LEGISLATIVE SUBCOMMITTEE RECOMMENDATION: SUPPORT WITH AMENDMENTS
SUMMARY OF BILL:
This bill would update the Public Utilities Code (PU Code) to reflect current state of electric markets in California. This bill would remove references to duties assigned to the Power Exchange (PX) as an electric market operator (though the bill would preserve the PX for purposes of winding up operations in bankruptcy). Additionally, this bill would update the definition of an "exempt wholesale generator" to align with the Public Utility Holding Company Act of 2005, as opposed to the now defunct Public Utility Holding Company Act of 1935.
SUMMARY OF SUPPORTING ARGUMENTS FOR RECOMMENDATION:
· This bill would eliminate potential confusion resulting from legislation that refers to the PX, which no longer functions in the energy market. Additionally, by synchronizing definitions with federal legislation, this bill will permit close a potential legal loophole created by the different definitions. Lastly, this bill would make clear that the authority initially granted to the PX, where applicable, is now granted to the California Independent System Operator (CAISO). SB 1536 would bring California law in line with federal law.
SUMMARY OF SUGGESTED AMENDMENTS:
· The California Public Utilities Commission (CPUC) recommends the following amendments:
o Remove Section 6 of the bill. Section 6 amends Section 339 of the Public Utilities Code, removing references to the PX in a listing of subjects under the California's "exclusive jurisdiction." There are ongoing proceedings involving the PX, and the removal of explicit state jurisdiction may remove some tools that were previously at the disposal of the state. The CPUC does not believe there to be substantial cost to maintaining the present references to the PX in Section 339 of the Public Utilities Code. This language does not prescribe any duties to the PX; rather, Section 339 of the Public Utilities Code only establishes state authority. Given the potential benefit of maintaining Section 339 of the Public Utilities Code, and the lack of costs, the CPUC suggests that SB 1536 be amended to remove Section 6, therefore preserving the language of Section 339.
o Remove Section 9 of the bill If Section 6 is removed. The language that Section 9 of the bill proposed to remove from Section 341.5 of the Public Utilities Code requires that the state authority defined in Section 339 of the Public Utilities Code be reflected in the PX and CAISO bylaws. The bill, as proposed, eliminates references to the PX in both Section 339 and Section 341.5 of the Public Utilities Code. The CPUC believes that if Section 6 of the proposed bill is repealed, therefore preserving the language in Section 339 of the Public Utilities Code, then the language in Section 341.5, which is based on Section 339, should be preserved as well.
o Restore Section 18 of the bill. On March 24, the bill was amended to delete the proposed repeal of Section 390 of the Public Utilities Code. This change limits the extent of the bill, preserving the short run avoided cost energy methodology related to the PX. The CPUC suggests that the amendment be removed, and Section 390 of the Public Utilities Code be repealed.
Section 390 was adopted as part of AB 1890, California's electric industry restructuring law of 1996. Among other things, it mandated that the short-run avoided cost (SRAC) energy payments by utilities to Qualifying Facilities (QFs) would be based on the clearing price paid by the PX once that entity was deemed to be functioning properly. Until that time, SRAC energy payments would be based on a "transitional" formula which was tied to California natural gas border price indices. With the failure of the PX, this "transitional" formula is now the permanent method for determining SRAC energy prices. So long as Section 390 remains in effect, the Commission's ability to establish SRAC energy prices remains tied to the California natural gas border indices, regardless of whether these indices represent the competitive market.
· The CPUC believes this bill is an appropriate bill to repeal Section 390. CPUC believes that, in addition to other "clean up" being conducted through this bill, Section 390 should be repealed as well. Section 390 was enacted based on the premise that a functioning PX would eventually be used to establish SRAC energy payments. As with the other Public Utilities Code provisions to be revised or repealed in this bill, these duties can no longer be performed by the PX, since it no longer exists. CPUC believes that, once Section 390 is repealed, the CPUC will have the discretion and ability to consider a greater range of options for establishing SRAC energy payments.
· In past legislative sessions, the CPUC has recommended that Section 390 be repealed, a position the CPUC continues to support. However, the CPUC's support of this bill is not contingent on the removal of the amendment; even if the repeal of Section 390 is not included in the bill, CPUC still supports the bill.
DIVISION ANALYSIS (Energy Division):
· On the subject of the PX, the bill would bring the text of the law in line with present practice. While the CPUC and California Independent System Operator (CAISO) presently operate without the PX, the actual text of the Public Utilities code has not been updated. The bill would solidify current practice and eliminate text of the law that no longer applies.
