BILL ANALYSIS AB 1 X1 Page 1 Date of Hearing: January 16, 2001 ASSEMBLY COMMITTEE ON APPROPRIATIONS Carole Migden, Chairwoman AB 1 X1 (Keeley) - As Proposed to be Amended: January 16, 2001 Policy Committee: E.C&A.Vote:10-0 Urgency: Yes State Mandated Local Program: No Reimbursable: No SUMMARY This bill authorizes the Department of Water Resources (DWR) to purchase electric power from generators and sell the power to consumers in California. Specifically, this bill: 1)Authorizes the DWR to: a) Contract for purchasing power for a price not to exceed 5.5 cents per kilowatt hour. b) Sell the power to electric consumers, either directly or indirectly, at the cost of acquisition plus administrative and borrowing costs. c) Borrow money for cash flow purposes, including short-term debt with a maturity not to exceed 90 days. d) Adopt emergency regulations to implement the power purchase program. 2)Exempts the department from certain administrative procedures related to public contracting, but only if the department determines such procedures are a detriment to accomplishing the purpose of the program. 3)Establishes a continuously appropriated fund-the Department of Water Resources Electric Power Fund-and provides that interest accrued on moneys in the fund shall remain in the fund. Payments from the fund are only for the purposes authorized in the bill, and include: AB 1 X1 Page 2 a) Cost of purchased power. b) Interest on cash advances to the fund. c) Repayment of General Fund advances to the fund. d) DWR administrative costs. e) Other obligations incurred by the DWR. 4)Transfers an unspecified amount from the General Fund to the Electric Power Fund to cover start-up costs of the purchase program. 5)Requires repayment to the General Fund of the amount appropriated in the bill. 6)Requires the DWR to report quarterly and annually to the Legislature and the Governor on activities in the program. FISCAL EFFECT 1)Assuming a General Fund appropriation in the range of $300 million, potential cost to the General Fund in foregone interest earnings could be in the range of $5 million to $30 million. (The General Fund could forgo interest earnings from the period of the transfer to the Electric Power until complete repayment of the appropriated amount to the General Fund. This should be clarified as the bill moves forth. The amount of these foregone interest earnings would depend on the amount of the appropriation and the time until full repayment. The estimate assumes an average five percent interest and a repayment within two years.) 2)Administrative costs for DWR in the range of $2 million annually paid by revenues in the Electric Power Fund. COMMENTS Purpose . This measure is the result of recent discussions between the Governor, the Legislature, and parties affected by the state energy situation. The author indicates that this measure is intended take advantage of the state's good credit AB 1 X1 Page 3 rating for purchasing electric power on the wholesale market in lieu of purchases by the investor-owned utilities. Amendments . Amendments are recommended to: (1) clarify that the power will be sold at the state's cost; (2) the consumers or utilities will purchase the power, whichever is less costly; and (3) require repayment of the General Fund appropriation. Analysis Prepared by : Chuck Nicol / APPR. / (916)319-2081