BILL ANALYSIS
Appropriations Committee Fiscal Summary
18 (Burton)
Hearing Date: 7/19/01 Amended: 7/16/01
Consultant: Lisa Matocq Policy Vote: E, U & C -
Not
available
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BILL SUMMARY: SB 18xx, an urgency bill, makes changes to
statutes governing the Department of Water Resources (DWR)
power purchasing program.
Fiscal Impact (in thousands)
Major Provisions 2001-02 2002-03
2003-04 Fund
PUC Unknown costs, potentially $310-620
Special*
annually, probably offset
by increased fee
revenues
DWR-power purchasing See comments below
Special**/***
program
*Public Utilities' Reimbursement Account (PURA)
**Electric Power Fund
***DWR Bond Repayment Fund
STAFF COMMENTS: Revised analysis. This bill may meet the
criteria for referral to the Suspense File if demand
reduction programs continue and departments are unable to
recover costs from ratepayers. However, the DRC could
result in significant, offsetting interest cost savings. AB
1x (Keeley, Ch. 4, St. of 2001), among other things, (1)
authorized DWR to enter into contracts to purchase power
and then sell it to electricity consumers, (2) specified
that the Electric Power Fund shall be used for related
revenues and expenditures, (3) authorizes DWR to sell
revenue bonds for the purposes of the program, and (4)
requires DWR to submit it "revenue requirement" to the PUC
in order to recover its costs.
This bill requires DWR, prior to issuing up to $13.4
billion in revenue bonds for power purchases, to apply to
the PUC for a bond financing order establishing a DWR Bond
Set-Aside for the exclusive purpose of paying the costs of
issuing, servicing, and retiring the revenue bonds, and
requires the PUC to comply with the request within 30 days
of receipt of the application. The revenues for the
Set-Aside are to be derived from a dedicated rate component
(DRC), a portion of the rates in effect as of August 31,
2001, and deposited into the DWR Bond Repayment Fund, a
continuously appropriated fund. The bill also:
specifies that the DRC is to come out of existing rates
in effect on August 31, 2001. However, the PUC's ability
to otherwise change rates is unaffected,
requires the PUC to determine at least once per year
whether adjustments are necessary to the DWR Bond
Set-Aside,
changes the definition of "administrative costs",
clarifies that administrative costs are subject to
appropriation, and prohibits DWR from incurring
administrative costs in excess of amount appropriated,
further defines "revenue requirement" by, among other
things, authorizing recovery of expenditures for natural
gas purchases if required by a contract for the purchase
of power, and for using transmission or distribution
facilities prior to delivery or utilization of purchased
power, and prohibiting recovery, from the Electric Power
Fund, of expenditures for demand reduction programs
implemented by the PUC, DWR, or any other entity,
clarifies that the PUC is entitled to any information
necessary to review DWR's revenue requirement, and
requires the PUC to hold at least one public hearing on
the revenue requirements prior to their adoption,
and contains related findings.
At the request of DWR, the Department of Finance, and the
State Treasurer, the PUC is considering (a decision is
expected August 23, 2001) entering into a binding "rate
agreement" with DWR to irrevocably implement provisions of
AB1x and subsequent legislation. The proposed rate
agreement, submitted by DWR contains provisions that differ
from this bill, including but not limited to, the inclusion
of demand reduction programs as an authorized and
recoverable expenditure, and potentially expanded
administrative expenditures. Although demand reduction
programs are not explicitly authorized in AB 1x, several of
the Governor's Executive Orders have directed agencies to
implement such programs using Electric Power Fund revenues.
Through July 9, 2001, payments otherwise due to DWR from
investor-owned utilities (IOUs) for energy purchases have
been reduced by $1.5 million in order to provide credits to
ratepayers under the Governor's 20/20 program. If the
demand reduction programs continue and departments are
unable to recover their costs from ratepayers, there are
unknown, potentially significant, cost pressures. The
demand reduction programs reduce the amount of power that
DWR must purchase.
Increased costs to the PUC are unknown, but potentially
$310,000-620,000 annually for staff, depending on the
number of revenue requirements submitted each year. PURA
revenues are derived from an annual fee charged to public
utilities and used to cover the PUC's budget. Therefore,
increased costs to the PUC should be offset by increased
fee revenues.
There are potential unknown cost savings for the
restrictions on DWR's administrative costs (including bond
issuance costs), which through May 31, 2001 were about $17
million.
By establishing a dedicated rate stream with which to
service and retire the bonds, some have suggested that the
interest rate at bond issuance could be reduced. To the
extent that that occurs, there are unknown interest cost
savings, potentially $1 billion.