuring and the justification for allowing the
accelerated recovery of transition costs is the
establishment of a competitive market structure, free of
monopoly power, with transparent market prices, in which
customers are able to readily choose among competing
providers of electric energy while at the same time
continuing to receive reliable electricity service. To
accomplish this objective, the bill establishes two new
independent, public benefit, non-profit market
institutions, an Independent System Operator and a Power
Exchange.
The Independent System Operator will be responsible for
providing centralized control of the state-wide
transmission grid and charged with ensuring the efficient
use and reliable operation of the transmission system. The
Power Exchange is charged with providing an efficient,
competitive electric energy auction, open on a
non-discriminatory basis to all providers, to meet the
electricity loads of exchange customers. The Power
Exchange will provide the results of its auction to the
Independent System Operator . The Independent System
Operator will combine the results of the Power Exchange
auction with schedules for private direct access contracts
in a manner that provides for the most efficient and
reliable use of the transmission system.
A five-member Oversight Board, comprised of three
gubernatorial appointees who are 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, will
oversee the two new institutions and appoint governing
boards that are broadly representative of California
electricity users and providers.
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The bill requires California's publicly-owned electric
utilities and investor-owned electric utilities to commit
control of their transmission facilities to the Independent
System Operator and to jointly advocate a pricing
methodology for the Independent System Operator to FERC
that provides an equitable return on capital investment to
all participants.
The bill further authorizes direct transactions between
electricity suppliers and end-use customers, commencing
with the operation of the Independent System Operator and
the Power Exchange, but not later than January 1. 1998.
Direct transactions are subject to the payment of relevant
transition costs and the development by the Public Utility
Commission of an equitable phase-in schedule.
System Reliability:
1.The bill directs the Independent System Operator to seek,
and the Public Utilities Commission to support,
authorization by FERC to perform its system functions and
be able to secure the generation and transmission
resources needed to achieve specified planning and
operational reliability reserve criteria.
2.To reduce the potential for system-wide outages such as
those that occurred on July 2, 1996 and on August 10,
1996, this bill requires both the Independent System
Operator and the Public Utilities Commission to adopt
inspection, maintenance, repair and replacement standards
for transmission and distribution systems, respectively.
3.In the event of a major power outage that affects more
than 10% of the customers in a given service area, the
Independent System Operator is required to conduct a
review as to the causes of the outage, the response time
and effectiveness of the response, and the extent to
which an electric utility's operation and maintenance
practices enhanced or undermined the timely restoration
of service. The Independent System Operator will be
authorized to levy appropriate sanctions on
non-performing participants.
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4.The bill requires the Independent System Operator, in
consultation with the California Energy Commission, the
Public Utilities Commission, and concerned regulatory
agencies in other Western states, to conduct an
exhaustive reliability study of the interconnected
transmission and generation system that provides
electricity to California. It is to provide a report to
the Legislature, within six months after it receives FERC
authorization, recommending cost-beneficial improvements
to electric system reliability for the citizens of
California.
5.This bill expresses Legislative intent to enter into a
compact with Western Region states that would require the
utilities located within those states that sell energy to
California retail customers to adhere to enforceable
standards and protocols to protect the reliability of the
interconnected regional transmission and distribution
system.
Public Programs:
The bill preserves California's commitment to developing
diverse, environmentally sensitive electricity resources
which enhance system reliability by continuing support
consistent with historic levels for cost-effective energy
efficiency and conservation activities, for in-state
renewable energy resources, and for public goods research,
development and demonstration (RD&D) that would otherwise
not be provided by electricity markets. The bill also
extends the provisions covering expenditures for services
provided to low-income electricity customers.
The Public Utilities Commission is authorized to determine
how best to utilize funding for cost-effective energy
efficiency and conservation and public goods RD&D directed
towards transmission and distribution. The California
Energy Commission is directed to recommend to the
Legislature how best to utilize market-based mechanisms to
allocate resources for in-state renewable energy and
authorized to administer the remainder of RD&D funds.
Publicly-owned utilities retain their authority to collect
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and direct the expenditure of comparably intended funds.
Charges for continued funding for these programs are
unbundled on consumer bills in the same manner as are other
continuing service charges including those for
competitively acquired energy, competition transition
charges, transmission charges and distribution charges. All
provisions, other than those relating to low-income
programs, sunset on December 31, 2001.
Consumer Protection:
The restructuring of the electricity industry will create a
new electricity market with new marketers and sellers
offering new goods and services, many of which may not be
readily evaluated by the average consumer. This bill
requires that electricity consumers be provided with: (1)
sufficient and reliable information to be able to compare
and select among available products and services, and (2)
mechanisms to protect themselves against unfair or abusive
marketing practices.
The Consumer Protection provisions of the bill require
registration of sellers, marketers and aggregators of
electricity service to residential and small commercial
customers, define information to be provided to consumers
and by whom, provide for the compilation and investigation
of complaints, extend "anti-slamming" and contract recision
protections to electricity consumers, and extend private
attorney general entitlements for consumer damages.
Responsibility for Consumer Protection is vested with the
Public Utilities Commission and sunsets December 31, 2001
pending legislative review of any continuing need.
FISCAL EFFECT: Appropriation: No Fiscal Com.: No
Local: No
SUPPORT: (Verified 8/28/96)
Calaveras Cement Company
California Cogeneration Council
California Industrial Users
California Independent Petroleum Association
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California Farm Bureau Federation
California Municipal Utilities Association
Ceert Coalition
Coalition Of California Utility Employees
Fresno Unified School District
Independent Energy Producers
Independent Oil Producers' Agency
Kaiser Cement
Merced Irrigation District
Modesto Irrigation District
Natural Resources Defense Council
Northern California Power Agency -- A Joint Power Comprised
of
the Following Entities:
Cities of Alameda, Biggs, Gridley, Healdsburg, Lodi,
Lompoc,
Palo Alto, Redding, Roseville, Santa Clara, and
Ukiah
Plumas-Sierra Rural Electric Cooperative
Port Of Oakland
Truckee-Donner Public Utility District
Turlock Irrigation District
Oil, Chemical & Atomic Workers International, Union
Pacific Gas And Electric Company
Regional Energy Management Coalition
Sacramento Municipal Utility District
Western States Petroleum Association
John L. Wimberly, Chula Vista
University Of California
NC:lm 8/29/96 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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