New Governor Will Face Sharp CPUC Divide on Direct Access

As Arnold Schwarzenegger is poised to take office this month, one California Public Utilities Commission member predicted that the governor-elect?s interest in continuing direct access could throw a wrench into resource planning and plant development while another welcomed leadership to jump-start stalled action on direct access. During the recall campaign, Schwarzenegger embraced a mixed bag of ideas, including favoring public utilities over privatized power, direct access based on a core-noncore system, new liquefied natural gas facilities, beefed-up natural gas pipelines, and ambitious plans for renewables. Any pressure from the new Republican governor on direct access in particular will be unlikely to spark a lovefest from the all-Democrat CPUC and could have a domino effect on the other issues Schwarzenegger fingered. ?It?s one thing to say you are for direct access and free markets, and it?s another thing to face the consequences. So instead of a manufactured shortage like during the energy crisis, we?ll have a real shortage,? commissioner Carl Wood said. According to Wood, opening up direct access will quickly bring on a crisis of resource planning and development. With an uncertain customer base, utilities will be loath to build plants and plan ahead. Fallout from direct access would also include a destabilization of utility financing, he predicted. Along with commissioner Loretta Lynch, Wood is in the minority opposition camp on the issue, and both Wood and Lynch are short-timers, with terms up at the end of next year. ?Right now we are fairly paralyzed on the issue of the day, direct access,? said commissioner Susan Kennedy. ?The legislature has spoken, the commission is struggling to maintain direct access, and the new administration has indicated it wants to restore direct access to noncore customers. So any leadership is better than no leadership.? The commission is set to vote on a decision fine-tuning ?coming and going rules? for direct-access customers November 13. Kennedy acknowledged concerns about market uncertainty and stressed the need to carefully phase in direct access, allowing larger customers direct access while keeping small retail customers on bundled service (a.k.a. ?core-noncore?). It took 10 years to implement the gas market core-noncore system, she noted. ?It?s a different animal but not impossible,? said Kennedy. But Kennedy bristled at The Utility Reform Network?s charge that with a new governor, a majority of commissioners will be unshackled to pursue aggressive deregulation. ?If core-noncore is their view of deregulation, then yes, having leadership of the new administration in line with a majority of commissioners will make it easier to act,? said Kennedy. For her part, Lynch expressed concern about the potential price tag for Schwarzenegger?s long list of energy priorities. ?You can?t buy and build everything,? she contended. ?Not acting has even greater costs,? countered Kennedy. She pointed out that ratepayers are facing projected natural gas price increases of 30 percent this winter and potential electricity shortages as early as 2006. The new governor is expected to work more cooperatively with the Federal Energy Regulatory Commission than outgoing Governor Gray Davis did. Since Schwarzenegger will be able to replace all California Independent System Operator (CAISO) board members by March 2005, Lynch wondered whether CAISO market reforms will be jettisoned in favor of the ?same old rules? that allowed for market manipulation. Lynch and commissioner Geoffrey Brown agreed that the governor-elect?s goal of diversifying energy sources appears at odds with plans to beef up liquefied natural gas (LNG) use. LNG plants can?t be built without locking California into gas contracts for 20 years, said Lynch. If there is a natural gas shortage, an awful lot of natural gas can be shipped from Canada, said Brown. ?There is no contradiction at all? on LNG, responded Sean Randolph, president of the Bay Area Economic Forum and adviser on the governor elect?s energy policy. A focus on renewables does not mean that green power will be able to supplant the need for more conventional gas-fired plants in the near future. The bottom line for the new governor?s policy will be a commitment to competitive markets and making California more attractive for businesses to build plants and invest in the grid, said Randolph. At the same time, he stressed, ?It would be a mistake to characterize the plan as a return to deregulation.? According to the adviser, shoring up the state?s reserve requirements will help guard against market manipulation. Ensuring that retail rates reflect actual costs will be another way to avoid mistakes made with past deregulation efforts, he said. Energy plans and priorities are being folded into a ?transition document? before the governor-elect takes office in mid-November, according to Randolph. Whether the new governor has to wait until he can name a whole new commission or whether he can find a majority of sitting commissioners to cooperate with a new energy plan remains unclear. But it looks like at least two CPUC members will not go quietly.

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New Governor Will Face Sharp CPUC Divide on Direct Access

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