BILL ANALYSIS 1
1
SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE
DEBRA BOWEN, CHAIRWOMAN
AB 1X - Keeley
Hearing Date: January 19, 2001 A
As Amended: January 16, 2001 FISCAL
B
X
1
1
DESCRIPTION
This bill authorizes the California Department of Water
Resources (DWR) to contract with any person entity to
purchase electricity for up to 5.5 cents per kilowatt hour
(kwh).
This bill allows DWR to determine the terms of such a
purchase and the length of time for which the power will be
purchased.
This bill authorizes DWR to sell electricity to any entity
so long as it results in the lowest costs for consumers.
This bill prohibits the state from taking ownership of the
transmission assets of any investor-owned utility.
To the extent the division created by this bill is
inconsistent with any general, special, or local law, the
division created by this bill shall override those laws.
This bill allows DWR to adopt emergency regulations, which
are, by definition, exempt from the Administrative
Procedures Act (APA) and from review by the Office of
Administrative Law (OAL). The regulations shall be
repealed after 180 days unless DWR formally files its
emergency regulations with OAL for formal adoption.
This bill allows DWR to waive provisions of the Government
Code and the Public Contract Code applicable to state
contracts, including, but not limited to, advertising and
competitive bidding requirements and prompt payment
requirements, if it determines those provisions are
detrimental to accomplishing the purposes of this bill.
This bill allows DWR to enter into contracts that include
provisions for the indemnification of parties with whom the
department contracts. However, the contract may not
indemnify any party for acts or omissions (or any costs of
defense related to any acts or omissions) involving
negligence, gross negligence, recklessness, or willful
misconduct by that party or that party's employees, agents,
or contractors.
This bill establishes the Department of Water Resources
Electric Power Fund (Fund). This fund shall accept all
revenues payable to DWR pursuant to this bill and shall
make payments only for the purposes set forth in the bill.
Obligations authorized by this bill are only payable from
the Fund. Neither the full faith and credit nor the taxing
power of the state may be pledged for payment of any
obligation under this bill.
This bill authorizes expenditures from the fund to cover:
q The cost of electric power.
q The pooled money investment rate on funds
advanced for electric power purchases prior to the
receipt of payment for those purchased by the
purchasing entity.
q Payment of any other obligation incurred by the
department.
q Repayment to the General Fund of any advances
made to DWR from the Fund.
q Any administrative costs incurred by DWR in
administering this division.
This bill authorizes DWR to hire employees, engage the
services of private parties, contract for services of other
public agencies, and borrow money in anticipation of the
receipt of revenues.
This bill authorizes DWR to engage the services of private
parties to render professional and technical assistance and
advice in carrying out the purposes of this bill, as well
as to contract for the services of other public agencies.
This bill appropriates $400 million dollars from the
General Fund to the Fund as a loan for working capital
purposes.
This bill requires DWR to make quarterly and annual reports
to the Governor and the Legislature regarding its
activities pursuant to this division.
This division is subject to sunset review as of January 1,
2006.
This bill is an urgency statute.
BACKGROUND
The deteriorating financial condition of California's two
largest investor-owned utilities, Pacific Gas & Electric
(PG&E) and Southern California Edison (SCE), has made it
difficult, if not impossible in some instances, for them to
purchase electricity.
On January 18, 2001, the Legislature passed SB 7X (Burton),
which appropriated $400 million to allow DWR to purchase
electricity over the next 12 days. This action was taken
with the hope of avoiding rolling blackouts throughout the
state while the Legislature crafted a mechanism to allow
DWR to enter into longer term contracts to buy electricity
for the residents of California. The Governor is expected
to sign SB 7x into law on Friday, January 19, 2001.
COMMENTS
This measure raises a number of important policy issues
that the committee may wish to consider, including the
following:
1.Any contract for the delivery of power involves a number
of components, some of which are: a) the price per
megawatt hour; b) the amount of megawatts to be
purchased: c) the duration of the contract; d) and when
the power will be delivered (on-peak, off-peak, etc.).
By fixing one of those components in statute - as this
bill does by precluding DWR from buying any electricity
that costs more than 5.5 cents per kilowatt hour - how
will that affect the other moving parts that will be a
part of any contract?
2.Should specific bid acceptance criteria be including in
the bill? If so, will capping the per kilowatt hour cost
preclude some power providers from bidding?
3.How can the state establish a credible bidding process
which will result in the widest possible participation?
4.What process should the state use to evaluate bids and
what criteria should be used to evaluate which bids will
result in the "lowest cost for consumers" as this bill
calls for?
5.SB 7X allowed DWR to purchase power and sell it to the
Independent System Operator (ISO), public utility
electrical corporations, or retail end-use customers.
Should this bill contain similar language?
6.SB 7X included language to ensure that, with respect to
electric power made available to retail end-use
customers, the customers aren't responsible for costs
that exceed the rates established by the California
Public Utilities Commission (CPUC) in effect on the date
the power is made available to the customers. Should
this bill contain similar language?
7.SB 7X directed the CPUC to adopt and implement emergency
regulations to provide for delivery and payment
mechanisms relating to the sale of electric power
purchased by DWR for sale directly or indirectly to the
ISO, public utilities, or retail end-use customers.
Should this bill contain similar language or language to
ensure that the regulations created under SB 7X will also
be used in conjunction with the authority extended to DWR
should this bill be enacted?
8.Does the financing mechanism provide adequate assurance
that the state's General Fund is not at risk?
9.How can the state assure that these long-term contracts
don't result in additional stranded costs that may be
forced to be borne by the taxpayers, the ratepayers, or
the utilities?
10. What "general, special,
or local laws" would this bill potentially override?
11. Is it appropriate to
allow DWR to exempt the purchases made pursuant to this
bill from certain state contracting provisions in the
Government Code and the Public Contract Code?
12. SB 7X placed a $1
million cap on the amount of money that DWR could spend
on administrative expenses (as part of a $400 million
power purchasing authority). Should a similar cap be
imposed on any administrative expenses incurred as a
result of the authority granted by this bill?
13. The measure states that
it's subject to sunset review as of January 1, 2006, but
it doesn't actually sunset the authority granted to DWR.
Would a more traditional sunset clause be more
appropriate?
14. This bill prohibits the
state from taking ownership of the transmission assets of
any investor-owned utility. SB 6X (Burton) establishes a
public power authority, which is specifically authorized
to, among other things, finance the acquisition of
transmission assets. How should these two policies be
reconciled?
ASSEMBLY VOTES
Assembly Energy Cost & Availability Committee(10-0)
Assembly Appropriations Committee (15-0)
Assembly Floor (76-0)
POSITIONS
Sponsor:
Author
Support:
None on file.
Oppose:
None on file.
Randy Chinn
AB 1X Analysis
Hearing Date: January 19, 2001