BILL ANALYSIS 1
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SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE
DEBRA BOWEN, CHAIRWOMAN
SB 1755 - Soto Hearing Date:
May 14, 2002 S
As Amended: April 30, 2002 Non-FISCAL
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DESCRIPTION
Current law authorizes Municipal Water Districts (MWD) to
operate hydroelectric plants and use the power for their own
purposes or sell the power to federal agencies, the state water
project, local governments and private corporations which sell
power at retail.
Current law authorizes County Water Districts (CWD) to operate
hydroelectric plants and use the power for their own purposes or
sell the power to public utilities or public agencies.
This bill authorizes MWDs and CWDs to own and operate electric
powerplants, whether hydroelectric or otherwise. Power
generated from these plants may be used for the district's own
purposes or otherwise sold to any public or private entity that
sells electricity.
This bill requires that any departing electric load shall be
subject to whatever surcharges or exit fees are imposed by the
California Public Utilities Commission (CPUC) for
self-generation customers.
BACKGROUND
New Generation Falloff . The fallout from the Enron & Arthur
Andersen scandals, combined with an improved outlook for
adequate electricity supplies (which drives down prices), has
caused a number of electric power generators to scale back or
cancel new powerplant projects. The California Independent
System Operator (ISO) reports that 62 generation projects
totaling over 4,500 megawatts (MW) have been cancelled as of
March 2002. This fall off of projects may impact California's
electricity supply, and the prices Californians pay for power,
in the coming years.
Escaping Utility and DWR Charges . There are a number of
measures pending in the Legislature this year which allow
existing investor-owned utility (IOU) customers to leave and
obtain service from other providers, often in pursuit of lower
rates. IOU rates are set well above the actual cost of
providing electricity in order to pay for expensive electricity
bought or contracted for in 2000 and 2001 when prices were
extraordinarily high. This includes power bought by the
Department of Water Resources (DWR) and power bought by the
IOUs. IOU customers weren't charged the full cost of the
electricity bought on their behalf for the past two years, so
those subsidies and the cost of the DWR contracts are being
amortized in current rates. The CPUC's plan to return Southern
California Edison (SCE) to creditworthiness and both the CPUC's
and Pacific Gas & Electric's (PG&E) plan of reorganization all
contemplate charging electric rates in excess of the cost.
Rates for electricity purchased from other providers (via a
direct access transaction, community aggregation, distributed
generation, or municipalization) don't include these costs,
making that electricity cheaper by comparison and increasing the
allure of third-party electricity.
Allowing some customers to avoid these costs doesn't make those
costs disappear. On the contrary, those costs must simply be
recouped by charging remaining customers more for their
electricity. One way to avoid this cost shifting is to simply
bar customers from leaving the IOUs. An alternative is to allow
customers to leave but to make them responsible for their share
of these costs as a condition of their departure. This is the
approach taken in SB 1519 (Bowen), dealing with certain types of
direct access transactions, and AB 117 (Migden), dealing with
community aggregation.
In the case of direct access, the CPUC has opened a proceeding
to consider whether, and at what level, customers leaving their
IOU provider for a direct access provider should be required to
repay DWR for power purchased on their behalf. In its
investigation, the CPUC has said it will "ensure that direct
access customers pay the full range of costs necessary to avoid
shifting costs to utility bundled service customers."
COMMENTS
1.New Authority For Water Districts . Current law allows water
districts to own and operate hydroelectric projects (e.g. dams
and reservoirs) because such projects can be integral to the
water supply purposes served by water districts. Five of 40
MWDs and 0 of the 173 CWDs take advantage of this authority.
This bill broadens that authority by allowing water districts
to own and operate electric generation projects of any type.
There is nothing to indicate that a water district has the
expertise to operate a gas-fired power generator, which
requires a different set of skills than operating a dam.
However, district management will presumably have to face
their electorate to justify these proposals and the local
agency formation commissions will also need to approve such
ventures.
2.Wholesale, Not Retail . The bill authorizes the water
districts to own and operate powerplants to serve their own
needs, and to sell any excess electricity to other public or
private entity engaged in the distribution of electricity. It
specifically states that nothing in the bill authorizes water
districts to sell electricity to retail end users.
