BILL ANALYSIS
AB1 X1
Page 1
Date of Hearing: January 16, 2001
ASSEMBLY COMMITTEE ON ENERGY COSTS AND AVAILABILITY
Roderick D. Wright, Chair
AB 1 X1 (Keeley) - As Proposed to be Amended: January 16, 2001
SUBJECT : Electric power.
SUMMARY : Authorizes the Department of Water Resources (DWR) to
enter into long-term power purchase contracts with electricity
generators for a price not more than 5.5 cents per kilowatt hour
(kWh), and to sell the power, directly or indirectly, to
electric consumers in California. Specifically, this bill :
1)Provides legislative findings and declarations that:
a) The furnishing of reliable reasonably priced electric
service is essential for the safety, health, and well-being
of the people of California.
a) The lack of new generation resources, transmission
constraints, increased demand, and other factors have
resulted in a rapid, unforeseen shortage of electric power
in the state and rapid and substantial increases in
wholesale energy costs and retail energy rates, with
statewide impact, to such a degree that it constitutes an
immediate peril to the health, safety, life and property of
the inhabitants of the state, and the public interest,
welfare, convenience, and necessity require the state to
participate in markets for the purchase and sale of power
and energy.
1)Authorizes DWR to:
a) Assess the need for power in the state in consultation
with the California Public Utilities Commission (CPUC),
public and private utilities in the state, and other
entities as determined by DWR.
a) Enter into power purchase contracts on such terms and
for such periods as DWR determines for a price not more
than 5.5 cents per kWh.
a) Sell power acquired pursuant to these provisions,
directly or indirectly, to electric consumers in
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California.
a) Exchange, transfer, or otherwise dispose of, or grant
options with respect to any power acquired pursuant to
these provisions, directly or indirectly, to electric
consumers in California. Provides that to the extent any
acquired power is not required for use within the state, or
if it is otherwise advantageous or necessary, the power may
be sold, exchanged, transferred, or otherwise disposed of
to any person or entity.
a) Fix and establish the procedure and charges for the sale
or other disposal of power purchased by DWR.
a) Borrow money in anticipation of the receipt of revenues
or for cash flow management, and for such purpose issue
notes or other evidence of indebtedness and provide for
repayment with respect thereto, and to renew or refund any
such notes or other evidence of indebtedness. However,
provides that any such notes or other evidence of
indebtedness shall be payable solely from the fund and
shall mature within 90 days of issuance.
a) Hire and appoint employees as required, at salary levels
determined by the director to be competitive to attract and
retain persons with the necessary expertise and skills.
Prior to hiring or appointing an employee at a salary in
excess of a salary approved by the Department of Personnel
Administration, the DWR director shall submit the proposed
salary to the Director of Finance who shall submit it to
the Legislature in accordance with specified provisions of
the annual Budget Act.
a) Engage the services of private parties to render
professional and technical assistance and advice.
a) Contract for the services of other public agencies.
a) Adopt emergency regulations, which shall be considered
by the Office of Administrative Law to be necessary for the
immediate preservations of the public peace, health and
safety, and general welfare. The regulations shall be
repealed 180 days after their effective date, unless the
adopting authority or agency complies with specified
existing law.
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1)Stipulates that the provisions of the Government Code and
Public Contract Code applicable to state contracts, including
but not limited to, advertising and competitive bidding
requirements and prompt payment requirements, applied to
contracts entered into pursuant to these provisions, unless
DWR determines that application of any such provision to such
contracts is detrimental to accomplishing the purposes of
these provisions.
2)Requires DWR to do those things necessary and authorized under
Chapter 2 (commencing with Section 80100) to make power
available directly or indirectly to electric consumers in
California.
3)Provides that a contract or agreement pursuant to these
provisions may include provisions for the indemnification of
parties with whom DWR contracts, except as specified.
4)Provides that contracts may provide for the assignment thereof
to public or private entities on any terms and conditions as
the contracts may specify.
5)Provides that any contract for the sale of electric power
shall contain any contractual terms and security provisions as
are determined by DWR to be necessary and appropriate,
6)Establishes the Department of Water Resources Electric Power
Fund, and provides that all moneys in the fund are
continuously appropriated, without regard to fiscal year.
7)Provides that payments from the fund may be made only for the
purposes authorized by these provisions, including but not
limited to, payments for any of the following:
a) The cost of electric power purchased by DWR.
a) The pooled money investment rate on funds advanced for
electric power purchases prior to the receipt of payment
for those purchases by the purchasing entity.
a) Payment of any other obligation incurred by DWR.
a) Repayment to the General Fund of any advances made to
DWR from that fund.
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a) Administrative costs incurred in administering these
provisions.
1)Provides that obligations authorized by these provisions shall
be payable solely from the fund, and that neither the full
faith and credit nor the taxing power of the state are or may
be pledged for any payment under any obligation authorized by
these provisions.
2)Provides that, solely with regard to the issue of DWR's
obligation under contracts for the purchase or sale or both of
electricity, the state pledges and agrees with parties to and
holders of obligations of DWR entered into pursuant to these
provisions that the state will not do, until such obligations
are fully performed and discharged on the part of DWR, any of
the following:
a) Limit, alter, or restrict the rights vested in DWR under
these provisions.
a) Impair the terms of any obligations of DWR entered into
pursuant to these provisions.
a) Impair the rights or remedies of the holders of or other
parties to any such obligations.
