JUICE Giving Props to Prop. 87

By Published On: September 1, 2006

Unless oil companies can persuade California voters that they actually enjoy paying $3 a gallon for gasoline, Proposition 87 will pass this November. Given that assumption, I looked into what the initiative’s passage will mean for state energy policy. While the ballot measure intends to reduce gasoline consumption by 25 percent, it could also lead to an expansion of the state’s alternative energy infrastructure with some of the money the initiative generates. The measure’s backers expect that part of the funds will be used to increase renewable energy supplies and/or efficiency. It could augment subsidies and research funds of the California Energy Commission and the California Public Utilities Commission, including its Million Solar Roofs program. The trick will be in how a new agency created by Prop. 87 interprets its authority. But before I get there, here are the basics: It would: – Tax companies that extract oil in the state for up to 10 years. The period of taxation could be shorter depending on how much is collected. Once $4 billion is reached, the tax would cease. – Create a new agency called the California Energy Alternatives Program Authority. It would be like the old Power Authority (created out of deregulation to assist technology and promote new electricity supplies). But this authority would be charged with spending the $4 billion to reduce gasoline consumption. – Set the requirements for the authority’s board. It would include nine members. Three would be from agencies – the secretary of CalEPA, the CEC chair, and the state treasurer. Public members are required to have areas of expertise, including one in public health, one in finance and venture capital, one in renewable energy or energy efficiency, one in entrepreneurship, and one consumer advocate. – Require the authority to come up with a plan to spend the $4 billion on grants, loan guarantees, buy-downs, and incentives, including fostering research and development in alternative energy. – Allow the authority to last for 20 years, or until it exhausts its funds, whichever comes first. – Block oil companies from passing on the tax at the gas pump. The Yes on 87 folks say that the Board of Equalization can enforce that rule. “They carry calculators instead of six-guns,” said Yes on 87 spokesperson Yusef Robb. The Board of Equalization would also have access to oil company records to keep financial tabs on the industry, he added. Although the trick will be in interpreting the authority’s authority, my analysis finds that the ballot measure’s mandate allows for broad construction. And that breadth is where the gasoline reduction-alternative energy link comes in. Prop. 87 does not guide investments to particular technologies. Given the pace of technology, that’s probably a good thing – because it would give the authority the flexibility to adapt to emerging technologies. For instance, the authority would have the flexibility to finance a hydrogen infrastructure that is both fuel and fodder for creating electricity. Or it could foster electric vehicles to reduce gasoline consumption, thus increasing the amount of new power plants needed – in the state or from imports. In addition, Prop. 87 calls for “production incentives, including, but not limited to, loans, loan guarantees, and credits for clean alternative fuel production in California, excluding the production of electricity, except clean fuel cell based electricity production.” “It will incent wind and solar” too, said Robb, although that is not exactly what the measure says. In part, it reads: Funds “shall be used to supplement, and not to supplant, existing state funding for research, vocational training, and technological development and deployment involving petroleum reduction, energy efficiency, and renewable energy.” It will heavily rely on its experts – with two chosen by the governor, one by the controller, one by the speaker of the Assembly, one by the Senate Rules Committee, and one by the attorney general. For instance, if one expert pushes hydrogen, but another pushes electric vehicles, and a third pushes mass transit, then it could be a free-for-all and those billions could be diluted in myriad programs, doing little good. Basically, how the funds will be used will be a crap shoot. Voters will have to trust experts and agency chairs to do the right thing with the $4 billion. The No on 87 folks criticize some of the same topics, but most of their campaign (so far) is centered on claims that the measure will increase costs to consumers and fail to punish oil companies for windfall profits. The No on 87 campaign, sponsored by oil companies, is correct when it takes the Yes folks to task over the advertisements that associate the tax with oil company profits. The state would not be taxing profits, but taxing extraction of oil beneath the land. I was surprised at just how many companies pump oil out from under California. The state lists about 700 companies. Many of them appear to be small operations with a pump going in the back 40 somewhere near Bakersfield, and even one pump at a Beverly Hills high school. Suffice it to say, though, that oil companies are making a profit from those oil fields. The No campaign also maintains that because the new law will reside in the state constitution, it would have to come to another vote to be changed. Or the public will have to wait until the program sunsets in 2027. The No folks say the authority would have little financial oversight and could end up spending a big chunk of the money on administration. The Yes campaign counters that the authority will be subject to the Bagley-Keene Act and the Political Reform Act and, thus, its transparency will lend it public accountability. There’s one more thing that the No campaign hasn’t played up, but one that bothers me. Yes spokesperson Robb kept likening the initiative to the Manhattan Project. His idea was that it is a short-term deal to bring together great minds in order to deliver something important. Unfortunately, the simile ends with the Manhattan Project delivering nuclear bombs. Ewww. As with the reregulation initiative last year, I am ambivalent about whether this will be a good law. I am concerned that it will become another Power Authority, with some good ideas but time mostly spent spinning its (non-internal-combustion-engine) wheels. Yet, because it has to spend the $4 billion, at least it would pump money into more alternative energy.

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