· On the subject of the "exempt wholesale generator," the current law refers to a federal designation that has been replaced. The Public Utility Holding Company Act of 1935 has been replaced by the Public Utility Holding Company Act of 2005, so the previous designation no longer exists. The change in California law proposed in the bill would recognize the current federal definition, avoiding potential loopholes or legal uncertainties. It is unclear if this is necessary for the new federal definition to be applied, but would resolve the issue with certainty.
· Given the complexity of electric policy and regulation, having clarity in the Public Utilities Code will be valuable.
PROGRAM BACKGROUND:
· Electric Restructuring in California included plans for two separate entities- the CAISO that would operate the grid and the PX that would run a day-ahead market. The PX went bankrupt in 2001, and the CAISO has been the sole operator of a centralized market in California ever since. In the enabling legislation for the restructuring of the electricity industry (AB 1890), the PX is explicitly referenced and assigned duties involved both in the transition to competitive markets and the ongoing operation of this market. Now that the PX no longer exists, many of these roles are currently fulfilled by the CAISO.
· This legislation would not require any reports or other action by the CPUC.
LEGISLATIVE HISTORY:
The bill would bring the letter of the law into line with present practice by the CPUC and the electric sector more broadly.
FISCAL IMPACT:
None.
STATUS:
On April 14, 2008, SB 1536 was passed by the Senate to the Assembly (Vote: 36-0). The bill is presently in the Assembly Rules Committee awaiting policy committee assignment.
SUPPORT/OPPOSITION:
None on file.
STAFF CONTACTS:
Bryan Crabb brd@cpuc.ca.gov
PURA V, Office of Governmental Affairs (916) 322-8858
Sean Gallagher shg@cpuc.ca.gov
Director - Energy Division (415) 703-2059
Michael Dorsi mdo@cpuc.ca.gov
Staff - Energy Division (415) 703-2317
BILL LANGUAGE:
BILL NUMBER: SB 1536 AMENDED
BILL TEXT
AMENDED IN SENATE MARCH 24, 2008
INTRODUCED BY Senator Dutton
FEBRUARY 22, 2008
An act to amend Sections 216, 330, 331, 335, 339, 340, 341.2,
341.5, 359, 361, 365, 367, 373, and 376, of, to repeal Sections
338, 367.7, and 390 338 and 367.7 of,
and to repeal Article 4 (commencing with Section 355) of Chapter 2.3
of Part 1 of Division 1 of, the Public Utilities Code, relating to
the electricity.
LEGISLATIVE COUNSEL'S DIGEST
SB 1536, as amended, Dutton. Electrical restructuring: Power
Exchange.
Under existing law, the Public Utilities Commission has regulatory
authority over public utilities, including electrical corporations.
The existing restructuring of the electrical services industry
provides for the creation of the Power Exchange as an incorporated
public benefit nonprofit corporation.
This bill would repeal the provisions creating the Power Exchange
and repeal certain provisions pertaining to the prescribed
functions of the Power Exchange. The bill would make conforming
changes to existing law by deleting certain references to
the Power Exchange. The bill would state that it does not preclude a
reorganized Power Exchange from winding up its operations pursuant to
a plan in bankruptcy and pursuant to orders of the Federal Energy
Regulatory Commission.
The existing definition of a "public utility" within the Public
Utilities Act provides that ownership or operation of a facility that
has been certified by the Federal Energy Regulatory Commission
(FERC) as an exempt wholesale generator pursuant to a specified
section of the Public Utility Holding Company Act of 1935 does not
make a corporation or person a public utility solely due to the
ownership or operation of the facility. The existing definition of an
"exempt wholesale generator" defined the term by incorporating the
definition from the Public Utility Holding Company Act of 1935. The
federal Energy Policy Act of 2005 repealed the Public Utility Holding
Company Act of 1935 and adopted the Public Utility Holding Company
Act of 2005, which includes a definition for "exempt wholesale
generator." The definition of a "public utility" provides that
ownership, control, operation, or management of an electric plant
used for sales into the Power Exchange does not make a corporation or
person a public utility solely because of that ownership,
participation, or sale.
This bill would delete references to facilities certified by the
FERC as "exempt wholesale generators" pursuant to the Public Utility
Holding Company Act of 1935, and would instead reference the
definition of that term in the Public Utility Holding Company Act of
2005. The bill would replace the provision in the definition of a
"public utility" that provides that ownership, control, operation, or
management of an electric plant used for sales into the Power
Exchange does not make a corporation or person a public utility with
a provision that ownership, control, operation, or management of an
electric plant used for sales into a market established and operated
by the Independent System Operator or any other wholesale electricity
market does not make a corporation or person a public utility solely
due to the ownership, participation, or sale.
Vote: majority. Appropriation: no. Fiscal committee: no.
State-mandated local program: no.
