BILL ANALYSIS
AB 1016
Page 1
Date of Hearing: April 20, 2009
ASSEMBLY COMMITTEE ON UTILITIES AND COMMERCE
Felipe Fuentes, Chair
AB 1016 (Villines) - As Introduced: February 27, 2009
SUBJECT : Energy Agency Reorganization.
SUMMARY : Reorganizes and consolidates some of the state's
numerous energy-related agencies and creates a Department of
Energy (DOE).
EXISTING LAW :
1)The State Constitution provides that energy generation,
transmission, or furnishing of heat, light, water, and power,
are public utilities subject to control by the Legislature.
2)The State Constitution establishes the California Public
Utilities Commission (PUC) to fix rates and establish rules
for all public utilities under its jurisdiction and provides
the Legislature with plenary power, unlimited by other
provisions of the Constitution, to confer additional authority
and jurisdiction upon the commission.
3)The State Constitution provides the Governor the authority by
statute, to assign and reorganize functions among executive
officers and agencies and their employees, other than elective
officers and agencies administered by elective officers.
4)Establishes the California Energy Commission (CEC) for
resource planning and investment, for reliable electric and
natural gas resources with minimal costs to society that
improve the environment and to encourage the diversity of
energy sources.
5)Creates the California Independent System Operator (ISO) as a
nonprofit public benefit corporation to ensure efficient use
and reliable operation of the transmission grid.
6)Establishes the Electricity Oversight Board (EOB) to ensure a
reliable supply of electricity and focus on transmission and
minimizing service outages that reach far beyond the
originating utility service area, and to oversee the CAISO and
the currently defunct Power Exchange (PX).
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7)Creates, within the PUC, the Division of Ratepayer Advocates
(DRA) to represent and advocate on behalf of the interests of
public utility customers within the PUC jurisdiction to obtain
the lowest possible rate for service consistent with reliable
and safe service levels.
THIS BILL :
1)Creates a DOE headed by a Secretary.
2)Establishes the following responsibilities within the DOE:
a) California Energy Commission (commission). (The actual
five-member commission resembles the current CEC
commission; however, this proposal would transfer the staff
from the commission to the Secretary of the DOE.)
b) Office of Market Oversight with the responsibilities of
the Electricity Oversight Board (EOB).
c) Division of Permitting, Siting, and Standards with the
generation siting and building efficiency standards
responsibilities of the CEC, and the transmission siting
responsibilities of the PUC.
d) Division of Program Management with the energy
efficiency and renewables grant and loan programs of the
CEC, the CEC transportation fuels program, and the
California Energy Resources Scheduling (CERS) division of
the Department of Water Resources.
e) Division of Energy Analysis with the statewide
electricity supply and demand forecasting responsibilities
of the CEC.
f) Division of Research and Development that encompasses
the existing Public Interest Energy Research (PIER) program
within the CEC.
3)Transfers transmission siting from the PUC to the DOE.
4)Designates the Secretary of DOE as chairman of the
commission.
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FISCAL EFFECT : Unknown.
COMMENTS : According to the author, the purpose of this bill is
to consolidate the state's authority for energy policy and
related functions within DOE, while maintaining critical, public
involvement through a CEC structure for generation and
transmission siting, and for establishing appliance and building
efficiency standards.
1) Background : Energy agency reorganization plans are not new.
In 2005, AB 1190 (Canciamilla) established an Energy Agency and
required the Governor to submit a Governor's Reorganization Plan
(GRP) to the Little Hoover Commission by May 1, 2006, and to the
Legislature by July 1, 2006. The bill also specifies the
structure and elements of the GRP, which consolidates existing
State energy-related functions into one DOE, which is
administered by the Secretary of Energy. Shortly thereafter,
the Governor introduced Governor's Reorganization Plan (GRP) #3,
which was rejected by the Legislature due to legal issues
concerning proposed changes involving the PUC.
The Governor resubmitted the GRP proposal to the Legislature in
bill form (AB 1165, Bogh) and included certain policy changes
made in response to issues raised during the hearings on GRP
held by the Little Hoover Commission. AB 1165 removed the
Secretary as chairman of the commission, and made the position a
member of the commission. It also made the new DOE the lead
state entity to appear before the Federal Energy Regulatory
Commission (FERC), while allowing other state entities to also
appear. AB 1016 replaces the Secretary as chairman of the
commission.
2) The 30,000-foot level : The Administration and the Legislature
have frequently evaluated the merits of having at least five
separate State energy agencies along with a smattering of
energy-related divisions or programs within other departments.
Most energy agencies were created during crises in order to
perform a narrow or specific function. Each time an agency was
created relatively recently, it was intended to be a quick fix
to an immediate problem and not intended to perpetuate. The CEC
was slated to be abolished on many occasions, as was the EOB.
