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Commission Watch

California anticipates changes in energy policy under its new governor.
Fortnightly Magazine - March 2004

the California wholesale market by merging the functions of Cal-ISO and the Power Exchange (now defunct) into a single entity to achieve integrated transmission operations, generation dispatch, and wholesale power trading. 8 Schwarzenegger also has promised real-time pricing, at least for the largest and most sophisticated electricity buyers.

(3) Abolish the EOB. Its functions were duplicative of other agencies or entities, including the CPUC, CEC, and Cal-ISO.

In his state speech, Schwarzenegger reaffirmed these goals, decrying the existence of "13 different state energy agencies." Each of these changes presumably would require legislative action and attendant delay and uncertainty.

The Campaign Against Out-of-State Energy Producers

The last two years of the Davis administration were marked by a pattern of rhetoric, charges and countercharges, and attacks on the energy industry, punctuated by open assaults on Enron, the bad boy of the industry. California's aggressive campaign against out-of-state energy producers has been well chronicled. It has included:

(1) A series of complaints at FERC, including an attack on the legality of market-based rates;

(2) A series of unfair business practice lawsuits by the California Attorney General against generators, based on the alleged charging of unfair and unreasonable rates (all of the lawsuits were dismissed by a District Court and are currently on appeal to the Ninth Circuit), the so-called "double selling" of power in the day-ahead and ancillary services markets (also dismissed), and Clayton Act (antitrust) cases against Reliant, Duke, and the other acquirers of fossil fuel plants divested by PG&E and Edison; and

(3) An aggressive public relations campaign by the former governor and attorney general.

The various affirmative cases brought by the state have enjoyed little, if any, success. The same is true of Gov. Davis' seizure of block-forward contracts held by the state's largest IOUs, PG&E and Edison, which backfired when the Ninth Circuit ruled in Duke v. Davis 9 that the seizures were illegal. Likewise, the state's efforts to circumvent FERC and its rulings in the refund and other proceedings at FERC have been rebuffed in the courts.

Look for Schwarzenegger either to dismiss or negotiate a speedy resolution of most of the pending litigation he inherited. Some matters, such as the inevitable appeal of FERC's refund order, will continue. However, continued confrontations with energy producers would run counter to Schwarzenegger's goals of ensuring an adequate supply of power for the anticipated shortages in 2005 and to make the California business climate more hospitable.

New Generation

The new year hardly had begun when Sen. Dianne Feinstein dispatched a letter to Schwarzenegger expressing deep concern about the potential for recurring blackouts as soon as this summer, and proposed a non-partisan effort to establish a new energy framework. Heavy rainfalls and a rapidly increasing snow pack have alleviated some of the concerns about the 2004 summer peak, as hydroelectric generation is expected to be robust, but real questions remain about 2005.

What about the adequacy of generation, as work on many approved generation projects have been suspended and few applications for new projects have been received by the CPUC? 10 To date, Schwarzenegger