Non-public water utilities are prying open what they hope is a small floodgate of policy proceedings necessary for them to generate electricity for their own use and for sale. The California Public Utilities Commission began a rulemaking September 18 in a first step toward implementing legislation to allow water utility generation. ?There are hundreds of megawatts of potential, particularly in urban areas,? said Lon House, water and energy consultant. While public agencies, such as irrigation districts, can develop generation and sell electricity, ?We ended up with several water agencies that were forbidden to have their own generation,? House explained. Cities affected include Rancho Cucamonga and Orange County, according to Dan Smith, the Association of California Water Agencies? director of regulatory affairs. A bill from last year, SB 1755, allows such water agencies to create power for internal use and for sale. But the measure also demands that if they do so, it will be without cost shifting. The commission?s rulemaking will investigate the use of a ?cost responsibility surcharge? for water utilities?such as an exit fee or charge on departing customers. If water agencies can afford that hurdle, they still have to be able to eke out new policies or statues to allow them to self-wheel to use the energy for internal purposes, and\/or to sell the electricity to customers?neither of which are permitted, according to House.