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. Section 216 of the Public Utilities Code is amended to
read:
216. (a) "Public utility" includes every common carrier, toll
bridge corporation, pipeline corporation, gas corporation, electrical
corporation, telephone corporation, telegraph corporation, water
corporation, sewer system corporation, and heat corporation, where
the service is performed for, or the commodity is delivered to, the
public or any portion thereof.
(b) Whenever any common carrier, toll bridge corporation, pipeline
corporation, gas corporation, electrical corporation, telephone
corporation, telegraph corporation, water corporation, sewer system
corporation, or heat corporation performs a service for, or delivers
a commodity to, the public or any portion thereof for which any
compensation or payment whatsoever is received, that common carrier,
toll bridge corporation, pipeline corporation, gas corporation,
electrical corporation, telephone corporation, telegraph corporation,
water corporation, sewer system corporation, or heat corporation, is
a public utility subject to the jurisdiction, control, and
regulation of the commission and the provisions of this part.
(c) When any person or corporation performs any service for, or
delivers any commodity to, any person, private corporation,
municipality, or other political subdivision of the state, that in
turn either directly or indirectly, mediately or immediately,
performs that service for, or delivers that commodity to, the public
or any portion thereof, that person or corporation is a public
utility subject to the jurisdiction, control, and regulation of the
commission and the provisions of this part.
(d) Ownership or operation of a facility that employs cogeneration
technology or produces power from other than a conventional power
source or the ownership or operation of a facility which employs
landfill gas technology does not make a corporation or person a
public utility within the meaning of this section solely because of
the ownership or operation of that facility.
(e) Any corporation or person engaged directly or indirectly in
developing, producing, transmitting, distributing, delivering, or
selling any form of heat derived from geothermal or solar resources
or from cogeneration technology to any privately owned or publicly
owned public utility, or to the public or any portion thereof, is not
a public utility within the meaning of this section solely by reason
of engaging in any of those activities.
(f) The ownership or operation of a facility that sells compressed
natural gas at retail to the public for use only as a motor vehicle
fuel, and the selling of compressed natural gas at retail from that
facility to the public for use only as a motor vehicle fuel, does not
make the corporation or person a public utility within the meaning
of this section solely because of that ownership, operation, or sale.
(g) Ownership or operation of a facility that is an exempt
wholesale generator, as defined in the Public Utility Holding Company
Act of 2005 (42 U.S.C. Sec. 16451 (6)), does not make a corporation
or person a public utility within the meaning of this section, solely
due to the ownership or operation of that facility.
(h) The ownership, control, operation, or management of an
electric plant used for direct transactions or participation directly
or indirectly in direct transactions, as permitted by subdivision
(b) of Section 365, sales into a market established and operated by
the Independent System Operator or any other wholesale electricity
market, or the use or sale as permitted under subdivisions (b) to
(d), inclusive, of Section 218, shall not make a corporation or
person a public utility within the meaning of this section solely
because of that ownership, participation, or sale.
SEC. 2. Section 330 of the Public Utilities Code is amended to
read:
330. In order to provide guidance in carrying out this chapter,
the Legislature finds and declares all of the following:
(a) It is the intent of the Legislature that a cumulative rate
reduction of at least 20 percent be achieved not later than April 1,
2002, for residential and small commercial customers, from the rates
in effect on June 10, 1996. In determining that the April 1, 2002,
rate reduction has been met, the commission shall exclude the costs
of the competitively procured electricity and the costs associated
with the rate reduction bonds, as defined in Section 840.
(b) The people, businesses, and institutions of California spend
nearly twenty-three billion dollars ($23,000,000,000) annually on
electricity, so that reductions in the price of electricity would
significantly benefit the economy of the state and its residents.
(c) The Public Utilities Commission has opened rulemaking and
investigation proceedings with regard to restructuring California's
electric power industry and reforming utility regulation.
(d) The commission has found, after an extensive public review
process, that the interests of ratepayers and the state as a whole
will be best served by moving from the regulatory framework existing
on January 1, 1997, in which retail electricity service is provided
principally by electrical corporations subject to an obligation to
provide ultimate consumers in exclusive service territories with
reliable electric service at regulated rates, to a framework under
which competition would be allowed in the supply of electric power
and customers would be allowed to have the right to choose their
supplier of electric power.
(e) Competition in the electric generation market will encourage
innovation, efficiency, and better service from all market
participants, and will permit the reduction of costly regulatory
oversight.
(f) The delivery of electricity over transmission and distribution
systems is currently regulated, and will continue to be regulated to
ensure system safety, reliability, environmental protection, and
fair access for all market participants.
