BILL ANALYSIS
SB 6 X1
Page 1
SENATE THIRD READING
SB 6 X1 (Burton)
As Amended April 19, 2001
Majority vote
SENATE VOTE :24-14
ENERGY 13-5 APPROPRIATIONS 13-7
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|Ayes:|Wright, Canciamilla, |Ayes:|Migden, Alquist, Aroner, |
| |Diaz, Dutra, Florez, | |Corbett, Correa, |
| |Jackson, Kelley, Migden, | |Goldberg, Papan, Shelley, |
| |Oropeza, Reyes, | |Simitian, Thomson, |
| |Steinberg, Vargas, Wesson | |Wesson, Wiggins, Wright |
| | | | |
|-----+--------------------------+-----+--------------------------|
|Nays:|Briggs, John Campbell, |Nays:|Bates, Ashburn, Daucher, |
| |Dickerson, Richman, | |Maldonado, Robert |
| |Zettel | |Pacheco, Runner, Zettel |
| | | | |
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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 California Public Utilities Commission
(CPUC) 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.
SB 6 X1
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Specifically, this bill :
1)Authorizes CPFA 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)Provides that 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 authorizes the state to exert eminent domain powers
regarding property under specified conditions. Existing law
provides for CEC and CPUC to administer various energy
efficiency programs.
FISCAL EFFECT : None
COMMENTS : 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,
with the added uncertainties now posed by the bankruptcy
proceeding involving Pacific Gas and Electric making electricity
supply and price unknown quantities for the state.
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. It should be noted,
however, that LADWP's rates were among the highest in the nation
until very recently. These authorities exist in several states
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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.
This bill creates a CPFA based on the model of the New York
Public Power Authority. This bill requires that all generation
facilities constructed using financing from CPFA supply power to
consumers at cost-based rates. This bill 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 eminent domain as necessary.
Providing additional electricity to California at cost-based
prices and funding energy efficiency programs to reduce demand
are the primary purposes of CPFA. 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.
NYPA has performed similar functions to those envisioned in this
bill for CPFA, and NYPA has been in existence since 1931. 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 NYPA provided
double-digit rate relief to governmental and long-term economic
development customers, invested heavily in upgraded
hydroelectric facilities, and dramatically expanded investment
in energy efficiency for schools and government buildings. 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 200 kilowatts 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.
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
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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.
The structure of CPFA, with four appointees of the Governor
holding a majority of the seven-member authority, builds
accountability into the entity. Poor decision making reflects
directly back upon the administration that appointed the
majority members of CPFA and lends itself to sound governance.
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.
This bill requires CPFA to rely on CEC, Independent System
Operator (ISO) or its successor organization, and CPUC 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.
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 this 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 with CEC, where there is
institutional expertise and accountability.
CPFA will control the purse strings, but there is built-in
accountability with an agency already vested with determining
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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 [AB 29 X1 (Kehoe), Chapter 8, Statutes of
2001 and SB 5 X1 (Sher), Chapter 7, Statutes of 2001], it is a
natural fit for all loan financing not expended to meet Summer
2001 needs to be arranged through CPFA processes. 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.
Analysis Prepared by : Kelly Boyd / E. C. & A. / (916)
319-2083
FN:
0000421