Mark Stout Masters Project, May 1997

Energy and Resources Group Master’s Project

Mark Stout 5/5/997

Comparative Power Analysis of the California Electric Utility Industry Deregulation Process

“The Electric utility is changing. But unlike the evolution of species, conscious collective choice can influence the evolutionary drift of the industry.” Rodney E. Stevenson and David W. Penn (1995)

Table of Contents INTRODUCTION................................................................................................................................................ 4 OBJECTIVES ...................................................................................................................................................... 5 METHODOLOGY .............................................................................................................................................. 5 HISTORY OF ELECTRIC UTILITY INDUSTRY REGULATION................................................................. 8 THE BIRTH OF STATE PUBLIC UTILITY COMMISSIONS................................................................................................ 8 FEDERAL POWER ACT OF 1935................................................................................................................................. 9 PUBLIC UTILITY HOLDING COMPANY ACT OF 1935................................................................................................... 9 PUBLIC UTILITY REGULATORY POLICIES ACT OF 1978 ............................................................................................ 10 ENERGY POLICY ACT OF 1992 ............................................................................................................................... 10 CPUC “BLUE BOOK” PROPOSAL............................................................................................................................ 12 FERC MEGANOPR .............................................................................................................................................. 13 CPUC MAY 1995 DRAFT PROPOSALS AND STAKEHOLDER RESPONSES .................................................................... 14 CPUC DECEMBER 1995 DECISION AND CALIFORNIA ASSEMBLY BILL 1890............................................................. 17 RECENT STATE AND FEDERAL ACTIVITY ................................................................................................................ 20 FACTORS BEHIND THE DRIVE FOR DEREGULATION........................................................................... 21 LARGE CONSUMER PRESSURE ................................................................................................................................ 21 TECHNOLOGY ....................................................................................................................................................... 23 ECONOMIC RENT ................................................................................................................................................... 23 ACADEMICS & IDEOLOGUES .................................................................................................................................. 23 EXISTING COMPETITIVE FORCES ............................................................................................................................ 24 OTHER INDUSTRIES AND COUNTRIES ...................................................................................................................... 24 FEDERAL REGULATORY POLICY ............................................................................................................................. 24 STATE REGULATORY POLICY ................................................................................................................................. 26 ANALYSIS ......................................................................................................................................................... 27 SELECTION OF STAKEHOLDER GROUPS ................................................................................................................... 29 OVERVIEW OF WHAT THE STAKEHOLDERS WANTED AND WHAT THEY GOT ............................................................. 29 STAKEHOLDER INTERVIEWS CLUSTER ANALYSIS .................................................................................................... 36 OFFICEHOLDER STAFF INTERVIEWS ........................................................................................................................ 40 Officeholder Staff Comments on Who Got What They Wanted and Why:.......................................................... 41 Synthesis of Stakeholder & Staff Comments on Who Prevailed, and Why:........................................................ 43

ERG Master’s Project

Mark Stout

1

Officeholder Staff Comments on Who Got Rolled Over, and Why: ................................................................... 44 Synthesis of Stakeholder & Staff Comments on Who Got Rolled, and Why:...................................................... 46 RESTRUCTURING STAKEHOLDER CAMPAIGN CONTRIBUTION/GIFT ANALYSIS ........................................................... 52 CONCLUSION................................................................................................................................................... 60 BIBLIOGRAPHY .............................................................................................................................................. 61 APPENDIX A: SEMI-STRUCTURED INTERVIEW QUESTIONS............................................................... 66 STAKEHOLDER INTERVIEWS ................................................................................................................................... 66 OFFICEHOLDER STAFF INTERVIEWS ........................................................................................................................ 66 APPENDIX B: STAKEHOLDER INTERVIEWS............................................................................................ 67 INVESTOR-OWNED ELECTRIC UTILITIES ................................................................................................................. 67 Pacific Gas & Electric..................................................................................................................................... 67 San Diego Gas and Electric ............................................................................................................................ 70 Southern California Edison ............................................................................................................................. 74 MUNICIPAL ELECTRIC UTILITIES ............................................................................................................................ 76 California Municipal Utilities Association - Interview #1 ................................................................................ 76 California Municipal Utilities Association - Interview #2 ................................................................................ 79 Sacramento Municipal Utility District ............................................................................................................. 80 UTILITY LABOR UNIONS ........................................................................................................................................ 85 Coalition of California Utility Employees - Interview #1 ................................................................................. 85 Coalition of California Utility Employees - Interview #2 ................................................................................. 86 INDEPENDENT PRODUCERS .................................................................................................................................... 88 American Wind Energy Association................................................................................................................. 88 Independent Energy Producers........................................................................................................................ 92 LARGE ELECTRICITY CONSUMERS .......................................................................................................................... 96 Agricultural Energy Consumers Association.................................................................................................... 96 California Industrial Users.............................................................................................................................. 98 California Large Energy Consumers Association - Interview #1 .................................................................... 102 California Large Energy Consumers Association - Interview #2 .................................................................... 104 California Manufacturers Association ........................................................................................................... 107 SMALL ELECTRICITY CONSUMERS........................................................................................................................ 111 Latino Issues Forum ...................................................................................................................................... 111 The Utility Reform Network ........................................................................................................................... 114 ENVIRONMENTAL ADVOCATES ............................................................................................................................ 119 Environmental Defense Fund ........................................................................................................................ 119 Natural Resources Defense Council - Interview #1 ........................................................................................ 122 Natural Resources Defense Council - Interview #2 ........................................................................................ 125 Sierra Club/Center for Energy Efficiency and Renewable Technologies ........................................................ 127 Union of Concerned Scientists....................................................................................................................... 133 STATE INSTITUTIONS ........................................................................................................................................... 137 California Energy Commission...................................................................................................................... 137 University of California, California Institute for Energy Efficiency ............................................................... 141 ANONYMOUS STAKEHOLDER COMMENTS ............................................................................................................. 144 Anonymous Comments #1: Parties who could have improved their performance ........................................... 144 Anonymous Comments #2: AB 1890 funding levels for Public Interest RD&D............................................... 144 APPENDIX C: OFFICEHOLDER STAFF INTERVIEWS ........................................................................... 146 California Public Utilities Commission ......................................................................................................... 146 Legislative Conference Committee, Office of Senator Steve Peace ................................................................ 148 Legislative Conference Committee, Office of Senator Byron Sher.................................................................. 152 Legislative Conference Committee, Office of Senator Bill Leonard ............................................................... 153

