BILL ANALYSIS 1
1
SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE
DEBRA BOWEN, CHAIRWOMAN
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|SB 1183 - Leslie |Hearing Date:April 13, | S|
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|As Amended:April 8, 1999 | | B|
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DESCRIPTION
This bill grants a "right of first refusal" for the
acquisition of a utility-owned hydroelectric facility to
the local agency that holds a Federal Energy Regulatory
Commission (FERC) license for the facility, or if there no
such agency, to the county in which the facility is
located.
The bill further exempts the transfer of hydroelectric
assets pursuant to the exercise of this right from review
under the California Environmental Quality Act (CEQA).
The bill also clarifies that a utility may not dispose of
any hydroelectric asset without explicit approval of the
California Public Utilities Commission (CPUC).
KEY QUESTIONS
1)On what basis should counties be awarded a preferential
right to acquire hydroelectric facilities that have been
constructed and operated as public utility assets?
2)On what basis should counties be awarded an exemption
from the ordinary public review of potential
environmental effects that CEQA requires?
3)Absent CEQA review, how will the variety of complex
environmental issues sparked by a change in ownership and
operation of hydroelectric facilities be addressed?
4)Should transfer of hydroelectric facilities to any entity
be considered before these issues are resolved?
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 Competition Transition Charge (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.
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 prohibits utilities from disposing of
hydroelectric facilities, or any permit, license or
contract related to those facilities, without offering a
180-day long "right of first refusal" to the local agency
that holds a FERC license for the facility, if there is
one. Where there is not a local FERC licensee, as in most
instances, the right of first refusal would be offered to
the county in which the facilities are located. Having
this right would allow a county or local agency to
intervene in any proposed sale of a hydroelectric asset and
buy it at the same price, terms and conditions.
COMMENTS
1)Who will the facilities be sold to? If they were granted
preference for acquisition of local hydroelectric
facilities, many counties would not be able to
independently secure enough money to buy the facilities
within the 180-day duration of the right of first
refusal. In anticipation of the sale of hydroelectric
facilities, the sponsor of this bill, the Regional
Council of Rural Counties (RCRC), is seeking partners to
provide bridge financing until tax-exempt bonds could be
issued. Under this scenario, the rationale that may
exist for granting preference to a public agency is
diminished by the fact that the facility could be jointly
controlled by a for-profit entity. In the event that a
local hydro bond measure failed after a county had
exercised its right of first refusal and a partner had
fronted the money, the facility conceivably could be
controlled entirely by a for-profit entity.
2)No significant effect on the environment? It is hard to
imagine an action that may have an effect over a wider
range of people and landscapes than a change in ownership
and operation of a dam or other hydroelectric facility.
This bill proposes to exempt such a change from CEQA
review, not based on the nature of the effects, but based
on who takes possession of the facility. The inclusion
of this exemption contradicts RCRC's own testimony
supporting CEQA review of hydroelectric facility disposal
in the CPUC valuation proceeding noted above. In its
testimony, RCRC rightly concluded that the CPUC's
"proceedings will affect land use and environmental
quality in our counties for generations."
3)Affirmation action for rural counties? Intervening in
the market to establish a right of first refusal has
typically been reserved for circumstances in which there
is an overriding public interest in the acquisition of
the property. Similarly, establishing a CEQA exemption
for a project that clearly may have a significant effect
on the environment demands a countervailing public
benefit. Combining the two, as this bill does, raises
the "public interest threshold" even higher. The
Committee may wish to consider what the counties seeking
these privileges will offer the public in return.
4)Double-referral. Should the Committee approve this
measure, it will be re-referred to the Senate
Environmental Quality Committee for further review.
POSITIONS
Support:
Association of California Water Agencies
California State Association of Counties (CSAC)
Colusa County Board of Supervisors
Inyo County Board of Supervisors
Mariposa County Board of Supervisors
Regional Council of Rural Counties (sponsor)
San Benito County Board of Supervisors
Tehama County Board of Supervisors
Yuba County Board of Supervisors
Yuba County Water Authority
Oppose:
PG&E
Planning & Conservation League
Southern California Edison
Lawrence Lingbloom
SB 1183 Analysis
Hearing Date: April 13, 1999