BILL ANALYSIS                                                                                                                                                                                                    




                    Appropriations Committee Fiscal Summary
          
                                           1 (Keeley)
          
          Hearing Date:  1/30/01          Amended: 1/29/01       
          Consultant:  Lisa Matocq            Policy Vote: E, U & C  
          6-2                      
          ____________________________________________________________ 
          ___
          BILL SUMMARY:   AB 1X, an urgency measure, (1) authorizes  
          the Department of Water Resources (DWR) to purchase power  
          and then sell it either directly or indirectly to  
          consumers, (2) appropriates $500 million from the General  
          Fund (GF) to the Electric Power Fund for this purpose, and  
          (3) authorizes DWR to sell revenue bonds.   
                              Fiscal Impact (in thousands)
           Major Provisions                 2000-01           2001-02              
           2002-03               Fund  
          Appropriation             $500,000*            --                     
               --             General
          Deficiency authorization          Unknown, potentially multibillions  
                      General
          Revenue bond debt         Unknown, potentially $10 billion plus  
          interest   Special**
          Offsetting revenues                 Unknown, potentially  
          multibillions        Gen/Spec.**
          Administrative costs            Potentially $8,000-$10,000 annually   
                     General
          Audits                               ----------- Unknown ----------   
                          General        
          *The bill transfers $500,000 from the General Fund to the EPF. 
          **Electric Power Fund. 
          
          STAFF COMMENTS:  This bill was heard on 1/26/01 and put  
          over primarily to review Department of Finance (DOF)  
          suggested amendments.  As amended on 1/29/01 this bill:

           authorizes 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, GF repayment  
            of appropriations made to the Electric Power Fund  
            pursuant to SB 7X (Burton), and amounting to $400 million  
            and monies expended by DWR pursuant to the Governor's  
            Emergency Proclamation (approx. $13 million), interest on  










            funds advanced, and other related costs;
           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 Adjustment"  
            (CPA); 
           defines the CPA as the difference between each electrical  
            corporation's retail rate and the sum of costs of the  
            utility's own generation, qualified facility and  
            bilateral contracts, transmission, and distribution, and  
            requires the Public Utilities Commission (PUC) to  
            determine the amount of the CPA allocable to the power  
            sold by DWR, and provides that that amount be paid to  
            DWR;  
           requires the power purchased by DWR to be allocated on a  
            pro-rata basis; 
           prohibits DWR from entering into any contract after  
            January 1, 2003; however, it appears that options or  
            "forward contracts" could result in sales beginning after  
            that date;   
           transfers up to $500 million from the GF to the EPF and  
            requires repayment as soon as possible; 
           for purposes of this bill, authorizes DOF to approve  
            deficiencies, in an unlimited amount, with 10-day  
            notification (rather than 30-day as in the Section 27  
            process) to the Joint Legislative Budget Committee (and  
            not to Appropriations Committees as in the Section 27  
            process); 
           authorizes DWR to contract with electrical corporations  
            for transmission, distribution, billing, and collection  
            services;
           authorizes PUC to set rates to cover revenue requirements  
            of DWR's power purchasing program.  It prohibits any  
            future rate increase for residential customers for usage  
            up to 130% of baseline quantities, as specified;  
           authorizes DWR to hire staff at salaries which exceed  
            Department of Personnel Administration standards;
           establishes the EPF, a continuously appropriated fund,  
            and provides that payments from the fund 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,  
            interest, and admin. costs; 
           specifies that "neither the full faith and credit nor the  
            taxing power of the state are pledged for any payment  










            under any obligation authorized by this division"; 
           requires DWR to report quarterly and annually to the  
            Legislature and the Governor on its activities, 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; and
           makes related changes. 
          
          STAFF RECOMMENDS AMENDMENTS TO: 
          1.  Delete the continuous appropriation and require the  
          program to be reviewed and funded in the budget process. 
          2.  Provide for repayment of General Fund monies no later  
          than 1/1/02. 
          3.  Cap DWR's administrative costs.
          4.  Include a sunset.
          5.  Limit the term in which employees may be paid more than  
          DPA-approved salaries by providing that no "excess"  
          salaries be paid after 1/1/03, the date DWR's authority to  
          purchase electricity terminates.  Provide that "excess"  
          salaries are treated as a bonus and not considered salary  
          for determining final-year compensation for PERS retirement  
          purposes. 
          6.  Require DOF to notify the Appropriations Committee  
          Chairs of deficiency requests, and to notify the Joint  
          Legislative Budget and Appropriations Committees upon bond  
          issuance.
          7.  Further clarify on page 17, lines 24 and 25 that the  
          EPF is already established.

          STAFF NOTES that (1) based on the expenditure of $400  
          million appropriated by SB 7X, Burton) in approximately 10  
          days, there is considerable General Fund pressure to  
          continue power purchases at a potential cost of $1.2  
          billion per month until such time as revenue bonds are  
          issued, and (2) it is unclear why the amendments address  
          the $13 million but not the $38 million DWR spent to  
          purchase power from funds otherwise committed for other  
          purposes.  SB 7X (Burton, Ch. 3, St. of 1999-2000, First  
          Extraordinary Session), appropriated $400 million from the  
          General Fund to DWR to purchase and sell electricity on a  
          short-term basis, and created the Electric Power Fund.