of AB 1890
The Electric Utility Industry
Restructuring Act (Assembly Bill 1890) makes the generation of electricity
competitive in California. The legislation became law on September 23,
Before restructuring, a single
utility provided each customer with generation, transmission, distribution,
and metering and billing of electricity. As of March 31, 1998, the new
structure allows customers in most, but not all, existing electric utility
service areas to choose their electric generation supplier.
Restructuring also brings
changes to the transmission of electricity. Previously restricted transmission
facilities will be opened to power generators on a fair and equitable
basis, overseen by a new organization, the Independent System Operator
(ISO). The ISO has been given the responsibility for assuring reliability
of the high voltage transmission system. Local utilities will continue
to distribute electricity.
The following section provides
a summary of key concepts of the new restructuring legislation:
NEW MARKET STRUCTURE
- Direct Access --
After March 31, 1998, all customers located in the service territories
of the investor-owned utilities (IOUs) --Pacific Gas & Electric,
San Diego Gas &Electric, Southern California Edison, PacifiCorp,
Sierra Pacific Power, or Bear Valley Electric -- will be allowed to
shop for power in an open market. No longer will customers be restricted
to buying power only from their local utility company.They can now compare
deals and pick the one which best meets their needs. Although Kirkwood
Electric Co. is also regulated by the CPUC, the CPUC did not require
it to offer direct access at this time.
- Independent System
Operator (ISO) -- Currently, the IOUs own and operate a large
portion of the state's transmission system. To increase reliability
and provide new power producers equal opportunity and ability to deliver
their supplies, AB 1890 creates an independent, statewide transmission
system operator. The IOUs retain ownership of their transmission facilities,
but are required to transfer operational control of the facilities to
the Independent System Operator (ISO).
Vesting operational control
of the high voltage transmission system with the ISO is designed to
ensure that owners of the transmission system cannot favor their own
generation facilities over competing generators in providing transmission
access. The ISO will control and operate the state's transmission
system to schedule delivery of electric power supplies, and ensure
all standards for transmission service are met. Since these transmission
lines are the electrical "highways of commerce," the ISO will ensure
that no particular buyer or seller of electricity can block access
Local distribution lines
will continue to be operated by the existing electric utilities. The
IOU utilities will be required to operate the distribution system
in such a way that customers have to be provided direct access to
any seller of electricity operating in their area. In addition, the
ISO has the responsibility to maintain overall electricity system
reliability. The ISO will maintain reserve generators which can provide
additional electricity in the event that a generator owned by an energy
service provider fails to operate or can not deliver the required
amount of power.
Electric service reliability
will remain the same regardless of the choice of service provider
an individual consumer makes; that is, to remain with the current
utility or purchase power from a new energy service provider.
- Power Exchange (PX)
-- Another important element of the restructured market is the
newly created Power Exchange (PX). The PX will operate like a commodities
market where power producers will compete to sell their electricity
generation in response to bids submitted by buyers.
The PX creates a "pool"
or "spot market"where price information is publicly available. The
PX solicits bids from electricity buyers and generators and chooses
the lowest generation bidders until the PX has enough electricity
supply to meet requests for power. PX prices change on an hourly basis.
Participation in the
PX is voluntary for all buyers and sellers other than the IOUs. For
the four-year transition period, the IOUs will be required to bid
most of their generation into the PX and buy the power they need to
meet their customer demands from the PX. In contrast, the new power
generators will have the option to sell power directly to consumers.
Many customers will pay
for electrical power based on the PX price, either directly through
their local utility or through a private power supply contract with
terms that are pegged to the PX price. Thus consumers who choose to
enter into private contracts for power where the terms,conditions
and price are not public knowledge may use public information from
the PX to gauge the attractiveness of supply or service offers they
- Load Aggregation
-- Aggregation is a term applied to the action of new energy
providers gathering customers together and providing electricity services
to the combined load. A person or company can specialize in forming
buying groups to enable customers to take advantage of larger volume
- Stranded Investments
-- IOUs have made investments in utility infrastructure, including
major power generation stations, in order to meet the CPUC requirement
that they provide sufficient electricity to meet California's demand.
