BILL ANALYSIS 1
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SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE
DEBRA BOWEN, CHAIRWOMAN
SB 1716 - Ducheny Hearing Date:
April 13, 2004 S
As Introduced: February 20, 2004 FISCAL B
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DESCRIPTION
Current law establishes the California Consumer Power and
Conservation Financing Authority (CPA) to ensure a sufficient
and reliable supply of electricity for Californians at just and
reasonable rates, to finance energy demand reduction programs,
and to achieve an adequate energy reserve capacity by May 2006.
Current law requires the Bureau of State Audits to evaluate the
effectiveness of the CPA by January 1, 2005 and bars the CPA
from financing any new program or project after January 1, 2007.
This bill repeals the statutes creating the CPA and transfers
any assets, liabilities, and surpluses to the Energy Resources
Programs Account. All existing appropriations shall continue to
be available for the same purposes and periods from that
account.
Current law authorizes the California Energy Commission (CEC) to
revoke a powerplant siting permit under specified conditions.
One of those conditions is when a permit holder doesn't start
construction of the project within 12 months of receiving all of
the necessary permits, the CPA notifies the CEC that it's
willing to build the project, and it reimburses the original
permittee for the cost of acquiring the permit.
This bill abolishes the role of the CPA in powerplant siting
permit revocations.
BACKGROUND
The CPA was created at the height of the 2001 energy crisis in
response to record high prices for electricity and reports that
electricity generators were unwilling or unable to provide power
to the state. The purpose of the CPA was to act as a "backstop"
to provide sufficient electric capacity to meet California's
needs at a reasonable price if private, non-utility generators
decided not to build power plants or provide power to the state.
The CPA is governed by a five-member board appointed to terms
by the Governor. The Governor also appoints the chair of the
board.
While the CPA hasn't built any power plants, it has fulfilled a
variety of roles since its inception. Perhaps most importantly,
it has encouraged cooperation between the California Public
Utilities Commission (CPUC) and the California Energy Commission
(CEC), and has helped develop a state electricity reserve
reliability target.
In pursuit of its mission to ensure an adequate reserve
capacity, the CPA has led efforts to obtain proposals for new
peaking plants in reliability constrained areas and is helping
San Francisco and Fresno develop new peaking projects. The CPA
acted as a conduit financing agent for $28 million in revenue
bonds sold by the CEC to supply capital for a local agency
energy efficiency loan program administered by the CEC.
COMMENTS
1.Cheap Insurance . The CPA was originally seen as an insurance
policy against supply shortages. The Legislature's concerns
are best understood through the findings codified in the bill
creating the CPA, SB 6 (Burton and Bowen), Chapter 10,
Statutes of the First Extraordinary Session of 2001-02:
The Legislature finds and declares that in order to
furnish the citizens of California with reliable,
affordable electrical power, to ensure sufficient
power reserves, to assure stability and rationality in
California's electricity market, to encourage energy
efficiency and conservation as well as the use of
renewable energy resources, and to protect the public
health, welfare, and safety, the state needs to
finance, purchase, lease, own, operate, acquire, or
otherwise provide financial assistance for public and
private facilities for the generation and transmission
of electricity and for renewable energy, energy
efficiency, and conservation programs.
The threat of inadequate power supplies was very real in 2001,
as California suffered from near continuous Stage 1 electric
supply alerts, routine Stage 2 electric supply curtailments,
and even occasional Stage 3 outages. While California's
electric supply has been adequate for the past several years,
the Stage 1 alert and the rotating blackout in Southern
California this past March are reminders that problems remain.
During a hearing of this committee on longer term supply
adequacy, the CEC indicated that while supplies would be
adequate in 2004, circumstances could change as early as 2006.
Contributing to this concern are the age of many of the
state's existing power plants, a sharp fall-off in the number
of applications to build new powerplants and the fact that the
hydroelectric power upon which California heavily relies is
subject to the vagaries of the weather. Further, the
potential for electric market manipulation, which caused much
of the 2001 energy crisis, remains a possibility. Because of
these issues eliminating the insurance policy provided by the
CPA may be premature.
2.Private Investment In New Power Supplies . When the CPA was
created, it was over the objection that it would "crowd out"
private investment in new powerplants. Three years after its
creation, it doesn't appear that argument has been validated.
The CPA hasn't built a single power plant, while a dozen or so
CEC-approved projects have been put on hold or have been
cancelled altogether by the project applicant. If anything,
it appears private investment in new powerplants has been
crowded out because investors have only been willing to invest
in powerplants with long-term sales contracts.
3.Performance Review & Budget Proposal . The Governor's
California Performance Review (CPR) is examining the role and
performance of the state entities involved in creating and
implementing energy policy. The CPR could be developing a
Governor's Reorganization Plan for the energy agencies, a
reorganization that could include eliminating the CPA given
the Governor's campaign promise to dismantle the CPA and
transfer its functions to other agencies.
The Governor's 2004-2005 Budget proposal appears to make good
on that promise, summing up the Administration's views on the
CPA by noting that "(t)he energy crisis that led to formation
of the (CPA) has passed, and other state agencies perform
similar work. Therefore, elimination of the Authority will
improve the efficiency of State government." In contrast, the
Legislative Analyst's Office (LAO) believes eliminating some
of the CPA's functions is premature, given the uncertainty
that still exists regarding the adequacy of the state's
long-term energy supply.
Abolishing the CPA won't save any General Fund money because
it is self-funded. Those funds are earned from the CPA's
management of a demand reduction program operated under
contract with the California Department of Water Resources,
which ends in 2007. At its inception, the CPA was loaned
money from the General Fund to get the agency up and running,
but that loan was subsequently transferred into a loan from
special funds managed by the CEC, which repaid the General
Fund in full. If the CPA is abolished, the loans from the
special funds would be written off. Even if the Governor's
proposal to de-fund the CPA is enacted, the CPA's authority
will survive unless that authority is specifically deleted in
legislation.
Given that the Bureau of State Audits is required to evaluate
the effectiveness of the CPA by January 1, 2005 and the CPA is
precluded from financing any new program or project after
January 1, 2007, it's not clear there are benefits in
eliminating the CPA a year before its effectiveness is
evaluated.
4.Legislative Analyst's Opinion . The LAO has found eliminating
the CPA's functions would be premature given the uncertainty
over the adequacy of California's long-term power supplies.
Instead, it suggests either retaining the CPA as a self-funded
entity or transferring certain CPA functions to other existing
entities.
Abolishing the CPA without retaining its functions would
eliminate one of the very few tools California has to combat
inadequate energy supplies. The LAO recommends if the CPA is
eliminated, the bonding function should be transferred so the
state retains the authority to finance powerplants, but if the
bonding authority is retained, it's unclear why the CPA
shouldn't simply remain in place with the ability to exercise
that authority. The LAO also recommends retaining the CPA's
existing demand management program so ratepayers will be able
to benefit from the energy savings they'll produce. The LAO
didn't make a recommendation on the CPA's other authorities,
such as the authority to finance electric and natural gas
efficiency programs or to acquire powerplants.
5.Related Legislation . AB 2967 (LaMalfa) is nearly identical to
this bill. It is pending in the Assembly Utilities and
Commerce Committee.
POSITIONS
Sponsor:
Author/Governor's Office
Support:
Pacific Gas and Electric Company
Oppose:
The Utility Reform Network
Randy Chinn
SB 1716 Analysis
Hearing Date: April 13, 2004