Agency has $5 billion to spend and broad discretion. Critics say it’s unnecessary.
Los Angeles Times
When Chairman S. David Freeman gavels the new state Public Power Authority into session today, he will launch an agency that is the centerpiece of California’s plan to tame its volatile electricity market.
Conceived during the winter energy crisis, the five-member California Consumer Power and Conservation Financing Authority has emerged with broad powers and the authority to spend $5 billion to ensure that the exorbitant price spikes and blackouts of last winter and spring never occur again.
“The mission is to be the strategic [energy] reserve,” Freeman said.
Even before its first meeting, however, the power authority has drawn fire from critics who say it is an unnecessary layer of bureaucracy, could slow private power plant construction, and may infringe on the jurisdiction of a federal energy agency.
“Every time government gets involved in these types of things, taxpayers get taken to the cleaners,” said state Sen. Bill Morrow (R-Oceanside), vice chairman of the Senate Energy Committee. “We . . . don’t need this power authority.”
At the root of the argument is a basic ideological difference. Freeman and Gov. Gray Davis believe that private companies will never build enough power plants on their own to guarantee stable electricity prices for California.
To force energy companies to truly compete for sales and keep prices low, the state needs to create a supply of electricity 15% greater than its peak-hour demand, Davis said. “This business is all about leverage,” he said at a news conference this week.
But private industry won’t build this surplus of power, because creating plants in excess of demand is not profitable. So the state will do the building, he said.
“That’s where the power authority will step up and build the plant itself to assure we have the power we need to keep California moving forward and the power we need to get good prices,” Davis said.
“They are the builder of last resort,” the governor said after swearing in his four authority appointees Tuesday. “They will guarantee that we will never again go through the hellish days of January and February . . . not knowing whether or not the lights are going to stay on.”
Morrow and other Republicans, by contrast, said the power authority represents empire building and political grandstanding by Davis and the state’s Democrat-controlled Legislature. Energy industry spokesmen agreed.
“Only in California do we think that another bureaucracy solves the problem,” said Gary Ackerman, executive director of the Western Power Trading Forum, a group representing 31 power companies.
“At best, the power authority is a neutral,” he said. “At worst, it could really destroy the wholesale power markets when it comes to investment in new generating facilities.”
Beyond that basic disagreement are a host of issues about what the authority should do–and what it should turn to first.
With a skeleton staff and a $10-million annual budget, agency officials are scheduled to meet this morning to discuss their goals publicly for the first time, and to hear pleas from dozens of businesses that want financial help for a wide range of projects.
Funding for Renewable Energy
The authority’s mission is at least four-pronged: to build “peaker” power plants the state can fire up quickly when electricity runs short, to expand the state’s system to deliver and store the natural gas burned in power plants, to promote renewable sources of energy such as wind and solar power, and to finance energy efficiency and conservation programs.
Though Davis and Freeman have recently skirted questions about precisely what the authority will do first, state Treasurer Phil Angelides, who is the fifth member of the authority’s board, said funding for renewable energy is at the top of his priority list.
Nearly all new power plants approved for California are gas-fired, he said. “It’s not smart to be wholly dependent on one source of fuel,” said Angelides, among the first state officials to back creation of such an agency.
By the end of the year, the authority should begin to put financing in place to pay for large conservation projects and new generators, especially those powered by wind and the sun, Angelides said.
“I do not want this entity to be a shrinking violet,” he said. “I want it to be muscular enough to keep the private generators on their toes and know we’re strong enough to protect ourselves.”
Natural gas supplies are a chief concern for the power authority, said member Donald Vial. Overall, natural gas is the fuel that generates about 35% of the state’s electricity. “There’s great concern,” Vial said, “that we don’t have an adequate delivery system for gas within the state. There’s going to be a lot of controversy over how we get that built.”
In a report Thursday, the state Energy Commission said that one of California’s most serious near-term energy problems is that a shortage of pipeline capacity for natural gas could lead to large price fluctuations over the next couple years.
The board must focus immediately on how to get through the next year, because officials cannot count on recent good weather, consumer conservation and low natural gas prices forever, Vial said.
“Just because we’re sneaking by this year doesn’t mean we’re going to do it next year,” he said.
The new entity is modeled after the 70-year-old New York Power Authority, which Freeman once headed. That agency was created in 1931 by Franklin D. Roosevelt, then governor of New York, to “give back to the people” the river-generated electricity that had been exploited by power companies.
With 10 generating plants and a transmission grid, the New York agency supplies 25% of the state’s electricity by selling it to community-owned systems at no profit. By law, the California authority will sell its electricity at cost.
But unlike the New York agency, the California version is scheduled to dissolve in January 2007, although the Legislature could extend its life with a new law.
Power authorities have a financial advantage over private energy companies. Because they don’t have to make a profit, they pay less in taxes and have access to tax-free financing.
The California agency, approved by the lawmakers in May, has been controversial from the start.
Environmental groups have supported it because of its emphasis on expanding natural and renewable energy sources: fuel cells, micro-turbines, solar panels and wind machines. Taxpayer groups have backed it because they say it will help free consumers from dependence on private power companies.
“We see it as the chief opportunity for the public to reclaim our energy system from the power pirates who have devastated us during deregulation,” said Doug Heller of the Foundation for Taxpayer and Consumer Rights in Santa Monica.
Criticizing ‘Public Power’
But some energy experts said the power authority is not needed and shouldn’t exist.
Severin Borenstein, director of the UC Energy Institute in Berkeley, said he doesn’t buy the argument that a new agency could become an efficient clearinghouse for a host of state energy activities.
“The state should not be in the business of building and operating power plants,” he said. “Public power does not have a good track record.”
Officials at Reliant Energy, which owns five aging power plants in California, said the company is taking a wait-and-see posture on new projects. “We’re not saying, ‘Definitely no, we’re not going to invest in California,’ ” spokesman Richard Wheatley said. “It’s too early to say.”
In fact, Reliant is pursuing plans to expand a generating facility in Rancho Cucamonga and is considering construction of a peaker plant elsewhere in the state, he said.
Republicans said they fear that the agency’s duties will expand over time.
“I’m concerned about where the power authority might go,” said Bill Campbell, the former Republican leader in the Assembly. “I’m afraid the power authority might operate the assets of the utilities, the transmission lines.”
Democrats first proposed creation of the agency as the vehicle through which the state could purchase the electricity transmission grid now owned by California’s private utilities. In the Legislature, however, support for buying the grid has evaporated, and lawmakers said there is little chance the purchase will occur.
Just this week, California Republicans raised questions about the authority’s ability to buy the power lines.
Responding to questions from Rep. Doug Ose (R-Sacramento) and Secretary of State Bill Jones, the chief lawyer for the Federal Energy Regulatory Commission said the power authority would need federal permission to buy electricity contracts, hydroelectric plants or transmission lines.
Freeman dismissed the letter as irrelevant.
“This is a lot to do about absolutely nothing,” he said. “The things they mention in their letter are very farfetched. There’s nothing that we’re doing that comes anywhere near being subject to FERC’s [control].”
The authority’s “job is to supplement, not supplant, private sector initiatives,” Davis said. “I see it as a limited but important role.”