While the bill allows sales of power to for-profit public
entities, other sections of law state that a district that
wants to use tax-exempt financing to build their plant can
only sell power to other tax-exempt entities. This would
mean, for example, a water district building a plant pursuant
to this bill could sell power to non-profit entities, cities,
counties, and municipal utilities, but they couldn't sell
power to an IOU or to a direct access provider.
3.Cost Shifting . The bill contains a provision intended to
prevent DWR and IOU power costs incurred by the water
districts from being shifted to other IOU customers when a
water district opts to exercise the authority granted to it by
this bill. The overriding principle behind the anti-cost
shift language is that the remaining IOU customers should be
"held harmless" and not be forced to bear the costs accrued by
any other IOU customer who has opted to leave the system for
direct access, community aggregation, municipalization, or
self-generation.
However, the language in this bill doesn't adequately protect
customers from having costs shifted from water districts to
their IOU electricity bills. The author and committee may
wish to consider amending the bill to include the following
language, which closely mirrors the anti-cost shifting
language in SB 1519 (Bowen) that was approved by this
committee on April 23 by an 8-0 vote:
A water district that elects to provide for its own power
pursuant to this section shall reimburse the Department of
Water Resources for all of the following:
(1) The department's unrecovered actual cost of power
procurement, including any financing and administrative
costs, attributable to that customer, as determined by the
department. The department's actual cost shall be
calculated as the difference, if any, between the
department's total actual procurement costs attributable to
a customer and the revenues collected by the department
from the customer during the customer's term of service
with the department. The department shall publish, and
update as necessary, a formula for calculation of
unrecovered costs that are due pursuant to this
subdivision.
(2) Any additional costs of the department, equal to
the customer's proportionate share of the department's
estimated net unavoidable power purchase contract costs,
for the period commencing with the customer's purchases of
electricity from an alternate provider, through the
expiration of all then existing power purchase contracts
entered into by the department. The proportionate share and
unavoidable costs are to be determined by the department.
Furthermore, the bill doesn't insure the IOU that the water
district is departing from is reimbursed for costs associated
with power it may have purchased in order to serve the
district. The author and committee may wish to consider
amending the bill to include the following language to
accomplish that goal:
A water district that elects to provide for its own power
pursuant to this section shall reimburse the investor-owned
utility it was previously receiving service from for all of
the following:
(1) The investor-owned utility's unrecovered actual
cost of power procurement, including any financing and
administrative costs, attributable to that customer, as
determined by the California Public Utilities Commission.
The investor-owned utility's actual cost shall be
calculated as the difference, if any, between its total
actual procurement costs attributable to a customer and the
revenues collected by the investor-owned utility from the
customer during the customer's term of service with the
investor-owned utility.
(2) Any additional costs of the investor-owned
utility, equal to the customer's proportionate share of the
investor-owned utility's estimated net unavoidable power
purchase contract costs, for the period commencing with the
customer's purchases of electricity from an alternate
provider, through the expiration of all then existing power
purchase contracts entered into by the investor-owned utility.
The proportionate share and unavoidable costs are to be
determined by the California Public Utilities Commission.
1.Approved by Local Government . This bill was approved by the
Senate Local Government Committee on April 24, 2002 on a 6-0
vote.
2.Related Legislation . SB 1871 (Monteith) expands the powers of
the Root Creek Water District and allows it to act like an
irrigation district so it can purchase, lease, distribute, and
generate electrical power. It also allows the district to
purchase, lease, and distribute natural gas both inside and
beyond the district's boundaries. SB 1871 was approved by the
Senate Local Government Committee on April 24 by a 6-0 vote
and was scheduled to be heard by the Senate Appropriations
Committee on May 13.
POSITIONS
Sponsor:
Central Basin Municipal Water District
Inland Empire Utilities District
West Basin Municipal Water District
Support:
Association of California Water Agencies
Chino Basin Watermaster
Cucamonga County Water District
Municipal Water District of Orange County
Southern California Water Company
Oppose:
Pacific Gas and Electric Company (unless amended)
Sempra Energy (unless amended)
Southern California Edison
Randy Chinn
SB 1755 Analysis
Hearing Date: May 14, 2002