BILL ANALYSIS AB 60 X1 Page 1 ( Without Reference to File ) ASSEMBLY THIRD READING AB 60 X1 (Hertzberg) As Amended March 19, 2001 2/3 vote. Urgency ENERGY 17-0 APPROPRIATIONS 19-0 ----------------------------------------------------------------- |Ayes:|Wright, Pescetti, Briggs, |Ayes:|Migden, Bates, Alquist, | | |Canciamilla, Diaz, Dutra, | |Aroner, Ashburn, Cedillo, | | |Florez, Jackson, Keeley, | |Correa, Daucher, | | |Migden, Oropeza, Reyes, | |Goldberg, Maldonado, | | |Richman, Steinberg, | |Robert Pacheco, Papan, | | |Vargas, Wesson, Zettel | |Runner, Shelley, | | | | |Simitian, Reyes, Wesson, | | | | |Wiggins, Zettel | ----------------------------------------------------------------- SUMMARY : Requires, as a condition of certification by the California Energy Commission (CEC), that an applicant offer to sell electricity to a California investor-owned utility (IOU), a California municipal electrical corporation, or the Department of Water Resources (DWR) at terms not less favorable than the terms of the next offer that the applicant makes for the sale of electrical power generated by that facility. EXISTING LAW: 1)Provides for exclusive federal jurisdiction over wholesale rates of electricity under the Federal Power Act (FPA). 2)Provides that wholesale electricity rates shall be just and reasonable under FPA 3)Provides CEC with the exclusive authority to approve the siting of thermal power plants 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. AB 60 X1 Page 2 FISCAL EFFECT : Unknown COMMENTS : Keeping California's Generating Capacity in State. Much attention has been paid to the sale by merchant generators to entities outside the state since the dramatic increases in wholesale electricity prices, which began to occur in May of 2000. In past years, when California was generating at a surplus, the issue of electricity being sold out of state was not considered important. But in a time of unprecedented supply constraint, policy makers are now looking seriously at how to keep as much native generation within the state as possible to provide adequate supply at reasonable wholesale prices. Western States. Today 25% of California's generating capacity comes from out-of-state generation. The "me-first" mindset is beginning to gain momentum in other western states as well. Given that California is a net importer of electricity, it may not be in the state's best long-term interest to encourage parochialism with generation supply. California First, But Not at the Exclusion of Other States. This bill takes a step in the direction of promoting native generation and provision of in state best available rates. The tension between the pressing need to add to California's electricity supply at reasonable wholesale prices and avoid discouraging other states from selling California electricity is significant. This bill requires that as a condition of certification by CEC, a new generating facility applicant will make an offer to enter into contracts to sell its initial and continuing available capacity on terms not less favorable than the terms of the next offer that the applicant makes for the sale of electrical power generated by that facility. Essentially this bill encourages new generators to sell to California electrical corporations, munis or DWR, but in a manner which is consistent with market-based pricing and which does not reserve all generating capacity on a de facto basis to California sources. This bill provides that initial generating capacity must be offered to California retail electricity providers on terms at least as favorable as those of the next offer to sell, and that offers for subsequent continuing available capacity must also be made at the same terms as offered to the next provider. AB 60 X1 Page 3 This bill establishes a balance between the need to add generation supply at reasonable wholesale prices into California's purchasing mix without discouraging new generators from seeking certification by appearing to be bound to sell all capacity to California at lower rates than they could sell to other states. This bill should encourage new generation siting and should help provide for long term additional electricity supply for California's wholesale market at more reasonable prices. Analysis Prepared by : Kelly Boyd / E. C. & A. / (916) 319-2083 FN: 0000202