BILL ANALYSIS
SB 1973
Page 1
Date of Hearing: June 26, 2000
ASSEMBLY COMMITTEE ON UTILITIES AND COMMERCE
Roderick Wright, Chair
SB 1973 (Perata) - As Amended: May 31, 2000
SENATE VOTE : 22-12
SUBJECT : Public Utilities Commission: water conveyance: fair
compensation.
SUMMARY : Requires California Public Utilities Commission (CPUC)
to establish regulations not later than December 31, 2001 that
determine fair compensation charged by public agencies that
provide wheeling services to water transferors, and allows CPUC
to adjudicate wheeling rates set by public water agencies.
Specifically, this bill :
1)Makes findings and declaration regarding the state's policy to
encourage water transfers.
2)Requires CPUC to begin proceedings to develop guidelines for
setting wheeling rates by January 31, 2001 and to conclude the
proceedings by December 31, 2001.
3)Requires CPUC to remand any case to the state, regional, or
local public agency for a redetermination.
4)Authorizes CPUC to determine the amount of fair compensation
if it determines that the public interest would be impaired by
delay related to redetermination.
5)Requires CPUC determinations relating to facilities that
control inflow into the Sacramento-San Joaquin Delta and the
San Francisco Bay to include a certification by the State
Water Resources Control Board that the proposed wheeling will
not adversely impact fish or wildlife, water quality or
interfere with diversions or navigation in the Delta.
EXISTING LAW :
1)Establishes that California should facilitate water transfers
to meet the growing water needs in the state.
2)Prohibits the state or a regional or local public agency from
SB 1973
Page 2
denying a bona fide transferor of water, as defined, from
using a water conveyance facility that has unused capacity for
the period of time for which that capacity is available, if
fair compensation is paid for that use and other requirements
are met.
3)Defines "fair compensation" to mean the reasonable charges
incurred by the owner of the conveyance system
FISCAL EFFECT : Unknown.
COMMENTS :
1)Wheeling Statutes. In order to facilitate water transfers and
provide conveyance for transfers, the Legislature enacted the
"Wheeling Statutes", AB 2746 (Katz), Chapter 918, Statutes of
1986. In a variety of statues, the legislature has
established the state's intent to facilitate voluntary water
transfers that move water from areas of excess to areas where
it is need. Wheeling is one of the methods for making water
transfers work by moving the water from where it is sold to
the purchaser through pipes or canals that belong to neither
the seller or buyer. The "Wheeling Statutes" provide in
pertinent part that "neither the state, nor any regional or
local public agency may deny a bona fide transferor of water
the use of a water conveyance facility which has unused
capacity, for the period of time for which that capacity is
available, if fair compensation is paid for that use." Within
AB 2746, "fair compensation" was defined as the reasonable
charges incurred by the owner of the conveyance system,
including capital, operation, maintenance and replacement
costs, increased costs from any necessitated purchase of
supplemental power, and including reasonable credit for any
offsetting benefits for the use of the conveyance system.
2)Fair Compensation. In reviewing the legislative history of AB
2746, the author first attempted to establish the State Water
Resources Control Board as an arbitor of the fair market value
for water transfers. Throughout the process any reference to
any entity serving as an independent arbiter of rates was
removed. The author subsequently established that the owners
of the water conveyance facility should determine the amount
and availability of unused capacity, the terms and conditions,
including among other things fair compensation for use of the
system.
SB 1973
Page 3
3)CPUC Would Be Final Arbiter. Proponents of this bill assert
that unfair wheeling rates established by self-interested
water agencies have continued to thwart the Legislature's will
in AB 2746, and that a clear conflict of interest exists
because the water agencies as the conveyance system operators
set the price competitors must pay to use the conveyance
system. Proponents believe that this bill allows CPUC as a
neutral party to set criteria for wheeling rates and act as an
appellate body. This bill allows a water transferor to file a
complaint with CPUC if the transferor believes the rate set by
the public agency exceeds fair compensation, as defined in
Section 1811 of the Water Code. Once the complaint is filed,
CPUC has exclusive authority to determine if the wheeling rate
is consistent with its established guidelines. If CPUC finds
the rate is inconsistent, it could require the public agency
to re-calculate and re-set the rate. Alternatively, if CPUC
believes it is in the best interest of the public, CPUC could
set the rate itself.
4)Court challenges. Wheeling rates offered by the Metropolitan
Water District (MWD) pursuant to guidance provided by AB 2746
have been challenged in court. Opponents argue that a system
operator should not include in its wheeling rates a share of
the capital, operation, or maintenance costs of the entire
water conveyance system. The trial court in the matter
bifurcated the issues and in the first phase attempted to
resolve whether MWD had set its wheeling rates in a manner
consistent with the requirements of the "Wheeling Statutes."
The second phase would consider the reasonableness of the
dollar amount of the wheeling rates. The trial court did not
find that the wheeling rates complied with the statutes.
However, on appeal, the Second District Court of Appeal
reversed and found that MWD was within state law when setting
rates that included system-wide costs in its wheeling rate
calculation. The Appellate Court stated that if the
Legislature had intended to limit recoverable capital,
operation and maintenance costs to actual costs, it would have
used specific language to that effect. While proponents of
this bill indicate that wheeling rates are too high as did
parties to the court case, those issues have never been
considered. AB 2746 established a process for review of such
matter. Proponents of this bill, rather than continuing with
the current process and seeking review of the specific costs
included in the proposed wheeling rates, instead seek a
SB 1973
Page 4
different venue, CPUC, hoping for a different result.
5)While proponents believe that there is "no better place to
take a dispute regarding wheeling rates than CPUC," opponents
to this bill argue that the "Legislature should not usurp the
authority of local officials by transferring its rate setting
authority to CPUC." Opponents are concerned that CPUC might
establish guidelines that would not include recovery of a
proportionate share of the unavoidable expenses associated
with the public water system at the expense of ratepayers of
the public water system. Opponents of this measure further
note that the Appellate Court specifically stated that "the
Legislature did not intend that the impact of the Wheeling
Statutes should be to cause a water conveyance system owner to
lose money or to subsidize wheeling transfers."
REGISTERED SUPPORT / OPPOSITION :
Support
California Water Association
City of San Diego
Environmental Defense Fund
Environmental Water Caucus
Natural Resources Defense Council
Natomas Mutual Water Company
San Diego County Water Authority
Western Water Company
Opposition
American Federation of State, County and Municipal Employees
(AFSCME)
Association of California Water Agencies (ACWA)
California Municipal Utilities Association (CMUA)
City of Chino Hills
City of Los Angeles
City of thousand Oaks
Eastern Municipal Water District
Metropolitan Water District of Southern California
Santa Clara Valley Water District
State Water Contractors
United Water Conservation District
Water and Power Associates, Inc.
SB 1973
Page 5
Analysis Prepared by : Carolyn Veal-Hunter / U. & C. / (916)
319-2083