ERG Master’s Project

Mark Stout

2

Anonymous Officeholder Staff Interview #1 ................................................................................................... 155 Anonymous Officeholder Staff Interview #2 ................................................................................................... 156 APPENDIX D: CLUSTER ANALYSIS OF STAKEHOLDER INTERVIEW DATA................................... 159 APPENDIX E: RESTRUCTURING STAKEHOLDER CAMPAIGN CONTRIBUTION/GIFT ANALYSIS DETAIL............................................................................................................................................................ 162 Table 1: Assemblymember Jim Brulte, 1995 Campaign Contributions........................................................... 162 Table 2: Assemblymember Jim Brulte, 1996 Campaign Contributions........................................................... 163 1995/1996 Stakeholder Gift Information for Assemblymember Jim Brulte ..................................................... 164 Table 3: Senator Steve Peace, 1995 Campaign Contributions ....................................................................... 164 Table 4: Senator Steve Peace, 1996 Campaign Contributions ....................................................................... 165 1995/1996 Stakeholder Gift Information for Senator Steve Peace.................................................................. 166 Table 5: Senator Byron Sher, 1995 Campaign Contributions......................................................................... 166 Table 6: Senator Byron Sher, 1996 Campaign Contributions......................................................................... 166 1995/1996 Stakeholder Gift Information for Senator Byron Sher................................................................... 170 Table 7: Senator Bill Leonard, 1995 Campaign Contributions ...................................................................... 170 Table 8: Senator Bill Leonard, 1996 Campaign Contributions ...................................................................... 171 1995/1996 Stakeholder Gift Information for Senator Bill Leonard................................................................. 171 Table 9: Assemblymember Mickey Conroy, 1995 Campaign Contributions.................................................... 172 Table 10: Assemblymember Mickey Conroy, 1996 Campaign Contributions.................................................. 173 1995/1996 Stakeholder Gift Information for Assemblymember Mickey Conroy.............................................. 173 Table 11: Assemblymember Diane Martinez, 1995 Campaign Contributions ................................................. 175 Table 12: Assemblymember Diane Martinez, 1996 Campaign Contributions ................................................. 176 Table 13: Assemblymember Steve Kuykendall, 1995 Campaign Contributions............................................... 177 1995/1996 Stakeholder Gift Information for Assemblymember Diane Martinez ............................................. 177 Table 14: Assemblymember Steve Kuykendall, 1996 Campaign Contributions............................................... 178 1995/1996 Stakeholder Gift Information for Assemblymember Steve Kuykendall........................................... 178 1994/1995 Stakeholder Gift Information for CPUC President Daniel Fessler................................................ 179 1994/1995 Stakeholder Gift Information for Commissioner Gregory Conlon ................................................. 181 1994/1995 Stakeholder Gift Information for Commissioner Jesse Knight, Jr. ................................................ 181 1994/1995 Stakeholder Gift Information for Commissioner Norm Shumway .................................................. 181 1994/1995 Stakeholder Gift Information for Commissioner Josiah Neeper .................................................... 181 1994/1995 Stakeholder Gift Information for Commissioner Henry Duque ..................................................... 181

