BILL ANALYSIS
AB 2561
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Date of Hearing: April 5, 2010
ASSEMBLY COMMITTEE ON UTILITIES AND COMMERCE
Steven Bradford, Chair
AB 2561 (Villines) - As Introduced: February 19, 2010
SUBJECT : Energy: commission and department.
SUMMARY : Reforms the California Energy Commission (CEC), a
state entity under the Resources Agency, into a cabinet-level
Department of Energy (DOE), and adds energy-related
responsibilities previously performed by the Electricity
Oversight Board (EOB) and the Department of Community Services
and Development (CSD). Specifically, this bill :
1)Creates a DOE headed by a Governor-appointed Secretary.
2)Renames the CEC the "California Energy Board." (The
five-member board resembles the current CEC commission.)
3)Designates the Secretary of DOE as Chair of the
California Energy Board.
4)Transfers responsibilities previously performed by the CEC, to
the DOE.
5)Within the DOE, establishes the Office of Market Oversight
with the responsibilities of the Electricity Oversight Board
(EOB).
6)Transfers the federal low-income energy assistance and
weatherization assistance programs from the Department
of Community Services and Development (CSD) to the DOE
on January 1, 2013.
7)Requires the DOE to create a legal subcommittee
comprised of the Secretary (or legal counsel) of DOE,
the Deputy Secretary of the OMO, the Attorney General,
and the President of the California Public Utilities
Commission (CPUC) to collaborate and cooperate in
developing a single statewide position on litigation
concerning energy matters within the state.
8)Repeals the California Consumer Power and Conservation
Financing Authority.
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9)Deletes obsolete statutes.
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 CPUC 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 CEC under the Resources Agency 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 (CAISO) as
a nonprofit public benefit corporation to ensure efficient use
and reliable operation of the transmission grid.
6)Establishes the EOB to ensure a reliable supply of electricity
and to 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).
FISCAL EFFECT : Unknown.
COMMENTS : The purpose of this bill is to consolidate the
state's authority for energy policy and related functions within
DOE to allow for singular statewide energy policy, and elevating
the subject of energy to cabinet-level importance.
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
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(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 CPUC.
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 made the
Secretary 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. Last year, AB 1016 (Villines) and ABX3
33 (Villines) both attempted to reorganize the energy agencies.
Nether bill made it to enrollment.
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, it was intended to be a quick fix to an immediate
problem and not intended to perpetuate.
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 two conflicting
and somewhat overlapping entities that exist today. As such,
this attempt at reorganization or consolidation, while ensuring
firewalls between legally separate entities, appears long
overdue.
According to this reorganization plan and because of the
constitutionality of the CPUC, the CPUC would continue as a
separate ratemaking body and retain all of its functions. As
such, the CPUC could continue to have an adversarial perspective
on certain issues, which may or may not benefit Californians
depending on the specific situation.
3) Improves accountability to whom : Currently, the CEC and CPUC
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can establish their own independent energy policies regardless
of the 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 CPUC). To develop
a statewide energy policy, the Secretary may or may not need to
collaborate with the CPUC. The structure proposed in this bill
appears more streamlined because one person would be held
accountable for creating the energy policy report instead of
three to four. The Secretary would be directly accountable to
the Governor and the energy policy directives should be
consistent with the Governor's policy. This reorganization plan
may not significantly change accountability to the Legislature.
The Legislature would continue to oversee and direct the
departments consistently with its current methods.
4) What about transmission siting : The investor-owned utilities
are responsible for building and owning transmission lines.
They submit their plans to the CAISO, which then develops the
statewide transmission plan. Prior to building any needed
transmission, the CPUC must issue a certificate of public
convenience and necessity (which can take 3 to 4 years), and the
transmission owner must request cost-recovery for the
transmission line from the FERC.
Absent a constitutional amendment, the Legislature is restricted
from comprehensively reforming the state's energy functions.
The State Constitution Article XII provides the CPUC the
authority to fix rates, establish rules, examine records, and
perform other judicial-type functions, for all public utilities
subject to its jurisdiction. The Constitution includes the
production, generation, transmission, or furnishing of heat,
light, water, power as public utilities. The Constitution also
provides the Legislature "?plenary power, unlimited by any other
provisions of the constitution, to confer additional authority
and jurisdiction upon the commission?." As such, the
Legislature may only evaluate or address CPUC functions that are
in state statutes.
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On June 30, 2009, when this committee held an informational
hearing on this bill, the Legislative Analyst Office (LAO)
commented, "We believe that any proposal to reorganize the
state's energy entities should explicitly address and clarify
CPUC's energy policy-making role?.we do not at this point
recommend transferring CPUC's current electricity transmission
siting authority to a new energy department?. We believe the
Legislature should address this issue comprehensively in a
manner that explicitly lays out each entity's responsibilities.
Such a policy would need to address fundamental issues such as
system wide planning, determination of system reliability,
permitting, environmental review, and the allocation of costs to
ratepayers."
