BILL ANALYSIS
SB 6 X1
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Date of Hearing: April 18, 2001
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Carole Migden, Chairwoman
SB 6 X1 (Burton) - As Amended: April 16, 2001
Policy Committee: E.C.&A.Vote:13-5
Urgency: No State Mandated Local Program:
No Reimbursable:
SUMMARY
This bill creates the California Consumer Power and Conservation
Financing Authority, which is authorized to issue up to $5
billion in revenue bonds to finance electricity generation
projects, natural gas transmission and storage projects, and
energy efficiency programs. Specifically, this bill:
1)Creates the authority, to be governed by a five-member board
of directors consisting of four gubernatorial appointees
(confirmed by the Senate and serving staggered terms) and the
State Treasurer.
2)Establishes that the purposes of the authority are to:
a) Finance, purchase, lease, own, operate, acquire, or
construct generating facilities to supplement private
sector power sources currently in operation or under
development. The authority could finance projects on its
own or through joint ventures with public or private
entities. (The authority may not invest in nuclear
facilities or develop additional hydroelectric facilities
without legislative authorization.)
b) Finance energy efficiency programs administered by the
California Energy Commission (CEC), the Public Utilities
Commission (PUC) and other qualifying entities.
c) Finance retrofits and/or expansions of existing
powerplants that are at least 30 years old.
d) Achieve adequate energy reserve capacity in the state
within five years of the effective date of the bill.
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3)Authorizes the authority to finance natural gas transportation
or storage projects as recommended by the PUC and pursuant to
a needs analysis to be prepared by the PUC within 90 days of
the effective date of the bill.
4)Requires all generation projects financed by the authority to
provide electricity to California consumers at the costs of
generating that power, including the cost of financing the
project. (The power can be sold outside the state if it is
not needed or if it is financially advantageous to the state's
consumers to do so.)
5)Authorizes the authority to issue up to $5 billion in revenue
bonds for the stated purposes, but limits the amount available
for energy efficiency programs to $1 billion.
6)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 and interest on the bonds.
7)Establishes a special fund for expenditure of bond proceeds
and collection of revenues by the authority. All moneys in
the fund are continuously appropriated, except for the
authority's annual operating budget, which is subject to
appropriation in the Budget Act.
8)Requires the authority to apportion its operating costs among
participating parties, and, for that portion of its costs
associated with the authority's own enterprises, to recover
those costs within the generation-related charges.
9)Requires the authority, in consultation with the CEC and the
Independent System Operator, to submit an Energy Resource
Investment Plan to the governor and the Legislature within 180
days of the effective date of the bill.
10)Requires the authority to report annually to the governor and
Legislature on its activities and expenses.
11)Prohibits the authority from financing or approving any
projects on or after January 1, 2007.
12)Requires the Bureau of State Audits to evaluate, by January
2005, the authority's effectiveness, including a
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recommendation as to whether the authority is needed beyond
January 2007.
FISCAL EFFECT
1)Authorizes $5 billion in revenue bond financing, which when
issued, would be deposited in the newly-created special fund.
2)Annual special fund operating costs for the authority would be
in the range of $3 million to $5 million. (A General Fund
appropriation may be necessary to provide a portion of these
costs for start-up activities.)
COMMENTS
1)Background . 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. Some contend that the price hikes
provide an adequate incentive for generators to build more
plants, thus increasing the supply of electricity and reduce
wholesale prices. Others argue that leaving decisions to
build and finance new powerplants in the hands of the private
sector gives generators little incentive to build new plants
to drive down the price of each kilowatt hour of electricity.
One way to deal with this market failure is to create a public
power authority, as envisioned in this bill. Where private
sector generators have an incentive to maximize shareholder
return, a public power authority would ensure 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 (SMUD) and the Los
Angeles Department of Water and Power (LADWP), are examples of
public power authorities that 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.
There are currently 30 municipal electric utilities in
California. 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
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several states, the most well-known of which is the New York
Power Authority, which owns and operates powerplants and
transmission lines, and generates 25 percent of New York's
electricity. Arizona, Nebraska, South Carolina, and Oklahoma
also have power authorities.
Public power authorities have a financial advantage over
private generators in that they pay fewer taxes, are not
required to generate a profit, and can take advantage of
tax-free financing. However, private generators also have
advantages, including compensation systems that may better
motivate employees, a non-public decision-making processes,
and an ability to pick and choose when and where to invest
their resources.
2)Author's Amendment . The author proposes the following
additional amendment, which was inadvertently not included in
the April 16th amendments.
On page 13, line 22-Section 3341.1 (a) should read: "Acquire
any enterprise by gift, purchase, or eminent domain as
necessary to achieve the purposes of the authority pursuant to
Sections 3310 and 3352 .
Analysis Prepared by : Chuck Nicol / APPR. / (916)319-2081