(g) Reliable electric service is of utmost importance to the
safety, health, and welfare of the state's citizenry and economy. It
is the intent of the Legislature that electric industry restructuring
should enhance the reliability of the interconnected regional
transmission systems, and provide strong coordination and enforceable
protocols for all users of the power grid.
(h) It is important that sufficient supplies of electric
generation will be available to maintain the reliable service to the
citizens and businesses of the state.
(i) Reliable electric service depends on conscientious inspection
and maintenance of transmission and distribution systems. To continue
and enhance the reliability of the delivery of electricity, the
Independent System Operator and the commission, respectively, should
set inspection, maintenance, repair, and replacement standards.
(j) It is the intent of the Legislature that California enter into
a compact with western region states. That compact should require
the publicly and investor-owned utilities located in 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 systems.
(k) In order to achieve meaningful wholesale and retail
competition in the electric generation market, it is essential to do
all of the following:
(1) Separate monopoly utility transmission functions from
competitive generation functions, through development of independent,
third-party control of transmission access and pricing.
(2) Permit all customers to choose from among competing suppliers
of electric power.
(3) Provide customers and suppliers with open, nondiscriminatory,
and comparable access to transmission and distribution services.
() The commission has properly concluded that:
(1) This competition will best be introduced by the creation of an
Independent System Operator.
(2) Generation of electricity should be open to competition.
(3) There is a need to ensure that no participant in these new
market institutions has the ability to exercise significant market
power so that operation of the new market institutions would be
distorted.
(4) These new market institutions should commence simultaneously
with the phase in of customer choice, and the public will be best
served if these institutions and the nonbypassable transition cost
recovery mechanism referred to in subdivisions (s) to (w), inclusive,
are in place simultaneously and no later than January 1, 1998.
(m) It is the intention of the Legislature that California's
publicly owned electric utilities and investor-owned electric
utilities should commit control of their transmission facilities to
the Independent System Operator. These utilities should jointly
advocate to the Federal Energy Regulatory Commission a pricing
methodology for the Independent System Operator that results in an
equitable return on capital investment in transmission facilities for
all Independent System Operator participants.
(n) Opportunities to acquire electric power in the competitive
market must be available to California consumers as soon as
practicable, but no later than January 1, 1998, so that all customers
can share in the benefits of competition.
(o) Under the existing regulatory framework, California's
electrical corporations were granted franchise rights to provide
electricity to consumers in their service territories.
(p) Consistent with federal and state policies, California
electrical corporations invested in power plants and entered into
contractual obligations in order to provide reliable electrical
service on a nondiscriminatory basis to all consumers within their
service territories who requested service.
(q) The cost of these investments and contractual obligations are
currently being recovered in electricity rates charged by electrical
corporations to their consumers.
(r) Transmission and distribution of electric power remain
essential services imbued with the public interest that are provided
over facilities owned and maintained by the state's electrical
corporations.
(s) It is proper to allow electrical corporations an opportunity
to continue to recover, over a reasonable transition period, those
costs and categories of costs for generation-related assets and
obligations, including costs associated with any subsequent
renegotiation or buyout of existing generation-related contracts,
that the commission, prior to December 20, 1995, had authorized for
collection in rates and that may not be recoverable in market prices
in a competitive generation market, and appropriate additions
incurred after December 20, 1995, for capital additions to generating
facilities existing as of December 20, 1995, that the commission
determines are reasonable and should be recovered, provided that the
costs are necessary to maintain those facilities through December 31,
2001. In determining the costs to be recovered, it is appropriate to
net the negative value of above market assets against the positive
value of below market assets.
(t) The transition to a competitive generation market should be
orderly, protect electric system reliability, provide the investors
in these electrical corporations with a fair opportunity to fully
recover the costs associated with commission approved
generation-related assets and obligations, and be completed as
expeditiously as possible.
(u) The transition to expanded customer choice, competitive
markets, and performance based ratemaking as described in Decision
95-12-063, as modified by Decision 96-01-009, of the Public Utilities
Commission, can produce hardships for employees who have dedicated
their working lives to utility employment. It is preferable that any
necessary reductions in the utility workforce directly caused by
electrical restructuring, be accomplished through offers of voluntary
severance, retraining, early retirement, outplacement, and related
benefits. Whether workforce reductions are voluntary or involuntary,
reasonable costs associated with these sorts of benefits should be
included in the competition transition charge.
(v) Charges associated with the transition should be collected
over a specific period of time on a nonbypassable basis and in a
manner that does not result in an increase in rates to customers of
electrical corporations. In order to insulate the policy of
nonbypassability against incursions, if exemptions from the
competition transition charge are granted, a firewall shall be
created that segregates recovery of the cost of exemptions as
follows:
(1) The cost of the competition transition charge exemptions
granted to members of the combined class of residential and small
commercial customers shall be recovered only from those customers.
