BILL ANALYSIS
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THIRD READING
Bill No: AB 8X
Author: Keeley (D), et al
Amended: 3/22/01 in Senate
Vote: 27 - Urgency
WITHOUT REFERENCE TO FILE
SENATE APPROPRIATIONS COMMITTEE : 8-2, 3/23/01
AYES: Alpert, Bowen, Burton, Escutia, Karnette, Murray,
Perata, Speier
NOES: McPherson, Poochigian
SENATE FLOOR : 27-9, 3/22/01
AYES: Alarcon, Alpert, Bowen, Brulte, Burton, Chesbro,
Costa, Dunn, Escutia, Figueroa, Johannessen, Karnette,
Kuehl, Murray, O'Connell, Ortiz, Peace, Perata, Polanco,
Romero, Scott, Sher, Soto, Speier, Torlakson,
Vasconcellos, Vincent
NOES: Ackerman, Haynes, Knight, Margett, McClintock,
Monteith, Morrow, Oller, Poochigian
ASSEMBLY FLOOR : Not relevant
SUBJECT : Electric power
SOURCE : Author
DIGEST : This bill makes changes in the following areas:
(1) qualifying facilities, (2) Department of Water
Resources Power Purchasing Program and (3) San Diego
ratepayers.
CONTINUED
AB 8X
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NOTE: Senate amendments delete the prior version. As it
left the Assembly, the bill was authored by Migden and
expanded the authority of the Electricity Oversight Board.
ANALYSIS : This bill consists of three main components:
Qualifying Facilities
Current law requires the California Public Utilities
Commission (CPUC) to establish energy payments for
qualifying facilities (QFs) based on formulas which reflect
the spot market price of natural gas sold at the California
border.
Current law allows energy payments to QFs to be based on
prices paid by the Power Exchange (PX) under certain
circumstances.
This bill repeals those provisions and instead requires the
CPUC to set payments to QFs consistent with federal law and
regulation.
Department of Water Resources (DWR) Power Purchasing
Program
Current law establishes a process for DWR to buy
electricity and sell it directly to customers using the
investor-owned utilities (IOUs) as billing and collection
agents. In connection with such purchases and sales, DWR
is authorized to issue bonds in compliance with a statutory
formula.
This bill clarifies that as a matter of existing law, DWR
is entitled to be paid for the electricity it sells to
customers at a rate equal to the generation component of
electric rate.
This bill specifies that the state can issue a maximum of
$10 billion worth of bonds to finance the purchase of
electricity. It replaces the statutory formula (specified
in AB 1X) with language that sets a specific cap of $10
billion.
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This bill makes other clarifying and technical changes to
the DWR electricity purchase and sales program.
San Diego Ratepayers
Current law requires the CPUC to establish a rate ceiling
of $0.065/kilowatt-hour for the energy portion of electric
bills for residential, small and medium commercial (less
than 100 kilowatts), and street lighting customers of San
Diego Gas and Electric Company (SDG&E).
This bill requires the CPUC to extend a rate freeze of
$0.065/kwh, subject to adjustment by the CPUC, for the
energy portion of electric bills on the energy sold by
SDG&E to all commercial customers. This freeze is applied
retroactively to February 7, 2001 and will last only until
the rate freeze for Southern California Edison (SCE) and
Pacific Gas & Electric Company (PG&E) ends.
Background
QFs
In 1978, Congress and the President enacted the Public
Utility Regulatory Policies Act (PURPA) which encouraged
competition in the power generation market through the
creation of non-utility power producers known as qualifying
facilities (QFs).
To accomplish this, PURPA required the utilities to
purchase power from the QFs and to pay those QFs based on
the utilities' "avoided cost" - the cost that the utility
would otherwise pay to generate or procure power - not on
the QF's actual cost of producing power. The cost of QF
power is then passed through to utility customers.
PURPA requires the electric utility to purchase the
electricity from the QFs at rates which "shall be just and
reasonable to the electric customers of the electric
utility and in the public interest." Furthermore, the
rates charged cannot exceed the utility's avoided cost.
"Avoided cost" is determined by the CPUC and has been
computed based on a formula which estimated the cost of
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running an additional gas-fired powerplant. When
California's electric market was restructured in 1996, the
method, but not the formula, for determining avoided cost
was set in statute. AB 1890 (Brulte), Chapter 854,
Statutes of 1996, established an avoided cost methodology
based on competitive prices as established through the PX.
AB 1890 also created an alternative methodology for avoided
cost which relies on the spot market price of natural gas
at the California border. Just as over-reliance on spot
market prices in times of shortage led to volatile and high
electricity prices for power bought through the PX, so too
has this reliance on spot market natural gas prices lead to
high prices for power purchased from QFs.
DWR Power Purchasing Program
In early February 2001, DWR stepped in to temporarily
assume the utilities' role of buying power when the
utilities' were no longer financially capable of entering
into power purchase contracts. AB 1X (Keeley), Chapter 4,
Statutes of 2001, established a process for DWR to assume
that role and created a direct relationship between DWR and
the customer - the utility was charged only with providing
billing and collection services. The vast majority of DWR's
purchases have been funded via loans from the state's
General Fund, and PG&E and SCE have not remitted any monies
back to DWR for its purchases.
DWR intends to finance its purchases through the sale of
bonds and levelize charges to its customers to ensure those
bonds will be repaid. That financing has been delayed
because of uncertainties in the legislation and,
apparently, challenges to the CPUC decisions implementing
that legislation. This bill attempts to clear up some of
that ambiguity in order to facilitate the financing process
and ensure the monies advanced from the General Fund will
be paid back.
San Diego Ratepayers
Earlier this year, the Senate passed SB 43X (Alpert), a
bill which extended a rate cap to large electricity
customers in San Diego that was modeled on the rate cap
enjoyed by large customers in SCE and PG&E service
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territories. This bill is very similar to SB 43X, though
the bill is modified to reflect the fact that DWR is now
purchasing electricity on behalf of SDG&E.
Comments
QFs
Overhauling Public Utilities Code Section 390 is necessary
because it needlessly limits the flexibility of the CPUC,
requires the CPUC to set QF prices based on costly spot
market natural gas prices, and relies on a PX which is
bankrupt. By replacing the existing Section 390 with a
provision requiring the CPUC to follow federal law, this
bill provides the CPUC with the maximum flexibility to set
QF prices consistent with the public interest. The CPUC
has issued a proposed draft decision which establishes
energy prices for QFs and requires SCE and PG&E to pay the
QFs on a going-forward basis.
DWR Power Purchasing Program
These provisions reflect changes which the Treasurer, the
Department of Finance, and the staff of the CPUC believe
are necessary to ensure the state's taxpayers, through DWR,
receive immediate and continuing payment for power sold to
retail customers. These changes are also necessary to
facilitate the ability to obtain interim financing and bond
financing for DWR's purchases. DWR is spending, on
average, between $40 million and $50 million a day to buy
electricity on behalf of California ratepayers and the
proceeds from this financing will repay money borrowed from
the General Fund.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: Yes
NC:sl 3/23/01 Senate Floor Analyses
SUPPORT/OPPOSITION: NONE RECEIVED
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