BILL ANALYSIS
AB 2918
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Date of Hearing: April 20, 2004
ASSEMBLY COMMITTEE ON WATER, PARKS AND WILDLIFE
Joseph E. Canciamilla, Chair
AB 2918 (Laird) - As Amended: April 15, 2004
SUBJECT : Desalination: electricity rates
SUMMARY : Seeks to lower the cost of desalination by finding
ways to lower the cost of electricity to the desalination
plants. Specifically, this bill :
1)Requires the California Public Utilities Commission (CPUC) to
determine the feasibility of establishing a separate rate
class for desalination plants operated by public agencies or
by regulated utilities, which are placed in service after
January 1, 2006.
2)Requires the CPUC to determine the costs and benefits
associated with exempting public agencies or regulated
utilities operating a desalination facility from costs of
electricity procured through the Department of Water Resources
(DWR) as a result of the recent energy crisis, or through any
historical procurement costs associated with deregulation.
3)Requires that the CPUC take the above actions before July 1,
2005 by initiating either a rulemaking or a quasi-legislative
proceeding, or through the next general rate case.
EXISTING LAW establishes the CPUC and gives it the authority to
set rates for the sale or purchase of electricity by regulated
utilities.
FISCAL EFFECT : This bill could result in desalination plants
brought on-line after 2005 being exempt from having to pay a
share of the cost of electricity purchased by DWR over the past
few years.
COMMENTS : Ocean desalination is becoming an exciting new
possibility for increasing the state's water supply. California
has a very long coastline adjacent to a virtually limitless
source of water. Until very recently, desalination was too
energy-intensive and therefore expensive to be economically
feasible. New processes have been developed, however, that make
it more cost-effective to use desalinated water in a blend with
AB 2918
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other less expensive water sources.
There are two technologies being developed. One is reverse
osmosis, in which seawater is forced though a membrane,
filtering out the salts and other impurities. The other is
distillation, in which seawater is turned to steam, then
condensed into pure, fresh water. The least expensive process,
and therefore the most widely studied, is reverse osmosis.
Desalination does have a few drawbacks. It is still expensive,
relative to other sources of water. It is highly
energy-intensive. There is also the problem of disposing of the
brine produced in the desalination process.
However, innovative siting arrangements, such as building
desalination plants together with power plants, will create
economies for both types of facilities. Water from the
desalination plant can be used for cooling the power plant, for
example, while electrical transmission costs are eliminated.
Beginning in 2000-2001, the state experienced an energy crisis
that resulted in DWR taking over the purchase of power for the
major utilities. To pay for electricity purchased by DWR at
prices that were too high to be recovered from rates that were
not increased sufficiently to cover the cost, the state issued
revenue bonds. To repay the bonds, the CPUC imposed a surcharge
on electrical rates.
The author argues that, because there were no major desalination
plants in operation during the electricity crisis, and because
desalination was not expected to be a major consumer of
electricity at the time DWR entered into the electricity market,
desalination plants should not be charged in their electricity
rates for electricity procured during the electricity crisis.
Lower costs of electricity will provide an incentive for public
agencies and investor-owned utilities to develop desalination
plants to provide clean water at a price that is affordable to
consumers.
The bill requires the CPUC to look into this issue, but does not
dictate the outcome. This is proper, as the CPUC is the agency
charged with regulating utilities under the state Constitution.
REGISTERED SUPPORT / OPPOSITION :
AB 2918
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Support
None on file.
Opposition
None on file.
Analysis Prepared by : Jeffrey Volberg / W., P. & W. / (916)
319-2096