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Commission Watch

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

lengthen the contracts and/or selectively increase the volume. This is the more traditional "blend and extend" model that is familiar to power contract experts.

Finally, Schwarzenegger is expected to be less confrontational and rhetorical in tone than Davis, trying to avoid the confrontations that plagued his predecessor.

Direct Access and Exit Fees

One of the most controversial outcomes of the California energy crisis was the legislature's decision to suspend direct access, under which commercial and industrial customers had been permitted to purchase electricity from alternative providers. However, even more controversial was the PUC's decision to impose "exit fees" on direct access customers of 2.7¢ kWh, primarily to help the state pay for power purchased by the California Department of Water Resources during the energy crisis and to spread among ratepayers the cost of long-term contracts signed during the energy crisis. 5 Recent CPUC decisions have extended the exit fee to customers who never received bundled service from a utility.

Historically, California Republicans have been strong supporters of direct access, and there is every reason to believe that Schwarzenegger will resist any efforts to abolish direct access altogether. Indeed, in his state speech, Schwarzenegger expressed support for reform in retail markets "so that large customers can get competitive prices," and he advocated reforms in the "wholesale power market to attract new energy investment."

However, given the continuing state fiscal crisis, it is doubtful whether industrial and commercial customers can expect any significant relaxation of the exit fees, as onerous as they are. Rather, it appears more likely that the new governor will limit his consideration to piecemeal initiatives, such as exemptions to the exit fee for certain industries on a hardship basis, or for new businesses that are relocating from other states. In this regard, the CEC recently adopted regulations governing hardship requests for exemption from the exit fee. 6 It is likely that Schwarzenegger will support this program and perhaps even go so far as to exempt certain types of new industry from the exit fee as a means of attracting new businesses to California.

Structural Changes

One of the more probable structural changes under the Schwarzenegger administration will come in some of the administrative agencies or other organizations respecting energy markets.

The governor's campaign promised to:

(1) Affirm the commitment to private power by dismantling the California Power Authority (CPA). "Its current mission to build and operate publicly owned plants is in direct competition with private industry and serves only to divert private investment in electricity generation and transmission away from the state." 7 David Freeman, chairman of the CPA, resigned in October, soon after Schwarzenegger became governor-elect. His deputy, Sunne McPeak, has been appointed to Schwarzenegger's Cabinet as secretary of Business, Transportation, and Housing, signaling the likely imminent demise of the agency, with certain functions-such as bonding authority-perhaps assigned to another agency. The disappearance of the CPA is not expected to be momentous, as it was a recent creation and had released bonds totaling only a small fraction of the $5 billion bonding authority (less than $23 million).

(2) Restructure