BILL ANALYSIS AB 2638 Page 1 Without Reference to File CONCURRENCE IN SENATE AMENDMENTS AB 2638 (Cardoza) As Amended August 31, 2000 Majority vote ----------------------------------------------------------------- |ASSEMBLY: |73-3 |( June 6, 2000 |SENATE: |29-1 |( August 31, | | | |) | | |2000 ) | ----------------------------------------------------------------- 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, AB 2638 Page 2 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 AB 2638 Page 3 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 AB 2638 Page 4 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 FN: 0007356