BILL ANALYSIS �
AB 2334
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Date of Hearing: April 21, 2014
ASSEMBLY COMMITTEE ON UTILITIES AND COMMERCE
Steven Bradford, Chair
AB 2334 (Gray) - As Amended: March 28, 2014
SUBJECT : Electricity rates: economic development pilot
program: former military bases.
SUMMARY : This bill would require the California Public
Utilities Commission (PUC) to establish an economic development
pilot program that provides electrical rate discounts to
businesses located at former military bases. Specifically, this
bill :
1)Authorizes the PUC to direct and supervise an electrical
corporation's implementation and administration of a rate
discount pilot program.
2)Allows the pilot program to be implemented at a total of three
former military bases, including one each in northern,
central, and southern California.
3)Provides that the pilot program is administered for seven
years.
4)Requires military base participation in the pilot program be
based on local economic need such as high unemployment or low
median income levels.
5)Authorizes a 40% discount to the otherwise applicable tariff
of the electrical corporation for the service territory.
6)Requires the PUC to gather and annually report the prior
year's data for each pilot site to the Legislature, including
findings regarding the:
a) Total dollar amount of discounts
b) Number and types of businesses created
c) Number of jobs created
d) Average salary and benefits of the jobs created
1)Establishes a sunset of January 1, 2024 for these provisions.
EXISTING LAW
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1)Allows the PUC to authorize programs to encourage economic
development programs and recover through rates the expenses
and rate discounts to support those programs to the extent
that the electrical corporation can demonstrate that
ratepayers derive a benefit from those programs. (Public
Utilities Code 740.4(h))
FISCAL EFFECT : UNKNOWN
COMMENTS :
1)Author's statement: "Reinvigorating the lost economic
contributions of closed military bases would provide a much
needed boost to the communities that were built around BRAC
sites. Creating an economic development pilot program with a 7
year sunset will allow the state to assess the effectiveness
of attracting new businesses to BRAC sites by lower
electricity costs. The bill requires the Public Utilities
Commission to report to the Legislature the number of jobs,
types of businesses and average salary created as a result of
the program. The state should play a role in encouraging
economic growth at these bases by creating an atmosphere that
encourages private investments that will pay off well into the
future."
2)Base realignment and closure (BRAC). The end of the Cold War
prompted the US Department of Defense (DOD) to cut costs and
balance its budget by improving the efficiency and
effectiveness of the military. To achieve these goals, DOD has
periodically consolidated defense facilities through the BRAC
process, in which five independent federal BRAC commissions
(in 1989, 1991, 1993, 1995, and 2005) have recommended closing
451 installations across the country.<1> In California,
according to the DOD Office of Economic Adjustment, 31
installations have closed since 1988, and these are displayed
below.
Table 1: BRAC installations in California
-----------------------------------------------------------
|Installation|County |Servic| |Installatio|County |Servic|
| | |e | |n | |e |
---------------------------
<1> US Department of Defense. Office of Economic Adjustment.
