BILL ANALYSIS
AB 2638
Page 1
Date of Hearing: May 15, 2000
ASSEMBLY COMMITTEE ON UTILITIES AND COMMERCE
Roderick D. Wright, Chair
AB 2638 (Calderon) - As Amended: May 15, 2000
SUBJECT : Public utilities: electrical power
SUMMARY : Establishes a framework for distribution competition
between investor-owned utilities (IOUs), municipal utilities,
and irrigation districts through creation of an oversight
criteria relating to environmental, economic, cost-shifting, and
system reliability impacts of electric distribution competition.
Specifically, this bill :
1)Authorizes an IOU or a municipal utility to continue to
recover the costs incurred to provide electric distribution
service to each retail customer from existing and future
customers, when the customers take electric distribution
service from an irrigation district at the same location after
a specified date.
2)Provides that the recovery of the costs by an IOU shall be in
a nonbypassable charge or any other manner determined by CPUC.
3)Provides that the recovery of the costs by a municipal utility
shall be in a nonbypassable charge or any other manner
approved by its governing board consistent with the provisions
of this bill, existing contracts, and relevant state law.
4)Requires irrigation districts to receive CPUC approval to
construct, lease, acquire, or operate facilities for the
distribution or transmission of electricity in the service
territory of an IOU or municipal utility, as specified.
5)Prohibits CPUC from approving the irrigation district's
request to provide distribution or transmission of electricity
to retail customers located in the service territory of an IOU
or municipal utility, as specified, unless CPUC determines all
of the following:
a) Construction of duplicative facilities by the irrigation
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district within the service territory of an IOU or
municipal will not have an unnecessary adverse impact on
the environment or property values.
b) Service by the irrigation district within the service
territory of an IOU or municipal utility:
1) is in the public interest;
2) is consistent with the policies of the state to
prevent or eliminate economic waste as set forth in
Section 8101;
3) does not adversely impact the ability of the IOU or
municipal utility to provide adequate service at
reasonable rates within the remainder of its service
territory; and
4) does not reduce in value or render useless any
facilities previously constructed by the IOU or municipal
utility.
1)Specifies that irrigation districts are not exempt from the
obligation to pay a competition transition charge (CTC) for
certain uneconomic costs of electric restructuring when
providing firm electrical service to customers representing
load participating in an IOU's non-firm electrical service
program as of May 1, 2000.
EXISTING LAW :
1)Provides that the delivery of electricity over transmission
and distribution systems is currently regulated, and will
continue to be regulated to ensure system safety, reliability,
environmental protection, and fair access for all market
participants.
2)Provides that the transmission and distribution of electric
power remain essential services imbued with the public
interest that are provided over facilities owned and
maintained by the state's IOUs.
3)Authorizes irrigation districts to generate, transmit, and
distribute electricity, including sale to municipalities,
public utility districts, or persons.
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4)Allows municipal utilities and irrigation districts to provide
electric service both inside and outside the boundaries of
their service territory.
5)Exempts 110 megawatts of load provided by irrigation districts
from the obligation to pay CTC.
6)Requires IOUs to receive CPUC approval before changing any
rate or altering any classification, contract, practice, or
rule so as to result in any new rate, except upon a showing
before CPUC and a finding by CPUC that the new rate is
justified.
FISCAL EFFECT : Unknown
COMMENTS :
1)There are more than 60 irrigation districts in the state, but
only four of them-Imperial Irrigation District, Merced
Irrigation District, Modesto Irrigation District, and the
Turlock Irrigation District-are presently providing electrical
service. According to the California Municipal Utilities
Association (CMUA), the Laguna and Patterson irrigation
districts plan to enter the electricity market in the near
future. Irrigation districts enjoy certain advantages that
IOUs do not. They are self-regulated, tax-exempt entities
that are exempt from the obligation to pay competition
transition charges (CTC) and provide universal service. Some
irrigation districts have gone outside their service territory
to "cherry-pick" large, industrial and commercial customers
served by existing IOUs and municipal utilities.
Cherry-picking shifts the remaining fixed costs of maintaining
the existing utility's system onto the less desirable
customers left behind.
2)The purpose of this bill, according to the author, is to
ensure that any "distribution competition" by irrigation
districts is in the public interest, will not adversely affect
the remaining customers of the incumbent utility, is
consistent with state policies on avoiding environmental and
economic waste, and does not undermine efforts to increase
participation in nonfirm, or interruptible, programs to
support electric system reliability during the peak summer
months. Additionally, this bill would ensure that when
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irrigation districts market electricity to customers who then
depart their existing regulated utility service provider, the
costs previously incurred by the existing utility to serve
those customers are paid by the departing customers and not
shifted onto remaining customers.
3)Irrigation districts are currently authorized to provide
electric service both inside and outside the boundaries of
their service territory. Most irrigation districts have
service area agreements barring each other from serving in the
other's territories and claim that IOU's cannot legally serve
in their territories. This bill would modify existing
practices to mitigate the advantages irrigation districts
currently have when providing electric service outside their
service territory. Irrigation districts would need CPUC
approval in order to construct, lease, acquire or operate
facilities for the transmission or distribution of electric
service to retail customers outside their service territory.
