BILL ANALYSIS 1
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SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE
DEBRA BOWEN, CHAIRWOMAN
SB 1939 - Alarcon Hearing Date:
May 9, 2000 S
As Amended: May 3, 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.
Current law requires that, in order to be a member of an
irrigation district board of directors, a person must be a
"freeholder" (or landowner) in the district and a resident
of the division he represents at the time of nomination or
appointment and for the duration of "his" entire term.
This bill requires publicly-owned utilities to establish
low-income programs to be funded through an allocation of
the public goods funds based on an assessment of need.
This bill requires publicly-owned utilities to conduct a
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low-income program needs assessment by December 31, 2001.
If a publicly-owned utility is already providing a rate
discount of 15% or more as part of a low-income program, it
is exempted from the needs assessment requirement.
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
territory.
This bill removes the requirement that a member of an
irrigation district board of directors must also be a
landowner and adds the word "she" where appropriate.
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 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?
4.Is mandatory land ownership an appropriate qualification
in order to be a member of an irrigation district board
of directors?
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 this 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 that don't already
have a low-income assistance program in place as of
January 1, 2001, that provides a rate discount of at
least 15% to those who qualify to conduct a needs
assessment by December 31, 2001. After a needs
assessment is completed, each municipal utility is then
required to provide each low-income customer with a rate
discount of at least 15%.
This 15% discount is currently required by the CPUC for
low-income programs provided by the investor-owned
utilities under the California Alternative Rates for
Energy (CARE) program.
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) 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 (Page 4, Line 36 to Page 5, Line 2 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.
3) 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."
4) 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.
5) The Freeholder Criteria . As amended on May 3, 2000, the
bill deletes the requirement that to be a member of an
irrigation district board of directors, a person must be
a freeholder (or landowner) in the district.
The freeholder requirement was added to the law in 1897
at a time when irrigation districts performed fewer
functions than many of them do today. When the
freeholder statute was added in 1897, irrigation
districts only had the ability to furnish water for
beneficial uses and deliver water for fire protection
purposes. In later years, districts were given the
ability to provide the following services: drainage
(1907), electricity (1919), flood control (1949), sewage
water treatment, storage and distribution (1953), sewage
disposal (1963), construction and operation of
recreational facilities (1969), and watermaster (1982).
The landowner criteria for irrigation district board
members has also been challenged in the courts with
different results:
The California Supreme Court ruled in Choudhry v.
Free (1976) that because the irrigation district
provided vital services to all residents in its
service area - not just landowners - freeholder status
could not be required of those who vote for the boards
or of those who wish to serve as director. Choudhry
held that the freeholder requirement of this section
was unconstitutional as representing a denial of equal
protection under the law (U.S.C.A. Const. Amend.14).
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However, the U.S. Supreme Court, in Ball et al. v.
James et al. (1981) , ruled that an Arizona water
reclamation district providing electric service to
hundreds of thousands of people could keep its
landowner election requirement in place. The Court
found the district's water functions were its primary
purpose and were sufficiently narrow so as not to be
subject to the Fourteenth Amendment equal protection
doctrine. The Court ruled because the district
couldn't impose taxes, enact laws or administer other
government functions, just because it provided diverse
services such as electricity, didn't bring it under
the equal protection doctrine.
6) Technically Speaking . The author may wish to consider
the following technical amendments:
a) Page 3, Line 1, insert (a) after "385."
b) Page 4, Line 16 and Line 19, change "2000" to
"2001" to ensure the bill
doesn't apply retroactively.
7) Related Legislation .
AB 2638 (Calderon). Existing law exempts specified
entities from the obligation to pay certain uneconomic
costs of electrical restructuring, but this bill provides
the exemption doesn't apply to irrigation districts that
are providing service to customers in the territory of an
investor-owned utility. The bill states legislative
intent that each investor-owned and municipal utility
providing electric service should continue to operate
electric distribution facilities only in their respective
service territory as it existed on January 1, 2000. The
measure further provides that if an investor-owned
utility's customer receives a bona fide offer from an
alternative provider at a rate less than the
investor-owned utility is providing, that investor owned
utility can drop its rates to retain that customer and
recover any difference between its tariffed rate and
discounted service from its remaining customers. AB 2638
is scheduled to be heard in the Assembly Utilities &
Commerce Committee on May 15.
SB 1571 (Costa) changes the voting requirements in the
James Irrigation District and the Corcoran Irrigation
District to require all voters in district elections to
be landowners. It also eliminates the requirement that
those landowners actually have to live in the district in
order to vote. SB 1571 passed the Senate Agriculture &
Water Resources Committee on an 8-0 vote on April 11 and
is pending in the Senate Appropriations Committee.
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:
California Journal For Filipino Americans
California Rural Legal Assistance Foundation
Central Valley Opportunity Center
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Coalition of California Utility Employees
Community Action Agency of San Mateo County, Inc.
Community Medical Center
Congress of California Seniors
Consumer Federation of California
Finca Management Inc.
Foundation For Quality Housing Opportunities, Inc.
The Greenlining Institute
Hermandad Mexicana Nactional, several members
JERICHO
Latin American Civic Association
Mexican American Legal Defense and Educational Fund
SUPPORT (cont.):
Natural Resources Defense Council - with amendments
Pacific Gas & Electric Company
San Fernando Gardens Resident Management Corporation
Sempra Energy
Southern California Gas Workers Council
TELACU
United Farm Workers of America, AFL-CIO
Watts/Century Latino Organization
West Angeles Community Development Corporation
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
Western Growers Association
Anna Ferrera
SB 1939 Analysis
Hearing Date: May 9, 2000