(2) The cost of the competition transition charge exemptions
granted to members of the combined class of customers other than
residential and small commercial customers shall be recovered only
from those customers. The commission shall retain existing cost
allocation authority provided that the firewall and rate freeze
principles are not violated.
(w) It is the intent of the Legislature to require and enable
electrical corporations to monetize a portion of the competition
transition charge for residential and small commercial consumers so
that these customers will receive rate reductions of no less than 10
percent for 1998 continuing through 2002. Electrical corporations
shall, by June 1, 1997, or earlier, secure the means to finance the
competition transition charge by applying concurrently for financing
orders from the Public Utilities Commission and for rate reduction
bonds from the California Infrastructure and Economic Development
Bank.
(x) California's public utility electrical corporations provide
substantial benefits to all Californians, including employment and
support of the state's economy. Restructuring the electric services
industry pursuant to the act that added this chapter will continue
these benefits, and will also offer meaningful and immediate rate
reductions for residential and small commercial customers, and
facilitate competition in the supply of electric power.
SEC. 3. Section 331 of the Public Utilities Code is amended to
read:
331. The definitions set forth in this section shall govern the
construction of this chapter.
(a) "Aggregator" means any marketer, broker, public agency, city,
county, or special district, that combines the loads of multiple
end-use customers in facilitating the sale and purchase of electric
energy, transmission, and other services on behalf of these
customers.
(b) "Broker" means an entity that arranges the sale and purchase
of electric energy, transmission, and other services between buyers
and sellers, but does not take title to any of the power sold.
(c) "Direct transaction" means a contract between any one or more
electric generators, marketers, or brokers of electric power and one
or more retail customers providing for the purchase and sale of
electric power or any ancillary services.
(d) "Fire wall" means the line of demarcation separating
residential and small commercial customers from all other customers
as described in subdivision (e) of Section 367.
(e) "Marketer" means any entity that buys electric energy,
transmission, and other services from traditional utilities and other
suppliers, and then resells those services at wholesale or to an
end-use customer.
(f) "Microcogeneration facility" means a cogeneration facility of
less than one megawatt.
(g) "Restructuring trust" means the tax-exempt public benefit
trust established by Decision 96-08-038 of the Public Utilities
Commission to provide for the design and development of the hardware
and software systems for the Independent System Operator and that may
undertake other activities, as needed, as ordered by the commission.
(h) "Small commercial customer" means a customer that has a
maximum peak demand of less than 20 kilowatts.
SEC. 4. Section 335 of the Public Utilities Code is amended to
read:
335. In order to ensure that the interests of the people of
California are served, a five-member Electricity Oversight Board is
hereby created as provided in Section 336. For purposes of this
chapter, any reference to the Oversight Board shall mean the
Electricity Oversight Board. Its functions shall be all of the
following:
(a) To oversee the Independent System Operator.
(b) To serve as an appeal board for majority decisions of the
Independent System Operator governing board, as they relate to
matters subject to exclusive state jurisdiction, as specified in
Section 339.
(c) To investigate any matter related to the wholesale market for
electricity to ensure that the interests of California's citizens and
consumers are served, protected, and represented in relation to the
availability of electric transmission and generation and related
costs, during periods of peak demand.
SEC. 5. Section 338 of the Public Utilities Code is repealed.
SEC. 6. Section 339 of the Public Utilities Code is amended to
read:
339. (a) The Oversight Board is the appeal board for majority
decisions of the Independent System Operator governing board relating
to matters that are identified in subdivision (b) as they pertain to
the Independent System Operator.
(b) The following matters are subject to California's exclusive
jurisdiction:
(1) Selections by California of governing board members, as
described in Sections 335 and 337.
(2) Matters pertaining to retail electric service or retail sales
of electric energy.
(3) Ensuring that the purposes and functions of the Independent
System Operator are consistent with the purposes and functions of
California nonprofit public benefit corporations, including duties of
care and conflict of interest standards for directors of the
corporation.
(4) State functions assigned to the Independent System Operator
under state law.
(5) Open meeting standards and meeting notice requirements.
(6) Appointment of advisory representatives representing state
interests.
(7) Public access to corporate records.
(8) The amendment of bylaws relevant to these matters.
(c) Only members of the Independent System Operator governing
board may appeal a majority decision of the Independent System
Operator related to any of the matters specified in subdivision (b)
to the Oversight Board.
SEC. 7. Section 340 of the Public Utilities Code is amended to
read:
340. The Oversight Board shall take the steps that are necessary
to ensure the earliest possible incorporation of the Independent
System Operator as an incorporated public benefit, nonprofit
corporations under the Corporations Code.
