BILL ANALYSIS
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|SENATE RULES COMMITTEE | AB 1X|
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THIRD READING
Bill No: AB 1X
Author: Keeley (D) & Migden (D)
Amended: 1/16/01 in Assembly
Vote: 27 - Urgency
SENATE ENERGY, U. & C. COMMITTEE : Unavailable at time of
writing
ASSEMBLY FLOOR : 60-5, 1/16/01
(ROLL CALL NOT AVAILABLE)
SUBJECT : Public utilities
SOURCE : Author
DIGEST : This bill authorizes the State Department of
Water Resources to enter into long-term power purchase
contracts with electricity generators for a price not more
than 5.5 cents per kilowatt hour, and to sell the power,
directly or indirectly, to electric consumers in
California.
NOTE: Amendments have been recommended to this version 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) requires repayment
of the General Fund appropriation.
ANALYSIS : Assembly Bill 1890 (Brulte), Chapter 854,
Statutes of 1996, restructured California's electric
industry in order to establish a competitive generation
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market. The California Public Utilities Commission (CPUC),
in D.95-12-063 (as modified by D.96-01-009) required the
investor-owned utilities (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).
Specifically, this bill:
1.Authorizes the State Department of Water Resources (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.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.
Provides that contracts may provide for the assignment
thereof to public or private entities on any terms and
conditions as the contracts may specify.
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.
3.Exempts DWR from certain administrative procedures
related to public contracting, but only if DWR
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determines such procedures are a detriment to
accomplishing the purpose of the program.
4.Establishes a continuously appropriated fund - the
Department of Water Resources Electric Power Fund - and
provides that interest accrued on monies in the fund
shall remain in the fund shall remain in the fund.
Payments from the fund are only for the purposes
authorized in the bill, and include:
A. Cost of purchase 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 DWR.
5.Transfers an unspecified amount from the General Fund to
the Electric Power Fund to cover start-up costs of the
purchase program.
6.Requires repayment to the General Fund of the amount
appropriated in the bill.
7.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.
B. Impair the terms of any obligations of DWR
entered into pursuant to these provisions.
C. Impair the rights or remedies of the holders of
or other parties to any such obligations.
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8.Requires DWR to report quarterly and annually to the
Legislature and the Governor on activities in the
program.
9.Authorizes all state agencies and other official state
organizations, and all persons connected therewith, to
give DWR reasonable assistance or other coopeation in
carrying out these provisons, upon the request of DWR.
10.Prohibits the state from taking ownership of the
transmission and distribution of any IOU in this state.
11.Specifies that these provisions and, in particular,
Chapter 3, which authorizes the purchase of electrical
energy by DWR, shall be subject to sunset review,
effective Janaury 1, 2006.
Comments
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
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declare bankruptcy if they do not receive legislative,
regulatory, or judicial relief. Both utilities assert they
need some form of 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.
Purpose
This bill is the result of recent discussions between the
Governor, the Legislature, and parties affected by the
state energy situation. The author's office indicates that
this bill is intended to take advantage of the state's good
credit rating for purchasing electric power on the
wholesale market in lieu of purchases by the IOUs.
According to the author's office, 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 forebearance 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 IOUs to purchase a
disproportionate amount of their needs in the spot market,
which is the most expensive power available. The CPUC is
presently engaged in a proceeding relating to forward,
long-term contracting by IOUs, with proposed price
benchmarks for CPUC reasonableness reviews.
FISCAL EFFECT : Appropriation: Yes Fiscal Com.: Yes
Local: No
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
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$30 million.
(The General Fund could forgo interest earnings from the
period of the transfers 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.)
Administrative costs for DWR in the range of $2 million
annually paid by revenues in the Electric Power Fund.
(UNABLE TO VERIFY SUPPORT/OPPOSITION AT TIME OF WRITING)
DLW:cm 1/18/01 Senate Floor Analyses
SUPPORT/OPPOSITION: NONE RECEIVED
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