1)Transfers unspecified amount from the General Fund to DWR for
the purposes of these provisions.
2)Requires DWR to make quarterly and annual reports to the
Governor and the Legislature regarding its activities pursuant
to these provisions during the respective reporting periods.
3)Authorizes all state agencies and other official state
organizations, and all persons connected therewith, to give
DWR reasonable assistance or other cooperation in carrying out
these provisions, upon the request of DWR.
4)Adds an urgency clause.
EXISTING LAW authorizes DWR, under such regulations and upon
such terms, limitations, and conditions as it prescribes, may
fix and establish the prices, rates, and charges at which the
resources and facilities made available by the Central Valley
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Project shall be sold and disposed of, and enter into contracts
and agreements for the movement of water.
FISCAL EFFECT : Unknown.
COMMENTS : Assembly Bill 1890 (Brulte), [Chapter 854, Statutes
of 1996] restructured California's electric industry in order to
establish a competitive generation market. The CPUC, in
D.95-12-063 (as modified by D.96-01-009) required the IOUs to
divest at least 50 percent of their fossil generating assets.
While the IOUs have divested most of their generating assets,
they are still required to provide distribution service to all
retail customers, and to procure power for customers who do not
choose direct access; i.e., an alternate supplier.
Beginning last summer wholesale prices for electricity have
skyrocketed in California. The IOUs' power procurement costs
have been increased dramatically as a result. Customers of
Southern California Edison (SCE) and Pacific Gas and Electric
(PG&E) are currently protected by the AB 1890 rate freeze
(although the CPUC recently approved an interim order increasing
rates for 90 days), which means SCE and PG&E have to absorb the
financial costs of paying extremely high prices to buy wholesale
electric power without being able to recover those costs in
retail rates. The current uncollected out-of-pocket power
procurement costs for SCE and PG&E is currently estimated at
approximately $12 billion.
San Diego Gas and Electric (SDG&E) ratepayers, no longer
protected by the AB 1890 rate freeze, have seen their energy
bills increase substantially beginning last summer. AB 265
(Davis) [Chapter 328, Statutes of 2000] established a "soft"
floating rate cap of 6.5 cents per kWh, with an undercollection
balancing account. Since enactment of AB 265, a continued rise
in wholesale electric prices has caused SDG&E's undercollection
to increase substantially, to $450 million.
SCE and PG&E have indicated that they may be forced to declare
bankruptcy if they do not receive legislative, regulatory, or
judicial relief. Both utilities assert they need some form of
relief by Tuesday, January 16 when they both face major debt
payment deadlines. What's more, in recent weeks, the utilities
have found that their weakening financial condition has
jeopardized their ability to borrow money to cover their
procurement costs.
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This bill would authorize DWR to enter into long-term contracts
with wholesale energy providers for a price not more than 5.5
cents per kWh, and to then sell the power to the utilities or
directly to end-users. According to the author, the purpose of
this bill is to use the fact that generators are willing to sell
to the state because of the state's good credit rating. This
bill enables DWR to purchase long-term power contracts at
reasonable prices in order to ensure the utilities' solvency and
encourage some forbearance of payments by wholesale generators.
The ability to enter into long-term power contracts is a
critical and necessary component for the long-term rate
stability in regional wholesale electricity markets. The
limited authority of IOUs to enter into long-term contracts, and
the specter of after-the-fact reasonableness reviews by CPUC,
has caused the IOUs to purchase a disproportionate amount of
their needs in the spot market, which is the most expensive
power available. CPUC is presently engaged in a proceeding
relating to forward, long-term contracting by the IOUs, with
proposed price benchmarks for CPUC reasonableness reviews.
This bill authorizes DWR to enter into long-term power contracts
for a price not more than 5.5 cents per kWh. With some
exceptions, and depending on the length of the contracts, many
generators have indicated a preference for contracts at rates
closer to 7 or 8 cents per kWh and higher. A question remains
as to how many contracts DWR will be able to sign with
generators at the 5.5 cents per kWh price. The more contracts
that are signed at this price or lower, the more this bill will
help utilities address the utilities' undercollection crisis.
Conversely, if the market responds poorly and relatively few
contracts are signed, this bill will provide only limited relief
and who will absorb the undercollection?
The author, who has pledged to amend this bill further in the
Senate, may wish to consider the following issues: (1)
Clarification that local publicly-owned utilities are eligible
to participate in the DWR power contracts; (2) This bill will
likely decrease the level of participation in spot markets; the
author may wish to consider the impact of this bill on spot
markets, and those entities that for various reasons elect not
to participate; will this bill significantly decrease the
availability of low-cost power in the spot markets in an adverse
way ?; (3) In light of the possibility that legislative and
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regulatory efforts to address the utilities' undercollection
could prove unsuccessful, the author may wish to consider
establishing provisions to ensure that only ratepayers of the
IOUs or publicly-owned utilities that elect to participate in
DWR contracts are liable for the contracts incurred; and (4)
This bill appropriately does not change the ratemaking authority
of the CPUC to set rates for IOUs. The author may wish to
consider the impact of the proposed DWR program on retail rates,
utility undercollection, and the flexibility CPUC currently has
with regard to retail rates.
REGISTERED SUPPORT / OPPOSITION :
Support
None on file.
Opposition
None on file.
Analysis Prepared by : Joseph Lyons / E. C. & A. / (916)
319-2083