BILL ANALYSIS 1
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SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE
DEBRA BOWEN, CHAIRWOMAN
AB 2918 - Laird Hearing Date:
June 29, 2004 A
As Amended: June 17, 2004 FISCAL B
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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.
As proposed to be amended, this bill will simply require the
CPUC to review interrelationship between its electricity policy
and its water policy when it comes to ocean desalination and
make recommendations to the Governor and the Legislature by
January 1, 2006.
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.Prior Hearing . When this bill was hearing on June 22, the
members of the committee expressed a concern that directing
the CPUC to examine the "feasibility" of creating a special
rate for desalination plants would pre-judge the question of
whether creating a special rate for these entities is a good
idea.
Furthermore, while the intent section of the bill says it's
the "intent" of the Legislature that creating a special rate
for desalination plants not lead to costs being shifted to
other ratepayers, the operative section of the bill didn't
preclude costs from being shifted. As a practical matter,
because rate-making is a zero sum game, it would be impossible
for the CPUC to establish a lower special rate for
desalination plants without increasing rates for other
electricity users, thus forcing them to subsidize the
electricity costs of the desalination plant.
Striking the language in the current version of the bill and
replacing it with the following is intended to reflect the
discussion at the June 22 hearing:
The commission shall evaluate the interrelationship
between the commission's electricity policy and water
policy as it relates to ocean desalination and shall
report to the Governor and the Legislature by January
1, 2006 on the balance between the interests of
electricity and water ratepayers. The PUC shall
invite the Department of Water Resources, the State
Water Resources Control Board, the Department of Fish
and Game, the Energy Commission, and the Coastal
Commission to participate in the evaluation.
2.The Relationship Between Rates . Desalination technology is
evolving and while recent advances have lowered the cost to
the point where desalination is finally being taken seriously
as an economic alternative, one of the biggest costs drivers
is the priced of electricity. In the coming years, the
residual costs of the electricity crisis will be paid off and
electric rates are likely to come down for everyone. Lowering
the electricity rate for a desalination plant means raising
the electricity rates for some other customer group or groups,
but if the water rates for those groups drop more than their
electricity bills go up, then they wind up as net winners.
That, however, is a big "if" given all of the unknowns with
building desalination plants. The goal of the study proposed
by this measure is to see whether the "if" can become a
reality in the near future.
3.High Rates Can Be Avoided. 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.
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 29, 2004