SEC. 8. Section 341.2 of the Public Utilities Code is amended to
read:
341.2. The Bagley-Keene Open Meeting Act (Article 9 (commencing
with Section 11120) of Chapter 1 of Part 1 of Division 3 of Title 2
of the Government Code) applies to meetings of the Oversight Board.
In addition to the allowances of that act, the Oversight Board may
hold a closed session to consider a matter based on information that
has received a grant of confidential status pursuant to regulations
of the Oversight Board, provided that any action taken on such a
matter shall be taken by vote in an open session.
SEC. 9. Section 341.5 of the Public Utilities Code is amended to
read:
341.5. (a) The Independent System Operator bylaws shall contain
provisions that identify those matters specified in subdivision (b)
of Section 339 as matters within state jurisdiction. The bylaws shall
also contain provisions which state that California's bylaws
approval function with respect to the matters specified in
subdivision (b) of Section 339 shall not preclude the Federal Energy
Regulatory Commission from taking any action necessary to address
undue discrimination or other violations of the Federal Power Act (16
U.S.C.A. Sec. 791a et seq.) or to exercise any other commission
responsibility under the Federal Power Act. In taking any such
action, the Federal Energy Regulatory Commission shall give due
respect to California's jurisdictional interests in the functions of
the Independent System Operator and to attempt to accommodate state
interests to the extent those interests are not inconsistent with the
Federal Energy Regulatory Commission's statutory responsibilities.
The bylaws shall state that any future agreement regarding the
apportionment of the Independent System Operator board appointment
function among participating states associated with the expansion of
the Independent System Operator into a multistate entity shall be
filed with the Federal Energy Regulatory Commission pursuant to
Section 205 of the Federal Power Act (16 U.S.C.A. Sec. 824d).
(b) Any necessary bylaw changes to implement the provisions of
Section 335, 337, 339, or subdivision (a) of this section, or changes
required pursuant to an agreement as contemplated by subdivision (a)
of this section with a participating state for a regional
organization, shall be effective upon approval of the respective
governing boards and the Oversight Board and acceptance for filing by
the Federal Energy Regulatory Commission.
SEC. 10. Article 4 (commencing with Section 355) of Chapter 2.3 of
Part 1 of Division 1 of the Public Utilities Code is repealed.
SEC. 11. Section 359 of the Public Utilities Code is amended to
read:
359. (a) It is the intent of the Legislature to provide for the
evolution of the Independent System Operator into a regional
organization to promote the development of regional electricity
transmission markets in the western states and to improve the access
of consumers served by the Independent System Operator to those
markets.
(b) The preferred means by which the voluntary evolution described
in subdivision (a) should occur is through the adoption of a
regional compact or other comparable agreement among cooperating
party states, the retail customers of which states would reside
within the geographic territories served by the Independent System
Operator.
(c) The agreement described in subdivision (b) should provide for
all of the following:
(1) An equitable process for the appointment or confirmation by
party states of members of the governing boards of the Independent
System Operator.
(2) A respecification of the size, structure, representation,
eligible membership, nominating procedures, and member terms of
service of the governing boards of the Independent System Operator.
(3) Mechanisms by which each party state, jointly or separately,
can oversee effectively the actions of the Independent System
Operator as those actions relate to the assurance of electricity
system reliability within the party state and to matters that affect
electricity sales to the retail customers of the party state or
otherwise affect the general welfare of the electricity consumers and
the general public of the party state.
(4) The adherence by publicly owned and investor-owned utilities
located in party states to enforceable standards and protocols to
protect the reliability of the interconnected regional transmission
and distribution systems.
SEC. 12. Section 361 of the Public Utilities Code is amended to
read:
361. The commission shall ensure that any funds secured by the
restructuring trusts established for the purposes of developing the
Independent System Operator shall be placed at the disposal of the
Independent System Operator.
SEC. 13. Section 365 of the Public Utilities Code is amended to
read:
365. The actions of the commission pursuant to this chapter shall
be consistent with the findings and declarations contained in
Section 330. In addition, the commission shall do all of the
following:
(a) Facilitate the efforts of the state's electrical corporations
to develop and obtain authorization from the Federal Energy
Regulatory Commission for the creation and operation of an
Independent System Operator, for the determination of which
transmission and distribution facilities are subject to the exclusive
jurisdiction of the commission, and for approval, to the extent
necessary, of the cost recovery mechanism established as provided in
Sections 367 to 376, inclusive. The commission shall also participate
fully in all proceedings before the Federal Energy Regulatory
Commission in connection with the Independent System Operator and
shall encourage the Federal Energy Regulatory Commission to adopt
protocols and procedures that strengthen the reliability of the
interconnected transmission grid, encourage all publicly owned
utilities in California to become full participants, and maximize
enforceability of such protocols and procedures by all market
participants.
