BILL ANALYSIS                                                                                                                                                                                                              1
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                SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE
                               DEBRA BOWEN, CHAIRWOMAN
          

          SCR 30 -  Poochigian                                   Hearing  
          Date:  June 24, 2003                 S
          As Introduced:  May 1, 2003             FISCAL           C
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                                      DESCRIPTION
           
           This resolution  concludes that energy-related refunds ordered by  
          the Federal Energy Regulatory Commission (FERC), or negotiated  
          by the Attorney General (AG), the Governor, or any other agent  
          of the state, should be dedicated strictly to repay the  
          Department of Water Resources (DWR) energy bonds, or reduce or  
          eliminate the rate surcharges dedicated to bond repayment.

                                      BACKGROUND
           
          The AG, on behalf of the state, has entered several agreements  
          to settle lawsuits arising from the energy crisis.  These  
          include agreements with:

          Calpine - $6 million in cash, consisting of:
           $1.5 million dedicated to installing solar energy technology  
            at schools and other public buildings.  
           $4.5 million to reimburse the state for investigation costs.

          Constellation - $2.5 million in cash, consisting of:
           $1.25 million dedicated to installing solar energy technology  
            at schools and other public buildings.  
           $1.25 million to reimburse the state for investigation costs.

          Williams - $417 million total value, consisting of:
           $147 million in cash through 2010 - $70 million dedicated to  
            installing solar energy technology at schools and other public  
            buildings, $20 million for siting and installing turbines, $12  
            million divided between the AG, the California Public  
            Utilities Commission and the Electricity Oversight Board for  
            investigation costs, and the balance divided among  











            participating local governments and other states.
           $180 million attributed to a reduction in Williams' energy  
            contract with DWR.  
           $90 million attributed to six electric generating turbines  
            given to the cities of San Francisco and San Diego.

          El Paso - $1.7 billion total value, consisting of:
           $665 million in cash, $225 million up front and $440 million  
            over 20 years - $505.6 million to IOU ratepayers and $159.4  
            million divided among participating local governments and  
            other states.
           $900 million worth of natural gas over the next 20 years,  
            allocated among the settling parties.
           $125 million attributed to a reduction in El Paso's energy  
            contract with DWR.
           This settlement has not been finalized and the AG's office  
            indicates the numbers and details are subject to change.

          State lawsuits against other energy companies (e.g., Coral,  
          Dynegy, Mirant, PG&E, Powerex, Reliant and Sempra) are pending.

                                       COMMENTS  

           1.Same issue addressed in budget trailer bill.   The Budget  
            Conference Committee has adopted provisions, to be included in  
            the general government trailer bill, which provide the  
            Legislature with some oversight of energy settlement funds  
            secured by the state.  The bill requires settlement funds  
            secured by the AG to be directed first to reduce costs of  
            ratepayers who were harmed by the settling parties.  In the  
            case of IOU ratepayers, the bill requires funds to be directed  
            first to reduce the debt service on the DWR energy bonds.

            While the trailer bill establishes the reduction of DWR bond  
            debt as a priority, it gives the AG and the Legislature some  
            discretion to dedicate settlement funds to other purposes that  
            benefit ratepayers.  It also provides for reimbursement of the  
            state's investigation and litigation costs, and recognizes  
            that not all settlement proceeds will be cash that can be  
            applied to DWR bond debt.  This resolution's recommendation is  
            that energy-related refunds should be dedicated  strictly to  
            reduce the DWR bond debt.

             The author and the committee may wish to consider  whether this  










            resolution should be amended to be consistent with the trailer  
            bill, or whether this issue is better addressed exclusively in  
            the trailer bill, since the bill would be binding on the AG  
            and would prevail in any conflict with this resolution.

           2.Why pay off the cheapest debt first?   The DWR bonds are a  
            relatively low-cost method to finance ratepayer obligations.   
            Ratepayers might pay more than twice as much for debt financed  
            by IOUs than for DWR debt.  

             The author and the committee may wish to consider  whether  
            priority should be given to delivering the greatest ratepayer  
            benefit, such as paying the highest cost ratepayer debt or  
            other obligations, rather than focusing strictly on the DWR  
            bond debt, which is probably the cheapest debt available to  
            ratepayers.

           3.Not all refunds at stake are owed to IOU ratepayers.   There  
            are many ratepayers who have a stake in the pending energy  
            refund proceedings or litigation who aren't IOU customers,  
            never received power from DWR, and aren't paying the DWR bond  
            charge.  These include customers of in-state municipal  
            utilities and out-of-state utilities.  These customers may be  
            entitled to refunds secured by the AG and others, but would  
            receive no benefit from reducing DWR's bond debt.  There also  
            may be IOU or non-IOU related claims for energy costs paid by  
            a utility which aren't recoverable from ratepayers.  This  
            resolution seems to compel that all remedies secured by the  
            state go exclusively to IOU ratepayers, even when the harm was  
            to other parties.  This could lead to unfair and illegal  
            remedies, unless the AG and others abandon all claims that  
            aren't made on behalf of IOU ratepayers.

           4.Just the facts?   This resolution contains a number of  
            statements which focus blame for high energy costs on  
            government (e.g., "poor regulatory oversight," "inaction and  
            lack of leadership," "bad policy decisions," "poorly  
            negotiated contracts").  It's unclear whether these statements  
            refer to FERC, or the state.  The resolution makes no mention  
            of the unjust and unreasonable charges, market manipulation,  
            and illegal conduct of wholesale energy suppliers which has  
            led to the refund proceedings, litigation, settlements, and  
            criminal indictments.











             The author and the committee may wish to consider  these  
            provisions should be made more objective, or simply removed.

                                       POSITIONS
           
           Sponsor:
           
          Author

           Support:
           
          None on file

           Oppose:
           
          None on file

          















          Lawrence Lingbloom 
          SCR 30 Analysis
          Hearing Date:  June 24, 2003