BILL ANALYSIS 1
1
SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE
DEBRA BOWEN, CHAIRWOMAN
SB 23X - Soto Hearing Date: May 1, 2001 S
As Amended: April 24, 2001 FISCAL B
X
1
2
3
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. (Cities that want
to form municipal electric departments don't have to go through
the LAFCO process.)
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. Under this circumstance, the CPUC report on
service adequacy described above has no bearing on the creation
of the special district.
Current law creates a rebuttable presumption of public necessity
for condemnation of private gas or electric utility property.
Current law allows most special districts to be created with
majority voter approval, but requires MUDs to be created with
majority vote approval by public agencies representing 2/3 of
the voters within the proposed district.
This bill replaces the rebuttable presumption with a conclusive
presumption and lowers the threshold from a 2/3 voter approval
requirement to a majority vote requirement.
This bill requires that MUDs created pursuant to this new
process shall not provide communications or cable television
service to retail customers, shall allow communications and
cable television corporations to attach to the condemned
property at cost-based rates which, for five years, may not
exceed the price charged by the utility from whom the property
was acquired indexed for inflation, and shall provide
nondiscriminatory access to the acquired public rights of way
and support structures to communications and cable television
companies.
This bill requires that if a new MUD or municipal utility is
formed, its customers are responsible for a proportionate share
of electric power contracts DWR entered into on their behalf.
That arrangement can by modified by the mutual agreement of DWR
and the MUD.
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.April 24 Amendments . When this bill was heard in this
committee on April 17, there was a great deal of discussion
about how the creation of new MUDs would affect DWR and the
power it's buying on behalf of investor-owned utility
customers, as well has how the bill would affect the
operations of telecommunications and cable television
corporations.
Relative to the concerns affecting DWR, the author has taken
two amendments that were requested by the committee at the
prior hearing and those amendments are reflected in the
current version of the bill.
The first, on Page 5, Lines 20-34, adds a new section to the
Government Code to ensure that if a MUD is formed, it's
customers are responsible for a proportionate share of
electric power contracts DWR entered into on their behalf.
That arrangement can by modified by the mutual agreement of
DWR and the MUD.
The second, on Page 6, Lines 9-13, adds back a section of
existing law that was deleted in a prior version of this bill.
This section requires the CPUC to review, as a part of a
report its required to undertake in connection with a proposal
to create a MUD, whether the creation of the MUD will
substantially impair the ability of the IOU to provide
adequate service at reasonable rates to the remaining IOU
service customers.
2.Getting Into The Telephone & Cable Business, Too? During the
April 17 hearing on the bill, there was a concern that while
the bill was designed to make it easier for cities to get into
the energy business, a collateral effect was to allow MUDs to
get into the cable and telecommunications businesses to
compete with the incumbent providers.
Despite a number of meetings between the author, interested
parties, and committee staff, a consensus on how to resolve
the issues brought up during the last hearing hasn't been
reached. There are two main issues. The first is the rate
which the newly created MUD or municipal utility charges cable
and telecommunications companies for use of their poles. The
second is how a newly created MUD or municipal utility may
compete with cable and telephone corporations, if at all.
3.Pole Attachments . Current law limits the price the IOUs can
charge cable corporations to attach infrastructure to utility
poles, but no such limitation applies to equipment attached by
telecommunications corporations. Current law doesn't limit
what MUDs charge to permit a cable or telecommunications
company to attach infrastructure to their poles.
This bill limits the amount a MUD formed under this bill can
charge for pole attachments to the existing cost, plus any
Consumer Price Index (CPI) increase over the next five years.
That effectively continues an existing (similar, though not
identical) protection for cable companies and creates a new,
currently non-existent protection for telecommunications
companies.
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 from electricity customers through their
rates.
4.Cross Subsidization & The Level Playing Field . This bill
doesn't change the rights of MUDs relative to their ability to
get into the cable television or telecommunications
businesses, but it does make it easier (by reducing the vote
threshold, eliminating LAFCO review, and creating a conclusive
presumption on eminent domain proceedings) for them to do so.
The only limitation imposed by this bill is the cap on the
amount a MUD could charge for a pole attachment.
Should a MUD want to get into the cable or telecommunications
businesses, it could leverage its ownership of the poles and
rights of way to disadvantage the incumbent cable or
telecommunications provider, either through higher prices for
attachments or discriminatory attachment practices. A MUD
could also cross subsidize its cable and telecommunications
business from revenues from other municipal enterprises.
Furthermore, a city or county wouldn't have to pay a cable
franchise fee to itself if it wanted to get into the cable
business, could deny requests from cable and
telecommunications companies for permits to upgrade equipment,
and could deny requests to lay underground cable to new
housing or business developments.
As noted above, any city wanting to create a MUD under
existing law already enjoys these advantages - these aren't
advantages created by this bill. However, the opponents argue
that under existing law, the LAFCO review process, the
two-thirds vote requirement and the restriction on the use of
eminent domain gives those businesses that may be affected by
the creation of a MUD more opportunities to debate its merits.
The proponents argue that plenty of opportunity to influence
public debate still exists, both before the city or county
agencies that have to approve of a decision to create a MUD,
the voters who have to approve the creation of any MUD, and
the court which will have to set a value on the property that
may be taken through the exercise of eminent domain.
During the last committee hearing on this bill, there was some
discussion relative to requiring any MUD formed pursuant to
this bill to provide nondiscriminatory access to its acquired
poles and rights of way. Amendments to accomplish that goal,
however, haven't been placed into the measure.
5.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 only the appropriate valuation of the property
taken.
When such an action is brought against a 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."
6.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 16-29 - 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 anyone (LAFCO or the CPUC) prior to a measure
going on the ballot. The findings mandated by this bill don't
require independent third party verification, they merely give
the project proponent the ability to formally agree with
itself as to the benefits of its proposal.
7.Related Legislation . AB 1443 (Alquist), which is pending in
the Assembly Utilities & Commerce Committee, changes the
rebuttable presumption to a conclusive presumption within
Santa Clara County only.
AB 47X (Wiggins), which is pending in the Assembly Energy
Costs & Availability Committee, changes the rebuttable
presumption to a conclusive presumption.
10. Return To Sender . . .
Address Known . 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 Pomona
City of Rancho Cucamonga
City of San Bernardino
Corona City Council
East Bay Municipal Utility District
Gray Panthers
Independent Cities Association
League of California Cities
Sacramento Municipal Utility District
The San Francisco Bay Guardian
7 Individuals
Oppose:
California Association of Local Agency Formation Commission
Coalition of California Utility Employees
Pacific Gas and Electric Company
San Mateo Local Agency Formation Commission
Sempra Energy
Southern California Edison
Verizon
Yolo County Local Agency Formation Commission
Randy Chinn
SB 23X Analysis
Hearing Date: May 1, 2001