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California Government Reorganization
Commission Rejects Schwarzenegger Energy Agency Reorganization
Plan
By Chris
Hilen
[June 2005]
California Governor Arnold Schwarzenegger’s
energy agency reorganization plan (Reorganization Plan) suffered
a setback on June 23, 2005. The California Commission on California
State Government Organization and Economy (commonly referenced
as the “Little Hoover Commission” or the “Commission”)
recommended that the California Legislature reject the Governor’s
plan to restructure California’s multiple energy agencies.
The Governor submitted the Reorganization Plan, A
Vision for California’s Energy Future, to the Little
Hoover Commission on May 12. He submitted a revised version
of the Reorganization Plan on June 13, and at the same time
submitted the Reorganization Plan and implementing legislation
to the Legislature.
The Little Hoover Commission based
its recommendation against the Reorganization Plan on two legal
opinions issued by the California Attorney General and one legal
opinion issued by the Legislative Counsel of California. Those
legal opinions concluded that several elements of the Reorganization
Plan are “illegal” on the basis that they impermissibly
transfer from the California Public Utilities Commission (CPUC)
to the proposed new State Department of Energy (Department)
ratemaking powers and functions that are conferred on the CPUC
by the California Constitution. The legal opinions reasoned
that functions that are conferred on a state agency by the Constitution
cannot be transferred to a different agency through the governmental
reorganization process; such transfers require constitutional
amendment. The Commission stated that if the Reorganization
Plan were allowed to go into effect “it would be subject
to legal challenge.”
Little Hoover Commission Endorsed Many Elements of Reorganization
Plan
The Reorganization Plan establishes
a State Department of Energy that would be responsible for the
state’s energy policy and a significant number of related
functions. The Department would be headed by a Cabinet-level
appointed Secretary of Energy who reports directly to the Governor.
The California Energy Commission would remain in existence,
with the Secretary of Energy serving as its Chairperson. The
remaining Energy Commission members would serve staggered four-year
terms appointed as they are now by the Governor subject to confirmation
by the California State Senate. The president of the CPUC and
the president of the California Independent System Operator
(CAISO) would sit as ex-officio non-voting members
of the reformed Energy Commission.
Under the Reorganization Plan, most
of the current functions of the Energy Commission would be assumed
by the new Department of Energy, including its energy analysis
and strategic planning functions. The Energy Commission, as
a component of the new Department, would retain its authority
for the permitting of power plants that are 50 MW or larger.
The California Power Authority and the California Electricity
Oversight Board would each be eliminated. A new Office of Energy
Market Oversight (OEMO) within the Department would perform
electricity market monitoring and oversee the CAISO.
The Little Hoover Commission found
no legal fault with these organizational changes and recommended
the creation of a State Department of Energy as an important
step toward improving “leadership and accountability”
in the state’s efforts to ensure safe, clean, affordable
and reliable energy. The Commission encouraged the Governor
to resubmit the Reorganization Plan with these provisions.
Similarly, the Commission found no
legal impediment to the following elements of the Reorganization
Plan:
- Provision to the OEMO of shared responsibility with the
CPUC for representing California before the Federal Energy
Regulatory Commission (FERC) and exclusion of all other state
agencies and offices from representing the state before FERC.
The original Reorganization Plan would have also eliminated
the CPUC’s role and made the OEMO the state’s
exclusive representative before FERC. (Under the present practice,
it is not uncommon for up to half a dozen California regulatory
agencies and executive offices to file separate pleadings,
often advocating different positions “on behalf of the
People of State of California” with the FERC).
- The transfer to the Department of responsibility for certification
of non-utility owned natural gas transmission pipelines and
storage facilities. In another change from the original Reorganization
Plan, this provision does not remove the CPUC’s historic,
constitutionally-mandated responsibility for issuing CPCNs
for utility-owned natural gas facilities.
- The transfer from the CPUC to the Department of responsibility
for determining whether construction of proposed new electric
transmission lines is necessary to facilitate achievement
of the state’s renewable power goals.
Three Elements of Reorganization Plan Are Subject to
Legal Challenge
The Little Hoover Commission recommended
against approval of the Reorganization Plan, based on the legal
opinions by the Attorney General and the Legislative Counsel.
These legal opinions collectively concluded that three elements
of the Reorganization Plan illegally transfer from the CPUC
to the Department's constitutionally-conferred utility ratemaking
functions:
- It unlawfully deprives the CPUC of the responsibility for
issuing CPCNs for utility-owned electric transmission facilities.
Certification of utility-owned electric facilities is an integral
part of the CPUC’s utility ratemaking functions (as
noted above, the revised Reorganization Plan leaves the CPUC
with authority for issuing CPCNs for utility-owned natural
gas facilities).
- It unlawfully deprives the CPUC of its existing responsibility
for making statutorily-required cost recovery determinations
for utility infrastructure projects on which the CPUC issues
CPCNs. These cost recovery determinations are integral to
the CPUC’s ratemaking function.
- It unlawfully transfers to the Department the CPUC’s
current responsibility for ensuring the electric transmission
rates established by FERC are fully reflected in any retail
rates established by the CPUC. The flowing through of wholesale
transmission rates is an explicit ratemaking function conferred
on the CPUC by the California Constitution.
Reorganization Plan Becomes Law Unless Rejected by
the State Legislature
Under California’s governmental
reorganization process, the Reorganization Plan cannot be amended
by the Legislature, which may only reject it or let it become
law in its entirety. If neither body of the Legislature rejects
the Reorganization Plan within 60 days of its submission to
the Legislature, the energy agency reorganization will become
operational by law. The deadline for either the State Assembly
or the State Senate to reject the Reorganization Plan is September
12 (the days of the Legislature’s recess from July 15
to August 15 are not included in the 60-day period).
This Advisory is a publication
of the Energy Department of Davis Wright Tremaine LLP. Our purpose
in publishing this Advisory is to inform our clients and friends
of recent developments in energy law. It is not intended, nor
should it be used, as a substitute for specific legal advice
as legal counsel may only be given in response to inquiries
regarding particular situations.
Copyright © 2005, Davis Wright
Tremaine LLP.
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