BILL ANALYSIS 1 1 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 R 3 0 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