VI. Policy Observations in 2003

1. Natural gas dependence/Alternatives.

All the new merchant plants run on natural gas. The Energy Commission's traditional commitment to fuel diversity has been completely lost. Over-dependence upon natural gas can leave the entire electric power system at the mercy of future price/pipeline manipulations. A new emphasis should be placed on developing renewable resources such as solar and wind on a larger scale. New tax credits would be helpful. However, the state's budget crisis makes this highly unlikely.

2. Water supplies.

Water has replaced air quality as the most disputed environmental issue in the largest number of cases. The use of fresh water by the merchant plants is already a serious problem. Dry cooling, reclaimed water, and other alternatives to fresh water should become the rule, rather than the exception. Responsibility here rests initially with the State Water Resources Control Board, but they have failed to establish or enforce any clear policy. The Energy Commission can and should take the lead in greatly reducing fresh water use by all new powerplants.

Plant expansions on the coast that rely upon ocean or bay waters may also pose environmental threats to the marine ecosystem that cannot be fully understood at this time. These issues have been especially controversial in the Morrow Bay and Portrero proceedings, both of which involved modifications to elderly utility plants and continued reliance upon bay water for cooling. The Energy Commission needs to become much more selective in approving new powerplants in order to avoid potential adverse environmental impacts.

3. Too many energy agencies.

In addition to the Public Utilities Commission and the Energy Commission, we now have the Independent System Operator (ISO), (a state-created private entity with governmental-type powers), the Electricity Oversight Board (an agency which monitors the ISO), the Department of Water Resources, and the new California Power Authority all engaged in trying to plan, manage, regulate, purchase and license electricity sales/generation/transmission in this state. Coordination will require a miracle. Thus far, cooperation and the sharing of information have been difficult.

4. Too many powerplant filing categories.

With Emergency Peakers (now defunct), 4-month AFCs (also defunct), 6-month AFCs, conventional 12-month AFCs, and the conventional Small Power Plant Exemption (SPPE), an applicant recently needed a roadmap to decide what kind of powerplant filing to make at the Energy Commission. Each category had its own legal requirements, all of which are inconsistent with one another. Some powerplants filed in more than one category, but still failed to meet stringent interpretations of qualifying rules. This led to qualification disputes, and the evolution of hybrid AFCs, which were being processed without a clear explanation of which category they fell under.

For simplicity and a more consistent review process, I would abolish all the new categories, leaving the Energy Commission with just the traditional filing options that existed prior to the 2000-2001 supply crisis. It appears this became the situation when the 6-month AFC statute expireed. All the other new variations ceased to exist when the state of emergency ended.

5. The electricity glut.

Former Governor Davis finally did declare victory over the energy supply aspect of the 2000-2001 crisis. His vigorous counter-attack on all fronts, especially the re-birth of conservation (helped by the recession and lack of heat waves), prevented black-outs in the summer of 2001, even though only three of the powerplants licensed by the CEC came on line. Thousands of additional megawatts will hopefully be added from the remaining plants already certified and under construction. There is now so much new electricity in the pipeline that DWR is dumping surplus power, yet more Applications for Certification kept piling up at the CEC. There were a record 41 power plant applications filed at the Energy Commission in 2001, with 50 plants under review in that year.

While still overburdened with 21 "active projects" at the start of 2002, and relying heavily upon consultants to supplement regular staff, the Energy Commission should re-learn how to kill or delay the worst projects. Suspension, followed by withdrawal in 2002, of the Rio Linda/Elverta Power Plant Project, Docket No. 01-AFC-1, (SEPCO's successor), was an encouraging step in the right direction. Many more pending AFCs may also merit suspension and/or withdrawal. Several AFCs were suspended or withdrawn in 2002-2003, primarily for economic reasons. Meanwhile, a number of the plants already licensed, under review, or planned are being delayed by applicants such as Calpine due to the energy glut and financing problems also connected to the recession, such as stock price declines/bankruptcies/and other corporate shocks. This makes the next point more important.

6. Need for new powerplants.

The Legislature should restore to the Energy Commission its original statutory responsibility to determine the need for new powerplants. Without this power, the CEC cannot properly do its job, and bankers may secretly end up determining which plants are ultimately constructed. My fear is that the bankers will favor powerplants charging the highest electricity prices under DWR contracts, further penalizing the ratepayers. Even though DWR's daily cost for electricity has declined 600% from the worst period in early 2001, over 70% of DWR's contracts are for energy from new powerplants. These long-term contracts were likely to have been signed while electricity prices were much higher than they are now. Is California going to be locked in?