ERG Master’s Project

Mark Stout

3

Introduction On September 23, 1996, Governor Pete Wilson signed into law California Assembly Bill 1890 (AB 1890), which sets in motion a process of electric utility deregulation beginning in 1998. This bill is an important milestone in an ongoing process towards electric utility deregulation in California. California electric utilities have a combined annual revenue of roughly $23 billion dollars1, selling 250 billion kWh of electricity per year2, a product with well documented environmental impacts including local air pollution, acid rain and climate change.3 According to the Environmental Defense Fund, fossil fuel-based electricity generation is currently the largest source of greenhouse gas emissions and the largest source of air pollution in the U.S.4 Given the stakes involved with this industry, there will probably be significant winners and losers as a result of this legislation. The vision of electric utility deregulation legislated in AB 1890 is significantly different from that contained in the California Public Utility Commission’s (CPUC) December, 1995 Electric Restructuring Decision, which will be superseded to a great extent by the details of AB 1890. Various stakeholder groups, representing a spectrum of private and public interests attempted to influence both the CPUC and legislative processes, with varying success. This paper develops a comparison of which stakeholder groups got what they wanted, and why, contrasting the results of CPUC process resulting in their December, 1995 Decision with the California legislative process resulting in AB 1890.

1

CPUC RD&D Working Group, 1996 California Energy Commission, 1995 3 Flavin and Lenssen, 1994 4 WWW page: http://www.edf.org/programs/Energy/green_power/a_better.html 2

ERG Master’s Project

Mark Stout

4

Objectives •

Evaluate which stakeholder groups got what they wanted: Each stakeholder group influencing the process pursued policy outcomes that they felt were in their self-interest. This paper determines which groups had their requests granted, and which had their requests ignored, looking at both the language of AB 1890, as well as the CPUC December, 1995 decision. Groups that fared better in one arena than the other are highlighted.

•

Determine why or why not a stakeholder group was successful in getting what they wanted out of each policy process: In many cases, interest groups were able to influence outcomes in the legislative and/or CPUC forums through well reasoned comment filings, direct lobbying, campaign contributions, as well as other avenues. This paper explores what mechanisms the different interest groups used to influence these policy outcomes, contrasting differences in techniques applied between the Legislature and CPUC, focusing on whether each decision making body or individual had particular avenues that were most effective.

Methodology In order to answer the questions of which stakeholder groups got what they wanted and why, I based my research on an analysis of three categories of data: 1) background utility regulation literature, 2) semi-structured interviews with stakeholders as well as CPUC and legislative staff, and 3) archival analysis of CPUC filings, legislative language and videos, and state officeholder filings. Rather than approaching the data with a hypothesis to verify, I compare and cluster the data to allow patterns to flow out that can then generate theories. I compare the CPUC and legislative policy processes, determining similarities and differences in how each party fared in each forum, as well as why each party fared as they did. This data-driven approach to the generation of theory is based on the work of Glaser and Strauss, who contrast the use of data to

ERG Master’s Project

Mark Stout

5

generate grounded theory with the use of data to verify logico-deductive theory.5 Below I describe the use of each of these data types. Background literature on electric utility regulation is used to provide a historical context for California’s electric utility deregulation, which is presented in the next two sections of this report, History of Electric Utility Industry Regulation and Factors Behind the Drive for Deregulation. Semi-structured interviews were conducted with 26 representatives of different stakeholder organizations. The semi-structured format allows flexibility in altering the flow of the interview, following up on interesting points as they arise. I selected an initial set of organizations to contact, trying to cover as wide a spectrum of stakeholder groups as possible, based on my experience representing a stakeholder organization on the issue of electric utility deregulation in the CPUC and legislative arenas. Most interviews were conducted in person, while several where over the phone. As I conducted interviews, subjects referred me to additional representatives to contact, both in their organizations as well as in others.

An interview guide was used for

recording notes, which were typed up later. Questions were developed for the interview guide to determine for each organization what outcomes were sought, what outcomes were obtained in each of the policy decisions, and what methods and strategies were used to influence each policy decision.

A list of questions for the semi-structured stakeholder interviews is included in

Appendix A. A full transcript of these interviews is included in Appendix B. These interview subjects are clustered into the following categories for analysis: investor-owned electric utilities, municipal electric utilities, utility labor unions, independent producers, large electricity consumers,

5

Glaser and Strauss, 1967, Glaser, 1978.

ERG Master’s Project

Mark Stout

6

small electricity consumers, environmental advocates, and state institutions. The organizations represented by each interview subject are listed, by category, in the Table of Contents for Appendix B. Semi-structured interviews were conducted with two staff of the CPUC and three staff of members of the legislative Conference Committee on Electric Industry Restructuring.

An

interview guide was used, with questions developed to determine which stakeholder organizations were perceived by the staff as being most effective in influencing the respective policy outcome, and why; which stakeholder organizations were perceived as being able to set the terms of the debate, and why; as well as which stakeholder organizations were perceived as least effective in influencing that policy outcome, and why. A list of questions for the semi-structured officeholder staff interviews is included in Appendix A. A full transcript of these interviews is included in Appendix C. Finally, an archival analysis was performed on the CPUC formal filings, Fair Political Practices Commission records, Secretary of State Political Reform Division records, proposed and final legislative language, as well as legislative conference committee videos. The CPUC filings can be used to cross-check what each major interested party had originally requested from the process, tracking how that may change over time, as well as to determine policy outcomes from the CPUC. The California Fair Political Practices Commission archives an annual Statement of Economic Interest for each state office holder. The EIS forms for the CPUC Commissioners and Conference Committee members were examined to determine which organizations used trips, events, meals, and other gifts to gain access to decision makers. The California Secretary of State Political Reform Division keeps Officeholder, Candidate, and Controlled Committee Campaign Statements on file for each elected state officeholder and candidate. These Statements were ERG Master’s Project