http://www.oea.gov/programs/brac/about
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|------------+--------+------+-+-----------+---------+------|
|Alameda |Alameda |Navy | |Sacramento |Sacrament|Army |
|NAS/NADEP | | | |AD |o | |
|------------+--------+------+-+-----------+---------+------|
|Oakland |Alameda |Depart| |George AFB |San |Air |
|Military | |ment | | |Bernardin|Force |
|Complex | |of | | |o | |
| | |Defens| | | | |
| | |e | | | | |
|------------+--------+------+-+-----------+---------+------|
|Concord NWS |Contra |Navy | |Norton AFB |San |Air |
| |Costa | | | |Bernardin|Force |
| | | | | |o | |
|------------+--------+------+-+-----------+---------+------|
|Point |Contra |Navy | |Coronado |San |Navy |
|Molate |Costa | | |NB |Diego | |
|------------+--------+------+-+-----------+---------+------|
|China Lake |Kern, |Navy | |San Diego |San |Navy |
|NAWS |San | | |NMC |Diego | |
| |Bernardi| | | | | |
| |no, | | | | | |
| |Inyo | | | | | |
|------------+--------+------+-+-----------+---------+------|
|Sierra AD |Lassen |Army | |San Diego |San |Navy |
| | | | |NTC |Diego | |
|------------+--------+------+-+-----------+---------+------|
|Desiderio |Los |Army | |Treasure |San |Navy |
|Hall ARC |Angeles | | |Island NS |Francisco| |
| | | | | | | |
|------------+--------+------+-+-----------+---------+------|
|Long Beach |Los |Navy | |Jones Hall |Santa |Army |
|Naval |Angeles | | |ARC |Clara | |
|Complex | | | | | | |
|------------+--------+------+-+-----------+---------+------|
|Schroeder |Los |Army | |Moffett |Santa |Navy |
|Hall ARC |Angeles | | |Field NAS |Clara | |
|------------+--------+------+-+-----------+---------+------|
|Hamilton |Marin |Air | |Onizuka |Santa |Air |
|Military | |Force | |AFS |Clara |Force |
|Complex | | | | | | |
|------------+--------+------+-+-----------+---------+------|
|Castle AFB |Merced |Air | |Richey ARC |Santa |Army |
| | |Force | | |Clara | |
|------------+--------+------+-+-----------+---------+------|
|Fort Ord |Monterey|Army | |Mare |Solano |Navy |
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| | | | |Island NSY | | |
| | | | | | | |
|------------+--------+------+-+-----------+---------+------|
|Tustin MCAS |Orange |Marine| |Riverbank |Stanislau|Army |
| | | | |AAP |s | |
| | |Corps | | | | |
|------------+--------+------+-+-----------+---------+------|
|March AFB |Riversid|Air | |Port |Ventura |Navy |
| |e |Force | |Hueneme | | |
| | | | |NCEL | | |
|------------+--------+------+-+-----------+---------+------|
|Mather AFB |Sacramen|Air | |Ventura |Ventura |Navy |
| |to |Force | |County NB | | |
|------------+--------+------+-+-----------+---------+------|
|McClellan |Sacramen|Air | | | | |
|AFB |to |Force | | | | |
-----------------------------------------------------------
Closures produced dramatic economic ripple effects at the
local, regional, and statewide levels. One report estimated
that in the first four rounds of BRAC (i.e., those prior to
2005), California absorbed 54 percent of the nation's overall
personnel cuts, losing more than 93,000 jobs and $9.6 billion
in annual revenue.<2> The aerospace industry experienced a
recession that negatively impacted the state's economy for at
least a decade, and communities were forced to undergo the
slow process of designing and implementing transition and
reuse plans for closed bases. Many of the closed facilities
have still not fully transitioned to non-military use.
3)Encouraging economic recovery after BRAC. The U.S. DOD Office
of Economic Adjustment (OEA) works with BRAC-impacted
communities, helping them address issues such as unemployment,
economic development, and land use planning. The OEA provides
information, procedures, and technical and financial
assistance needed to plan and implement economic recovery
efforts, including closed-base redevelopment plans and
community economic adjustment strategies.
In part, financial assistance to impacted communities is
coordinated by OEA's Economic Adjustment Committee, which
leverages the resources of 22 federal agencies. During the
--------------------------
<2> California Institute Special Report: California's Past Base
Closure Experiences and the 2005 BRAC Round. 2005.
http://www.calinst.org/defense/base1a.pdf
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first four rounds of BRAC, OEA delivered $280 million in
assistance to impacted communities. Following the most recent
BRAC round in 2005, OEA has distributed $108 million.
