BILL ANALYSIS 1
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SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE
DEBRA BOWEN, CHAIRWOMAN
SB 23X - Soto Hearing Date: April 17, 2001
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As Amended: April 3, 2001 FISCAL B
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DESCRIPTION
Current law requires the formation of a new special district to
be subject to approval by a Local Agency Formation Commission
(LAFCO). As part of the LAFCO approval process the California
Public Utilities Commission (CPUC) is required to investigate
and report on whether formation of the new special district will
substantially impair the ability of the public utility to
provide adequate service at reasonable rates within the
remainder of the service area of the utility.
This bill prohibits a LAFCO from denying the approval of the
formation of a special district to provide gas or electric
service if the LAFCO receives a resolution in support of the
formation by the legislative body of each city included in the
proposed district and, where relevant, by the county board of
supervisors. As a consequence, the CPUC report on service
adequacy described above has no bearing on the creation of the
special district.
This bill deletes the requirement that the CPUC report review
and comment on whether the proposed MUD will substantially
impair the ability of the public utility to provide adequate
service at reasonable rates to the remainder of the service area
of the public utility.
Current law creates a rebuttable presumption of public necessity
for condemnation of private gas or electric utility property.
This bill replaces the rebuttable presumption with a conclusive
presumption, thus eliminating the utility's ability to rebut the
finding by a local agency that the condemnation of property is
necessary.
Current law allows most special districts to be created with
majority voter approval, but requires MUDs to be created with a
2/3 voter approval.
This bill lowers the threshold to create a MUD from a 2/3 voter
approval requirement to a majority vote requirement.
BACKGROUND
Interest in municipalizing electric utility service has grown as
the troubles of the investor-owned utilities (IOUs) have
continued to mount. Recently, the Yolo County LAFCO denied an
application to form a proposed municipal utility district (MUD)
in Davis. The San Francisco LAFCO forwarded an application to
form a new MUD to the San Francisco Board of Supervisors without
taking any formal action.
About 25% of California's electricity customers are served by
municipal utilities. The most recently-formed MUDs are the
Lassen MUD in the mid-1980's, Trinity Public Utility District in
the 1970's, and the Sacramento Municipal Utility District (SMUD)
in the 1940's. Customers of the states largest municipal
utilities, SMUD and the Los Angeles Department of Water & Power
(LADWP), have done better relative to customers of the three
IOUs in terms of avoiding significant rate increases.
However, the primary reason some MUDs have fared better than
their IOU counterparts recently is because they own or control a
significant amount of power generation, thus keeping electric
rates down. New MUDs, formed either under existing law or under
this measure, won't have such advantages.
As part of the state's efforts to keep electricity prices
affordable, the Department of Water Resources (DWR) has been
negotiating long-term electric contracts. In order to finance
these contracts, DWR has established a retail relationship with
customers of Pacific Gas & Electric (PG&E), Southern California
Edison (SCE) and San Diego Gas & Electric (SDG&E), pursuant to
AB 1X (Keeley), Chapter 4, Statutes of 2001. Those customers
are liable to DWR for the power that it supplies, even if those
customers later choose to purchase power elsewhere .
COMMENTS
1.Why Eliminate Substantive CPUC Report & LAFCO Review? By
creating a new MUD, it's possible that those customers who
remain with the IOU will be hit with higher costs because, for
example, the existing corporate overhead costs are spread to a
small number of customers, or economies of scale are otherwise
diminished. At least in the near term, the formation of new
MUDs may be beneficial to IOU customers because DWR would need
to buy less power to cover the IOU's net short.
Under existing law, the CPUC is required to submit a report to
the local LAFCO as to whether the proposed MUD will
"substantially impair the ability of the public utility to
provide adequate service at reasonable rates within the
remainder of the service area of the public utility." The
local LAFCO must approve of the proposal to create a new MUD
prior to submitting the question to the voters.
This bill deletes both that substantive provision of the CPUC
report and the requirement that LAFCO review and approve the
proposed MUD before submitting it to the voters. In light of
the fact that regulation of the energy market in California is
already fragmented among numerous local, state, and federal
agencies, the author and committee may wish to consider the
wisdom of fragmenting it further by eliminating all review and
comment on the issue of how the service and rates of IOU
ratepayers outside of the proposed MUD boundaries will be
affected.
An alternative to this bill and the current LAFCO process may
be to provide guidance to the court as it determines the value
of the facilities acquired by the MUD from the IOU. The court
could be guided to set a price which ensures the remaining IOU
customers are held harmless by the creation of the MUD. This
alternative would make the bill more consistent with AB 2638
(Cardoza & Calderon), Chapter 1042, Statutes of 2000, which
dealt with the issue of distribution competition and whether
irrigation districts should be allowed to go outside of their
service territories to "cherry pick" customers from an IOU
service territory. AB 2638 required the CPUC to approve
proposals for an irrigation district to serve customers
outside of its service territory to ensure the remaining IOU
ratepayers were held harmless from such a decision.
