BILL ANALYSIS
AB 1 X1
Page 1
CONCURRENCE IN SENATE AMENDMENTS
AB 1 X1 (Keeley)
As Amended January 31, 2001
2/3 vote. Urgency
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|ASSEMBLY: |76-0 |(January 16, |SENATE: |27-8 |(January 31, |
| | |2001) | | |2001) |
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Original Committee Reference: E. C. & A.
SUMMARY : Authorizes the Department of Water Resources (DWR) to
purchase power and then sell it directly or indirectly to
consumers, appropriates a total of $500 million from the General
Fund (GF) to DWR, as specified, for this purpose, and authorizes
DWR to sell revenue bonds, and requires the California Public
Utilities Commission (CPUC) to set rates to cover revenue
requirements for DWR's power purchasing program.
The Senate amendments:
1)Authorize DWR to contract for the purchase of power at prices
DWR deems appropriate, taking into account specified factors,
and to sell it at prices which include the costs of
acquisition, transmission, scheduling, administration, bond
payments, General Fund (GF) repayment of appropriations made
to the DWR Electric Power Fund (EPF) pursuant to SBX 7
(Burton), and amounting to $400 million and monies expended by
DWR pursuant to the Governor's Emergency Proclamation,
interests on funds advanced, and other related costs.
2)Authorize DWR to issue revenue bonds, with Department of
Finance (DOF) approval, at prices, terms, and maturity dates
to be determined by DWR, and specifies that bonds may not be
issued in an amount that exceeds four times the annual
revenues generated by the California Procurement Adjustment
(CPA).
3)Define CPA as the difference between the generation related
component of each investor-owned utility's (IOU) retail rate
and the sum of the costs of the utility's own generation,
qualified facility and bilateral contracts, and ancillary
services, and requires CPUC to determine the amount of CPA
allocable to the power sold by DWR, and provides that that
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amount be paid to DWR upon receipt.
4)Require the power purchased by DWR to be allocated on a
pro-rata basis.
5)Prohibit DWR from entering into any contract after January 1,
2003.
6)Suspend direct access provisions until DWR no longer supplies
power pursuant to these provisions. The effective date shall
be determined by CPUC.
7)Transfer up to $495.7 million from the GF to EPF and requires
repayment as soon as possible.
8)Appropriate $4.2 million from the GF to DWR for administrative
costs for the 2000-2001 fiscal year and provides that in
subsequent years such costs will be subject to the budget
process.
9)Authorize DOF, for the purposes of this bill, to approve
deficiencies, in an unlimited amount, with 10-day notification
to Joint Legislative Budget and Appropriations Committees
10)Authorize DWR to contract with IOUs for transmission,
distribution, billing, and collection services.
11)Require CPUC to set rates to cover revenue requirements for
DWR's power purchasing program, and prohibits any future rate
increase for residential customers for usage up to 130% of
baseline quantities, as specified.
12)Authorize DWR, until January 1, 2003, to hire staff at
salaries which exceed Department of Personnel Administration
(DPA) standards but prevents such "excess" salaries from being
used in calculating final year compensation for Public
Employees Retirement System retirement purposes.
13)Establish EPF, a continuously appropriated fund, and provides
that payments from EPF may only be made for specified
purposes, including, but not limited to, the cost of purchased
power, repayment of GF advances as specified, payment of bonds
or other obligations, and interest.
14)Specify that "neither the full faith and credit nor the
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taxing power of the state are pledged for any payment under
any obligation authorized by this division."
15)Require DWR to report quarterly and annually to the
Legislature and the Governor its activities and expenditures,
and requires the Bureau of State Audits to conduct a financial
and performance audit of the program by December 31, 2001, and
issue a final report by March 31, 2003.
16)Eliminate a provision that prohibits IOUs from purchasing
power from qualified exchanges other than the California Power
Exchange.
17)Make related changes.
AS PASSED BY THE ASSEMBLY , this bill:
1)Provided 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; and,
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)Authorized DWR to:
a) Assess the need for power in the state in consultation
with 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;
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a) Sell, exchange, transfer, or otherwise dispose of, or
grant options with respect to any power acquired pursuant
to these provisions, directly or indirectly, at DWR's
acquisition costs plus those costs as provided in Water
Code Section 80200 (b)(2) through (5) to electric
consumers, whichever results in the lowest cost to
consumers, in 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. Provide 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. Provide that
any such notes or other evidence of indebtedness shall be
payable solely from the DWR Electric Power Fund (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; and,
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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.