To determine whether it would be programmatically more
programmatically efficient or cost-effective to consider moving
the responsibility for transmission siting to the DOE, this
committee may wish to require the DOE to develop a strategic
plan, in consultation with the PUC and CAISO, that identifies
administrative and statutory measures that preserve
environmental protections, identify any cost savings, identify
any process efficiencies, retain and encourage public
participation, provide continuity of the existing electric
transmission line siting processes, and improve the siting and
licensing process for electric transmission lines, by January 1,
2012 .
5) How soon we forget : The EOB was created during deregulation
(AB 1890, Brulte, Chapter 864, Statutes of 1996) to serve as the
Governor's oversight agency and legal enforcer. The EOB served
as an appeals board to the stakeholder boards of the
non-profits; CAISO and PX. (CAISO now has a Governor-appointed
board, and the PX filed for bankruptcy and is now defunct.)
Additional responsibilities included monitoring and auditing the
wholesale energy markets and ancillary services the CAISO
conducted to balance the grid.
The EOB, under the Governor's directives, was first to plead to
FERC for relief when the wholesale energy markets were wreaking
havoc on the utilities and the state experienced rolling
black-outs. The CPUC couldn't get the votes to intervene. The
Attorney General could only represent the state departments.
In 2003, the Legislature passed SB 920 (Bowen), which would have
abolished the EOB and transferred the non-litigation powers and
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responsibilities to the Attorney General (AG) and a successor
agency designated by the Governor. The Governor vetoed SB 920
and stated that eliminating the EOB was premature and he would
prefer to implement a comprehensive energy policy. In 2005, the
Administration submitted the plan for a comprehensive energy
policy noted in the SB 920 veto message. The plan would have
created an Energy Agency and consolidated the functions of the
EOB, along with other energy agencies, into one department.
This plan was not approved by the Legislature.
During the 2007 budget subcommittee hearings, the Administration
put forth a Finance Letter that suggested abolishing the EOB.
Both houses' budget subcommittees denied the request and fully
funded the EOB. Regardless, the signing message in the budget
bill decreased the appropriation to a level that was
unsustainable and left the EOB unfunded.
This bill would reestablish the EOB as an Office of Market
Oversight. The CAISO is concerned that market conditions have
changed and some of the roles of the EOB may not be necessary as
a separate office. The CAISO recommends providing the
responsibility directly to the Secretary of DOE. The CAISO
proposed allowing the Secretary to allocate resources he or she
deems appropriate to carry out the provisions of the statute
including the creation of an office or division. The CAISO
amendments would preserve the existing authorities granted to
the EOB.
Since the 2000-2001 electricity crisis, AB 380 (Nu?ez) Chapter
367, Statutes of 2005, instituted the resource adequacy program
which has reduced the reliance on the CAISO spot markets. The
FERC and the CAISO have instituted measures to ensure that
wholesale electricity markets are working efficiently and are
independently monitored by the CAISO Department of Market
Monitoring. The CAISO spot-market and ancillary services
markets contribute to just 3% to 5% of the electricity scheduled
through the CAISO. When the EOB operated, the spot and
ancillary services markets consisted of about 11% - 15% of the
state's electricity. Peak demand in the CAISO service territory
this time of year is only around 27,000 MW. During the summer
months it can reach up to 55,000 or 60,000 MW. Three to five
percent would equate to about 1,650 to 2,750 MW.
RECOMMENDED AMENDMENTS :
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The committee may wish to take the following that are technical
in nature:
1)Fix language related to the provisions that transfer the CSD
energy-related programs over to the new Department of Energy.
2)Remove superfluous language relating to the Office of Market
Oversight's "oversight and appeals authority" over the CAISO
governing board.
3)Make conforming changes to the AB 118 Program, which is
located in the Health and Safety Code sections in which the
current Energy Commission administers (i.e. replace "Energy
Commission" with "Department of Energy" or "Energy Board").
4)Remove a reference to the defunct Electricity Oversight Board
from the Public Resources Code.
5)Require the DOE, in cooperation with the PUC and CAISO, that
identifies administrative and statutory measures that preserve
environmental protections, identify any cost savings, identify
any process efficiencies, retain and encourage public
participation, provide continuity of the existing electric
transmission line siting processes, and improve the siting and
licensing process for electric transmission lines, by January
1, 2012.
REGISTERED SUPPORT / OPPOSITION :
Support
Building Owners and Managers Association of California
California Apartment Association
California Building Industry Association
California Business Properties Association
California Chamber of Commerce
California Forestry Association
California Taxpayers Association
International Council of Shopping Centers
National Association of Industrial and Office Properties,
California Council
Pacific Gas and Electric Company (PG&E)
Southern California Edison (SCE)
Opposition
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None on file.
Analysis Prepared by : Gina Adams / U. & C. / (916) 319-2083