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.