BILL ANALYSIS
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|SENATE RULES COMMITTEE | SB 6X|
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THIRD READING
Bill No: SB 6X
Author: Burton (D), et al
Amended: 2/15/01
Vote: 21
SENATE ENERGY, U.&C. COMMITTEE : 7-0, 2/13/01
AYES: Bowen, Alarcon, Speier, Vasconcellos, Sher, Vincent,
Dunn
SENATE APPROPRIATIONS COMMITTEE : 7-3, 2/15/01
AYES: Alpert, Bowen, Burton, Escutia, Karnette, Perata,
Speier
NOES: Johannessen, Johnson, Poochigian
SUBJECT : California Consumer Power and Conservation
Financing
Authority
SOURCE : State Treasurer
DIGEST : This bill (1) creates the California Consumer
Power and Conservation Financing Authority, (2) authorizes
the issuance of bonds up to $5 billion, and (3) specifies
that no new projects be undertaken after January 1, 2007.
ANALYSIS : California opened its electric generation
market to competition when it restructured the electric
industry in 1996. Rather than relying on regulators to
ensure that an adequate and reasonably priced supply of
electricity was available to Californians, the electric
restructuring effort instead relied on the private sector.
CONTINUED
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The result has been skyrocketing wholesale electricity
prices, an electric system with suspect reliability, air
quality that has suffered, and electric utility
stockholders and bondholders who have seen their
investments plummet.
The basic problem with the current electric market
structure is that supply is too tight relative to demand,
which has caused prices to rise and increased the potential
for blackouts. Theoretically, one could argue that the
price hikes would provide an adequate incentive for
generators to build more plants, which would increase the
supply of electricity and drive down the cost. On the
other hand, it could also be argued that with decisions to
build and finance new powerplants completely in the hands
of the private sector, generators have little incentive to
build new plants that will significantly drive down the
price of each kilowatt hour of electricity sold.
One way to deal with this market failure is to create a
public power authority, as is envisioned in this bill.
Where private sector generators have an incentive to
maximize shareholder return, a public power authority would
have a mission of ensuring that the state has a sufficient
supply of electricity that can be delivered at reasonable
rates. Municipal utilities such as the Sacramento
Municipal Utility District and the Los Angeles Department
of Water and Power, are examples of public power
authorities which have managed to deliver adequate service
at reasonable rates. These authorities can coexist with
private sector power generators in that the authorities
both self-provide electricity and buy electricity from the
private generators.
California is already home to over 30 municipal electric
utilities. On average, the residential and commercial
rates of these utilities are lower than the rates charged
by investor-owned utilities.
Public power authorities exist in several states, the most
well-known of which is the New York Power Authority, which
owns and operates powerplants and transmission lines.
Arizona, Nebraska, South Carolina, and Oklahoma also have
power authorities.
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Public power authorities have a clear financial advantage
over private generators in that they are not required to
generate a profit, pay fewer taxes, and can take advantage
of tax-free financing. However, private generators have
their own set of advantages, including compensation systems
which may better motivate employees, non-public
decision-making processes, and an ability to pick and
choose when and where to invest their resources.
This bill establishes the California Consumer Power and
Conservation Financing Authority (CPCFA), which has the
following purposes:
1.Build, finance, own, or acquire, either on its own or
with others, electric powerplants.
2.Provide financial assistance, through programs
administered by others, for energy efficient appliance
and renewable energy projects.
3.Provide financing for energy efficiency and environmental
improvements of existing powerplants.
4.Ensure an adequate and reliable electricity supply at
reasonable rates and achieve an adequate energy reserve
capacity in California by 2006.
To accomplish these purposes the CPCFA is authorized to
provide financial assistance for projects or programs as
follows:
1.To any individual, or private or public entity, for
projects or programs involving facilities, equipment,
improvements, or appliances.
2.Loans for energy (electric and natural gas) conservation
programs such as those involving energy efficient
appliances. The participating utility is required to
certify that loan duration won't exceed the useful life
of the purchase. As a condition of the loan, the
participant must conduct a public awareness campaign.
3.To owners of aged, inefficient, electric power plants to
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perform upgrades necessary to improve its efficiency and
environmental performance.
The bill authorizes the CPCFA to:
1.Issue bonds not exceeding $5 billion.
2.Use eminent domain.
3.Hire employees and contract with private entities.
4.Mortgage, or pledge the authority's interest in projects,
assets, bonds, etc.
5.Borrow or receive monies from governmental or private
entities.
6.Requires the CPCFA to charge and recover its
administrative costs and expenses, including operating
and financing-related costs, from participating parties,
as specified.
The bill also:
1.Creates the CPCFA Fund and provides that all monies in
the fund, upon appropriation, shall be available for
expenditure.
2.Specifies that neither the full faith and credit nor the
taxing power of the State or any local agency is pledged
for payment of principal/interest on the bonds.
3.Requires the CPCFA to consult with the Energy Commission
and Cal-ISO in determining the need for additional
generation facilities.
4.Requires generation-related projects financed through the
CPCFA to provide power to consumers at rates based on
cost, as determined by the CPCFA, which may include a
reasonable rate of return. If the participating party is
an electrical corporation subject to the ratemaking
authority of the PUC, the CPCFA shall consult with the
PUC in determining rates.
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5.Specifies that the CPCFA is to be governed by a
seven-member board of directors, all of whom serve
without compensation but are to be reimbursed for travel
and per diem and $100 per full meeting day. Meetings of
the board are subject to the Bagley-Keene Open Meeting
Act and all board members are subject to the Political
Reform Act of 1974.
The board is to be comprised of four individuals
appointed by the Governor who are approved by the Senate,
a member of the public appointed by the Senate Rules
Committee, a member of the public appointed by the
Speaker of the Assembly, and the State Treasurer.
6.Provides that the CPCFA operating budget is subject to
review and appropriation in the annual Budget Act.
7.Requires the CPCFA to submit by January 1 of each year, a
report regarding its activities and expenditures.
8.Requires the CPCFA to contract for independent
evaluation, including recommendations as to whether there
is a continued need for the authority beyond January 1,
2007. The evaluation is due January 1, 2005.
9.Contains no appropriation.
10. Prohibits CPCFA from approving any new program,
financing or projects on or after January 1, 2007,
unless authority to approve such an activity is granted
by statute on or before January 1, 2007.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: No
Fiscal Impact (in thousands)
Major Provisions 2001-02 2002-03
2003-04 Fund
Bond debt Potentially $5,000,000 plus
interest Special*
CPCFA administration Unknown, potentially $250-500
Special*
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offset by revenues
*California Consumer Power and Conservation Financing
Authority Fund
SUPPORT : (Verified 2/15/01)
California State Treasurer Philip Angelides (source)
American Federation of State, County and Municipal
Employees, AFL-CIO
Clean Power Campaign
Congress of California Seniors
Construction Trades Council
Consumers Union
Foundation for Taxpayer and Consumer Rights
Gray Panthers of Sacramento
Older Women's League of California
Planning and Conservation League
Sierra Club'
TURN
UCAN
Some individuals
NC:cm 2/16/01 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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