BILL ANALYSIS 1
1
SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE
DEBRA BOWEN, CHAIRWOMAN
AB 808 - Canciamilla/Richman Hearing Date:
July 8, 2003 A
As Amended: June 25, 2003 FISCAL B
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0
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DESCRIPTION
This bill is a major reorganization of California's energy
regulatory apparatus.
This bill establishes an Energy Agency administered by the
Secretary of Energy who is appointed by the Governor and
confirmed by the Senate. The Agency is responsible for the
planning, development, and implementation of all major aspects
of state energy policy. The Secretary of Energy, in
consultation with the California Independent System Operator
(ISO), shall determine appropriate electricity reserve levels.
The California Public Utilities Commission (CPUC) shall ensure
that electric corporations meet those reserve levels.
This bill requires the Governor to submit a plan for
reorganizing the energy regulatory activities of the state to
the Milton Marks "Little Hoover" Commission on California State
Government Organization and Economy (Little Hoover Commission)
by May 1, 2004 and to the Legislature by July 1, 2004. This
Governor's Reorganization Plan (GRP) must include the following
provisions:
1.Establish within the Energy Agency all major energy
policy-making functions.
2.Eliminate the California Power Authority (CPA) and transfer
its authority to the Energy Agency.
3.Merge the California Energy Commission (CEC) into the Energy
Agency.
4.Eliminate the Electricity Oversight Board (EOB) and transfer
its monitoring and investigating functions to the Energy
Agency.
5.Transfer energy policy-making functions from the CPUC to the
Energy Agency.
6.Establish a board within the Energy Agency for siting of
energy production, storage, and transmission facilities. Such
decisions are subject to judicial review by the California
Supreme Court.
7.Establish the Energy Secretary as the sole state
representative before the Federal Energy Regulatory Commission
(FERC).
8.Require the ISO to report any FERC activity to the Secretary
of Energy.
9.Establish a mechanism for the CPUC to advise the energy siting
board regarding the rate impacts of decisions by the board and
the Secretary.
10. Establish a process for
public review of and comment on the Secretary's activities.
BACKGROUND
A Governor's Reorganization Plan (GRP) is initially submitted to
the Little Hoover Commission for review and comment. Not
earlier than 30 days after submitting the GRP to the Little
Hoover Commission the Governor may submit the GRP to the
Legislature, after which it becomes effective after 60 days
unless either house passes a majority vote resolution rejecting
the GRP.
COMMENTS
1.Transferring Power & Authority . The fundamental change
proposed by this bill is to concentrate energy policy
decisions into the hands of one individual, rather than a body
of individuals. Policy-making authority is stripped from the
CPUC and turned over to the Energy Secretary. The Secretary
would have wide control over such issues as generation and
transmission siting, energy efficiency programs, natural gas
policy, wholesale market monitoring, transportation fuel
monitoring, and federal representation.
Whether the public interest is better served through an agency
or a commission is one of the central issues in this bill.
While an agency may very well provide increased speed,
consistency, and possibly accountability, a commission
generally provides for a much more open, deliberative process
that includes a great deal of public input. The author and
committee may wish to consider whether the fundamental change
suggested by this bill will provide for a more cohesive
decision-making and policy-setting process than the existing
structure.
2.Reorganizing The Energy Structure, Then Asking For A
Reorganization Plan . Few would argue that the process by
which California's agencies and commissions set energy policy
is perfect. As with many things in state government, there is
a certain amount of overlap and duplication that takes place,
and sometimes agencies and commissions may actually be working
at cross purposes.
This measure doesn't require the Governor to submit a GRP
based on the existing energy structure, nor does it attempt to
document where overlap, duplication, and conflict currently
exist, then attempt to eliminate it. Rather, this bill
reorganizes the existing energy structure by creating an
Energy Agency headed by a Secretary of Energy, then transfers
a number of powers, duties, and responsibilities to this
person as of January 1, 2004.
Following this major change, the bill requires the Governor to
craft a GRP and submit it to the Little Hoover Commission by
May 1, 2004 and to the Legislature by July 1, 2004. However,
the Governor won't have the liberty to create a GRP from
scratch and put together the reorganization proposal he feels
would serve California best because this measure dictates the
GRP must, among other things:
q Eliminate the California Power Authority (CPA) and
transfer its authority to the Energy Agency.
q Merge the California Energy Commission (CEC) into the
Energy Agency.
q Eliminate the Electricity Oversight Board (EOB) and
transfer its monitoring and investigating functions to the
Energy Agency.
q Transfer energy policy-making functions from the CPUC to
the Energy Agency.
q Establish the Energy Secretary as the sole state
representative before the Federal Energy Regulatory
Commission (FERC).
q Require the ISO to report any FERC activity to the
Secretary of Energy.
q Establish a mechanism for the CPUC to advise the energy
siting board regarding the rate impacts of decisions by the
board and the Secretary.
This approach raises a number of questions the author and
committee may wish to consider :
q This bill, if passed and signed into law, would take
effect on January 1, 2004, and requires the Governor to
submit a GRP to the Little Hoover Commission by May 1,
2004. Is four months enough time for the Governor to
develop a complete, well-crafted GRP?
q Is it appropriate to establish a new Energy Agency,
headed by a new Energy Secretary, and transfer a number of
responsibilities and functions to the Agency before the GRP
is developed and submitted?
q Does requiring the GRP to contain a number of specific
changes, as this bill does, effectively eliminate the need
for the GRP, since the bill arguably dictates the outcome
of the GRP?
q Does being so specific relative to the things the GRP
must accomplish tie the Governor's hands and
inappropriately limit his options for restructuring
California's energy-related agencies and commissions?
