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Something for Everyone: The Politics of California's New Law on Electric Restructuring

Fortnightly Magazine - November 15 1996

the language was changed to state that, at a minimum, both existing and emerging renewables projects should receive at least 40 percent of the funding, leaving the remaining 20 percent up for grabs. These monies will be allocated by the California Energy Commission.

The renewables also won a favorable interpretation on the phase-in of direct access. AB 1890 provides that if 50 percent of a customer's load is served by a "green" provider, then that customer is exempted from any phase-in requirements. But while the legislation seems to apply only to instate green power, this "instate" interpretation will certainly be challenged by out-of-state suppliers and their instate marketers.

Finally, the legislation helped resolve an outstanding debate over short-run avoided-cost calculations (SRAC) for QFs. Over the preceding year, several parties had attempted to negotiate an index-based method for calculating avoided cost. The independent producers reached agreement with both PG&E and SCE on such a formula, but it was not clear if the CPUC would approve the agreements. Some parties seized the opportunity to codify elements of their proposal as part of AB 1890, ostensibly preempting the CPUC on SRAC reform. The bill provides that SRAC will be based on a starting energy price and indexed periodically to natural gas prices at the California border, thus eliminating regulatory proceedings to determine utility avoided costs.

As would be expected, the legislature included many consumer protection and reliability provisions in the bill. For instance, to avoid the "slamming" practices prevalent in telecommunications, the law requires confirmation (in writing or from a third party) that a customer has indeed chosen to switch power suppliers. AB 1890 also requires the CPUC to develop terms, conditions, and guidelines for power marketer and aggregator certification and registration.

Unfortunately (or perhaps fortuitously), on August 10, just after a Saturday committee session had adjourned, the lights went out in California when the entire western power grid collapsed. This power outage (and an earlier intertie problem), along with problems at PG&E over storm response, raised additional concerns over the interaction of deregulation and reliability. As a result, the conference committee called for creation of an oversight board (made up of political appointees) to oversee the governing boards of both the ISO and the Power Exchange. In addition, AB 1890 includes language that expresses the Legislature's desire that all utilities in the western states must enter into a compact with California's utilities regarding reliability and notification standards.

Gray Areas

As with all legislation, AB 1890 is full of gray areas open to conflicting interpretations. For example, certain parties have construed some of the language on CTC exemptions to broaden what may have been intended. Undoubtedly, the next legislative session will see the introduction of various "clean up" bills. Among the most unhappy groups are the power marketers, who participated little in the development of the bill and whose interests were not put forward aggressively. The combination of utility stranded-cost recovery and limited exemptions from CTC has narrowed opportunities for the marketers. At this time, municipal utilities are also assessing, or perhaps re-assessing their share