(b) (1) Authorize direct transactions between electricity
suppliers and end use customers, subject to implementation of the
nonbypassable charge referred to in Sections 367 to 376, inclusive.
Direct transactions shall commence simultaneously with the start of
an Independent System Operator referred to in subdivision (a). The
simultaneous commencement shall occur as soon as practicable, but no
later than January 1, 1998. The commission shall develop a phase-in
schedule at the conclusion of which all customers shall have the
right to engage in direct transactions. Any phase-in of customer
eligibility for direct transactions ordered by the commission shall
be equitable to all customer classes and accomplished as soon as
practicable, consistent with operational and other technological
considerations, and shall be completed for all customers by January
1, 2002.
(2) Customers shall be eligible for direct access irrespective of
any direct access phase-in implemented pursuant to this section if at
least one-half of that customer's electrical load is supplied by
energy from a renewable resource provider certified pursuant to
Section 383, provided however that nothing in this section shall
provide for direct access for electric consumers served by municipal
utilities unless so authorized by the governing board of that
municipal utility.
SEC. 14. Section 367 of the Public Utilities Code is amended to
read:
367. The commission shall identify and determine those costs and
categories of costs for generation-related assets and obligations,
consisting of generation facilities, generation-related regulatory
assets, nuclear settlements, and power purchase contracts, including,
but not limited to, restructurings, renegotiations or terminations
thereof approved by the commission, that were being collected in
commission-approved rates on December 20, 1995, and that may become
uneconomic as a result of a competitive generation market, in that
these costs may not be
recoverable in market prices in a competitive market, and appropriate
costs incurred after December 20, 1995, for capital additions to
generating facilities existing as of December 20, 1995, that the
commission determines are reasonable and should be recovered,
provided that these additions are necessary to maintain the
facilities through December 31, 2001. These uneconomic costs shall
include transition costs as defined in subdivision (f) of Section
840, and shall be recovered from all customers or in the case of
fixed transition amounts, from the customers specified in subdivision
(a) of Section 841, on a nonbypassable basis and shall:
(a) Be amortized over a reasonable time period, including
collection on an accelerated basis, consistent with not increasing
rates for any rate schedule, contract, or tariff option above the
levels in effect on June 10, 1996; provided that, the recovery shall
not extend beyond December 31, 2001, except as follows:
(1) Costs associated with employee-related transition costs as set
forth in subdivision (b) of Section 375 shall continue until fully
collected; provided, however, that the cost collection shall not
extend beyond December 31, 2006.
(2) Power purchase contract obligations shall continue for the
duration of the contract. Costs associated with any buy-out,
buy-down, or renegotiation of the contracts shall continue to be
collected for the duration of any agreement governing the buy-out,
buy-down, or renegotiated contract; provided, however, no power
purchase contract shall be extended as a result of the buy-out,
buy-down, or renegotiation.
(3) Costs associated with contracts approved by the commission to
settle issues associated with the Biennial Resource Plan Update may
be collected through March 31, 2002; provided that only 80 percent of
the balance of the costs remaining after December 31, 2001, shall be
eligible for recovery.
(4) Nuclear incremental cost incentive plans for the San Onofre
nuclear generating station shall continue for the full term as
authorized by the commission in Decision 96-01-011 and Decision
96-04-059; provided that the recovery shall not extend beyond
December 31, 2003.
(5) Costs associated with the exemptions provided in subdivision
(a) of Section 374 may be collected through March 31, 2002, provided
that only fifty million dollars ($50,000,000) of the balance of the
costs remaining after December 31, 2001, shall be eligible for
recovery.
(6) Fixed transition amounts, as defined in subdivision (d) of
Section 840, may be recovered from the customers specified in
subdivision (a) of Section 841 until all rate reduction bonds
associated with the fixed transition amounts have been paid in full
by the financing entity.
(b) Be based on a calculation mechanism that nets the negative
value of all above market utility-owned generation-related assets
against the positive value of all below market utility-owned
generation related assets. For those assets subject to valuation, the
valuations used for the calculation of the uneconomic portion of the
net book value shall be determined not later than December 31, 2001,
and shall be based on appraisal, sale, or other divestiture. The
commission's determination of the costs eligible for recovery and of
the valuation of those assets at the time the assets are exposed to
market risk or retired, in a proceeding under Section 455.5, 851, or
otherwise, shall be final, and notwithstanding Section 1708 or any
other provision of law, may not be rescinded, altered or amended.