These investments were financed by the utilities, based on the assurance
that repayment of the debt could be made through future electricity
sales. In the restructured market, some of these power plant assets
may become stranded; that is, they won't be able to operate competitively
in the new market place. California's restructuring legislation decided
that virtually all customers should pay a competition transition charge
to all IOUs to meet past financial obligations made on the customer's
- Competition Transition
Charge (CTC) -- The new electricity restructuring legislation
provides an accelerated recovery of the IOU investments through a Competition
Transition Charge, or CTC. The CTC for investor-owned utilities varies
Recovery of utility costs
was already built into the existing regulatory structure and is included
in rates charged to all customers. If there were no transition to
a competitive market, customers would continue to repay these costs
to utilities through their normal electricity bills. Consequently,
the CTC does not result in an increase in electricity rates from current
levels and should not be viewed as an additional cost. The CTC is
determined by multiplying a CTC rate by electrical energy consumption.
It appears as a dollar cost on some customer bills at this time, and
all IOU customer bills by June 1, 1998.
Several publicly owned
utilities are now considering whether to offer Direct Access during
the transition period and impose a CTC, if necessary. The CTC will
also vary significantly among public utilities.
THE CTC COST
Up to 185 megawatts (MW)
of irrigation district load is exempt from paying the CTC costs. Of these,
101 MW have been allocated by the California Energy Commission to qualifying
districts as required by AB 1890. At least 50 percent of this exemption
is to be used for agricultural pumping. In addition, water pumping loads
served by members of the Southern San Joaquin Valley Power Authority and
the Eastside Power Authority are exempt from the CTC. The legislation
also specifies that the Merced Irrigation District will receive a 75 MW
These benefits, however,
are only available to customers within the selected irrigation district
boundaries. Other farmers can reduce the amount paid by taking actions
which lower electricity consumption. Since the CTC amount paid with each
bill is the CTC rate multiplied by electricity consumption, reduced electricity
use will lower the CTC paid. Modifications to production equipment or
operations, changes in manufacturing processes, fuel switching, conservation
efforts, or other activities which reduce electricity consumption will
lower that customer's CTC payment.
Customers who completely
terminate electricity service are not responsible for CTC (for example,
individuals or firms that physically leave the utility service area).
The CTC does not apply to emergency equipment, nor to any load served
by non-mobile cogeneration or self-generation after June 30, 2000.
RATE FREEZE AND REDUCTIONS IN RATES
Regulated IOU rates for agricultural,
residential, industrial, and large commercial customers were frozen at
their June 1996, levels until utilities recover their generation related
uneconomic costs through the competitive transition charge or until March
31, 2002, whichever is earlier. Starting January 1, 1998, rates for residential
and small commercial customers (defined as 20 kilowatts or less peak demand)
were reduced by 10 percent and will remain at that level until utilities
recover their generation related uneconomic costs through the competitive
transition charge, or until March 31, 2002, whichever is earlier.
The restructuring legislation
also established funding for public interest programs to be allocated
during the four-year transition period: $248 million for the Public Interest
Energy Research Program (PIER); $540 million for the Renewable Technology
Program; and about $912 million for the California Board for Energy Efficiency.
The Energy Commission will
allocate $62 million a year from 1998 to 2001 to fund research, development
and demonstration projects in the following areas: renewable energy technologies,
environmentally preferred advanced generation, energy-related environmental
research, end use energy efficiency and strategic energy research.
The Energy Commission will
also provide $540 million to consumers and producers of renewable energy,
such as wind, solar, geothermal, biomass, landfill gas and small hydroelectric
power. The funding will be collected from ratepayers of investor-owned
utilities over the next four years. This program will provide funds to
renewable energy generators, as well as credits for consumers purchasing
renewable electricity from a non-utility provider.
The California Public Utilities
Commission created the California Board for Energy Efficiency to implement
energy efficiency programs. The purpose of the Board is to oversee the
independent administration of energy efficiency services designed to transform
markets by: (a) providing cost-beneficial energy efficiency services to
customers not normally served by markets; (b) offering customers meaningful
information on the costs and benefits of energy efficiency measures; (c)
reducing market barriers to investments in energy efficient products and
services; and (d) creating a sustainable and competitive energy efficiency
California Energy Commission, "New Options For Agricultural Customers:
California's Electric Industry Restructuring"
(Sacramento, June 1998), pp. 10-13.
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