1.Changing The Form Before Solidifying The Function .
California's electric market structure is in a state of flux
and there are a number of proposals moving through the
Legislature that would set up the market in very different
ways. Any regulatory structure should be developed to fit the
electric market structure, whatever it turns out to be. The
author and committee may wish to consider whether it's
appropriate to completely overhaul the state's regulatory
structure before California has decided what type of market
structure it wants to put into place.
2.What Problem Does A Reorganization Solve? There are many
reasons for California's 2000-01 electricity crisis. Market
manipulation by electric and gas wholesalers and marketers,
inattention from the FERC, a flawed electric market structure,
an electric grid operator that paid more attention to markets
than ratepayers, and slow recognition of the depth of the
problem by regulators all contributed to and exacerbated the
state's crisis. However, it's not clear the structure of
California's regulatory apparatus contributed to the problem
in any significant way. Arguably, the 1996 electric
restructuring act put a number of state agencies on the
regulatory sidelines and prevented them from taking action
that could have prevented the crisis.
This isn't to say that every California energy agency should
continue to exist and continue to perform the functions it
performs today. One example is the EOB, which was created in
the original electric restructuring legislation to oversee the
work of the ISO stakeholder board and the California Power
Exchange (PX) stakeholder board. The ISO board is now a
public interest board appointed by the Governor and the PX is
bankrupt, arguably rendering the EOB superfluous.
There is also room to eliminate duplication of functions where
they exist. One place to start may be relative to energy
efficiency programs, which reside both at the CPUC and the
CEC. There may be some merit in unifying the responsibility
under one agency as a means of ensuring consistency of purpose
and better appraisal of results, though it's not clear which
agency should assume the role.
A discussion of unifying siting functions within one
organization may also be useful; many states house generation
and transmission siting under a single agency. In fact, a
siting board was proposed in 1995 by former Governor Wilson in
his attempt to reorganize the state's energy agencies.
However, it should be recognized that siting generation
facilities is strictly a land use question involving the
California Environmental Quality Act (CEQA) where the
applicants generally aren't regulated by the CPUC, while the
siting of transmission lines is an economic question where the
applicants are generally highly regulated by the CPUC. There
may also be questions as to whether a siting board is the
appropriate place for CEQA review of liquified natural gas
(LNG) facilities.
5.Striving for Coordination . One of the motivations for this
bill is to improve the coordination between agencies by
putting policymaking functions under a single entity, the
Energy Secretary. Historically the energy agencies haven't
coordinated their efforts and frequently they've established
conflicting policies. This has started to change, in part due
to legislative demand and because it makes good sense. For
example, the state's Energy Action Plan was developed
cooperatively by the three most consequential state energy
agencies.
While coordination is no doubt useful and important, some
amount of agency rivalry can actually be good for ratepayers.
For example, the Department of Water Resources was authorized
to establish its own revenue requirement to cover the costs of
its energy contracts and debts. The CPUC has challenged some
of DWR's methods and calculations - a challenge that led DWR
to alter some of its calculations and lower its rates, a
change that benefited California's electricity ratepayers.
6.The Lines Between Policy Making, Policy Implementation &
Policy Regulation . The bill requires the GRP to remove policy
making from the CPUC and turn it over to the Energy Secretary.
This may be problematic, as there is no bright-line
distinction between policy making and regulation.
In broad terms, policy making is the province of the
Legislature, which has established, for example, broad
policies regarding the reasonableness of rates and the
adequacy of service, as well as specific policies with regard
to, say, solar electricity. But where does policy making end
and policy implementation begin? This issue was considered in
1996 during the CPUC reform discussion. It was clear then
that some cases were clearly not policy, some clearly were,
and many were a combination.
Turning over policy making to an Energy Secretary may slow
policy implementation because it injects an additional player
into the process. Under current practice, the Legislature and
the Governor enact a policy and the CPUC implements it,
filling in the details as necessary. Under this bill, the
Legislature and Governor would enact a policy, the Energy
Secretary would fill out the policy, and then the CPUC would
implement the policy.
7.Public Access . Left unspecified is the mechanism for public
participation, review, and dispute resolution to the policy
decisions of the Secretary. As commissions, the CEC and CPUC
provide many opportunities for public input and review,
including public hearings and deliberations. Challenges can
be brought to the courts, though judicial review is more
theoretical than actual. Agency decisions tend not to be made
in a forum that's as accessible to the public and how the
public would participate in this process hasn't been fully
articulated.
8.Related Legislation . SB 920 (Bowen) eliminates the EOB,
transfers many of its functions to the Attorney General, and
requires the Governor to designate a successor to the EOB
relative to overseeing and investigating the wholesale
electricity markets. That bill is pending in the Assembly
Appropriations Committee.
SCA 6 (Battin) transforms the 5-member appointed CPUC into a
7-member elected body. That bill is pending in the Senate
Appropriations Committee.
PRIOR VOTES
Assembly Floor (75-0)
Assembly Appropriations Committee (24-0)
Assembly Utilities and Commerce Committee
(11-0)
POSITIONS
Sponsor:
Author
Support:
Bay Area Economic Forum
CH2MHILL
California Chamber of Commerce
Pacific Gas and Electric Company
Oppose:
The Utility Reform Network
Randy Chinn
AB 808 Analysis
Hearing Date: July 8, 2003