BILL ANALYSIS 1
1
SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE
DEBRA BOWEN, CHAIRWOMAN
AB 2918 - Laird Hearing Date:
June 22, 2004 A
As Amended: June 17, 2004 FISCAL B
2
9
1
8
DESCRIPTION
This bill requires the California Public Utilities Commission
(CPUC) to determine the feasibility of a separate electric rate
class for new desalination plants operated by public water
agencies or regulated water utilities.
BACKGROUND
Electric utility customer rate classes have generally been
established according to customer size (residential, small
commercial, industrial, etc.). The agricultural rate class,
based on the type of activity, is an exception that most
electric utilities have. The most specific rate class is
"street lighting."
Electric utilities have also established special rate discounts
for customers meeting economic conditions, such as low-income
residential customers or distressed commercial/industrial
customers. Some electric utilities have special rates for water
pumping customers. No electric utility has a special rate for
desalination plants.
Desalination is a water supply alternative in many areas of the
state with an inadequate local fresh water supply, but with
access to sea water, such as the Monterey Peninsula. The
desalination process is energy intensive, so electricity rates
are a large component - 75%, according to the author - of the
cost of producing the water. The author argues that new
desalination plants weren't part of the forecast and procurement
by electric utilities and the Department of Water Resources
(DWR), so they shouldn't pay the same high electricity rates,
which include the residual costs of the electricity crisis, as
other similar customers.
COMMENTS
1.A special rate would be nice for desalination, but is it a
long-term necessity? Desalination technology is evolving.
Recent advances have lowered the cost to the point where
desalination is finally being taken seriously as an economic
alternative and more advances can be expected in the coming
years. During the same period, as the residual costs of the
electricity crisis are paid off, electric rates may come down
for everyone. Because both the economics of future
desalination plants and future electricity rates are unknown,
it seems difficult to judge the need to establish special
rates.
2.Alternative - high rates can be avoided by using
self-generation. Large, gas-fired self-generation projects
are exempt from DWR contract charges and Pacific Gas and
Electric Company's bankruptcy recovery charge, the two highest
and longest-lived residual costs of the electricity crisis.
Smaller and/or renewable self-generation projects are eligible
for additional rate exemptions and subsidies. Self-generation
can be well-suited for energy-intensive industrial
applications like desalination. In addition, a desalination
plant co-located with an existing generation facility, as some
are proposed to be, can purchase electricity directly from the
generator under existing "over-the-fence" statutes. The
author and committee may wish to consider whether this
approach is more appropriate for a desalination project
looking to lower its operating costs, rather than encouraging
the CPUC to adopt a special rate that may force other
electricity users to subsidize the cost of that lower rate.
3.Inconsistent processes. This bill requires the CPUC to
initiate a proceeding by July 1, 2005, but permits the CPUC to
make its determination in the utility's next general rate
case, a different proceeding which will occur at a later date.
The author and the committee may wish to consider which
process the CPUC should follow - special proceeding right
away, or next general rate case.
PRIOR VOTES
Assembly Floor (46-31)
Assembly Appropriations Committee (18-2)
Assembly Water, Park and Wildlife Committee
(14-0)
Assembly Utilities and Commerce Committee
(8-4)
POSITIONS
Sponsor:
Author
Support:
Association of California Water Agencies
East Bay Municipal Utility District
San Diego County Water Authority
Oppose:
Public Citizen
Sierra Club California
Lawrence Lingbloom
AB 2918 Analysis
Hearing Date: June 22, 2004