BILL ANALYSIS
SB 6 X1
Page 1
Date of Hearing: March 8, 2001
ASSEMBLY COMMITTEE ON ENERGY COSTS AND AVAILABILITY
Roderick D. Wright, Chair
SB 6 X1 (Burton) - As Amended: February 27, 2001
SUBJECT : California Consumer Power and Conservation Financing
Authority (CPFA).
SUMMARY : Establishes the California Consumer Power and
Conservation Financing Authority (CPFA), which has the following
purposes:
1)Establish, finance, purchase, lease, own, operate, acquire or
construct generating facilities, on its own or through
agreements with public and private third parties.
2)Finance programs, administered by the California Energy
Commission (CEC), the commission and other approved
participating parties for consumers and businesses to invest
in energy efficient appliances and renewable energy projects.
3)Provide financing for energy efficiency and environmental
improvements of existing power plants.
4)Provide financing for natural gas transportation or storage
projects.
5)Achieve an adequate energy reserve capacity in California by
2006.
6)This bill is an urgency measure.
Specifically, this bill :
1)CPFA is authorized to have employees and contractors adopt
rules, exercise the power of eminent domain, and issue up to
$5 billion in bonds which are not a debt of the state.
2)CPFA is governed by a seven member board comprised of four
appointees of the governor, approved by the Senate, a member
of the public appointed by the Senate, a member of the public
appointed by the Assembly, and the State Treasurer, who is the
sponsor of this measure.
EXISTING LAW : The state currently has authority to exert
eminent domain powers regarding property under specified
conditions. Existing law provides for the California Energy
Commission (CEC) and the Public Utilities Commission (CPUC) to
administer various energy efficiency programs.
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FISCAL EFFECT : None.
COMMENTS :
1)Background : California opened the electric generation market
to competition in 1996, leaving the private sector in control
of ensuring an adequate and reasonably priced supply of
available electricity. The result has been skyrocketing
wholesale electricity prices, an electric system with
questionable reliability, degraded air quality, and the
plummeting of electric utility stock and bond prices. A
classic market failure has taken place as a result of the
perverse price incentive posed to private sector generators
whose obligation is to maximize profits to shareholders. The
generators have not moved to increase supply through new
construction. The result has been both a supply constraint
and continued high prices.
2)Correcting Market Failure : Creation of a public power
authority is one means of correcting such a market failure. A
public power authority would have the mission of ensuring that
the state has a sufficient supply of electricity at reasonable
prices. Municipal utilities like the Sacramento Municipal
Utility District (SMUD) and the Los Angeles Department of
Water and Power (LADWP) are examples of public power
authorities that have been successful in delivering adequate
service at reasonable rates. These entities co-exist with the
private sector because they both self generate and purchase
electricity from private generators. Public power authorities
exist in several states and California itself is already home
to 30 municipal electric utilities. The New York Power
Authority (NYPA), for example, owns and operates power plants
and transmission lines in that state.
3)Structure of Power Authority : This bill creates a Public
Power Authority based on the model of the New York Public
Power Authority. The measure requires that all generation
facilities constructed using financing from the authority
supply power to consumers at cost-based rates. The measure
also allows for partnering with existing municipal power
agencies to increase the availability of cost-based power.
CPFA is not envisioned as a "super" agency, but as a public
provider of cost-based electricity to augment the existing
supply of native generation exercising existing powers of
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eminent domain as necessary.
4)Providing additional electricity to California at cost-based
prices and funding energy efficiency programs to reduce demand
are the primary purposes of the Authority. To accomplish each
of these main objectives CPFA would work in cooperation with
existing agencies that currently oversee generation facility
siting, ratemaking, and energy efficiency programs. CPFA's
authority will sunset in 2007, which is consistent with the
bill's charter to provide adequate energy reserves for the
state by 2006. Extension of CPFA's charter would have to be
through statute.
5)Does the model work? The NYPA has performed similar
functions to those envisioned in this bill for CPFA, and the
NYPA has been in existence since 1931. The NYPA generates 25%
of New York's electricity through operation of 10 generating
facilities and more than 1,400 circuit miles of transmission
lines. In the past year and a half the NYPA provided
double-digit rate relief to governmental and long-term
economic development customers and invested heavily in
upgraded hydroelectric facilities, dramatically expanded
investment in energy efficiency for schools and government
buildings. The NYPA also expanded fuel cell, solar power and
microturbine projects to increase both generation and
transmission capacity. In New York City alone there are three
existing fuel cell systems generating 200KW each, as both back
up energy sources for public hospitals and police precincts
and as the primary energy sources for critical facilities,
such as operating rooms, and more are planned for deployment
later this year.
6)Given California's critical need to augment electricity
supply, development of an authority to expand availability of
affordable electricity and to enhance both clean energy
supplies and demand reduction programs, establishment of a
public power authority may be the best long term solution to
these problems. Power authorities have a financial advantage
in that they aren't required to generate a profit, pay fewer
taxes, and have access to tax free financing. These
advantages can offset the built in profit incentive that
private sector generators have to motivate employees.
7)The structure of CPFA, with four appointees of the governor
holding a majority of the seven member authority, builds
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accountability into the entity. Poor decision making reflects
directly back upon the administration that appointed the
majority members of the authority and lends itself to sound
governance. However, much like its model agency the NYPA,
CPFA envisioned in this bill is an additional state agency and
is not a "super" agency designed to pull all energy functions
(ratemaking, siting, generation, energy efficiency etc.) into
one central decision making body.