(c) Be limited in the case of utility-owned fossil generation to
the uneconomic portion of the net book value of the fossil capital
investment existing as of January 1, 1998, and appropriate costs
incurred after December 20, 1995, for capital additions to generating
facilities existing as of December 20, 1995, that the commission
determines are reasonable and should be recovered, provided that the
additions are necessary to maintain the facilities through December
31, 2001. All "going forward costs" of fossil plant operation,
including operation and maintenance, administrative and general, fuel
and fuel transportation costs, shall be recovered solely from
contracts with the Independent System Operator, provided that for the
purposes of this chapter, the following costs may be recoverable
pursuant to this section:
(1) Commission-approved operating costs for particular
utility-owned fossil powerplants or units, at particular times when
reactive power/voltage support is not yet procurable at market-based
rates in locations where it is deemed needed for the reactive
power/voltage support by the Independent System Operator, provided
that the units are otherwise authorized to recover market-based rates
and provided further that for an electrical corporation that is also
a gas corporation and that serves at least four million customers as
of December 20, 1995, the commission shall allow the electrical
corporation to retain any earnings from operations of the reactive
power/voltage support plants or units and shall not require the
utility to apply any portions to offset recovery of transition costs.
Cost recovery under the cost recovery mechanism shall end on
December 31, 2001.
(2) An electrical corporation that, as of December 20, 1995,
served at least four million customers, and that was also a gas
corporation that served less than four thousand customers, may
recover, pursuant to this section, 100 percent of the uneconomic
portion of the fixed costs paid under fuel and fuel transportation
contracts that were executed prior to December 20, 1995, and were
subsequently determined to be reasonable by the commission, or 100
percent of the buy-down or buy-out costs associated with the
contracts to the extent the costs are determined to be reasonable by
the commission.
(d) Be adjusted throughout the period through March 31, 2002, to
track accrual and recovery of costs provided for in this subdivision.
Recovery of costs prior to December 31, 2001, shall include a return
as provided for in Decision 95-12-063, as modified by Decision
96-01-009, together with associated taxes.
(e) (1) Be allocated among the various classes of customers, rate
schedules, and tariff options to ensure that costs are recovered from
these classes, rate schedules, contract rates, and tariff options,
including self-generation deferral, interruptible, and standby rate
options in substantially the same proportion as similar costs are
recovered as of June 10, 1996, through the regulated retail rates of
the relevant electric utility, provided that there shall be a
firewall segregating the recovery of the costs of competition
transition charge exemptions such that the costs of competition
transition charge exemptions granted to members of the combined class
of residential and small commercial customers shall be recovered
only from these customers, and the costs of competition transition
charge exemptions granted to members of the combined class of
customers, other than residential and small commercial customers,
shall be recovered only from these customers.
(2) Individual customers shall not experience rate increases as a
result of the allocation of transition costs.
(3) The commission shall retain existing cost allocation
authority, provided the firewall and rate freeze principles are not
violated.
SEC. 15. Section 367.7 of the Public Utilities Code is repealed.
SEC. 16. Section 373 of the Public Utilities Code is amended to
read:
373. (a) Electrical corporations may apply to the commission for
an order determining that the costs identified in Sections 367, 368,
375, and 376 not be collected from a particular class of customer or
category of electricity consumption.
(b) Subject to the fire wall specified in subdivision (e) of
Section 367, the provisions of this section and Sections 372 and 374
shall apply in the event the commission authorizes a nonbypassable
charge prior to the implementation of an Independent System Operator
referred to in subdivision (a) of Section 365.
SEC. 17. Section 376 of the Public Utilities Code is amended to
read:
376. To the extent that the costs of programs to accommodate the
implementation of direct access and the Independent System Operator,
that have been funded by an electrical corporation and have been
found by the commission or the Federal Energy Regulatory Commission
to be recoverable from the utility's customers, reduce an electrical
corporation's opportunity to recover its utility generation-related
plant and regulatory assets by the end of the year 2001, the
electrical corporation may recover unrecovered utility
generation-related plant and regulatory assets after December 31,
2001, in an amount equal to the utility's cost of commission-approved
or Federal Energy Regulatory Commission approved
restructuring-related implementation programs. An electrical
corporation's ability to collect the amounts from retail customers
after the year 2001 shall be reduced to the extent the Independent
System Operator reimburses the electrical corporation for the costs
of any of these programs.
SEC. 18. Section 390 of the Public Utilities
Code is repealed.
SEC. 19. SEC. 18. Nothing in this
act precludes a reorganized Power Exchange from winding up its
operations pursuant to a plan in bankruptcy and pursuant to orders of
the Federal Energy Regulatory Commission.
