LAO 2003-04 Budget Analysis: General Government

Legislative Analyst's Office

Analysis of the 2003-04 Budget Bill

California Consumer Power and Conservation Financing Authority (8665)

The California Consumer Power and Conservation Financing Authority (California Power Authority, or CPA) was created by Chapter 10x, Statutes of 2001 (SB 6x, Burton), to assure a reliable supply of power to Californians at just and reasonable rates, including planning for a prudent energy reserve. The CPA was also created to encourage energy efficiency, conservation, and the use of renewable resources.

In order to meet these goals, CPA is authorized to purchase, lease, or build new power plants to supplement private and public sector power supplies. It may also finance energy conservation programs and renewable energy projects. The financing for these projects is provided by $5 billion in revenue bonding authority, with any bonds issued being secured by the revenues generated from the specific projects being financed by CPA. In addition, CPA has also been given the authority to finance natural gas transportation and storage projects that have been recommended by the California Public Utilities Commission, as well as provide financing to retrofit old and inefficient power plants.

Proposed Budget. The budget proposes $228.4 million for CPA in 2003-04, of which $4.3 million is for administrative support and the balance for various energy-related projects, including reliability power projects. Only CPA's administrative support budget is subject to an appropriation in the budget bill. Funding for all of CPA's expenditures is from the California Consumer Power and Conservation Financing Authority Fund. The budget proposes that this special fund receive most of its revenues in the budget year from the sale of revenue bonds, the sale of power from the authority's projects, and from loans from other special funds.

Authority Has Not Achieved Financial Self-Sufficiency

The California Power Authority (CPA) has had difficulty implementing its mission since its inception and has not achieved financial self-sufficiency, resulting in the need for additional loans to support its ongoing operations. We also have concerns with CPA's ability to become financially self-sufficient in the future. Therefore, we withhold recommendation on CPA's support budget until the Legislature receives and reviews two reports on CPA's plan to implement its mission and become financially self-sufficient.

History of CPA's Funding. The statute that created CPA stated the Legislature's intent that CPA would be supported by revenues from investments it made with its bonding authority. Recognizing that CPA would need start-up capital to get its operations going, the 2001-02 Budget Act included a $10 million General Fund loan to CPA that could be spent after approval of the Department of Finance and review by the Joint Legislative Budget Committee. Of this original loan amount, CPA has been allocated approximately $8.9 million over the last two years. In the current year, the entire loan balance of $8.9 million was switched from the General Fund to the Renewable Resources Trust Fund of the Energy Resources Conservation and Development Commission (California Energy Commission, or CEC). (This switch had the effect of freeing up the General Fund amount.)

To date, CPA has not invested in any projects that would generate revenues significant to both repay its start-up loan and pay for its ongoing support costs. Given this, the budget proposes an additional $1.9 million loan from the CEC's Energy Resources Program Account for CPA's support activities in 2003-04. The budget projects that $6.5 million will remain owing to CEC at the end of the budget year, after partial repayments are made.

Authority's Projects Have Not Generated Significant Revenues. In a report to the Legislature dated December 15, 2002, CPA reported that it had generated $2.3 million in revenues since its inception. The majority of its revenues (over 75 percent) were the result of settlements from the state's efforts at renegotiating contracts with electricity providers, not from projects pursued directly by the authority. (For a discussion of these settlement funds, please see our write-up in the "Crosscutting" section of the Resources Chapter.) The CPA also reported that it is working on several different projects that it expects will generate revenues in the current and budget years. However, it is not clear at this time whether any of these projects would provide sufficient ongoing revenues to support CPA activities in the future. Given this, we have concerns regarding CPA's ability to generate revenues to support its ongoing operations and repay its loan from CEC.

Withhold Recommendation Pending Receipt of Reports Addressing Self-Sufficiency. The Supplemental Report of the 2002 Budget Act required CPA to submit a report on its long-term budgetary needs by December 31, 2002. At the time this analysis was prepared, the report had not been submitted to the Legislature. In addition, the authority's statutorily required annual Energy Resources Investment Plan is due to the Legislature in mid-February. This report is required to outline a strategy for cost-effective energy resource investments by CPA that will address state issues relating to adequacy of energy supply, reliability of service, and environmental quality. These two reports should provide the Legislature with information regarding how CPA plans to become self-sufficient and repay its loan obligations. Therefore, we think that the Legislature should evaluate these reports before making any decisions regarding CPA's budget. Given this, we withhold recommendation on CPA's support budget ($4.3 million from the California Consumer Power and Conservation Financing Authority Fund) pending the receipt and evaluation of the reports mentioned above.

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