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Schwarzenegger Energy Policies: Some Clues and
Many Questions
By Christopher
A. Hilen
[Oct. 2003]
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.
Published by Davis
Wright Tremaine's Energy Law Group
Any questions about this Advisory should be directed
to:
Steven F. Greenwald,
San Francisco, (415) 276-6528, stevengreenwald@dwt.com
This Energy 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 © 2003, Davis Wright
Tremaine LLP.
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