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The New Energy Governor 

Arnold needs to get cracking on the state’s looming crisis

Thursday, Apr 8 2004
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Gray Davis had a very appropriate story to tell. The former governor was in Sacramento last month to be feted by the state’s environmental groups for having signed into law an impressive array of environmental bills. He recalled an incident during his days with former Governor Jerry Brown as his chief of staff.

“Jerry and I had gotten a law passed we thought was very important. We got a lot of press for it. A year later I called the head of the agency to see how its implementation was going. ‘What bill?’ he said. Nothing was happening. We thought we’d made change,” said Davis, to the nervous laughter of the assembled greens. “Remember,” said Davis, “there are no final victories.”

This is an example and an admonition that, as it happens, applies to one of Davis’ accomplishments that had some of the more exuberant environmental leaders lauding him as the best environmental governor in California history. In 2002, Davis helped lobby through and signed into law the most expansive renewable-energy requirement in America. But today, that law lags alarmingly, even as new Governor Arnold Schwarzenegger calls for an even greater commitment to renewable power and even as discord on energy and environmental policy within his own administration becomes apparent.

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California’s landmark renewable portfolio standard requires a near doubling of the state’s use of renewable

energy resources such as wind, solar, geothermal and biomass to 20 percent of the electric-power mix by 2017. Echoing Schwarzenegger’s call, which the governor discussed with me last summer before he announced his candidacy, the state’s Public Utilities Commission, the lead agency on the

renewable portfolio standard, has agreed to accelerate that doubling to 2010.

But nearly two years after its passage, little progress has been made in enacting the law that began as SB 1078, authored by Senator Byron Sher (D–Palo Alto). And time is getting shorter. The Public Utilities Commission, headed by former Southern California Edison president Michael Peevey, who is also the lead commissioner on the renewable requirement, is not ready for a first round of utility solicitations for renewable power in June. Peevey did not return calls for comment on the issue.

Energy is coming back big-time as a major issue. We see it at the gas pump, we saw it with a Stage 1 power alert last week. Indeed, “Energy will be the next big thing,” says Schwarzenegger, after workers’-compensation reform and, of course, the budget crisis.

 

Energy was never solved in California; the media and politicians lost interest after the electric-power crisis of 2001 passed. But supply problems were not solved, with many of the new power plants touted by Davis falling by the wayside. We had piecemeal solutions that left the overall shape of the electric-power market unsettled, that enshrined good intentions as state policy without actually fulfilling them. Meanwhile, there is a looming crisis of price and supply with natural gas, the principal fuel of California’s electric-power market, and a looming controversy over the potential importation of liquefied natural gas, which the city of Vallejo just rejected. If the California energy market is flooded with imported gas, which the PUC is considering, that could destroy incentives for renewable energy.

The Legislature is rudderless on energy, with new Assembly Speaker Fabian Nunez carrying a bill on the shape of electric-power markets written for him by Edison. Schwarzenegger’s team is still making its way, with internal discord over a free-market approach with state mandates (in accordance with the action superstar’s insistence on a big commitment to renewable energy) and a hybrid approach with regulation.

According to environmental sources, Edison has been the prime mover in putting up roadblocks to the renewable portfolio standard. Edison environmental-policy director Michael Hertel did not respond to calls or e-mail seeking comment on the issue. Edison was the worst of the big utilities in the fight to pass the renewable requirement and was notorious with renewable-power generators as a frequently slow and reluctant payer for their power. The author of the renewable portfolio standard, Senator Sher, has been concerned about the slow pace of progress. Such issues as pricing, utility power projections, the language of renewable-power contracts, and transmission remain unresolved.

One telling internal struggle in the Schwarzenegger administration may end up doing good for the renewable requirement. A seat on the state Energy Commission is up, and the conventional Republicans around Schwarzenegger, notably chief of staff Pat Clarey, pushed hard for a moderate, while others, notably senior adviser Bonnie Reiss, pushed hard for an environmentalist. The conventional Republicans appear to have won this one. But as a compromise, the environmentalist is likely to be named the liaison from the Governor’s Office to the PUC to oversee the renewable-power mandate, which could be a much more important post.

Although Schwarzenegger has not focused on energy politics yet, though he says it’s his next big thing, that may turn out to be a harbinger for his approach on the overall shape of the market: soothe and service the center and business community while inserting elements of regulation and environmentalism into the mix.

Which still leaves enormous questions about the marketplace itself unanswered. Schwarzenegger says he wants more of a free market on energy, continuing the move away from the old regulated-monopoly-utility model to encourage investment, which has stalled, and to reduce energy costs for businesses, which cite California’s higher rates as one of their most serious problems. But without some form of regulation, that could bring California right back to the crisis of 2001. The old regulated-utility model brought consistency and some of the highest prices in the country. The first stab at deregulation prompted chaos, market manipulation and even higher prices.

One thing that is certain is a Schwarzenegger attempt to do “the big reorg,” as officials call it. State Finance Director Donna Arduin notes, “There is tremendous overlap with the energy agencies. We need to reorganize all this and make it much more efficient.” Indeed, California has something of an alphabet soup on energy, with a Public Utilities Commission, an Energy Commission, a Power Authority and a Department of Water Resources, all of which have had major sway over energy policy in recent years. Davis had wanted to conduct his own reorganization, but nothing was really decided after the electric-power crisis of 2001 as the state simply lurched into the next crisis.

 

But as yet there is no point person in the Governor’s Office on energy. In the early go-rounds on energy policy, Clarey and Reiss have sometimes been at odds. Clarey, a deputy campaign manager in Schwarzenegger’s effort last year, was an important administrator but not part of the campaign’s top strategy group. A former health-maintenance-organization executive who worked as deputy chief of staff to Governor Pete Wilson under Wilson chief of staff (and later Schwarzenegger campaign manager) Bob White, Clarey is a fairly conventional Republican whose bid for the chief-of-staff spot was probably aided by Schwarzenegger’s groping controversy. She was reportedly against Schwarzenegger’s appointment of highly regarded environmentalist Terry Tamminen, the ex–Mr. Universe’s personal choice as his chief environmental adviser in the campaign, as secretary of environmental protection.

Reiss, in contrast, pushed hard for Tamminen, whom environmentalists laud for, among other things, keeping on highly regarded Air Resources Board chief Alan Lloyd, whom others wanted to get rid of. Reiss is a Democrat, a longtime friend and key campaign confidante of Schwarzenegger and Maria Shriver, a former top executive with his afterschool program and a top environmentalist in the entertainment industry. She told the Weekly on election night that she would not be going into the government. That changed when Schwarzenegger made it clear he needed at least a few people around him in the Governor’s Office who actually knew him.

While the identity of Schwarzenegger’s full-time staffer

on energy policy will be important, in the end the chief action officer on the issues he deems most important is Arnold Schwarzenegger, as legislators dealing with workers’

compensation and other hot-button issues have learned.

His enthusiasm for at least the renewable-energy piece of the puzzle was palpable last week when he stepped away from

negotiations on workers’-comp reform for a moment to join Tamminen in unveiling a new hybrid delivery truck that the new administration helped develop.

“Arnold can be the best environmental governor California has ever had,” declared his former rival Gray Davis to the

environmentalists lauding his own record as governor. “I know that he wants to be. Push him like you did me to make sure

that he is.”

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