BILL ANALYSIS 1
SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE
DEBRA BOWEN, CHAIRWOMAN
SB 1939 - Alarcon Hearing Date:
April 25, 2000 S
As Amended: April 13, 2000 FISCAL
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DESCRIPTION
Current law allows municipal utilities and irrigation
districts to provide electric service both inside and
outside the boundaries of their service territory.
Current law requires all utilities to collect a "public
goods surcharge" on each customer bill.
Current law requires the investor-owned utilities to spend
specific dollar amounts or percentages in each of the
public goods program categories. Municipal utilities and
irrigation districts have complete discretion over which of
the four public goods programs to fund and at what levels.
This bill requires municipal utilities to specifically fund
programs for low-income residents at a percentage level not
less than the percentage allocated to low-income programs
in 1999 by the Los Angeles Department of Water and Power
(LADWP) and the Sacramento Municipal Utility District
(SMUD).
This bill requires the California Public Utilities
Commission (CPUC) to certify an irrigation district using a
specified set of criteria before the district is permitted
to provide electric service to a customer outside of its
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territory.
BACKGROUND
Public Goods . AB 1890 (Brulte), (Chapter 854, Statutes of
1996) requires investor-owned and municipal utilities to
collect money from each electricity customer to fund four
specific "public goods" programs promoting energy
efficiency, investing in renewable energy sources,
researching alternative energy supplies, and providing rate
discounts to low-income users. The law requires the
investor-owned utilities to spend specific amounts of money
or percentages of money from the baseline year 1994, in
each of the first three categories while the fourth, the
low-income assistance program, is a needs-based program.
In contrast, the publicly-owned or municipal electric
utilities aren't required to comply with any particular
spending formula and have complete discretion over how they
spend their public goods monies.
The surcharge collected from each municipal customer can't
be less than the lowest percentage level of the three
largest electrical corporations in the state. Currently,
the surcharge directs about 2.85% of a customer's electric
bill toward the public goods programs.
Where To Collect And Spend The Public Goods Dollars . The
sponsor of this bill, the Latino Issues Forum, believes
allowing irrigation districts to provide electric service
without requiring them to fund public purpose programs at
specific levels is a disservice to those people in
communities who would clearly benefit from such programs.
In addition to the impacts such a failure to spend money on
these programs has on people within an irrigation
district's service territory, there's also the issue of how
people outside an irrigation district's territory are
affected. An irrigation district can reach outside its
boundaries to "cherry pick" a large industrial customer and
collect a public goods charge from that industrial user.
However, the district isn't required to spend that money to
provide public goods programs to people in that outside
territory or to benefit low-income residents within the
irrigation district's territory.
Furthermore, by reaching outside its territory and taking a
large industrial customer away from a utility that has a
mandate to serve a particular territory, the irrigation
district is diverting public goods money away from a
utility that would otherwise be mandated to collect it and
spend it on public goods programs in that area.
Irrigation Districts . While there are over sixty
irrigation districts in the state, the California Municipal
Utilities Association (CMUA) states that only four of them
- Modesto Irrigation District (MID), Turlock Irrigation
District, Merced Irrigation District, and Imperial
Irrigation District - are providing electricity services at
this time. According to CMUA, the Patterson and Laguna
irrigation districts are preparing to enter the electricity
market in the near future.
A Little History . In 1998, Pacific Gas & Electric (PG&E)
agreed to sell its facilities in the Central Valley cities
of Oakdale, Riverbank, Ripon, and Escalon to MID. The
CPUC, which has the authority to veto any such sale,
exercised that power in this case, arguing the agreement
was anti-competitive and that PG&E's stockholders, not the
ratepayers, would be the primary beneficiaries of the sale.
According to PG&E, it's losing about $22 million in revenue
- out of an $8 billion pie - each year as a result of
decisions by customers to switch to MID and the Merced
Irrigation District for their electrical service. However,
if distributed competition continues to grow, a much
greater amount of money would be at risk.
KEY QUESTIONS
1.Should municipal utilities, including irrigation
districts, be required to establish and fund a specific
program to assist low-income customers?
2.Will the restrictions imposed by this bill on irrigation
districts that provide electric service effectively end
their ability to provide that service?
3.Does this bill attempt to answer the question of whether
California ratepayers should have access to distribution
competition on a piecemeal basis and if so, is that
appropriate?
COMMENTS
1) Spending The Public Goods Dollars . As noted above,
current law requires municipal utilities to collect a
public goods surcharge (which amounts to about 2.85% of
each customer's bill) but it gives them complete
discretion over how it spends those public dollars.
