BILL ANALYSIS
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UNFINISHED BUSINESS
Bill No: SB 6X
Author: Burton (D) & Bowen (D), et al
Amended: 4/26/01
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
SENATE FLOOR : 24-14, 2/20/01
AYES: Alarcon, Alpert, Bowen, Burton, Chesbro, Costa,
Dunn, Escutia, Figueroa, Karnette, Kuehl, Machado,
Murray, O'Connell, Ortiz, Peace, Perata, Polanco, Scott,
Sher, Soto, Speier, Torlakson, Vasconcellos
NOES: Ackerman, Battin, Brulte, Haynes, Johannessen,
Johnson, Knight, Margett, McClintock, McPherson,
Monteith, Morrow, Oller, Poochigian
ASSEMBLY FLOOR : 48-28, 4/26/01 - See last page for vote
SUBJECT : California Consumer Power and Conservation
Financing
Authority
SOURCE : State Treasurer
CONTINUED
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DIGEST : This bill creates the California Consumer Power
and Conservation Financing Authority and authorizes the
issuance of revenue bonds up to $5 billion.
Assembly Amendments make numerous changes without altering
the intent of the bill. They (1) provide for reports, (2)
specify the use of $1 billion of the bonds, (3) provide
that non-General Fund monies are continuously appropriated,
(4) reduce the governing board membership, (5) require an
Energy Resource Investment Plan, and (6) make clarifying,
defining and technical corrections.
ANALYSIS : Existing law authorizes the state to exert
eminent domain powers regarding property under specified
conditions. Existing law provides for the California
Energy Commission (CEC) and the California Public Utilities
Commission (PUC) to administer various energy efficiency
programs.
This bill creates the California Consumer Power and
Conservation Financing Authority (CPCFA), 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 CPCFA, 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 and public sector power sources currently in
operation or under development. The CPCFA could
finance projects on its own or through joint ventures
with public or private entities. (The CPCFA may not
invest in nuclear facilities or develop additional
hydroelectric facilities without legislative
authorization.)
B. Finance energy efficiency programs administered by
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the CEC, the PUC and other qualifying entities.
C. Finance retrofits and/or expansions of existing
power plants for energy efficiency and environmental
improvements.
D. Achieve adequate energy reserve capacity in the
state within five years of the effective date of the
bill.
3.Authorizes the CPCFA 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 CPCFA
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 at just and reasonable rates if it is not
needed or if it is financially advantageous to the
state's consumers to do so.)
5.Authorizes the CPCFA to have employees and contractors,
adopt rules, and exercise the power of eminent domain.
5.Authorizes the CPCFA 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.
7.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.
8.Establishes a special fund for expenditure of bond
proceeds and collection of revenues by the CPCFA. All
monies in the fund are continuously appropriated, except
for the CPCFA's annual operating budget, which is
subject to appropriation in the Budget Act.
9.Requires the CPCFA to apportion its operating costs
among participating parties and, for that portion of its
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costs associated with the CPCFA's own enterprises, to
recover those costs within the generation-related
charges.
10.Requires the CPCFA, 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.
11.Requires the CPCFA to report annually to the Governor
and the Legislature on its activities and epxenses.
12.Prohibits the CPCFA from financing or approving any
projects on or after January 1, 2007.
13.Requires the Bureau of State Audits to evaluate, by
January 2005, CPCFA's effectiveness, including a
recommendation as to whether the authority is needed
beyond January 2007.
Comments
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. 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.
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.
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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
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 CPCFA based on the model of the New
York Public Power Authority. This bill requires that all
generation facilities constructed using financing from
CPCFA 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. CPCFA 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 CPCFA. To accomplish each of these
main objectives CPCFA would work in cooperation with
existing agencies that currently oversee generation
facility siting, ratemaking, and energy efficiency
programs. CPCFA'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 CPCFA, 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
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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 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 CPCFA, with three appointees of the
Governor holding a majority of the five-member authority,
builds accountability into the entity. Poor decision
making reflects directly back upon the administration that
appointed the majority members of CPCFA and lends itself to
sound governance. CPCFA has very broad authority over a
number of different energy-related areas, acting closely in
conjunction with CEC, PUC and other specified entities.
With regard to power plants, CPCFA 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 CPCFA dictates that the entity will
sell the electricity it produces for less than comparable
private sector produced power.
This bill requires CPCFA to rely on CEC, Independent System
Operator (ISO) or its successor organization, and PUC
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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 CPCFA, requiring expertise in
generation and financing by the three 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 CPCFA is
designed to administer with regard to energy efficiency and
renewable energy sources. CPCFA'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.
CPCFA 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 [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 CPCFA processes. At least for the short
term, CPCFA 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.
FISCAL EFFECT : Appropriation: Yes Fiscal Com.: Yes
Local: No
Authorizes $5 billion in revenue bond financing, which when
issued, would be deposited in the newly-created special
fund.
The PUC estimates an absorbable cost of $15,000 related to
the reporting requirements. The bill requires the CPCFA's
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operating budget to be subject to the annual budget process
and funded from the newly created fund. Except for funds
appropriated for CPCFA's operating budget, all non-General
Fund monies would be continuously appropriated to the
CPCFA.
SUPPORT : (Verified 4/30/01)
California State Treasurer Philip Angelides (source)
American Federation of State, County and Municipal
Employees, AFL-CIO
Clean Power Campaign
Coalition of Utility Employees
Congress of California Seniors
Construction Trades Council
Consumers Union
Foundation for Taxpayer and Consumer Rights
Gray Panthers of Sacramento
Independent Energy Producers
Older Women's League of California
Planning and Conservation League
Sierra Club'
TURN
UCAN
Some individuals
ASSEMBLY FLOOR :
AYES: Alquist, Aroner, Calderon, Canciamilla, Cardenas,
Cardoza, Cedillo, Chan, Chavez, Cohn, Corbett, Correa,
Diaz, Dutra, Firebaugh, Florez, Frommer, Goldberg,
Havice, Horton, Jackson, Keeley, Kehoe, Koretz,
Longville, Lowenthal, Matthews, Migden, Nakano, Nation,
Negrete McLeod, Oropeza, Papan, Pavley, Reyes, Salinas,
Shelley, Simitian, Steinberg, Strom-Martin, Thomson,
Vargas, Washington, Wayne, Wesson, Wiggins, Wright,
Hertzberg
NOES: Aanestad, Ashburn, Bates, Bogh, Briggs, Bill
Campbell, John Campbell, Cogdill, Cox, Daucher,
Dickerson, Harman, Hollingsworth, Kelley, La Suer, Leach,
Leonard, Leslie, Maldonado, Mountjoy, Robert Pacheco, Rod
Pacheco, Richman, Runner, Strickland, Wyland, Wyman,
Zettel
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NC:cm 5/2/01 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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