BILL ANALYSIS                                                                                                                                                                                                    



                                                                  AB 2918
                                                                  Page  1

          Date of Hearing:   May 12, 2004

                        ASSEMBLY COMMITTEE ON APPROPRIATIONS
                                   Judy Chu, Chair

                    AB 2918 (Laird) - As Amended:  April 27, 2004 

          Policy Committee:                              UtilitiesVote:   
          8-4
                        Water, Parks, and Wildlife            14-0

          Urgency:     No                   State Mandated Local Program:  
          No     Reimbursable:               

           SUMMARY  

          This bill: 

          1)Requires the Public Utilities Commission (PUC), by July 1,  
            2005, to initiate a ratesetting or quasi-legislative  
            proceeding to determine the feasibility of establishing a  
            separate rate class for desalination facilities commencing  
            operations after January 1, 2006.  The PUC may make the  
            determination in a utility's next general rate case. 

          2)Requires the PUC to determine the costs and benefits of  
            exempting entities operating a desalination facility from  
            Department of Water Resources bond and power contract costs  
            and utility undercollections or bankruptcy related charges  
            stemming from the energy crisis of 2000-01.

           FISCAL EFFECT  

          Minor one-time special fund costs of up to $100,000 for the  
          feasibility assessment and cost/benefit analysis.

           COMMENTS  

           Purpose  . The author indicates that, while new desalination  
          technologies are being developed, desalination is still a highly  
          energy-intensive process. 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  








                                                                  AB 2918
                                                                  Page  2

          charged in their electricity rates for electricity procured  
          during the electricity crisis. Lower costs of electricity for  
          desalination plants would improve the feasibility of these  
          facilities and thus facilitate their development as a  
          cost-effective water supply resource.

           Analysis Prepared by  :    Chuck Nicol / APPR. / (916) 319-2081