BILL ANALYSIS 1
1
SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE
DEBRA BOWEN, CHAIRWOMAN
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|SB 1063 - Bowen |Hearing Date:April 13, | S|
| |1999 | |
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|As Introduced: February 26, | | B|
|1999 | | |
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DESCRIPTION
This bill requires utility-owned hydroelectric facilities
to be retained and operated by the utility and regulated by
the California Public Utilities Commission (CPUC).
KEY QUESTIONS
1) Notwithstanding restructuring of the electric industry,
should the CPUC retain its regulatory authority over
hydroelectric facilities that have been constructed and
operated as public utility assets?
2) Is the CPUC capable of balancing the variety of complex
environmental and economic issues sparked by a proposed
change in ownership and operation of hydroelectric
facilities in California?
3) How should these facilities be valued for purposes of
calculating the Competition Transition Charge (CTC)?
BACKGROUND
Passage of AB 1890 (Brulte), Chapter 854, Statutes of 1996,
triggered a restructuring of the electricity generation
market over a four-year transition period. The transition
to a competitive generation market has included significant
divestiture of utility-owned generation facilities and
recovery of utilities' historic uneconomic investments
through a transition charge paid by customers.
To calculate the CTC, AB 1890 requires the negative value
of above-market generation assets to be netted against the
positive value of below-market generation assets. Whether
assets are retained or disposed of, their relative value
must be determined based on "appraisal, sale, or other
divestiture" by December 31, 2001. AB 1890 requires that
utility-owned generation assets be assigned a value, but it
does not expressly require that they be divested from the
utility.
California's investor-owned electric utilities have already
divested a significant share of their generation assets,
most notably natural gas powerplants. The utilities with
hydroelectric assets, Pacific Gas and Electric Company
(PG&E) and Southern California Edison (SCE), have not yet
valued or divested any hydroelectric facilities.
California's network of utility-owned hydroelectric
powerhouses has a total generation capacity of about 5,000
megawatts (MW), which meets approximately 15% of the
state's electricity demand. Because of their ability to
start and stop on short notice, hydroelectric powerhouses
are uniquely suited to supply peak demand and ancillary
services (reserve capacity), the most valuable segments of
the electricity market.
Beyond generating electricity, the operation of
hydroelectric facilities has a profound impact on water
supply and quality for downstream users, including people,
farms and fish. In addition, reservoirs and watershed
lands adjacent to hydroelectric facilities provide
extensive water storage, recreation and wildlife habitat.
Finally, these facilities are a significant, and in some
cases, the largest source of property tax revenue for the
counties in which they are located.
Historically, utility-owned hydroelectric facilities have
been financed by electricity ratepayers and operated for
their benefit. Licenses, permits, contracts and agreements
governing their operation have been secured by utilities
regulated by the CPUC.
The Federal Energy Regulatory Commission (FERC) maintains
general jurisdiction over licensing and operation of these
facilities, regardless of who owns them. California's
principal jurisdiction through the CPUC applies to the
extent that they are owned by public utilities. If they
are transferred or sold to unregulated entities, the CPUC
will have no jurisdiction. Other state agencies, such as
the State Water Resources Control Board and the Department
of Fish and Game, have discreet jurisdictions over certain
issues, such as water rights and endangered species.
Both PG&E and SCE have filed applications at the CPUC
seeking to value their hydroelectric assets pursuant to AB
1890's requirement. PG&E, which owns the majority of the
system (68 powerhouses generating 3,890 MW), has further
proposed to divest all of its hydroelectric facilities
through a transfer to an unregulated affiliate, U.S.
Generating Company of Maryland, at a value fixed through
appraisal. SCE has not formalized a proposal for its
facilities (35 powerhouses generating 1,173 MW), but has
indicated a preference for retaining them within the
regulated utility, establishing a negotiated value to
credit to the CTC and sharing 90% of future revenues with
ratepayers.
In its first proceeding to consider the fate of
utility-owned hydroelectric assets, the CPUC has limited
the scope to establishing principals for valuation of
assets that PG&E and SCE will retain. Because it does not
want to retain any of its hydroelectric assets, PG&E has
withdrawn from this proceeding and announced its intent to
file a new application to value specific assets later this
month.
This bill would require that utility-owned hydroelectric
facilities be retained and operated by the utility and
regulated by the CPUC. According to the author, AB 1890
did not contemplate the multitude of non-electric issues
raised by a potential change in ownership and operation of
hydroelectric facilities in California. Further, there is
not yet a process in place to adequately address these
issues and ensure that the public retains its investment in
the multiple-use values of these facilities.
The author supports the establishment of a comprehensive
public process and standards to address the disposition and
future operation of utility-owned hydroelectric facilities
and associated properties. This bill is intended to
prevent an irrevocable divestiture of hydroelectric assets
before those issues are resolved.
COMMENTS
1) Can the existing restructuring process handle hydro? The
divestiture model envisioned in AB 1890 does not fit
hydroelectric assets very well. No provision was made
in the law to balance the variety of non-electric
considerations related operating a dam in an unregulated
environment, such as water supply, fisheries and
recreation. The CPUC's established process for
valuation and divestiture of utilities' generation
assets has not yet had to balance the variety of
environmental and economic issues sparked by a change in
ownership and operation of hydroelectric facilities.
While it has recognized the broader scope of issues
surrounding the future ownership and operation of
hydroelectric assets, the CPUC, as a regulatory body,
does not likely have the authority or expertise to
address all of them.
2) Is the CPUC the public's best venue for hydro issues?
Notwithstanding the author's intent to explore
alternatives to CPUC regulation, few parties think that
continued CPUC regulation is the best way to balance all
of the issues related to operation of hydroelectric
facilities. While the CPUC may not be the public's
ideal venue, it is no doubt preferable to the current
alternative presented by divestiture, which would leave
the public with no regulatory venue at the state level
to address overall operation of hydroelectric
facilities.
3) How did they treat hydro in Oregon? - Last year,
Portland General Electric, a major Oregon public
utility, proposed to divest its generation assets as
part of plan to transition to competition. In a January
27 ruling, the Oregon CPUC authorized the divestiture of
Portland's fossil generation assets, but not its
hydroelectric assets, which it ordered Portland to keep
in order to retain their benefits for ratepayers.
POSITIONS
Support:
California State Council of Laborers
Office of Ratepayer Advocates
Oppose:
Association of California Water Agencies
PG&E
Planning and Conservation League
Lawrence Lingbloom
SB 1063 Analysis
Hearing Date: April 13, 1999