BILL ANALYSIS
AB 60 X1
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Date of Hearing: February 28, 2001
ASSEMBLY COMMITTEE ON ENERGY COSTS AND AVAILABILITY
Roderick D. Wright, Chair
AB 60 X1 (Hertzberg) - As Introduced: February 14, 2001
SUBJECT : Electrical generating facilities: certification.
SUMMARY : Specifically, this bill:
1)Requires, as a condition of certification by the California
Energy Commission (CEC), that an applicant offer to sell to an
investor-owned utility (IOU), a municipal corporation, or
Department of Water Resources (DWR) at a just and reasonable
price according to the standards, methods, and practices in
place pursuant to Sections 205 and 206 of the Federal Power
Act, electrical power generated by the facility.
2)Contains an urgency statute.
EXISTING LAW :
1)Provides for exclusive federal jurisdiction over wholesale
sales of electricity under the Federal Power Act.
2)Provides that wholesale electricity rates shall be just and
reasonable under the Federal Power Act.
3)Provides CEC with the exclusive authority to approve the
siting of thermal powerplants 50 megawatts (MW) or greater in
generating capacity.
4)Authorizes DWR to enter into contracts for the purchase of
electric power and then sell it directly or indirectly to
electric consumers in California.
FISCAL EFFECT : Unknown.
COMMENTS :
1)Keeping California's Generating Capacity In-State . Beginning
last May with the dramatic spike in wholesale electric prices,
much attention has been focused on the sale of electricity by
merchant generators to entities outside the state. On some
days, as much as 15 percent of the California's in-state
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generating capacity leaves the state in search of higher
prices on the western states' interconnected grid. Just a few
years ago, when California had surplus capacity, the issue
seemed relatively unimportant, almost academic. The current
supply-demand imbalance-and the possibility of rotating
blackouts-have resulted in a reexamination of old assumptions.
The issue of whether in-state generation capacity should be
kept in-state to serve California's native load is now a
pressing question for state policymakers.
2)Siting of New Power Plants . CEC has exclusive authority to
approve the siting of power plants 50 MW or greater in
generating capacity. This bill would require, as a condition
of certification, that an applicant seeking to build a power
plant offer to sell an IOU, municipal corporation, or DWR, the
electrical power generated by the facility. The intent of
this bill is to encourage the siting of generation facilities
that serve California's native load. It may have the opposite
effect, however, by discouraging power plant developers from
building power plants in California. Bankers providing
financing for merchant developers would likely increase the
financing costs for power plants under such a regulatory
climate. Power plant developers, after weighing the economic
pros and cons, might look elsewhere to build a power plant.
3)Western States . 25 percent of California's electricity comes
from out-of-state generation. The "my state first" mindset is
beginning to gain momentum in other western states. Other
states have suggested that if California will not permit
California power plants to export power, why should they let
their state's power plants export power to California. Given
that California is a net importer of electricity, it may not
be in the state's best interest to encourage the sort of
parochialism that this bill will likely encourage in other
states.
4)AB 1890 Increased the Role of FERC, Which Has Jurisdiction
Over Wholesale Electric Sales . Pursuant to the Federal Power
Act, FERC is required to ensure that wholesale electricity
rates are "just and reasonable." Prior to electric
restructuring, California's electric rates were "cost-based."
Investments in power plants were amortized over a long period
of time, with a "reasonable rate of return" for utilities. AB
1890 (Brulte) [Chapter 854, Statutes of 1996] deregulated the
generation of electricity, and in doing so significantly
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increased the role FERC plays in California's electricity
market, insofar as FERC has exclusive jurisdiction over
wholesale electric sales. Several months after the enactment
of AB 1890, the CPUC accelerated the transition to a
deregulated market by ordering the IOUs to divest at least 50
percent of their fossil generating assets (D.95-12-063, as
modified by D.96-01-009). Merchant generators, who in many
cases paid two- or three-times the book value of the plants,
applied to FERC and were granted authority to sell wholesale
power at "market-based rates."
5)Post-AB 1890 Market Structure . Under market-based rates,
wholesale electricity prices are not necessarily based on
costs. Other factors include supply and demand, debt service,
the risks assumed by generators in a deregulated environment,
and other ancillary issues. In a recent order relating to
California's wholesale electric markets, FERC noted the
difficulty of determining what makes a market-based rate
unjust and unreasonable: "There is no precise legal
formulation for setting a just and reasonable rate and no
precise bright line for when a rate becomes unjust and
reasonable." The FERC order noted that under longstanding
Supreme Court case law, rates must fall within a zone of
reasonableness where the rates are neither so low as to be
"less than compensatory" nor so high as to be "excessive to
consumers."
6)Federal Power Act . This bill requires, as a condition of
certification by CEC, that a power plant applicant offer to
sell power generated by the facility to an IOU, municipal
corporation, or DWR, at a just and reasonable price according
to the standards, methods, and practices in place pursuant to
Sections 205 and 206 of the Federal Power Act. Given that
this bill relates only to wholesale transactions, and that
FERC has exclusive jurisdiction over wholesale electric sales,
the language in this bill requiring that prices be just and
reasonable merely restates what is already provided in the
Federal Power Act.
7)FERC Has Proposed Remedies, and Continues to Monitor
California's Wholesale Market . The justness and reasonableness
of California's wholesale power rates have been a matter of
considerable concern to FERC since wholesale prices first
spiked last May. In their December, 2000 "Order Directing
Remedies for California's Wholesale Electric Markets," FERC
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found that "unjust and unreasonable rates were charged and
could continue to be charged unless remedies are implemented."
In addition to adopting remedies for California's electric
market, FERC pledged to actively monitor California's electric
market for "factors that may lead to unjust and unreasonable
wholesale prices," and reserved the right to order refunds to
customers at a later date.
8)Suggested Amendment: A More Inclusive Definition of Public
Power . Under this bill, a power plant applicant would be
required, as a condition of certification, to offer to sell
power to DWR, an IOU, or "municipal corporation" (as defined
in Section 2904 of the Public Utilities Code). The definition
of municipal corporation covers only cities and counties. The
author may wish to consider amending this bill to include
other publicly-owned electric utilities, including municipal
utility districts, public utility districts, irrigation
districts offering electric service, and joint powers
authorities that include one or more of these agencies. These
entities are defined as "local publicly-owned electric
utilities" in Section 9604(d) of the Public Utilities Code.
REGISTERED SUPPORT / OPPOSITION :
Support
None on file.
Opposition
None on file.
Analysis Prepared by : Joseph Lyons / E. C. & A. / (916)
319-2083