Both organizations were "saved" at the eleventh hour either
because of a prominent founding member's influence, or because
department's work was perceived by some to have significant
statewide value. (Although the Legislature has not been ready to
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abolish the EOB, last year, the Governor significantly reduced
the funding in the 2007 Budget Act to essentially abolish the
ability to function although the EOB's responsibilities still
exist in statute.) It took persistence to eliminate the funding
for the California Power Authority (CPA); however, its
far-reaching authorities still exist in statute.
It has been widely agreed that if policymakers were to wipe the
slate clean and create a State energy regulatory and oversight
function, an optimal solution would not be the five separate
entities that exist today. As such, this attempt at
reorganization or consolidation, while ensuring firewalls
between legally separate entities, appears long overdue.
This plan assumes that a singular energy policy is good.
Historically, the energy agencies have not coordinated their
efforts and have frequently established conflicting policies.
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 (DWR) was authorized
to establish its own revenue requirement to cover the costs of
its energy contracts and debts. The PUC 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.
In other circumstances, the EOB filed a formal complaint that
accused a wholesale energy trader of intentionally manipulating
wholesale energy prices and sought remedies. The CEC submitted a
separate finding that concluded that no market manipulation
occurred. Fortunately for California ratepayers, the EOB
complaint prevailed; however, it would have behooved California
to have an overreaching authority that would have thwarted that
mishap before it went to the federal level. This conflict may
have been aired in front of the FERC. Under this reorganization
plan, the difference of opinion would be heard by the Secretary
and the Secretary would determine the singular California policy
that may or may not be elevated to the federal level.
According to this reorganization plan, the PUC would continue as
a separate ratemaking body and retain most of its functions,
absent transmission siting. As such, the PUC could continue to
have an adversarial perspective on certain issues, which may or
may not benefit Californians depending on the specific
situation.
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3) Improves accountability to whom : Currently, the CEC and PUC
can establish their own independent energy policy regardless of
Governor's or Legislature's direction or stated objectives. If
the policy directives of the individual or collaborative
entities' policies are inconsistent with the Governor's or
Legislature's energy policy, the respective department
commissioners can continue to direct the staff (about 1,500
positions combined) to adopt the direction of their own
policies, regardless of the Governor or the Legislature.
This reorganization plan would include most of the State's
energy experts under one Secretary (absent the PUC). To develop
a statewide energy policy, the Secretary may or may not need to
collaborate with the PUC. This method appears more streamlined
because one person would be held accountable for creating the
energy policy report instead of three to four. In addition, the
Secretary would be directly accountable to the Governor and the
energy policy directives should be consistent with the
Governor's policy and amendable by the Legislature. This
reorganization plan may not significantly change accountability
to the Legislature. The Legislature would continue to direct the
departments consistently with its current methods.
4) The power of the revenue AND the power of financing projects
AND the power of approving the projects : AB 1016 designates the
Secretary of the DOE as the Chair of the commission. This poses
three problems: (1) the Secretary would be permitted to approve
funding for and approve siting for his/her generation,
transmission, and natural gas projects, (2) as the Chair of the
commission, the Secretary may be able to influence the other
commissioners to increase the energy surcharge to generate
additional revenue for the account that funds the
Secretary-directed DOE programs, and (3) as the Chair, the
Secretary could endorse changing the rules of the commission to
provide additional authorities to the Chair to further the
Secretary's programmatic or financial agenda.
Revenue and Tax Code section 40016 permits the current CEC to
fix the surcharge rate paid by ratepayers on their energy bills
annually by way of a majority vote of the commissioners.
Currently, the rate is three-tenths per mill ($0.0003 per
kilowatt-hour). Although the Secretary would still need to get
expenditure authority from the Legislature through the annual
budget process, a revenue increase could remove one of the
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obstacles of approval process.
Current law permits each member of the CEC to have one vote. In
addition, current law requires the CEC to adopt rules and
regulations to carry out the statutory provisions. Because the
commission rules are not easily located on the CEC web site, it
is unknown whether the Chair of the commission has controlling
power over the agenda. Some Chairs of other commissions can use
this authority to restrict the commission to voting on issues
that only the Chair endorses. Regardless of what the current
rules require, as Chair, the Secretary may have the influence to
change the commission rules to provide the Chair more power.
The previous reorganization plan included provisions that caused
additional concern that this model may restrict adequate checks
and balances or provide too much authority under one person
include provisions that permit the Secretary to:
Select key department officers (chief administrative
officer, a legislative affairs officer, and a public
information and communications officer) and fix the
salaries of those incumbents who will serve at the pleasure
of the Secretary.
Designate a Vice-Chair of the commission, which provides
even more influence by the Secretary (current law requires
the Governor to designate a Chair and Vice-Chair).
Designate a public advisor to the commission who would
serve at the pleasure of the Secretary.
Designate certain information "confidential" and not
subject to public dissemination (current law requires vote
of the commission).
Rule on a request to maintain confidence (current law
requires vote of the commission).
Approve loan applications from the continuously
appropriated Energy Conservation Assistance Account, AND
determine the terms and conditions of repayment (at least a
3-percent interest rate) or determine if the loan should be
repaid.
