The California Public Utilities Commission (CPUC) has directed the state's electric and gas utilities to implement a two-year pilot allowing applicants such as residential real estate developers...
Labor Day found me trudging around in one of those "big box" discount stores, looking for a sale on a new refrigerator. Out West, California lawmakers spent the holiday putting together their own discount plan (em this one promising rate cuts for the state's residential electric consumers, funded by "rate reduction bonds" backed by a state-owned bank for economic development.
Either way you cut it, the holiday proved worthy of its name. I wore myself out looking and still don't have my refrigerator. And in California, organized labor largely got its way from the state legislature, winning several concessions in the new bill (Assembly Bill 1890) designed to save jobs: 1) stranded-cost status for lost jobs, 2) preservation of overly strict standards for reliability to keep marginal plants running, and 3) a clause to force buyers of divested fossil plants to retain the former utility for several years to operate the plant.
The nub of the deal lay in a questionable trade that allocates a larger-than-logical share of costs for stranded generation assets to small commercial and residential customers, in exchange for publicly funded rate discounts promised down the road. Utilities as hidden tax collectors? In California, at least, the government will serve as a hidden collector of utility bills, embedded in state tax rates.
Stranded Costs (Where the Deal Was Cut)
"The legislation gives clear direction. [It reduces] everybody's downside risk."
That opinion comes from Jan Smutny-Jones, executive director of the Independent Energy Producers Association, the voice of competitive generation in California. He praises the state legislature for its enormous investment in the bill.
He also believes the bill will prove advantageous for independent generators (IPPs) in California: "From the perspective of the IPPs, we're very pleased with the legislation. It gives us some very clear signals and market opportunities."
But it sends a very different signal to consumer groups, as I learned in talking with Nettie Hoge (executive director) and Lenny Goldberg (private lobbyist, Lenny Goldberg & Associates), representing TURN (Toward Utility Rate Normalization), and Michael Shames (executive director) and Eric Woychik (consultant, Strategic Integration), representing UCAN (Utility Consumers Action Network).
In many ways, the most important issue was stranded costs and the so-called "40-33" problem (that term alludes to the choice between using a 40-percent or a smaller 33-percent allocator to bill small customers for stranded investment).
Nettie Hoge at TURN notes that the state's investor-owned electric utilities had already "pow-wowed with their large customers." From what I understand, this industry coalition wanted to set any stranded-cost allocation to reflect the 40-percent share that residential customers pay for system costs, not the 33-percent share they pay for generation.
"Here's where the deal was cut," says Woychik.
According to Woychik, the law envisions that the California Public Utilities Commission (PUC) will spread stranded costs among ratepayers using the method known as "equal percentage of marginal cost" (EPMC). In other words, even though industrial and agricultural customers impose a larger drag on generation assets, a "full-EMPC" allocator for residentials would reflect demand on overall system costs, instead of a smaller allocation