BILL ANALYSIS 1
1
SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE
DEBRA BOWEN, CHAIRWOMAN
AB 19XX - Florez Hearing
Date: June 12, 2001 A
As Amended: June 11, 2001 FISCAL B
X
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1
9
DESCRIPTION
Under existing law , the California Public Utilities
Commission (CPUC) must authorize the sale of property owned
by a public utility that is "necessary or useful in the
performance of its duties to the public."
Existing law further flatly prohibits the sale of any
public utility-owned power plant until January 1, 2006, and
requires the CPUC to ensure that generation assets remain
dedicated to service for the benefit of California
ratepayers.
This bill exempts from the above prohibition a power plant
that hasn't been operated for at least 10 years and that
has not had a permit to generate electricity for at least
five years. These criteria are intended to apply only to
Pacific Gas & Electric's (PG&E) Kern facility in
Bakersfield, which it has proposed to sell to the North
American Power Group (NAPG).
This bill requires that the entity purchasing such a power
plant enter into contracts to sell an unspecified amount of
power for an unspecified period of time to the Department
of Water Resources (DWR) or a CPUC-regulated utility at
cost-of-service rates. Such contracts are subject to CPUC
approval.
BACKGROUND
Section 851 of the Public Utilities Code requires any
public utility to secure CPUC authorization prior to
disposing of any property "necessary or useful in the
performance of its duties to the public."
The authority conferred to the CPUC in Section 851, which
dates back to 1915 and the original Railroad Commission, is
fundamental to utility regulation and is designed to ensure
that the CPUC maintains the powers and functions necessary
to protect the public interest. In the case of an
application to sell a power plant, CPUC review under
Section 851 would entail a finding of public interest and
environmental review under the California Environmental
Quality Act (CEQA).
AB 1890 (Brulte), Chapter 854, Statutes of 1996, added
Sections 216(h) and 377 to the Public Utilities Code.
These sections created some confusion with respect to the
CPUC's authority to review and approve the disposition of
generation assets by suggesting that these assets may be
released from CPUC regulation simply as a consequence of
the market valuation required by AB 1890.
AB 6X (Dutra), Chapter 2, Statutes of 2001, resolved the
confusion by amending Sections 216(h) and 377 to clarify
that generation assets must undergo Section 851 review
prior to their sale. In addition, AB 6X flatly prohibited
the sale of any public utility-owned power plant until
January 1, 2006, and required, in any event, that the CPUC
ensure that generation assets remain dedicated to service
for the benefit of California ratepayers.
Prior to passage of AB 6X, PG&E applied to the CPUC for
authorization to sell its Kern facility to NAPG. Kern was
operated by PG&E from 1948 until 1985, when it was shut
down because less expensive sources of power were available
to meet PG&E's needs. All operating permits for the
facility have since lapsed. According to the author, the
restarted plant will produce 180 megawatts of electricity,
but according to NAPG, it will be a minimum of four months
from the time when the plant is sold to the time when it
begins producing electricity for sale. This time frame
assumes the shortest possible permitting process, running
concurrently with project construction.
On April 3, the CPUC denied PG&E's application to sell the
plant and ordered the utility to restart the Kern facility
itself. The CPUC found the sale was prohibited by AB 6X
and that PG&E had failed to show that the sale was in the
public interest. Recognizing that PG&E may be ill-equipped
to restart Kern itself, the CPUC suggested that PG&E could
contract with NAPG to restore and/or operate the plant.
Following the CPUC ruling, NAPG expressed a willingness to
lease the property from PG&E.
This bill would exempt the Kern facility (and any others
which may meet the criteria) from AB 6X's prohibition on
sale. Under the bill, PG&E would still need CPUC approval
to sell the facility. The bill attempts to address the
concern about whether the sale is in the public interest by
requiring that power be sold on a cost-of-service basis
pursuant to contracts which would be subject to CPUC
approval.
COMMENTS
1)Allow vs. Require. This bill removes the clear statutory
barrier currently blocking PG&E's sale of the Kern
facility, but it does not compel the CPUC to approve the
transaction. As such, it essentially turns the matter
over to the CPUC for it to decide on the merits, under
the traditional process governing sale of utility assets
(Section 851 review) which was confirmed by AB 6X.
While this bill will facilitate the sale of the Kern
facility to NAPG by creating an exemption to the AB 6X
prohibition on sale, it should be recognized the CPUC
could deny PG&E's application if it finds the sale isn't
in the public interest.
2)The first of many exemptions? When AB 6X was heard in
this committee, the analysis of that measure noted that:
This bill's outright ban on divestiture of
power plants until 2006 may go beyond the
initial purpose of ensuring that generation
assets are not deregulated simply as a
consequence of market valuation. This
provision may limit PG&E's or SCE's ability to
undertake projects which may very well be in
the public interest, such as decommissioning of
uneconomic hydroelectric facilities to achieve
water quality and aquatic habitat goals.
This bill is the first indication of a predictable
consequence - each time a utility wants to sell a power
plant, it will have to seek a statutory exemption from
the Legislature. In fact, the committee has received a
request from Sierra Pacific Power for an exemption to
allow the sale of one of its hydroelectric facilities.
This forces the Legislature to pass judgement on
individual divestiture applications, a task much more
appropriate for the CPUC.
If the ban on power plant sales is not going to be
strictly observed, the Legislature can create exceptions
on a case-by-case basis, or establish a more general
policy to allow the CPUC the discretion to approve sales
which are clearly in the public interest. If a more
general policy is desired, the author and committee may
wish to consider broadening this bill to allow the sale,
subject to CPUC approval, of non-operational facilities
in general or facilities whose owners agree to sell at
CPUC-approved rates.
3)Regulation by contract. This bill requires the entity
purchasing the facility to contract with DWR or a
CPUC-regulated utility at cost-of-service rates. While
such contracts are subject to CPUC approval, they would
necessarily be executed after the CPUC had approved the
sale of the facility. As such, it is unclear what the
consequences of failing to execute a CPUC-approved
contract would be. The author and the committee may wish
to consider whether there should be a financial penalty
or whether the property should revert back to the utility
if acceptable contracts are not consummated.
In addition, the bill does not specify the desired
duration of the contracts, whether all power generated by
the facility must be sold under contract, or whether
subsequent contracts must be approved by the CPUC. The
author and committee may wish to consider whether it is
sufficient to allow the CPUC to address these issues in
its review of the individual contracts, or whether such
details should be specified in the bill.
ASSEMBLY VOTES
Assembly Floor (77-0)
POSITIONS
Sponsor:
Author
Support:
None on file (approximately 17 individuals did write the
committee in support of AB 63X (Florez), which was
substantially similar to this bill).
Oppose:
None on file
Lawrence Lingbloom
AB 19XX Analysis
Hearing Date: June 12, 2001