Investor-owned utilities don't have discretion - they're
required to fund all four public goods programs at
specified levels (the low-income program is funded on a
needs basis).
This bill requires municipal utilities to fund a
low-income assistance program at a level described below,
as well as funding any or all of the other three public
goods programs dealing with energy efficiency, renewable
energy, and researching alternative energy supplies.
As noted earlier, irrigation districts don't
automatically have an "obligation to serve" and as such,
they may not be providing electricity services to any
residential customers. As such, the author and Committee
may wish to consider whether providers should be exempt
from creating a low-income assistance program if they
don't serve any residential customers.
2) Using SMUD & LADWP To Set The Floor . This bill sets the
floor for the low-income programs created by this bill at
an amount that's not less than the percentage of charges
allocated to low-income programs in the year 1999 by the
LADWP and SMUD.
According to LADWP, it will allocate 2.85% of its
revenues for public goods programs in the 1999/2000
fiscal year (which runs from July 1 to June 30), which
amounts to $68.5 million. Of that total, 37% - or $25.3
million - will be set aside for low-income assistance
programs.
According to SMUD it allocated 3.7% of its revenues for
public goods programs in the 1999 fiscal year (which runs
from January 1 to December 31), which amounted to $24.2
million. Of that total, 21.4% - or $5.17 million - was
set aside for low-income assistance programs.
The SMUD and LADWP allocations are very different and
it's unclear whether the author wants to fund the
low-income programs in this bill at the lowest of the
two, the highest of the two, an average of the two, or at
a level that simply adds the two percentages together so
that 58.4% of the public goods dollars collected are
spent on low-income assistance programs.
For the sake of clarity and simplicity, the author and
Committee may wish to consider simply returning Section
385 to the way it reads in current law (laying out the
four public goods programs) but requiring the municipal
utilities to fund the low-income assistance program at a
specified level.
This bill also requires the funding of the programs to be
based on a "demographic representation of need." Under
current law, the low-income programs funded by the
investor-owned utilities are based on an "assessment of
customer need" and the CPUC is required to allocate funds
necessary to meet all of the low-income objectives laid
out in law. The author and Committee may wish to
consider how or if a "demographic representation of need"
is different than an "assessment of customer need" and
whether one term is preferable to another.
3) CPUC Certification For Irrigation Districts . Water Code
Section 22115 permits irrigation districts to provide
electricity services and Water Code Section 22120 allows
them to sell and distribute electric power outside of
their boundaries.
SB 1939 requires any irrigation district that wants to
construct, lease, acquire, or operate facilities in order
to provide service in the territory of an investor-owned
electric utility to be "certified" by the CPUC. In order
to certify an irrigation district and allow it to provide
service to a retail entity located in the territory of an
investor-owned electric utility, the CPUC must determine
all of the following:
a)The district has established and funded a public
purpose and low-income program created by Section 1
of this bill.
b)The district will provide universal service to all
retail customers who request it "within the
territory to be served" comparable to that provided
by the current distribution service provider.
c)The district will provide consumer protection and
direct transaction provisions comparable to the
current service provider - and that service provided
by the district is consistent with the policies of
the state to prevent or eliminate economic waste -
as set forth in Section 8101 of the Public Utilities
Code. That section declares it is the policy of the
state to encourage utilities and irrigation
districts who sell and distribute electric power in
the same geographic area, not to take actions that
will cause duplicate service, waste of materials,
increase in cost, waste of manpower or economic
loss.
Regarding (b), because not all irrigation districts have
an obligation to provide universal service, it's
difficult to imagine how a district would be certified to
provide service to everyone in a given district outside
of its boundaries who wants to receive service at a level
comparable to that provided by the existing distribution
service provider.
The language of (b) (on Page 5, Lines 25-30 of the bill)
appears, for example, to require any irrigation district
planning to provide service to a retail customer that's
located at the tip of an investor-owned utility's
territory, to provide service to everyone in that entire
investor-owned utility's territory who wants it.
According to the sponsor, this isn't the intent of (b).
Rather, the sponsor states the intent is to require an
irrigation district to provide universal service to all
residents located in territories that the irrigation
district runs lines or electricity service through in
order to reach the "cherry picked" customer it has
contracted to serve. While that's a different impact
than the one described in the above paragraph, each
instance raises the same fundamental question, which is
whether an irrigation district that wants to provide
electricity services to selected customers should have to
make those same services available to every retail
customer in a given investor-owned utility's territory.
4) Constitutionally Speaking . . . Article XI, Section 9(a)
of the California Constitution provides that:
(a) A municipal corporation may establish,
purchase, and operate public works to furnish its
inhabitants with light, water, power, heat,
transportation, or means of communication. It may
furnish those services outside its boundaries,
except within another municipal corporation which
furnishes the same service and does not consent.