Mark Stout

7

examined to track campaign contributions to the legislative Conference Committee members. The Division’s March, 1997 report on Lobbying Expenditures and the Top 100 Lobbying Firms6 also gives a big-picture view of overall lobbying expenditures by stakeholders. Proposed AB 1890 language was examined to get a flavor for who was making proposals, and how much of it was getting incorporated into the final AB 1890 language. The legislative Conference Committee videos were used to gain insights into the dynamics of this public hearing process, cross-check interview impressions, and experience the witty banter between Senators Steve Peace and Bill Leonard.

History of Electric Utility Industry Regulation Before examining which stakeholder groups were able to influence the California electric utility deregulation process, a historical look at Federal and state electric utility regulation is in order.

The Birth of State Public Utility Commissions Electric utilities have been considered natural monopolies over most of this century, due to decreasing marginal costs and the savings gained by avoiding redundant distribution networks. However, they were not always viewed this way, as Davis explains: “Prior to World War I, most cities believed regulation was superfluous. Competition could keep prices down. Cities would grant multiple franchises to electricity companies... The result was not healthy competition keeping down the consumer’s bill, but many weak companies that were soon bought out by a strong one, thus leading to a monopoly. In the face of this trend local governments began to view

6

California Secretary of State, March, 1997.

ERG Master’s Project

Mark Stout

8

utilities as natural monopolies and hence inevitable. This being the case the best solution seemed to be regulation by public commission.” The early 1900s were marked by the rapid increase in electric utility regulation by state public utility commissions (PUCs) to address this natural monopoly character. Beginning in 1907 with New York and Wisconsin, by 1922 47 states and the District of Columbia were regulating electric utilities.7

Federal Power Act of 1935 The growing interconnection of local utilities in interstate grids, with at least 20% of electricity crossing state lines in 1935, led to the passage of the Federal Power Act. Based on the Interstate Commerce Clause, this act expanded the role of the Federal Power Commission to regulate wholesale electric transfers.8

Public Utility Holding Company Act of 1935 In order to establish market power which would otherwise have been illegal under antitrust law, electric utilities developed a pyramid scheme based on holding companies that was effective at obscuring market dominance. Hempling explains, “Before passage of the Public Utility Holding Company Act of 1935 (PUHCA), a small number of holding companies owned most utilities in the United States. A number of these holding companies owned, or were owned by, large nonutility companies such as electric equipment contractors.

State and Federal

regulation of rates and securities failed to keep up with sophisticated holding company attempts to evade regulation.” This legislation sought to avoid market abuses by limiting the size and

7

Davis, 166-167.

ERG Master’s Project

Mark Stout

9

investment options of utilities so that each was confined in scope to an “integrated public-utility system.”910

Public Utility Regulatory Policies Act of 1978 Passed by Congress as part of President Carter’s National Energy Plan, PURPA aimed to set standards for state PUC ratemaking that would promote energy savings and be partial to residential consumers over industrial consumers. It also opened the door for more widespread wholesale competition by requiring that regulated utilities purchase power from Independent Power Producers (IPPs) classified as Qualifying Facilities (QFs) at avoided cost. In capacity constrained systems, this was the marginal cost associated with procuring new generation capacity. Qualifying Facilities were primarily cogeneration and small renewable energy electricity producers. PURPA was very significant in creating a market for non-traditional generators. The Federal Energy Regulatory Commission (FERC), recent successor to the FPC, was charged with writing the rules required to implement this legislation.11

Energy Policy Act of 1992 EPAct continued the Federal trend, started by PURPA, towards more competition in electricity generation. This legislation allowed FERC to order utilities to provide transmission access at non-discriminatory rates, which is critical for wholesale competition. It also created new

8

Pechman, 17. Hempling, 343. 10 Davis, 166-167. 11 Pechman, 16. 9

ERG Master’s Project

Mark Stout

10

classes of IPPs including Exempt Wholesale Generators, allowing larger generation plants to be exempt from traditional regulation.12 While encouraging wholesale competition, EPAct also aimed to level the playing field for supply-side and demand-side (energy efficiency) resource options. Energy efficiency is often underinvested in due to the high transaction costs of decentralized customer decisions, inadequate information available to customers,13 and the transient nature of short term building owners and renters. These lead to what the National Association of Regulatory Commissioners calls the “payback gap”: substantially higher rate of return expectations for energy efficiency measures compared to supply-side investments. 14 Also, regulated utilities were discouraged from pursuing demand-side resources because of a profit structure that was directly linked to the amount of energy sold. One prominent utility regulator remarked on the situation that had developed in the 1980s: “In the current scheme of regulation, utilities make money in only one way--selling [units of energy]. Utilities lose money when customers engage in conservation. They likewise lose money when the encourage customers to engage in conservation. This money-losing proposition is not significantly improved by any of the conservation cost recovery or incentive mechanisms now in use.”15 EPAct attempts to correct this supply-side/demand-side imbalance by encouraging state Public Utility Commissions to consider, “1) implementing Integrated Resource Planning (IRP), which compares supply- and demand-side options systematically when seeking least-cost energy