A 2004 US General Accountability Office (GAO) report found
that in most of the 62 communities affected by the first four
rounds of BRAC, unemployment and income growth rates were
comparable to national averages.<3> Unemployment rates in 43
communities were equal to or lower than the U.S. average, and
30 communities had income growth rates higher than the
national average. Furthermore, a 2012 GAO study found similar
economic indicators for the 21 communities surrounding the 23
installations closed in the 2005 BRAC were comparable to
national averages.<4>
4)BRAC installations in need of economic development. It is
currently unknown which California BRAC installations are in
need of economic stimulation. The 2012 GAO report described
the 2005 BRAC closure of Modesto's Riverbank Army Ammunition
Plant, claiming that it had the highest unemployment rate -
16.8% - of the 21 closures in this round. However, this data
represents the economic region surrounding the closed
installation, so it is uncertain as to how the closure
directly affected unemployment.
Merced County's Castle Air Force Base is in the author's
district. The base closed in 1991, but it now houses 55
commercial tenants, including an AT&T call center and the US
penitentiary Atwater. The airfield has become a commercial
airport, and the base is a candidate for California's
high-speed rail central maintenance facility.<5> Google has
entered a lease agreement to develop the company's
--------------------------
<3> US Government Accountability Office. 2005. Military Base
Closures: Observations on Prior and Current BRAC Rounds.
http://www.gao.gov/assets/120/111622.pdf
<4> US Government Accountability Office. 2013. Defense
Infrastructure: Communities Need Additional Guidance and
Information to Improve Their Ability to Adjust to DOD
Installation Closure or Growth.
http://www.gao.gov/assets/660/654596.pdf
<5>
http://www.mercedhighspeedrail.com/hmf_Castle_HMF_Handout_PDF.pdf
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self-driving car technology.<6> Other BRAC-affected
installations were profiled in a report describing the various
successes and challenges related to their redevelopment.<7>
5)Will a rate discount encourage economic development? It
remains unclear as to whether and how an electricity rate
discount will encourage economic development - research or
data on this matter could not be located in the existing
economic development literature. It is unknown how an existing
or potential business would rank an electricity rate discount
in terms of it incentivizing a certain location for business.
It is likely that many other factors would be in play,
including availability of a required workforce and potential
customer base.
6)PG&E's Economic Development Program. The proposed economic
development program is very similar to PG&E's Economic
Development Program. In October 2013, the PUC authorized PG&E
to offer Economic Development Rate (EDR) discounts to eligible
non-residential customers with loads greater than 200 kW.<8>
The discounts are available to customers who sign an
affidavit, attesting to the fact that "but for" this incentive
rate, either on its own or in combination with a package of
incentives from other sources, the customer would not have
retained load or remained in operation within the State of
California.<9> There are two tiers of discounts. The standard
discount is 12%, but an enhanced option provides a discount of
30% to customers located in an area with an annual
unemployment rate greater than 125 percent of the state's
average. The discounts are provided for 5 years. Southern
California Edison has also applied to the PUC requesting
---------------------------
<6>
http://www.sacbee.com/2014/01/24/6099990/google-set-to-lease-cast
le-site.html
<7> CA Dept. of Toxic Substances Control. California Military
Base Reuse. https://dtsc.ca.gov/OMF/upload/Brochure-no-CL.pdf
<8> PUC Decision D1310019.
http://docs.cpuc.ca.gov/PublishedDocs/Published/G000/M078/K423/78
423692.PDF
<9> PG&E, Advice Letter 4308-E.
http://www.pge.com/nots/rates/tariffs/tm2/pdf/ELEC_4308-E.pdf
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approval of a program similar to that of PG&E.<10>
It is important to note that any discount designed to increase
economic activity at former military installations will still
be funded by non-participating ratepayers in the same class.
Furthermore, it is vital for customers to contribute to the
cost of service, and a deep discount may prevent this.
The author may wish to consider an amendment that provides
consistency between the proposed pilot program and an existing
economic development program, including but not limited to
program length and discount structure.
7)Which entities are eligible for the pilot program? Current
bill language refers to the rate discount encouraging new
business activity. It is unclear whether both new and existing
businesses will be eligible for the rate discount. Current
language also does not specifically exclude residential
customers from receiving the discount.
The author may wish to consider an amendment clarifying
eligibility for the pilot program is limited to new and
existing non-residential customers.
