BILL ANALYSIS
AB 2918
Page 1
ASSEMBLY THIRD READING
AB 2918 (Laird)
As Amended May 17, 2004
Majority vote
WATER, PARKS & WILDLIFE 14-0 APPROPRIATIONS 18-2
-----------------------------------------------------------------
|Ayes:|Canciamilla, Bermudez, |Ayes:|Chu, Berg, Calderon, |
| |Berg, Daucher, Frommer, | |Corbett, Correa, Daucher, |
| |Goldberg, Shirley Horton, | |Firebaugh, Goldberg, |
| |Kehoe, Lowenthal, | |Keene, Leno, Nation, |
| |Matthews, Parra, Pavley, | |Negrete McLeod, Oropeza, |
| |Plescia, Wolk | |Pavley, Ridley-Thomas, |
| | | |Wesson, Wiggins, Yee |
| | | | |
|-----+--------------------------+-----+--------------------------|
| | |Nays:|Runner, Bates |
| | | | |
-----------------------------------------------------------------
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 CPUC to determine the costs and benefits associated
with exempting a desalination facility operated by a public
agency or a regulated utility 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 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.
4)States that CPUC should not shift costs as a result of its
decision based on the above actions.
EXISTING LAW establishes CPUC and gives it the authority to set
AB 2918
Page 2
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
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, 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
AB 2918
Page 3
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.
This bill requires CPUC to look into this issue, but does not
dictate the outcome. This is proper, as CPUC is the agency
charged with regulating utilities under the state Constitution.
Analysis Prepared by : Jeffrey Volberg / W., P. & W. / (916)
319-2096
FN: 0005411