12

Stevenson, “Discretionary Evolution...”, 356. Stevenson, “Social Goals...” 407. 14 Cavanagh, “Energy Efficiency Solutions...” 521. 15 Cavanagh, “Global Warming and Least-Cost...” 356-357. 13

ERG Master’s Project

Mark Stout

11

supplies, 2) providing cost recovery for energy efficiency programs that are at least as profitable as supply side measures, and 3) rate changes to encourage efficiency and distribution of power.”16

CPUC “Blue Book” Proposal California’s Public Utility Commission is widely viewed as a trend-setter for state PUC electric utility regulation. In April of 1994, the CPUC issued a staff proposal regarding electric utility deregulation known as the “Blue Book”, sending “a shockwave through the electric industry”.17 A security analyst noted that the release of the Blue Book will: speed up the deregulation of the industry, especially since the California regulators have been considered in the past to be one of the leading regulatory commissions and many states have followed their recommendations.18 The proposed deregulated electricity market would allow individual customers to choose their electricity generation supplier using bilateral contracts in a system known as retail wheeling or direct access. This utility restructuring involves the divestiture of utility electricity generation facilities into separate companies from the original utility which would still be responsible for transmission and perhaps distribution. These generation companies would then compete with Independent Power Producers (IPPs) to provide power to a central electricity grid operator based on a combination of pool-based wholesale competition as well as direct contracts with individual customers. The Blue Book laid out an aggressive, customer class-staged schedule for direct access implementation, with large, industrial customers taking power at the transmission level eligible on January 1, 1996, all commercial customers eligible January 1, 1999, and if successful, all residential consumers eligible on January 1, 2002. A more definitive policy statement was

16

Haddad, 6. Hoffman, 55. 18 Mydans. 17

ERG Master’s Project

Mark Stout

12

scheduled to be issued by the CPUC in August of 1994.19

Since the release of the Blue Book

proposal, numerous other states have also proposed electric utility deregulation.20 Many stakeholders, including private and public-interest organizations, were concerned about the content and timetable of this proposal. For instance, environmental organizations were frightened by the Commission’s decision to move away from the current IRP process and mechanism for decoupling utility profits from sales volumes. In their place, the CPUC proposed, “alternative frameworks based on ‘let the market decide’”, such as “green pricing”, where customers voluntarily pay more to promote renewables, and asserted that, “a vibrant market exists for energy efficiency services”.21

This stakeholder response, coupled with a lack of prior

coordination with the state Legislature, prompted the Assembly Committee on Utilities and Commerce and the Assembly Committee on Natural Resources to hold a joint oversight hearing on May 23, 1994, where CPUC President Fessler and Commissioner Knight testified on their proposal. This led to the passage of Assembly Concurrent Resolution 143, which requires the CPUC to engage in a series of public hearings, evidentiary hearings, and documentation resulting in a report back to the Governor and Legislature by January 31, 1995. This process tempered the CPUC’s frenetic timetable, pushing back their goal for a policy decision until September of 1995.22

FERC MegaNOPR In March of 1995, FERC released a dual-issue Notice of Proposed Rulemaking, which had been dubbed the MegaNOPR. The first issue addressed open access to the transmission system

19

CPUC, 1994, Blue Book. Wagner, 1. 21 CPUC, 1994, Blue Book, 1995, Status Report. 20

ERG Master’s Project

Mark Stout

13

for wholesale transactions, forcing utilities to allow non-utility generators to use their transmission systems on a “comparable basis” at standard tariffs, meaning the utilities could not discriminate against other electricity suppliers. The MegaNOPR also granted utilities the ability to collect 100% of their stranded costs due to wholesale transactions. Stranded costs are past investments rendered uneconomic (market value less than book value) by the competition brought about through deregulation. Although stranded costs due to wholesale competition would be much smaller then those posed by retail competition, some thought the MegaNOPR ruling may set a precedent for 100% stranded cost recovery at the retail level, which is usually considered state jurisdiction.23

CPUC May 1995 Draft Proposals and Stakeholder Responses As a result of the Blue Book CPUC staff proposal, in May of 1995, the California Commissioners released two draft proposals for pursuing rate deregulation in California. The majority proposal known as PoolCo, favored by CPUC President Fessler and two other Commissioners, is based on a common wholesale power pool, scheduled and dispatched by an independent system operator (ISO). Generators are scheduled into the pool based on time-based bids submitted to the ISO. A common price for all electricity in the state would then be set by the market clearing price based on the bids. All power purchases would be made through the pool. Retail contracts with a particular generator could be handled with separate “contracts for differences”.24

22

CPUC, 1995, Status Report. Asmus and Smeloff, 1997. 24 CPUC PoolCo Proposal 23

ERG Master’s Project

Mark Stout

14

Commissioner Knight’s alternate proposal is based on direct access contracts between generators and customers.

