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Commission Watch

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

Commission Watch

California anticipates changes in energy policy under its new governor.

The recall of California Gov. Gray Davis in November 2003 almost immediately led to speculation concerning possible changes in California's energy policy. Since his election, Gov. Arnold Schwarzenegger has assembled an Energy Working Group, co-chaired by Professor James L. Sweeney, professor of Management Science and Engineering at Stanford University, and Sean Randolph, president of the Bay Area Economic Forum, who has written extensively about the California energy crisis 1 and has been critical of some of Davis' decisions. This informal working group, which includes eight individuals and a liaison, 2 has formulated its recommendations for energy policy changes and has forwarded them to the governor's office.

The working group liaison, Dan Skopec-formerly staff director of the U.S. House Government Reform Subcommittee on Energy Policy, Natural Resources, and Regulatory Affairs 3- has relocated from Washington to Sacramento and has become Gov. Schwarzenegger's deputy cabinet secretary for energy, resources, and environmental issues. Michael Chrisman, formerly regional manager for Southern California Edison Co., has been appointed secretary for resources.

Despite the personnel changes at the executive level, no near-term changes are expected in the composition of the California Public Utilities Commission (PUC), with Michael Peevey expected to continue in his role of president and the terms of Loretta Lynch and Carl Wood not due to expire until the end of 2004 or beginning of 2005. Given their major philosophical differences with administration policies and initiatives, however, it is unlikely Commissioners Lynch and Wood will be reappointed. A position on the California Energy Commission (CEC) and two appointments to the board of directors of the California Independent System Operator (Cal-ISO), including chairman, remain open. To the extent the Electricity Oversight Board (EOB) survives reorganization, the chair of the EOB also will be replaced.

The governor's energy policy and legislative agenda are expected by early spring. Dramatic policy changes are not expected in the near term, as the looming $15 billion, 2004-2005 budget deficit has dominated, and will continue to dominate, the attention of the new administration.

If anyone expected Schwarzenegger's State of the State speech on Jan. 6 to produce details of his energy policy, he or she would have been disappointed, but certain broad themes of energy policy are expected to follow the governor's energy policy statement, and include market-based structures and incentives, promotion of a diversity of energy supply and energy sources, conservation, and environmental protection. It is unlikely that the Schwarzenegger administration will propose a dramatic shift back to cost-based forms of regulation, as some critics of deregulation have advocated. Rather, Schwarzenegger's energy policy statement indicates he will pursue fine-tuning the market structure, drawing from the experience of Texas, the New England states, and the PJM territory. 4

Similarly, Schwarzenegger also is not likely to void the approximately $42 billion of long-term contracts signed during the energy crisis. Rather, as indicated in his state speech, Schwarzenegger intends to bring down electricity costs by renegotiating long-term contracts. Instead of shortening the contracts and reducing the volume of purchases, the governor may