BILL ANALYSIS 1
1
SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE
DEBRA BOWEN, CHAIRWOMAN
SB 33X - Burton/Sher Hearing
Date: February 13, 2001 S
As Proposed to be Amended FISCAL B
X
1
3
3
DESCRIPTION
This bill authorizes the Governor, through negotiation with
California's investor-owned utilities (IOUs), to formulate
a plan for the state to purchase the transmission
facilities owned by those IOUs.
The bill requires the Governor to submit the plan to the
Legislature for approval by a majority of the members of
the Assembly and the Senate.
The bill authorizes the Treasurer, upon approval of the
plan by the Legislature, to issue revenue bonds to finance
the state's acquisition of the IOUs transmission facilities
and to finance necessary improvements and expansion of the
facilities.
The bill requires the state to contract with the IOUs for
maintenance, repair, construction, expansion, or
improvement of the transmission facilities purchased by the
state.
KEY QUESTIONS
1.What are the risks and benefits of state ownership of the
transmission facilities?
2.What are the risks and benefits of state operation of the
transmission facilities?
3.What are the potential costs to the state of acquisition
of the transmission facilities?
4.What are the benefits to the IOUs of sale of their
transmission facilities?
BACKGROUND
California's transmission facilities, or "grid," are a
network of long-distance, high-voltage lines that carry
bulk electricity throughout the state, and to and from
other states, to local utilities' substations for
distribution to their customers.
Prior to passage of AB 1890 (Brulte), Chapter 854,
Statutes of 1996, and the advent of electric restructuring,
the transmission facilities owned and maintained by an IOU
were operated by the same IOU. One of the key features of
electric restructuring was the creation of the ISO, which
assumed operational control of the IOUs' grid on March 31,
1998.
The ISO now controls 75 percent of the grid and includes
the transmission systems formerly operated by the three
major IOUs (Pacific Gas & Electric, Southern California
Edison and San Diego Gas & Electric). The ISO control area
consists of over 25,000 miles of transmission lines,
covering 124,000 square miles, or three-quarters of the
state.
The principal functions of the ISO are to:
1.Act as the control area operator, instantaneously
balancing electrical supply and demand, within its
control area.
2.Operate real-time markets for imbalance energy and
ancillary services necessary to accomplish function 1.
3.Act as the grid security coordinator for the entire
state.
The remaining 25 percent of the grid consists mostly of
transmission facilities owned and maintained by local
publicly-owned utilities, such as the Los Angeles
Department of Water and Power and the Sacramento Municipal
Utility District. With some limited exceptions, these
facilities continue to be operated by these local
utilities.
According to the ISO, power plants meeting up to 45,000
megawatts of peak demand are connected to its control area.
This makes the control area the second largest in the U.S.
(The Pennsylvania-New Jersey-Maryland Interconnection, or
"PJM," is the largest) and the fifth largest in the world.
Only France, Japan and England have larger
centrally-dispatched control areas.
COMMENTS
1.Legal and practical implications of public ownership and
operation. With respect to operation of their
transmission facilities, the IOUs and the ISO are
currently regulated by the Federal Energy Regulatory
Commission (FERC). The Federal Power Act (FPA) provides
for FERC regulation of privately-owned utilities.
Section 201 of the FPA further authorizes FERC to
regulate transmission and wholesale sales of electricity
in interstate commerce (16 USC 824). This means FERC
"regulates" wholesale rates and controls the terms of use
of the grid.
An example of the breadth of FERC jurisdiction over the
California market can be found in its treatment of the
ISO governing board. When it approved the original ISO
tariffs in 1998, FERC rejected those portions of the ISO
bylaws requiring California residency and Electricity
Oversight Board (EOB) appointment of governing board
members. In doing this, FERC exercised jurisdiction over
not only the interstate operations of the ISO, but also
over the framework of the institution itself.
FERC found the EOB's role (and thus the state's role) in
regulating the ISO conflicted with FERC's own
jurisdiction and undermined the independence of the ISO
governing board. FERC further found the California
residency requirement established in AB 1890 inconsistent
with FERC's policy to provide "broad-based,
non-discriminatory, open-access transmission service"
(FERC Order No. 888) and "discourages participation in
the ISO by out-of-state entities by denying them
meaningful representation." The settlement of this issue
remains subject to regulatory, legislative and judicial
conflicts.
Under Section 201(f) of the FPA, publicly-owned utilities
are generally exempt from FERC jurisdiction. One
exception is that, to the extent a publicly-owned utility
is engaged in interstate commerce, as the state
inevitably would be if its acquired the grid now owned by
the IOUs, the utility would be subject to FERC's rules
requiring open, non-discriminatory access to its
transmission facilities.
Another possible exception lies in Section 203 of the FPA
(16 USC 824b). This section, the federal equivalent of
Section 851 of the California Public Utilities Code,
requires FERC approval of the disposition of
FERC-jurisdictional facilities. However, FERC precedent
indicates that disposition of FERC-jurisdictional
facilities to a state is not subject to FERC approval
(Nebraska Power Company, 5 FPC 8 (1946)).
State acquisition of IOU transmission facilities would
eliminate FERC jurisdiction over the grid and allow the
state to control the terms of its use. However,
regulation of rates for wholesale electricity purchases
from privately-owned generators, the primary source of
the state's dissatisfaction with FERC, would remain a
FERC function.
This bill does not contemplate who would operate the grid
if the state acquires IOU transmission facilities. The
author and the committee may wish to consider whether the
bill should address whether the ISO would continue as the
control area operator, or whether it would be succeeded
by a public agency, and, if so, whether there should be a
transition period between acquisition of the assets and
assumption of operational duties. During such period,
the state could contract with the existing ISO for
operation, under conditions consistent with the purpose
of state control.
2.How many dollars are these hot dogs worth? The net book
value, which is purchase cost less depreciation, of each
IOU's transmission assets is approximately:
a. PG&E - $1.5 billion
b. SCE - $1.9 billion
c. SDG&E - $400 million
Thus, the total book value is $3.8 billion. Book value
is used by the California Public Utilities Commission
(CPUC) to calculate transmission rates. The IOUs rate of
return is between 11 and 12 percent. The retail
transmission rate for residential IOU customers is half a
cent per kilowatt hour or less, or about four percent of
a 12 cent bundled rate.
The author has asked the Board of Equalization (BOE) what
the assessed value, for purposes of property tax
calculation, of each IOU's transmission assets is. The
BOE has initially provided only the total assessed value
of all IOU assets, and not the transmission assets
separately.
At least one private firm has offered to purchase PG&E
and SCE transmission assets for a total of $5.25 billion
($2.25 billion for PG&E and $3 billion for SCE, about a
50 percent premium over book value).
3.Related legislation. SB 40X (Speier) requires the CPUC,
in coordination with the California Energy Commission, to
study the feasibility of state construction of additional
transmission lines parallel to "Path 15."
Path 15 is a bottleneck with the transmission system
owned by PG&E. It is an approximately 80 mile section of
the state's major transmission corridor where three
high-voltage lines are reduced to two, creating
congestion from south to north.
Prior to restructuring, PG&E had little incentive to
upgrade Path 15, as expansion would allow other
generators to more effectively compete with PG&E for bulk
power sales to local utilities in Northern California.
PG&E has recently received approval to expand Path 15.
The cost of the expansion is estimated at $200-300
million.
POSITIONS
Sponsor:
Author
Support:
Clean Power Campaign
Congress of California Seniors
Gray Panthers of Sacramento
Sierra Club
Oppose:
None on file
Lawrence Lingbloom
SB 33X Analysis
Hearing Date: February 13, 2001