No central entity would schedule power generation, although

generators would submit projections to an independent system operator (OPCO), who is responsible for maintaining transmission system reliability. Prices would be determined either through bilateral contracts between direct access customers and generators, or through the creation of optional pools which could manage bids in a manner similar to the PoolCo proposal.25 In response to the Commissioner proposals, a group of seemingly influential special interests, Southern California Edison Company (one of three regulated, investor owned utilities in California), California Manufacturers Association, California Large Energy Consumers Association, and Independent Energy Producers, at the prompting of California Governor Pete Wilson, met to iron out differences between them and draft their own industry restructuring proposal, know as the “Memorandum of Understanding” (MOU). In structure, it is a hybrid of the two proposals, including bilateral contracts for direct access customers, as well as a central, wholesale pool. Bids for generation into the pool would be processed by a Power Exchange (PX), and the actual generation scheduling and dispatch decisions would be made by a separate Independent System Operator based on transactions mediated by the PX as well as direct access contracts. Full stranded cost recovery is agreed to for Edison, the only IOU signing the MOU. The MOU also proposed a nonbypassable charge to fund public policy programs. Out of this surcharge, funding levels for energy efficiency, renewables, and R&D were not to exceed 3.3% of total utility revenue requirements as of January 1, 1995, low-income ratepayer assistance would be funded at an uncapped, as-needed basis, and low-income weatherization would be funded at

25

CPUC Direct Access Proposal

ERG Master’s Project

Mark Stout

15

1995 levels.26 The CPUC held a full-panel hearing to focus on the details of the MOU in September of 1995.27 Outraged that they had been left out of the MOU negotiating process, and at the level of attention given to the MOU, a coalition of public interest groups and renewable energy advocates, including NRDC, EDF, UCS, Utilities Consumer Action Network, and Towards Utility Rate Normalization (TURN) submitted a “Framework for Restructuring in the Public Interest” to the CPUC. The Framework, as a response to the MOU, does not actually propose a specific electric utility industry structure, but spells out a set of public interest concerns that should be addressed by any industry restructuring including mitigation of market power; small customer equity; continuation of low income programs; and continued progress for energy efficiency and renewable resources.

The Framework calls for less than 100% stranded cost recovery, with utility

shareholders accepting some of the burden for past, uneconomic investments. By combining this with effective Performance Based Ratemaking, (PBR), the Framework demands that each individual utility customer, including residential and small commercial consumers, should see short and long term rate reductions.

The Framework calls for equitable opportunities for small

consumer participation in any move to allow direct access. To enhance energy efficiency efforts, a new mechanism is to be developed, in the spirit of the existing Electric Revenue Adjustment Mechanism (ERAM), to decouple utility profits from sales volume.

A minimum level of

renewables is proposed for each IOU supply portfolio to return the states resource diversity to 1993 levels. As in the MOU, a non-bypassable systems benefits charge is proposed, but with increased funding levels to restore energy efficiency and R&D spending at pre-Blue Book levels,

26 27

MOU Parties, 1995. Framework Parties, 1995.

ERG Master’s Project

Mark Stout

16

expand renewables development above 1993 levels while commercializing new renewable energy technologies, and allow for uncapped low-income programs.28

CPUC December 1995 Decision and California Assembly Bill 1890 Building on their previous proposals and stakeholder input, the CPUC released a policy decision on December 20, 1995 which laid out a more defined vision of a deregulated ut ility environment, with several key implementation areas to be hammered out by stakeholder working groups. The December Decision mirrored the market structure defined in the MOU, based on a wholesale Power Exchange, bilateral, direct access contracts, and an Independent System Operator centrally controlling California’s transmission system. The Decision called for 100% stranded cost recovery by IOUs over a five year period, through a Competitive Transition Charge (CTC), coupled with an IOU rate cap at January 1, 1996 levels. The Decision also called for the voluntary divestiture of 50% of fossil fuel generation plant owned by the two largest IOUs, PG&E (Pacific Gas and Electric) and SCE, with financial incentives tied to the level of divestiture. For public purpose programs, the Decision proposed a nonbypassable “public goods charge” (PGC), as well as a “minimum renewables purchase requirement”. Aside from funding levels for low-income rate discounts, which should, “be based on need”, the Decision does not define any public program funding levels, nor a renewables purchase requirement level, requesting input from stakeholder working groups, so that input can be made to the Legislature.29 The spring and summer of 1996 saw a flurry of deregulation activity as PUC working groups fleshed out options for moving towards the PUC vision, while the state Legislature took up the issue of electric utility deregulation on their own terms.

28

A legislative conference

Framework Parties, 1995.