4)The California Municipal Utilities Association (CMUA) asserts
that this bill would significantly limit the ability of
irrigation districts to compete outside the boundaries of
their service territory. According to CMUA, the criteria
established in this bill "requires the CPUC to deny a request
by an irrigation district." Proponents of the bill believe,
however, that existing CPUC requirements subject IOUs to the
same degree of scrutiny as this bill envisions for irrigation
districts. Before building distribution facilities to serve
new customers, IOUs are required to: 1) obtain a Certificate
of Public Convenience and Necessity to determine whether the
new distribution facilities are economically wasteful or
environmentally damaging; 2) provide universal service (to
avoid cherry-picking), and 3) undergo ratemaking review to
ensure there is no unjustified cost-shifting.
5) System Reliability . When irrigation districts cherry-pick
nonfirm, or interruptible customers of the incumbent utility,
this decreases the reliability of the state's electric grid
during peak summer months. The California Independent System
Operator (Cal-ISO) and CPUC are presently taking steps to
guard against reliability problems during the summer of 2000
and 2001. According to the May 11, 2000 edition of the Los
Angeles Times, Cal-ISO predicts that the state will come up
approximately 1,000 megawatts (MW) short on unusually hot,
summer days when the peak demand could rise to 48,900 MW.
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Cal-ISO and the state's IOUs have programs in place to provide
lower rates to large users provided they agree to accept
nonfirm, or interruptible, power. The irrigation districts'
practice of contracts for firm non-interruptible service to
customers who were previously interruptible contravenes the
efforts of the CPUC, Cal-ISO and other customers seeking to
reduce peak demand.
6)Opponents of the bill argue that irrigation districts are
municipal corporations and therefore entitled to the
constitutional right of Article XI, Section 9(a) which
provides that "a municipal corporation may ?. furnish those
services outside its boundaries, except within another
municipal corporation which furnishes the same service and
does not consent." While irrigation districts are not defined
in statute as municipal corporations, numerous court decisions
have addressed this issue. Caselaw relating to this issue
goes back several decades. In Rock Creek Water District v.
County of Calaveras (1946), the California Supreme Court
declared that "an irrigation district probably comes nearer
than any other subordinate public corporations of the state to
meeting the technical requirements defining a municipal
corporation." Another case, Turlock Irrigation District v.
Hetrick (1999), Fifth Appellate District of the California
Court of Appeal, noted that there is "considerable conflict in
the decisions" relating to this issue and that "no general
rule can be stated." The court noted that various cases had
described irrigation districts as "public corporations,"
"municipal corporations," and "quasi-municipal corporations."
Finally, a May 4, 2000 decision of the Third Appellate
District of the California Court of Appeal held that,
"Article XI, Section 9, the grant of municipal authority did
not preclude the Legislature from otherwise regulating
municipal public utilities." California Apartment Association
v. City of Stockton (2000). In that irrigation districts have
not definitively been declared as municipal corporations, and
the Legislature has not been precluded from regulating
municipal public utilities, the Legislature's authority in
this matter does not appear to have been precluded by the
Constitution.
7)Distributed Generation Proceeding at the CPUC . In December,
1998, CPUC initiated a rulemaking relating to the issues
surrounding distribution competition, distributed generation
(on-site electric generation, usually 20 MW or less), and the
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role of the incumbent utility in the competitive retail
electricity market. In October, 1999, CPUC approved a
procedural roadmap (D.99-10-065) for further consideration of
these issues, and noted some of their concerns:
"If direct wires competition becomes more prevalent ? the
UDCs [investor-owned utility] may face losses in their
current customer base, as well as their revenues. These
reductions could have an adverse impact on remaining
customers of the UDCs because of possible stranded electric
distribution facilities."
"?If direct wires competition exists between a publicly
owned utility and the UDC, the question arises as to which
entity has the obligation to serve customers in that area.
The question highlights the 'cherry picking' argument and
requires a determination whether the UDC should be left
with the burden of having to serve the customers that the
publicly owned utility does not plan to serve. The [CPUC]
staff study should examine whether the Legislature should
consider clarifying who has the obligation to serve under
such circumstances."
D.99-10-065 noted that these are issues the Legislature will
have to decide, since CPUC lacks jurisdiction over municipal
utilities and irrigation districts (except for safety aspects
of their electric systems). A CPUC staff study and report is
due to be released in June of this year.
8)Related legislation : AB 2938 (Committee on Local Government)
would make it easier for irrigation districts to serve outside
their boundaries. The measure is scheduled to be heard on May
17 in the Assembly Local Government Committee. SB 1939
(Alarcon), currently before the Senate Local Government
Committee, requires irrigation districts to fund specified
public purpose programs, and conduct energy efficiency program
needs assessments, as specified. SB 2167 (Sher) would provide
that CPUC may issue decisions to facilitate competition in the
production, transmission, and distribution of electricity.
The bill is in the Senate Energy, Utilities, and
Communications Committee.
REGISTERED SUPPORT / OPPOSITION :
Support
AB 2638
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Natural Resources Defense Council
Pacific Gas and Electric
Sempra Energy
Opposition
Agricultural Energy Consumers Association
California Municipal Utilities Association
Northern California Power Agency
Southern California Public Power Authority
Turlock Irrigation District
Analysis Prepared by : Joseph Lyons / U. & C. / (916) 319-2083