The right of an irrigation district to serve customers in
the territory of an investor-owned utility appears to be
guaranteed by the state Constitution. However, this bill
sets up a series of determinations that the CPUC must
make prior to "certifying" an irrigation district to
provide service in this manner. While the determinations
don't ban irrigation districts from serving customers in
an investor-owned utility territory, they do severely
limit their ability to provide services. As such, the
author and Committee may wish to consider whether this
provision of the bill may be unconstitutional.
While irrigation districts aren't defined in statute as
municipal corporations, numerous court decisions have
addressed the issue:
The state Supreme Court found in Orosi Public
Utilities District (1925) that an irrigation district
was not a municipal corporation, but rather was more
akin to a reclamation district because both were
created for the purpose of constructing improvements
on private lands.
In Yolo v. Modesto Irrigation District (1932) , the
state Supreme Court looked at the situation where an
irrigation district provided electric service both
inside and outside its political boundaries. Here,
the Court found that MID had "stepped beyond the
character and out of the classification of purely an
irrigation district or state agency and had assumed in
part at least the role of a municipal or
quasi-municipal corporation."
In Rock Creek Water District v. County of Calaveras
(1946) , the state Supreme Court held unequivocally
that irrigation districts are municipal corporations.
That decision was affirmed in 1947 in County of
Mariposa v. Merced Irrigation District .
Fast-forward to 1999 and Turlock Irrigation District
v. Hetrick (71 Cal. App. 4th 948), where the Court
stated on two occasions it was not deciding the issue
of whether an irrigation district was a municipal
corporation. Instead, it noted that various cases had
described irrigation districts as "public
corporations," "municipal corporations," and
"quasi-municipal corporations." In a mention of the
1946 Rock Creek case, the court stated that irrigation
districts had been "declared akin to a municipal
corporation."
5) Publicly Owned Certification For Irrigation Districts .
This bill requires the regulatory body of a local
publicly owned electric utility to "certify" an
irrigation district that wants to provide electric
service to customers in its territory.
While there is no description for how a local
publicly-owned electric utility is supposed to "certify"
an irrigation district, this provision is conceptually
similar to Water Code Section 22123, which subjects any
irrigation district providing electric power outside its
boundaries to reasonable rules, regulations, and orders
of the governing body of the city or county area being
served.
Therefore, the author and Committee may wish to consider
whether the certification process contemplated by this
bill regarding publicly owned electric utility districts
is necessary.
6) Fitting The Jigsaw Puzzle Together . Part I of this bill
clearly requires municipal utilities - including
irrigation districts - to create and fund programs to
assist low-income utility users. However, Part II of the
bill arguably makes it less likely that irrigation
districts will be able to provide electricity services.
"Distribution competition" certainly has its supporters
and detractors, but the author and Committee may wish to
consider whether it's appropriate to address the issue on
a piecemeal basis and effectively preclude distribution
competition from irrigation districts, as this bill
effectively does.
7) Technically Speaking . The author may wish to consider
the following technical amendments:
a) Page 3, Line 1, strike "Except as provided in
subdivision (b)," as this language appears to conflict
with the reference to subdivision (b) in Line 12 and
could be read to require municipal utilities to
establish two different public goods surcharges, which
is not the author's intent.
b) Page 4, Line 16 and Line 18, change "2000" to
"2001" to ensure the bill doesn't apply retroactively.
8) Double Referral . Should this bill be approved by this
Committee, the Senate Rules Committee has double-referred
the measure to the Senate Local Government Committee.
POSITIONS
Sponsor:
Latino Issues Forum
Support:
Coalition of California Utility Employees
Community Action Agency of San Mateo County, Inc.
JERICHO
Mexican American Legal Defense and Educational Fund
Pacific Gas & Electric Company
Southern California Gas Workers Council
The Greenlining Institute
United Farm Workers of America, AFL-CIO
Oppose:
Agricultural Energy Consumers Association
Alameda Power & Telecom
Association of California Water Agencies
California League of Food Processors
California Municipal Utilities Association
City of Azusa Light & Water Department
City of Gridley
City of Lodi
City of Lompoc
City of San Bernardino Municipal Water Department
Imperial Irrigation District
Lassen Municipal Utility District
Merced Irrigation District
Modesto Irrigation District
Northern California Power Agency
Roseville Electric
Sacramento Municipal Utility District
Southern California Public Power Authority
Trinity Public Utilities District
Turlock Irrigation District
Anna Ferrera
SB 1939 Analysis
Hearing Date: April 25, 2000