BILL ANALYSIS                                                                                                                                                                                                    



                                                                  AB 2638
                                                                  Page  1

           Without Reference to File
           
          CONCURRENCE IN SENATE AMENDMENTS
          AB 2638 (Cardoza)
          As Amended August 31, 2000
          Majority vote
           
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          |ASSEMBLY:  |73-3 |( June 6, 2000  |SENATE: |29-1 |( August 31,   |
          |           |     |)               |        |     |2000 )         |
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           Original Committee Reference:   U. & C.  

           SUMMARY  :  Permits irrigation districts (IDs) to build and  
          operate electric facilities in the service territory of an  
          investor-owned utility (IOU) only upon approval of the  
          California Public Utilities Commission (CPUC) based on specified  
          findings; provides IOUs with discounting authority to compete  
          with Ids; and, provides a limited exemption from these  
          provisions for those IDs already providing electric distribution  
          service.

           The Senate amendments  :

          1)Permit IDs to build and operate electric facilities in the  
            service territory of an IOU only upon CPUC's finding that it  
            is in the public interest and that the ID has met the  
            following conditions:

             a)   Provide universal service to all retail customers  
               requesting service within the area to be served at  
               reasonable, non-discriminatory rates comparable to those  
               provided by the existing retail electric service provider.   
               The area to be served must include a percentage of  
               residential and small customers, based on load, comparable  
               to the percentage of residential and small customers in the  
               district, based on load;

             b)   Will not adversely affect the reliability of electric  
               service;

             c)   Prevents or eliminates economic waste;

             d)   Implements public purpose and low income programs; and,








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             e)   Provides service at least 15% below the IOU's tariffed  
               rates, exclusive of the commodity charges and public  
               purpose program charges.  The 15% threshold is meant to  
               address the tax benefits that IDs have as compared with  
               IOUs.

          2)Provide that the California Environmental Quality Act (CEQA)  
            review of any new electrical facilities outside an ID's  
            boundaries shall be conducted by the board of supervisors of  
            the county in which the majority of the construction occurs.

          3)Require an ID to offer service to all customers inside of its  
            service territory before being able to offer service to  
            customers outside of its service territory.

          4)Give CPUC authority to adjudicate complaint cases brought  
            against an ID by an interested party for violations of all of  
            the above provisions.

          5)Provide pricing flexibility for an IOU by permitting it to  
            discount its electric service to its "marginal cost" in order  
            to compete with an ID.  The electrical corporation may recover  
            the lost revenues from remaining customers up to the amount  
            that the revenues would have been recoverable had the customer  
            been lost to the ID.  Such lost revenues may not be recovered  
            from small ratepayers. 

          6)Provide an exemption from these provisions for IDs already  
            providing electric distribution service in their existing  
            service area and with a service area agreement for limited  
            expansion, as defined.

           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)Allows IDs to provide electric service both inside and outside  
            the boundaries of their service territory.

          3)Permits an ID to act as the lead agency under the review  








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            mandated by CEQA for new electric facility construction  
            projects it undertakes, even when the project is outside of  
            the district's boundaries.

          4)Requires a county board of supervisors to reject the formation  
            of an ID if it is not for the primary purpose of providing  
            irrigation services.

           AS PASSED BY THE ASSEMBLY  , this bill stated legislative intent  
          to resolve specified issues relating to electric distribution  
          and transmission service provided by IDs.

           FISCAL EFFECT  :  Unknown

           COMMENTS  :  There are more than 60 IDs in the state, but only  
          four of them, Imperial ID, Merced ID, Modesto ID, and the  
          Turlock ID, are presently providing electrical service.  The  
          Laguna and Patterson IDs plan to enter the electricity market in  
          the near future, according to the California Municipal Utilities  
          Association.  

          Distribution competition:  Current law allows IDs to provide  
          electric service both inside and outside the boundaries of their  
          service territory.  This bill permits IDs to build and operate  
          electric facilities in the service territory of an IOU if CPUC  
          deems it to be in the public interest and providing specified  
          conditions have been met. 

          IDs are self-regulated, tax-exempt entities that are exempt from  
          the obligation to pay competition transition charges and provide  
          universal service.  Some IDs 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. This bill provides pricing flexibility for an IOU  
          by permitting it to discount its electric service to its  
          "marginal distribution cost" in order to compete with an ID.   
          The IOU may recover the lost revenue from remaining customers up  
          to the amount that the revenues would have been recoverable had  
          the customer been lost to the ID.  Such lost revenues may not be  
          recovered from small ratepayers.

          Exemption for existing IDs:  This bill exempts those irrigation  
          districts already offering electric distribution service in  








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          their existing service area and with a service area agreement or  
          limited expansion as defined.

          CEQA review:  Under current law, an ID proposing to build and  
          install electrical service lines and equipment serves as its own  
          lead agency under CEQA.  By contrast, an IOU wishing to install  
          the same equipment to provide the same services can't serve as  
          its own lead agency for CEQA, due to the fact it is not a public  
          entity.  Instead, the CPUC serves as the lead agency for CEQA.   
          This bill designates CPUC as the lead agency for CEQA for ID  
          electric construction projects outside of the district's  
          boundaries.

          Complaints:  In cases where the ID provides service to an entity  
          outside of the district boundaries, this bill provides the CPUC  
          with jurisdiction to adjudicate complaints brought against the  
          ID by interested parties.  Currently, all IOU customers can take  
          their complaints to CPUC for resolution and this bill attempts  
          to extend that same benefit to customers of IDs who are located  
          outside of the district's boundaries.

          Related legislation:  SB 1939 (Alarcon), recently approved by  
          both houses, requires local publicly-owned utilities, including  
          IDs, which have not implemented programs for low-income  
          electricity customers, to perform a needs assessment and  
          establish rate assistance and energy efficiency programs, and  
          prohibits IDs from providing electric transmission or  
          distribution service to retail customers in another utility's  
          service territory unless the district certifies by ordinance  
          that it provides public purpose programs, and has universal  
          service, consumer protection, and environmental policies  
          comparable to those of the incumbent utility provider.   
          Additionally, SB 1939 makes various changes to IDs voting  
          requirements.  


           Analysis Prepared by  :  Joseph Lyons / U. & C. / (916) 319-2083


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