1)Stipulated 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, applies 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)Required DWR to do those things necessary and authorized under
Water Code Chapter 2 (commencing with Section 80100) to make
power available directly or indirectly to electric consumers
in California.
3)Provided 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)Provided that contracts may provide for the assignment thereof
to public or private entities on any terms and conditions as
the contracts may specify.
5)Provided 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)Established the fund, and provides that all moneys in the fund
are continuously appropriated, without regard to fiscal year.
7)Provided that payments from EPF 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
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for those purchases by the purchasing entity;
a) Payment of any other obligation incurred by DWR;
a) Repayment to the GF of any advances made to DWR from
EPF; and,
a) Administrative costs incurred in administering these
provisions.
1)Provided that obligations authorized by these provisions shall
be payable solely from EPF, 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)Provided 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; and,
a) Impair the rights or remedies of the holders of or other
parties to any such obligations.
1)Required 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.
2)Authorized 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.
3)Prohibited the state from taking ownership of the transmission
and distribution assets of any IOU in this state.
AB 1 X1
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4)Specified that these provisions, and in particular Chapter 3,
which authorizes the purchase of electrical energy by DWR,
shall be subject to sunset review effective January 1, 2006.
5)Added 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
Project shall be sold and disposed of, and enter into contracts
and agreements for the movement of water.
FISCAL EFFECT : Transfers $500 million from the GF to DWR.
COMMENTS :
1)Procurement Role . Assembly Bill 1890 (Brulte), Chapter 854,
Statutes of 1996, restructured California's electric industry
in order to establish a competitive generation market. CPUC,
in D.95-12-063 (as modified by D.96-01-009) required IOUs to
divest at least 50% of their fossil generating assets. While
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). In recent
weeks, SCE and PG&E have defaulted on debt payments to some
electricity generators and financial creditors. Facing
mounting cash flow problems, the two utilities are no longer
able to procure power for their customers beyond what they
produce through their retained generation assets. Under this
bill, the state would step in to assume the power procurement
role for the IOUs. DWR would buy electricity through
long-term contracts and re-sell the power directly to
consumers at rates significantly lower than the utilities have
been paying. The state would use its good credit rating to
negotiate long-term deals with power suppliers.
2)Covering the Net Short . Since AB 1890, the IOUs have divested
most of their generating assets, including a large number of
natural gas power plants. SDG&E has rights to a portion of
the output of the San Onofre Nuclear Generating Station. PG&E
and SCE still own or have contract rights to a considerable
amount of generating resources, including hydroelectric
facilities. Despite these generation resources and contract
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rights, the IOUs are still "net short" with regard to
generation. The net short is the electricity needs of
customers that are not met by the generation resources owned
or under contract to the utilities. This bill requires DWR to
cover the "full net short" of the IOUs, and to a limited
extent, the net short of municipal utilities.
3)Municipal Utilities . While most of the municipal utilities'
power needs are met through self-generation and long-term
power contracts, a portion of their power is procured through
spot markets. This bill authorizes DWR to sell power to
municipal utilities requesting such power, but prohibits DWR
from selling power to a municipal utility that is a net seller
of power (i.e, it sells more than it buys in the wholesale
electricity market).
4)General Fund Loan, Revenue Bonds, and Rates . This bill
transfers up to $495.7 million from the GF to the DWR Electric
Power Fund, and requires repayment as soon as possible. This
bill also authorizes DWR to issue revenue bonds, with DOF
approval, at prices, terms, and maturity dates to be
determined by DWR, and specifies that bonds may not be issued
in an amount that exceeds four times the annual revenues
generated by the "California Procurement Rate." CPUC is
required under this bill to set rates to cover revenue
requirements for DWR's power purchasing program, and prohibits
any future rate increase for residential customers for usage
up to 130 percent of baseline quantities. Senate amendments
adopted today prohibit CPUC from authorizing rate increases
for any portion of the bill (including transmission and
distribution charges) until DWR has recovered its power
procurement costs.
5)Suspension of Direct Access . AB 1890 permits customers to
choose an alternate power supplier. While most residential
customers continue to receive service from the incumbent
utility, many large customers have chosen to enter into a
direct access relationship with an alternate energy service
provider. This bill suspends a customer's ability to choose
direct access until such point as DWR no longer supplies power
pursuant to the provisions of this legislation. The effective
date of the suspension would be determined by CPUC. Customers
currently receiving service from an alternate energy supplier
would not be affected by these provisions since their direct
access contract cannot be impaired by a change in law.
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Analysis Prepared by : Joseph Lyons / E. C. & A. / (916)
319-2083
FN: 0000082