Borrow money, sell loans, etc. to raise revenue to
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enable the DOE to make loans to eligible institutions for
two if its loan programs.
Increase the loan amounts to exceed $5 million (current
law requires vote of the commission).
Adopt emergency regulations to amend conditions of or
revoke the certification for any powerplant facility.
Create the criteria, approve projects, and rule on the
appeal for the many grant and loan programs currently
administered by the CEC.
Possess contracting liberties that need not comply with
State Administration Manual contracting guidelines that
were granted to the CEC. These contracting provisions would
permit the Secretary to easily engage in single-source or
sole-source contracts with only a 30-day notice to the
Joint Legislative Budget Committee. In addition, the
Secretary would be permitted to advance payments to
contractors, which is not permitted to most State entities.
It is unclear at this time whether the same provisions are
included in AB 1016.
5) The elephants in the living room; the PUC and ISO : This
reorganization plan addresses only a small portion of the PUC
authority that may be duplicative or overlap programs of the
CEC. The nature of reorganization plans may be precluded from
realizing substantial cost savings due to increases in
efficiencies and eliminating duplicative programs.
The State Constitution Article XII provides the Legislature
"?plenary power, unlimited by any other provisions of the
constitution, to confer additional authority and jurisdiction
upon the commission?." It has been debated whether this
provision also permits the Legislature to remove authority from
the PUC; however, Webster's dictionary defines "plenary" as:
"Complete in all aspects or essentials. Full." As such, it may
be under the Legislature's purview to reevaluate the duplicative
functions of the PUC, and remove activities from the CEC/DOE,
the PUC, or both depending on the programs' relevance to the
current market structure and energy policy priorities.
The ISO is a not-for-profit public benefit corporation that
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operates a majority of the state's transmission grid. Current
law requires the EOB to oversee the ISO (the now-defunded EOB,
which means that there is currently no ISO oversight). The ISO
has not always been responsive with regard to requests from the
EOB regarding its annual budget and financial records. The EOB
has resorted to subpoenaing information from the ISO. Even after
a subpoena, the ISO has maintained "attorney-client privilege"
and dismissed the EOB's requests by stating that one of the ISO
governors already provides budgetary oversight. The ISO
Governors are appointed by the Governor and serve just one day
per month and could not possibly provide the level of rigor and
fiscal oversight necessary for such a large budget and
operation. In another instance, the EOB was not informed of an
ISO proposal to issue over $120 million in bond funding for
capital projects, until the ISO was just two weeks away from a
significant assurance of a favorable bond rating.
6) Where are consumers represented : The PUC process reimburses
parties to PUC proceedings when their testimony substantively
contributes to the proceeding. Consumer advocacy entities, such
as The Utility Reform Network (TURN) earns much of its revenue
source from its contributions to PUC proceedings. This
reorganization plan may not include a reimbursement provision
for parties that substantively contribute to a CEC proceeding.
The PUC directs and shares staff with the DRA. This
reorganization plan may not include a provision that permits the
DRA to be sequestered more from the PUC and to effectively
advocate the position of its constituents (residential and small
commercial ratepayers) without the concern of administrative
recourse. The Legislature may wish to evaluate the public
policy merits of placing DRA within the DOE.
7) The transmission siting process is a little confusing : Many
entities perform some level of transmission planning. Currently,
the ISO develops and coordinates the ISO control grid
transmission plan for the ISO control area, which encompasses
about 75% of the state's transmission grid. The ISO uses
significant input from the investor-owned utilities (IOUs) and
non-IOU transmission owners. The ISO submits the transmission
plan to the PUC for review and comments.
If the final ISO transmission plan recommends investment in
transmission infrastructure, the transmission owner requests a
certificate of public convenience and necessity (CPCN) from the
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PUC, which evaluates the projects for feasibility and necessity.
The transmission owner must also apply to the Federal Energy
Regulatory Commission (FERC) for permission to recover its costs
and FERC uses the input from the ISO to make its determination.
This reorganization plan would remove the PUC from the bulk
transmission siting process and transfer the authority to the
CEC. When reviewing the GRP, PG&E stated that most of the PUC's
General Orders allow specific protections that they would like
to preserve because it provides for a smooth siting process.
PG&E would like to ensure that any transfer of authority
includes transfer of the related General Orders.
8) Open issues : There are still many open issues that should
be reviewed and evaluated prior to passing this bill out of this
committee to provide enough time and input to craft a
responsible and thoughtful reorganization plan. The Legislature
should fully review the financial authorities provided the
Secretary to ensure appropriate checks and balances with regard
to the expenditure of public funds, and the siting authority of
the commission. In addition, the Legislature may wish to
evaluate the programmatic merits and fiscal impacts of confining
the PUC to a ratemaking body, or allowing it to continue to
administer similar programs as the DOE.
REGISTERED SUPPORT / OPPOSITION :
Support
None on file.
Opposition
None on file.
Analysis Prepared by : Gina Adams / U. & C. / (916) 319-2083