8)Interaction with Existing Agencies/Programs : CPFA has very
broad authority over a number of different energy-related
areas, acting closely in conjunction with CEC, CPUC and other
specified entities. With regard to power plants, CPFA has
authority to finance, own, operate and construct power plants,
either on its own or in conjunction with public or private
sector partners. This is the core of this bill. Construction
of power plants to meet peak needs is a risky venture for the
private sector, because sales are uncertain and fuel supplies
must be purchased on the spot market. The non-profit nature
of CPFA dictates that the entity will sell the electricity it
produces for less than comparable private sector produced
power.
9)The bill requires CPFA to rely on CEC, Independent System
Operator (ISO) or its successor organization, and commission
expertise for forecasting peak demand and other decision
making processes with regard to building of new facilities to
meet peak demand. Creation and evaluation of proposals with
regard to new generation needs is a new function for which no
state agency currently has expertise, however. That is why
the structure of CPFA, requiring expertise in generation and
financing by the four appointees of the governor, is critical,
to augment both the adequacy of forecasting and efficacy of
financing decisions.
10)As currently amended, the measure seems to build in
accountability on all levels and has vested expertise with
existing agencies where efficacious.
11)Energy Efficiency : Another key aspect of the bill is the
financing CPFA is designed to administer with regard to energy
efficiency and renewable energy sources. CPFA's authority is
also limited in the bill to the making of the loans, and not
to determining the cost-effectiveness of any of the programs.
The approval process for the programs themselves shall rest
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with CEC, where there is institutional expertise and
accountability.
12)CPFA will control the purse strings, but there is built in
accountability with an agency already vested with determining
cost effectiveness and efficiency of proposals to ensure that
monies are prudently expended. Once the emergency
expenditures for energy efficiency and renewable sources are
met under other legislative proposals (ABX1 9, ABX1 40X, ABX1
38, ABX1 53), it is a natural fit for all loan financing not
expended to meet Summer 2001 needs to be arranged through CPFA
processes.
13)Natural Gas : CPFA shall receive a report from the CPUC and
CEC on the present, planned and required future capacity of
the state's natural gas transportation and storage system
required to provide adequate, seasonably reliable amounts of
competitively priced natural gas. The CPUC may make
recommendations to the authority for projects and the
authority may provide financing for natural gas transportation
or storage. SB X1 6 does not interfere with the CPUC's
existing authority and continued authority to act within its
jurisdiction to order construction or facilitate construction
of such facilities. CPFA acts as a financing body for natural
gas projects.
14)Power Authority versus a new Super Agency : Senate Bill 110,
introduced in 1999, sought to abolish CEC and create the
California Energy Infrastructure and Oversight Commission.
The bill also sought to expand the authority of the existing
Energy Reliability Commission to overtake energy efficiency
projects currently administered by the PUC. The structure of
the Oversight Commission was similar to that proposed in this
bill, as it consisted of seven members, though it included
members of the Assembly and Legislature rather than appointees
of these bodies. At the time the purpose of the agency was
envisioned to speed siting of generation facilities, among
other functions and to act as a central repository for
collection and dissemination of data and information on all
forms of energy supply, demand, conservation, public safety,
research, and related subjects.
15)There is currently no model in any other state for such an
agency that is currently functioning. A great deal of
governmental reorganization would need to take place to
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transform existing agencies into one large, super agency.
There is no contradiction between seeking the limited Power
Authority role sought for CPFA in this bill to solve
California's immediate supply and demand situations for
electricity and natural gas for the near term and exploring
the concept of a super agency for the longer term. Large
scale governmental reorganization during such a critical time
might actually stall provision of additional generation at
cost-based rates, or slow some of the efforts in energy
efficiency and renewable technology development which this
bill foresees and which agencies such as the NYPA have been
very successful in deploying.
16)The entity described in SB 110 was envisioned during a time
when there was no pressing emergency with regard to supply, no
skyrocketing prices and no immediate need to reduce demand or
run out of electricity. A more modest model, such as CPFA,
addresses the margin and the immediate needs in a proven
formula for these areas. Neither model is flawless, but in a
time of crisis, overcorrecting is a hazard. CPFA appears to
be designed to meet additional electric generation needs and
to work as a financing conduit for both energy efficiency
projects making use of existing agencies and programs and for
natural gas projects in the same manner. At least for the
short term, CPFA seems a viable solution to these problems,
and for the long term it puts into place a framework for
development of a super agency if after further investigation
that model best meets California's energy needs.
17)Staff Recommendation: CPFA should provide additional
generating capacity in the state and augment the long term
supply of electricity for the state. CPFA's ability to
finance energy efficiency projects should help increase
renewable energy source supplies for the long term and help
reduce California's electricity demand for various user
groups. CPFA should be the ultimate conduit, through the bond
issuance procedure and not through General fund appropriation,
for financing energy efficiency programs for California.
This will prevent the need to appropriate more than a billion
dollars from the General Fund for many of the proposed
projects before the legislature currently for the period
beyond the Summer of 2001.
18)Providing electricity at cost-based rates should help
normalize rates throughout the state by addressing the supply
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side of the rate equation. The energy efficiency programs
should also aid in rate normalization by addressing the demand
side of the equation. More than that, CPFA provides stability
and reliability through an Authority with direct
accountability to the legislature and the governor.
19)Suggested Amendment: The author should amend Section 3365 to
limit the amount of bond money available for energy efficiency
loan program financing to $1 billion. The bond money should
be available when all Summer 2001 loan program funds have been
expended for projects to be completed by October 31, 2001.
REGISTERED SUPPORT / OPPOSITION :
Support
Coalition of Utility Employees
Consumers Union
Congress of California Seniors
Gray Panthers
Older Women's League of California
Clean Power Campaign
Planning and Conservation League
Independent Energy Producers
Rabbi Zev-Hayyim Feyer
Opposition
Enron
Analysis Prepared by : Kelly Boyd / E. C. & A. / (916)
319-2083