BILL ANALYSIS
AB 19 X2
Page 1
ASSEMBLY THIRD READING
AB 19 X2 (Florez)
As Introduced May 17, 2001
Majority vote
SUMMARY : Exempts dormant electric generating facilities
currently owned by electric utilities that meet specific terms
from provisions under Public Utilities Code Section 377
prohibiting the sale of such power plants prior to January 1,
2006. Specifically, this bill specifies that facilities owned
by a public utility prior to January 1, 1997, which have been
out of service at least 10 years and which have not been
permitted for at least five years, qualify for an exemption from
Public Utilities Code Section 377. The exemption applies if the
facility offers to enter into a contract to sell generated power
to the California Department of Water Resources (DWR) for
initial and continuing available capacity subject to
cost-of-service pricing and the California Public Utilities
Commission (CPUC) regulation.
EXISTING LAW prohibits any facility for the generation of
electricity owned by a public utility prior to January 1, 1997,
to be disposed of prior to January 1, 2006.
FISCAL EFFECT : Unknown
COMMENTS : In response to the escalating power crisis in
California, AB 6 X1 (Dutra), Chapter 2, Statutes of 2001,
amended existing Public Utilities Code Section 377, relating to
the sale of generation assets of public utilities. The previous
version of the code section applied to all non-nuclear
generation assets of utilities and required that facilities
owned prior to January 1, 1997, could not be sold prior to
January 1, 2006. The current version of Section 377, as enacted
in January of 2001 includes nuclear power plants in the group of
plants which cannot be sold by utilities and which must remain
under CPUC regulation. The January 2001 legislation was enacted
in order to preserve native generation assets within California
and to encourage investor owned utilities (IOUs) to repower
dormant facilities to provide generated electricity at
reasonable rates.
Prior to AB 6 X1 taking effect in January 2001, Pacific Gas and
Electric Company (PG&E) filed an application with CPUC to sell
its Kern River Facility, which had long been dormant. As a
AB 19 X2
Page 2
statutory matter, when Public Utilities Code Section 377 was
amended to include all generating facilities, the proposed sale
of the Kern River Facility became legally moot. On April 3,
2001, CPUC voted out a decision in the Kern River case, not
allowing the sale to go through and ordering PG&E to repower the
facility as soon as possible. One of the five CPUC
Commissioners indicated that Section 377 made the transaction
impossible. Among the four Commissioners voting on the matter,
two expressed grave concerns with yet another generation asset
being sold to an out-of-state company in addition to the
prohibition on sale as the reason for disallowing the sale.
The CPUC decision on Kern River stated the policy that it is in
the public interest to retain the generation assets with the
utility under cost-of-service regulation. Since the Kern River
purchase proposal involves financing through DWR, CPUC asserted
that the same financing could be obtained by PG&E to repower the
plant and provide electricity subject to cost of service
regulation. Subsequent to the CPUC decision, PG&E filed Chapter
11 bankruptcy in federal court, which leaves the handling of
existing assets under the control of the federal bankruptcy
judge, including sale or other disposition of existing assets.
This bill addresses the CPUC's concerns with sale of existing
utility owned generation facilities to out-of-state interests by
requiring that the purchaser offer power for sale to DWR for
initial and continuing available power on a cost-of-service
basis subject to CPUC regulation. Both the policy of CPUC and
the stated intent of AB 6 X1 indicate that providing generation
at cost of service subject to CPUC regulation are desired to
ensure continued benefit to California ratepayers, as is
retaining these assets within the state, not selling them to out
of state generators.
Under the bankruptcy scenario, the situation becomes decidedly
more complicated and mandates as to disposition of the assets is
largely taken out of legislative control. The state, either
through CPUC police powers in a state of emergency, or through
executive powers in such a situation, could attempt to seize the
asset and might be able to bring that matter before a state
court to retain the plant and repower to generate much needed
electricity. In all practicality it is unlikely a federal
bankruptcy judge would entertain the sale of a dormant facility
before resolution of the entire bankruptcy proceeding was at
hand.
AB 19 X2
Page 3
Analysis Prepared by : Kelly Boyd / E. C. & A. / (916)
319-2083
FN: 0000903