BILL ANALYSIS
SENATE COMMITTEE ON AGRICULTURE AND WATER RESOURCES
Jim Costa, Chairman
SB 1973 (Perata)
As Amended May 1, 2000
Hearing Date: May 2, 2000
Fiscal: Yes
Consultant: Brent Walthall
PURPOSE OF BILL:
To require the Public Utilities Commission (PUC) to establish
regulations that determine fair compensation charged by public
agencies that provide wheeling services to water transferors,
and to allow the PUC to adjudicate wheeling rates set by public
agencies.
PRIOR ACTIONS:
Senate Committee on Energy, Utilities and Communications6-4
BACKGROUND:
Existing law establishes that California should facilitate water
transfers in order to meet the growing water needs in the state.
The ability to convey the water from its place of origin to the
place of need is equally as important as the acquisition of a
water transfer itself. Many times a water transfer requires the
involvement of a third party who owns conveyance infrastructure
to move water from the seller to the buyer. When a third party
conveys the water from the seller to the buyer it is called
wheeling.
In order to facilitate water transfers and provide conveyance
for transfers the Legislature enacted the "wheeling statutes",
comprised of sections 1810-1814 of the Water Code. These
statutes describe the conditions under which wheeling may occur.
A major provision within these statutes directs the state to
allow open access to state, local, or regional water conveyance
facilities where there is unused capacity, if fair compensation
is paid to the facility owner.
Current law defines fair compensation as the reasonable charges
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incurred by the owner of the conveyance system, and lists the
factors the facility owner can include in calculating the cost
of wheeling water. Despite the seeming clarity of the law, the
statutes are not specific enough to prevent disputes between
conveyance facility owners and recipients of water transfers
about what "fair compensation" should be for wheeling services.
Disputes over fair compensation have resulted in litigation
which is still pending.
PROPOSED LAW:
This bill makes findings and declarations regarding the state's
policy to encourage water transfers and states the bill's intent
to give the PUC exclusive jurisdiction over wheeling rates set
by certain public agencies.
The bill requires the PUC to begin proceedings to develop
guidelines for setting wheeling rates by January 31, 2001 and to
conclude the proceedings by December 31, 2001.
The bill would allow a water transferor to file a complaint with
the PUC if the transferor believes the rate set by the public
agency for wheeling services exceeds fair compensation as
defined in section 1811 of the Water Code.
Once the complaint is filed, the PUC has exclusive authority to
decide if the wheeling rate was set consistent with the
guidelines established by the PUC. If the PUC finds the rate is
inconsistent with the guidelines, it may require the public
agency to re-calculate and re-set the rate. Alternatively, if
the PUC believes it is in the best interest of the public, the
PUC may set the rate itself.
COMMENTS:
1. Wheeling is an essential component in making a water
transfer market work. The ability to move water from point A
to point B depends on the economic profitability of the
transaction. If wheeling rates are set too high, then some
water transfers will be uneconomical and therefore not
available to help address the state's water supply shortfall.
If the rates are too low, then water transfers will be
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preferred over less economically advantageous water recycling
and conservation projects which we prefer from a policy
perspective. This bill would resolve the conflict by
establishing the PUC as the neutral arbiter to decide what is,
and what is not an appropriate wheeling rate.
2. The PUC has rate setting experience in a variety of
utilities including electricity, gas, communications, and
water. However, the PUC's main purpose its to balance the
protection of rate payers against the profitability, and
therefore viability, of the for-profit companies that provide
those services. The PUC does not have experience in
regulating public agencies. Those agencies are kept in check
by their popularly elected boards. If rates are too high,
voters change the membership of the board. With respect to
this one issue (wheeling rates), this bill uses the PUC to
quiet the voice of the people in controlling their public
agencies.
3.At last week's hearing on SB 2139 (Johnston) Senator Bowen
noted that this bill (SB 1973) conflicts with SB 2139. SB
2139 was passed by this committee last week and requires the
state to set wheeling rates for water moved through the State
Water Project to local agencies who are members of the
Metropolitan Water District of Southern California (MWD). The
state must set those rates at the same rate that would be
available to MWD. Because this bill could require the PUC,
and not the state to set wheeling rates for the SWP it is in
direct conflict with SB 2139. To avoid this conflict the
committee may wish to include language in this bill that
clarifies how wheeling rates are to be set for use of MWD's
capacity in the SWP.
4. In 1996 the San Diego County Water Authority and the MWD
argued over the appropriate wheeling rate for moving water
through MWD's Colorado River Aqueduct. MWD set the rate it
believed was appropriate and later filed a court case to
validate its wheeling rates. The trial court ruled that MWD's
rates were outside the meaning of "fair compensation" as
articulated in section 1811 of the Water Code. MWD appealed
that decision and the Appeals Court heard oral arguments in
March. The consensus of those that listened to the oral
arguments was that the Appeals Court clearly believed the
trial court decision was flawed and the case is expected to be
remanded to the trial court. This bill would require the PUC
to develop guidelines by December 31, 2001 which may or may
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not be consistent with the final outcome of the Appeals Court
decision. To avoid the potential of the PUC's guidelines
conflicting with the Appeals Court decision, the Committee may
wish to direct the PUC to develop its guidelines in a manner
consistent the Appeals Court decision.
5.Previous disputes over wheeling rates have been the subject
of litigation. This bill will provide for a presumably
quicker determination of a fair wheeling rate than resort to
the courts. However, because the bill does not require any
party to the PUC's rate setting authority to give up its right
to redress in the courts, the bill may simply be adding an
additional layer of bureaucracy and delay in resolving
wheeling rate disputes.
6. The irony here is rich. Under the bill as currently
drafted, public agencies who are not currently regulated by
the PUC would be subject to PUC guidelines and jurisdiction
over wheeling rates, while private, for-profit water companies
that are subject to PUC authority are not subject to the PUC's
wheeling rate guidelines. The committee may want to discus
making the PUC's wheeling rate guidelines applicable to any
water agency, public or private, that provides wheeling
services to non-retail customers.
SUPPORT:
California Water Association
Natomas Mutual Water Company (Co-Sponsor)
Western Water Company (Co-Sponsor)
OPPOSED:
California Municipal Utilities Association
City of San Bernardino Municipal Water Department
American Federation of State, County and Municipal Employees,
AFL-CIO
Metropolitan Water District of Southern California
Independent Cities Association
State Water Contractors
Association of California Water Agencies
Santa Clara Valley Water District
Contra Costa Water District
City of Long Beach Board of Water Commissioners