2.Make Some New Findings - Judge & Jury . While the bill deletes
the rebuttable presumption as it pertains to exercising the
power of eminent domain and eliminates LAFCO review, it does -
on Page 4, Lines 4-17 - create a new set of findings that a
public entity seeking to exercise the power of eminent domain
must make before moving ahead. That list includes: 1) The
projected costs to the public entity; 2) The ability of the
public entity to provide power to its customers; 3) The
financial condition of the public entity; 4) Any other
possible side-effects of the taking, including the impacts on
local telecommunications services.
However, these are findings made by the public entity seeking
to create the MUD - they aren't findings that are required to
be verified by any independent body (LAFCO, the CPUC, or a
court) prior to a measure going on the ballot. The purpose of
both the CPUC review of whether the proposed MUD will lead to
rate hikes or decreased service quality for those customers
left with the IOU and the LAFCO review is to provide for
independent, third party verification of the project
proponent's claims relative to the benefit of an MUD proposal.
The findings mandated by this bill don't require independent
third party verification, nor do they address how the
remaining IOU customers who won't be included in the MUD
territory will be affected by the municipalization. Rather,
the findings appear merely to give the project proponent the
ability to formally agree with itself as to the benefits of
its proposal.
3.Will Municipalization Affect DWR - And Ratepayer - Contract
Costs ? DWR is currently spending approximately $50 million a
day to buy power for IOU customers throughout the state.
Furthermore, DWR has entered into a number of long-term
contracts to buy power for those same customers over the next
several years (up to 20 years in at least one instance).
As such, there's some concern on how efforts to create
municipal utilities will affect DWR's ability to recover
current costs and future commitments. If a new MUD is
created, do those customers continue to bear responsibility
for the costs of the long-term electricity contracts incurred
by DWR? This bill is silent on this issue, but the author and
committee may wish to consider how this issue should be
addressed. One approach would be to require any MUD formed
pursuant to this measure to take over the DWR contracts
attributable to the portion of the load the MUD will serve.
Another approach would be to require the MUD to negotiate with
DWR as to how those DWRs contracts should be treated.
This issue is identical to the issues raised with direct
access, wherein a customer purchases electricity from a
supplier other than DWR or the utility, leaving the remaining
customers with the expense of DWRs contracts. For direct
access customers, SB 27X (Bowen) proposes to create a sliding
scale "exit fee" for customers who want the benefits of
DWR-purchased power for now but want the ability to leave the
current system if and when they find a more financially
beneficial offer.
4.Eminent Domain . Existing law generally provides that, when a
public entity initiates an eminent domain action within its
jurisdictional boundaries, the entity's resolution of
necessity is a conclusive determination. Private property
owners whose property is taken by eminent domain can't dispute
the finding that the taking is "necessary" - they can only
challenge the appropriate valuation of the property taken.
When such an action is brought against electric, gas, or water
utility property, the resolution isn't conclusive, but instead
is presumed to be true, and the utility property owner is
allowed to rebut that presumption in court.
This bill deletes the rebuttable presumption regarding the
taking, by eminent domain, of gas or electricity property,
leaving gas and electric property owners with only the ability
to challenge the valuation of the property taken but not the
finding that the taking was "necessary" (identical to the
rights of private property owners). As a result, only water
utility property owners would retain the "rebuttable
presumption" relative to whether the condemnation under
eminent domain was "necessary."
5.Cable & Telecommunications Taxes & Fees . On Page 5, Lines
1-8, the bill precludes any MUD formed under this measure from
increasing the annual recurring fee for attachments by cable
and telecommunications companies for five years (except for
prospective annual adjustments for inflation that are tied to
the Consumer Price Index). The purpose of this section is to
limit potential increases in the cost of pole attachments by
MUDs formed pursuant to this bill. Such attachments to poles
owned by an IOU are limited by statute.
Depending on what the fees currently imposed by the IOUs are,
this provision of the bill may unnecessarily tie the hands of
a newly-created MUD board in a way they aren't tied now should
a MUD be created. Furthermore, if the fees can't rise to the
level of providing the actual service, this provision creates
a cross subsidy should the MUD be required to recover any
potential losses (relative to the telecommunications pole
attachments) from electricity customers through their rates.
Given those two possibilities, the author and committee may
wish to consider deleting this section of the bill.
6.Re-Referral . The Senate Rules Committee has asked that this
bill be returned to its possession should it pass this
committee.
SENATE VOTES
Senate Local Government Committee (4-2)
POSITIONS
Sponsor:
Author
Support:
California Contract Cities Association
California Municipal Utilities Association
California Public Interest Research Group
City of Cerritos
City of Chino Hills
City of Covina
City of Dana Point
City of Fontana
City of Ontario
City of Rancho Cucamonga
City of San Bernardino
Corona City Council
Gray Panthers
Independent Cities Association
League of California Cities
Sacramento Municipal Utility District
The San Francisco Bay Guardian
2 Individuals
Oppose:
Pacific Gas and Electric Company
Southern California Edison
Verizon
Randy Chinn
SB 23X Analysis
Hearing Date: April 17, 2001