ERG Master’s Project

Mark Stout

17

committee on deregulation worked at breakneck speed, cutting deals with the stakeholders that would be required to “deliver the votes” within the committee. Even given the large economic and environmental stakes, the final product of this bipartisan conference committee handily passed on the Senate and Assembly floors with minimal debate, since it was perceived as a best effort compromise between the two main political parties. As the PUC stakeholder working group process drew to an end, Pete Wilson signed AB 1890 on September 2330, omnibus legislation which preempts much of the PUC vision31. While the pace of the PUC process was tempered so that their final policy decision could better reflect stakeholder interests, compared to the reckless pace of the legislative wrangling, neither process involved substantial public education or participation. Several public interest organizations served as advocates for small consumer and environmental protection, but some have argued that the environmental organizations are not effectively representing the interests of their constituencies32. California Public Utilities Commission President Conlon praised members of the legislative conference committee: "It is through their tireless efforts that this legislation was crafted to provide balance of interests between utilities, other market participants, and especially residential and small commercial California ratepayers."33 However, TURN, a prominent, small consumer group, has criticized AB 1890, arguing that it should not be used as a national model for protection of residential and small commercial consumer interests.34

There is concern that

29

CPUC, December, 1995 Decision, 1996 Roadmap CPUC press release, 1996 31 Rader, 1996 32 Weisman, 1997, and confidential correspondence with stakeholder representative. 33 CPUC press release, 1996 34 TURN press release, 1996 30

ERG Master’s Project

Mark Stout

18

substantial market power exists among California electric utilities35, which may lead to higher electricity rates for small consumers purchasing out of a centralized Power Exchange envisioned by both the CPUC Decision and AB 1890 . AB 1890’s questionable protection against utility market power, along with a guaranteed 100% cost recovery for uneconomic utility assets, indicate that electric utility shareholders faired better in the negotiations than small consumers 36. Large industrial customers are also likely to benefit disproportionately because of their ability to take advantage of contracts made directly with low cost electricity generators. An argument can be made that the final legislation will result in lower funding for public purpose programs, including renewable energy and energy efficiency, than would have occurred under the CPUC’s December 1995 vision, but due to the Decision’s lack of clarity about support levels, this is difficult to say. From some perspectives, renewable energy concerns faired poorly in AB 1890, with uncertain funding allocations that may not be able to support the existing base of California renewable energy generators, as well as the loss of a strong policy mechanism, endorsed in the CPUC Decision, to ensure the maintenance and growth of this renewables base37. Such an outcome was not unforseeable. Weeks before the passage of AB 1890, in a speech before the California Manufacturers Association, AB 1890 author Jim Brulte, said that the Legislature was going to, “roll over renewables” and “roll over enviros.”38 Some public interest advocates would argue that moving ahead with the deregulation process, with a mix of shortcomings and unexpected benefits in the legislation, is in the public interest since it moves California utilities away from the “paralysis and backsliding on our

35

Borenstein, 1995 Rader, 1996 37 Rader, 1996 38 Asmus, 1996. 36

ERG Master’s Project

Mark Stout

19

environment/equity agenda” which had gripped the industry since the release of the Blue Book in 1994. As Carter and Cavanagh have noted, “If the bill had failed, the California PUC was on a clear course to abandon all [funding for public purpose programs] on grounds of lack of statutory authority.”39

Recent State and Federal Activity Since the signing of AB 1890 into law, the CPUC and California Energy Commission (CEC) have been working towards the implementation of this legislation. In March of 1997, the CEC released a report to the legislature with policy recommendations for the allocation of up to $540 million renewables funding codified in AB 1890.

It divides up this amount into four

accounts that vary over four years of funding. The overall levels are: 45 % existing technologies, 30% new technologies, 10% emerging technologies, and 15% consumer-side incentives.40 On May 6, 1997, the CPUC released its latest restructuring decision which surprised stakeholders by announcing that all customers, including residential and small commercial consumers, would be eligible for direct access January 1, 1998.41 There are currently several electric utility restructuring bills in Congress, including a prominent one authored by Representative Dan Schaefer (R-CO), chair of the House Energy and Power Subcommittee.42

This bill includes a "minimum renewable energy generation

39

Carter and Cavanagh, 1996 CEC, 1997 41 Marshall, 1997 42 Weisman, 1997, “Primed for Congressional Battle” 40

ERG Master’s Project

Mark Stout

20

requirement".43 The Department of Energy (DOE) has also been circulating a draft bill that includes a Renewables Portfolio Standard.44

Factors Behind the Drive for Deregulation Now that I have reviewed the history of Federal and state electric utility regulation, it is time to gain a fuller understanding of why California has proceeded down the path towards deregulation. Many forces have come together to create the push for electric utility deregulation in California.45

Large Consumer Pressure Large industrial energy consumers have the most to gain from the lower electricity prices that may accompany greater industry competition. Davis explains their reasoning: “the electric companies are inefficient, too conservative, and overcapitalized due to state regulation. Because the PUCs determine the rates, services, and future expansion, the companies have no incentive to be efficient. There is literally no profit in it for them. The state commissions typically calculate a company’s profits as a return on investment. Therefore, if a company wants more revenue it must invest more capital. It has an incentive to build a new plant even if it is not really needed.”46 In California, these concerns are represented by the California Large Energy Consumers Association (CLECA), “12 companies--most foreign-owned--that really soak up the juice. Retail wheeling sits at the top of the agenda of this coalition of steel, cement, and one of the largest gold mining firms in the world.” Barbara Barkovich, a consultant representing CLECA explains their

