BILL ANALYSIS                                                                                                                                                                                                    



                                                                  AB 1398
                                                                  Page  1

          ASSEMBLY THIRD READING
          AB 1398 (Papan)
          As Amended January 6, 2000
          Majority vote 

           UTILITIES AND COMMERCE         9-0                              
           
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          |Ayes:|Wright, Pescetti,         |     |                          |
          |     |Calderon, Campbell,       |     |                          |
          |     |Frusetta, Maddox, Papan,  |     |                          |
          |     |Reyes, Wesson             |     |                          |
          |     |                          |     |                          |
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           SUMMARY  :  Declares legislative intent to implement  
          recommendations of the State Auditor's audit of the San  
          Francisco Public Utilities Commission (SFPUC). 
           
          EXISTING LAW  :

          1)Provides for SFPUC to supply water at wholesale rates to  
            various retail water suppliers.

          2)Prohibits a local agency from imposing fees or charges that  
            exceed the estimated reasonable cost of providing the service  
            for which the cost or fee is imposed.

           FISCAL EFFECT  :  Unknown

           COMMENTS  :  SFPUC is a subdivision of the City and County of San  
          Francisco (San Francisco) responsible for the storage, quality  
          control and distribution of San Francisco's drinking water.   
          SFPUC provides retail drinking water and sewer services to San  
          Francisco, wholesale water to 29 other water agencies in three  
          other Bay Area counties (i.e., San Mateo, Santa Clara and  
          Alameda), and hydroelectric power to government operations.  The  
          primary water source is the Hetch Hetchy Project which provides  
          about 85% of the water.  Additional water sources include about  
          15% from watersheds in San Mateo, Santa Clara and Alameda  
          Counties. 

          Proposed water rates must be adopted by SFPUC and then be  
          approved by the San Francisco Board of Supervisors.  None of the  
          29 outside agencies are represented on SFPUC.  The Board of  
          Supervisors can only approve or reject rates, but cannot alter  








                                                                  AB 1398
                                                                  Page  2

          the water rate recommendations from SFPUC.

          As currently structured, the water agencies outside San  
          Francisco receive water pursuant to contracts which regulate the  
          allocation of costs.  The current contractual agreement, which  
          expires in 2009, establishes wholesale water rates through a  
          formula that assures users from the 29 other water agencies pay  
          only for their direct cost of delivery.  They do not subsidize  
          water users from San Francisco.  However, in 1992 citizens of  
          San Francisco, approved an initiative to freeze their own water  
          rates through the year 2004.  The author has expressed concern  
          that the freeze may have an impact on water rates of citizens  
          outside San Francisco.  

          In upcoming years, San Francisco is expected to perform over $2  
          billion in seismic and infrastructure repairs on the Hetch  
          Hetchy Project.  Without substantial upgrades to the delivery  
          system, a major earthquake could result in a severe disruption  
          of water supplies for the system's 2.3 million customers.   
          Pursuant to a request of the author, the State Auditor is  
          currently conducting an audit of SFPUC with regard to several  
          factors including:  a) reliability of the regional water system;  
          b) plans for repairs and upgrades to the system; and, c)  
          long-range financial plans for funding any capitol projects,  
          especially in light of the freeze on San Francisco's own water  
          rates.  The State Auditor's report is scheduled for completion  
          in February 2000.  This bill will be used to implement the  
          findings of the State Auditor's report.


           Analysis Prepared by  :    Carolyn Veal-Hunter / U. & C. / (916)  
          319-2083 


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