8)Reporting. The bill would require the PUC to compile an annual
report for Legislature, containing the number and types of
businesses created, number of jobs created and average salary
and benefits of the jobs created. Considering new and existing
businesses would be eligible for rate discounts, it will
likely be difficult to discern whether an existing business
expanded and/or created jobs directly as a result of the rate
discount program.
The author may wish to consider an amendment clarifying
reporting requirements apply solely to new businesses and the
jobs created by these new businesses.
9)Support and opposition. Supporters (PG&E) claim energy can be
a significant factor in the cost of doing business. They state
this bill will promote job growth, provide renewed interest in
locations that could handle load requirements, and kickstart
the revival of communities.
---------------------------
<10> SCE Application A1403013.
http://docs.cpuc.ca.gov/PublishedDocs/Efile/G000/M089/K095/890950
61.PDF
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One opponent, The Utility Reform Network (TURN), argues the
40% discount is substantially higher than similar discounts
authorized by the PUC for similar purposes, and is concerned
that this rate may fail to recover the cost of providing
service. Furthermore, they believe existing and proposed
economic development programs approved by or before the PUC
will likely already be able to provide discounts for new
business activity at former military bases, even if the
"Legislature takes no action at this time." Another opponent,
the PUC Office of Ratepayer Advocates, claims that by setting
a discount rate, the true cost of providing electricity
service is not taken into consideration. They also argue the
bill would shift fixed utility costs onto other customers,
"including residential customers, many of whom are struggling
to pay for their monthly electricity bills." Like TURN, ORA
states the bill is unnecessary, as current legislation allows
IOUs to offer economic development discount rates.
10)Suggested amendments:
SECTION 1. Section 740.45 is added to the Public Utilities
Code, immediately following Section 740.4, to read:
740.45. (a) The commission shall direct and supervise the
implementation and administration, by electrical corporations,
of an economic development pilot program to encourage new
business activity at three former military bases closed as a
result of the base realignment and closure process.
(b) The pilot program shall be administered by an electrical
corporation for seven five years following its implementation
at the former military base.
(c) The pilot program shall include one former military base
in northern California, one former military base in central
California, and one former military base in southern
California. The bases shall be selected for participation in
the pilot program based on local economic need, including, but
not limited to, higher unemployment rates than the state
average and median income that is lower than the state
average.
(d) The discount provided pursuant to the pilot program shall
be provided to eligible new and existing businesses and shall
be consistent with discounts offered by economic development
programs approved by the commission 40 percent of the
otherwise applicable tariff of the electrical corporation for
the service territory in which the former military base is
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located .
(e) Each electrical corporation shall annually report to the
commission all of the following:
(1) The total amount of the annual discounts given at each
pilot program site.
(2) The number and types of new businesses created as a result
of the pilot program during the prior year at each site.
(3) The total number of jobs created by new businesses as a
result of the pilot program during the prior year at each
site.
(4) The average salary and benefits of the jobs created by new
businesses as a result of the pilot program during the prior
year at each site.
(f) The commission shall annually compile the information and
report the results of the pilot program to the Legislature.
The report shall be submitted in compliance with Section 9795
of the Government Code.
(g) This section shall remain in effect only until January 1,
2024, and as of that date is repealed, unless a later enacted
statute, that is enacted before January 1, 2024, deletes or
extends that date.
SEC. 2. No reimbursement is required by this act pursuant to
Section 6 of Article XIII B of the California
Constitution because the only costs that may be incurred by a
local agency or school district will be incurred because this
act creates a new crime or infraction, eliminates a crime or
infraction, or changes the penalty for a crime or infraction,
within the meaning of Section 17556 of the Government Code, or
changes the definition of a crime within the meaning of
Section 6 of Article XIII B of the California
Constitution.
REGISTERED SUPPORT / OPPOSITION :
Support
Pacific Gas and Electric Company (PG&E)
Opposition
Office of Ratepayer Advocates (ORA)
The Utility Reform Network (TURN)
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Analysis Prepared by : Brandon Gaytan / U. & C. / (916)
319-2083