24 AFCs were filed with the Energy Commission in 2001, the most ever for a single year. Absent a proper need determination, (which should include ratepayer impacts), I believe it will be impossible for the Energy Commission to review them properly. Regardless of what contracts have been signed, powerplants that are no longer needed should be denied certification, and prices agreed to by DWR under duress must be renegotiated downwards to reasonable levels.

The situation has recently changed, presenting a new set of complications related to need. With economic/financial problems now hampering construction of many licensed powerplants in 2003-04, there could be future supply difficulties, unless the CEC's traditional authority to do a proper need analysis is quickly restored. Otherwise, California may have difficulty understanding whether it faces a surplus or shortage of electricity in future years. The energy crisis could return if enough plants certified by the CEC are delayed or never built.

7. Conservation.

It is widely recognized that conservation, the elimination of wasteful electricity uses, offers the best long-term solution for providing energy security. Continued incentive programs that encourage people to buy more efficient appliances, combined with new building and appliance standards, are far more cost-efficient than additional power plants. Conservation, in all its many forms, should be the state's number one priority. Any policy that rejects conservation as a financial threat to paying for the electricity surplus created by DWR must be rejected.

The surplus of costly electricity, not conservation programs, should be reduced through re-negotiating or canceling some DWR contracts, and thus building fewer unneeded powerplants.

8. Public data base.

One unfortunate consequence of de-regulation has been a reduction in available public data concerning all aspects of California's electricity system. The utilities, other companies, and even state agencies such as DWR, now claim vast collections of data all amount to confidential trade secrets. The Energy Commission has been struggling for the last several years to obtain necessary data from the utilities, even after guarantying that it will be held as confidential.

With the collapse of de-regulation, the competitive market place envisioned in the 1990s is no more than an economist's fantasy. I don't believe Californians can afford all these trade secrets. There needs to be a dramatic change by creation of a public data base so that the press, consumer organizations, state agencies, and ordinary citizens all have access to key information concerning electricity demand, supply, and pricing. The Energy Commission should be assigned the responsibility and granted the necessary legal authority to create the public data base.

Information is still power. It's unclear now whether we are going to meet California's long-term electricity needs, and one of the problems continues to be not enough public information.

9. San Francisco.

Thanks to its unique location and politics, (including PG&E obstructing a municipal utility for nearly a century), the City and County of San Francisco may be the one place in California still highly vulnerable to a power outage. (The city nearly suffered a blackout on Thanksgiving Day 2001, as reported in the December 5, 2001 Chronicle.) I believe that after the San Francisco Board of Supervisors rejected several powerplants, it is a major step forward for the city to have adopted the San Francisco Electricity Resource Plan in late 2002. Implementing this comprehensive vision of alternative energy, transmission line improvements, and some smaller natural gas plants becomes the next challenge.

It was clearly obvious that Potrero, Docket No. 00-AFC-4, could not be the answer, and the city rejected it. The CEC Portrero proceeding was finally suspended in late 2003 after wasting everybody's time for several years. Applicant Mirant never obtained full site control from the city. A similar action by the Board of Supervisors, denial of a lease/agreement, doomed the earlier San Francisco Energy AFC. San Francisco will now attempt to site four 50 MW peakers it obtained as part of the Callifornia Attorney General's legal settlement with Williams. San Francisco is currently an applicant at the Energy Commission for the first tme: The San Francisco Electric Reliabillity Project, Docket No. 04-01.

10. PG&E's "bankruptcy".

It must be recognized that PG&E's attempt in Federal Bankruptcy Court to evade all state regulation was an extreme danger to taxpayers and ratepayers. Fortunately, the courts rejected PG&E's attempt to turn present day losses into massive future profits under a twisted interpretation of federal law (pre-emption). The PUC, the Attorney General, and others led the legal battle against PG&E. This eliminates PG&E's dream world in which every utility would have a financial incentive to declare bankruptcy in order to become unregulated, evade dozens of state laws, and charge whatever prices it could get away with. I never believed PG&E was really bankrupt, if the other solvent PG&E entities, including those that pocketed the profits from divestment, were taken into consideration.

Now the PUC has continued its practice of making ratepayers bail out PG&E in order to help the utility emerge from bankruptcy. Both PG&E and SCE (which never declared bankruptcy) appear able to receive favorable treatment from the PUC, to the detriment of California's ratepayers. It seems certain we will be paying the price (billions of dollars) for de-regulation's failure in our electricity bills for years to come.