With the inauguration of Arnold Schwarzenegger as Governor of California on November 17, everyone with a stake in California's energy future is looking for clues into the new Governor's policies on electricity and natural gas.
The energy policies of the candidates received little attention during the recent California recall election. Schwarzenegger disclosed relatively little about his positions on energy regulation during the campaign. However, hints to the major themes of Schwarzenegger's proposed energy regulatory policies can be discerned in the official statements of his campaign, his own statements, and the people he has appointed to his transition team for energy issues.
Impact of Schwarzenegger Election on the California Public Utilities Commission
Although comprised of five Commissioners all appointed by former Governor Gray Davis, the California Public Utilities Commission ("the Commission") is currently split between two commissioners who generally favor a light-handed regulatory approach (Mike Peevey and Susan Kennedy), two commissioners who strongly endorse comprehensive regulation (Loretta Lynch and Carl Wood), and one commissioner who often provides the swing vote on important issues (Geoffrey Brown).
In the short-term, the election of Schwarzenegger is not expected to have a major impact on the Commission, for two reasons. First, through the first quarter of 2004, the Governor will have his hands full filling positions in his new administration, getting the administration up and running, and addressing other urgent issues such as California's large budget deficit and reform of the State's workers' compensation system.
Second, none of the five sitting Commissioners' terms expires until December 2004. Schwarzenegger's opportunity to directly influence the Commission could come sooner than that if one of the Commissioners resigns. Filling a vacancy on the Commission would also provide Schwarzenegger the opportunity to name his first appointee as President of the Commission and replace Peevey as President.
The Governor's Major Energy Policy Positions
While the Governor's energy regulatory policies are not detailed, his major themes are clear:
- He favors deregulation of the energy industry and the operation of market forces, but claims to recognize the risks of market forces and would moderate them.
- He encourages construction of more electric transmission lines and power plants in California and would dismantle the California Power Authority, to send the signal that California wants private, not government, investment in power plants.
- He favors both having utilities enter long-term power purchase agreements and providing utilities with additional flexibility to manage their power procurement costs, to avoid the heavy reliance on the electricity spot market that was a major factor in the 2000-2001 energy crisis.
- He proposes to have utilities increase their electric reserve levels to prevent supply-demand imbalances that in part precipitated the 2000-2001 energy crisis.
- He would encourage price-responsiveness and energy conservation by having utilities' retail electricity rates be adjusted to reflect changes in the wholesale prices the utilities pay to purchase electricity. He also favors "real-time pricing" for large energy users, under which the price they pay for electricity changes on an hourly basis, increasing during peak demand hours and decreasing during lesser demand periods.
- He proposes a large increase in the use of renewable power, with a target of 33 percent of the state's electricity created using renewal resources by 2020. Renewable power comes from solar, geothermal, and wind resources; as opposed to traditional power plants which rely on natural gas, coal, oil, or nuclear fuel. The Governor accordingly proposes to provide incentives to include solar energy technology on 50% of new California homes and to extend tax credits for businesses and commercial establishments which install solar and other renewable generation systems.
- He would permit industrial and large commercial customers to purchase their electricity from entities other than the monopoly utility (so-called "direct access contracts"). He would design the system in a manner that would fully protect residential and small commercial customers from any pricing risk associated with allowing the larger customers to obtain service through direct access.
- He would encourage greater investment in natural gas pipelines and the development of facilities to import liquefied natural gas ("LNG") into the State.
Not all of these items are politically popular. If Governor Schwarzenegger decides to push for further deregulation of California's energy market, he will be challenging poll results showing that a large majority of Californians oppose deregulation. In addition, the construction of high-voltage electric transmission lines, natural gas transmission pipelines, and LNG facilities is often fiercely opposed by local communities who fear adverse environmental, safety, and health impacts from these facilities.
The appointment of former CPUC Commissioner Jessie Knight to the Governor's transition committee reflects Schwarzenegger's generally pro-market energy platform. While serving on the Commission from 1993 to 1998, Knight, currently president and CEO of the San Diego Chamber of Commerce, strongly favored and helped implement electric restructuring and direct access contracts for electricity users.