43

Levison, 1997, “Restructuring Hearings on the Road” Levison, 1997, “DOE Restructuring Bill” 45 Stevenson, “Discretionary Evolution...”, 355. 44

ERG Master’s Project

Mark Stout

21

viewpoint, “We do not advocate a slash and burn approach,” to existing public interest programs. “We just want to use competition to get the best price for power.” CLECA’s national counterpart is the Electricity Consumers Resource Council (ELCON), 24 companies that account of over 4% of the nation’s electricity use. There are some who are concerned about ELCON’s environmental ethics in pursuing electric utility restructuring. V. John White, executive director of the Center for Energy Efficiency and Renewable Technologies remarks, “At least you can talk to CLECA, and they say they know renewables, such as wind power, are now competitive. That’s one reason why they want to cut their own deals... ELCON, on the other hand, has no respect for the environment.” A consultant who shares White’s perception of ELCON notes that they want to push California to adopt a policy as, “uncompromised as possible because they fear the California plan will become a model for the country. If there are provisions for renewables and conservation here, they will have to gulp and swallow elsewhere.”47 The Clean Air Act amendments of 1990 set a precedent for Federal legislation following California’s leadership on environmental programs.

As Davis notes,

“Balancing the demand for federal standards with the urgent need to reduce emissions in California was one of the primary challenges confronting Congress and the executive branch... The California Air Resources Board’s old tailpipe emissions standards for new cars and light-duty trucks sold in that state were adopted by Congress in 1990 as the standard to be met by all new vehicles.”48 Davis describes the transition that has occurred in the influence of state PUCs, “In the past the commissions had found their main constituents to be residential customers. Now they found

46 47

Davis, 192. Asmus, 1995, “Retail wheeling...”, 24-25.

ERG Master’s Project

Mark Stout

22

intense pressure from large industrial customers, who in the past had enjoyed privileged status with cheap rates, but now had to pay higher rates. ”49

Technology The development of gas turbine generation technology has greatly reduced the scale requirements for efficient electricity generation. This reduction in scale has brought down the capital requirements of entering the electricity generation industry, enabling increased competition. Advancements in transmission line technology now allow the efficient transmission of electricity for distances of hundreds of miles, greatly increasing opportunities for bulk power sales.50

Economic Rent The potential to capture higher profits offers a significant incentive for well-positioned electric utilities to pursue an end to price controls and enhanced opportunities to sell excess power outside of their service area.51

Academics & Ideologues Neo-classical economists have argued since the 1970’s for the deregulation of the electric utility industry, basing their arguments on welfare economics as applied to the changing electric utility landscape.52 The “new industrial organization” espoused by these economists has served as

48

Davis, 1993, 150. Davis, 1993, 195. 50 Flavin and Lenssen, 1994. 51 Stevenson, “Discretionary Evolution...”, 356-357. 52 Gilbert, 84-108, Gordon, 447-475, Hoffman 55-62. 49

ERG Master’s Project

Mark Stout

23

the academic rationale for the recent flurry of deregulation activity being pushed by free-market ideology,53 allowing a policy trend that emphasizes markets rather than social welfare.

Existing Competitive Forces Although electric utilities are often viewed as pure monopolies, competition takes on several forms in this market. Many electrical applications have substitutable fuels, such as natural gas for space heating. Utilities compete for industrial customers who are relocating, as well as those on the border of service districts. There is significant competition in the wholesale electric generation market.54 Since 1992, over half of new U.S. generating capacity has been supplied by alternative, non-utility providers.55

Other Industries and Countries The deregulation of the telecommunications and natural gas industries serves as an analogy to the potential for electric utility deregulation. Examples of national electric utility deregulation have already been provided by the United Kingdom and Norway, allowing frequent comparisons between the California Blue Book’s proposed wholesale pool and a similar pool already implemented in the UK.56

Federal Regulatory Policy By requiring utilities to pay avoided costs to the new class of qualifying facilities, the 1978 Public Utility Regulatory Policies Act greatly invigorated the wholesale market for electric power. “With this act, the camel of competition forced its nose under the monopoly tent, and it was only

53

Stevenson, “Discretionary Evolution...”, 357. Stevenson, “Discretionary Evolution...”, 355-356. 55 Flavin and Lenssen, 1994. 54

ERG Master’s Project

Mark Stout

24

a matter of time before it worked its way inside.”57 The qualifying facility clause of PURPA was originally intended to encourage generation resource diversity. Davis notes that it became used as a tool to inject competition into a regulated system, “Ironically, the ascension of Reagan administration advocates of competition amplified the effect of PURPA, the product of President Carter and the Democratic Congress. Under Chairman Martha Hesse in the late 1980s, FERC vigorously supported competition for electricity, a policy it had already implemented in its natural gas decisions.”58 The Energy Policy Act of 1992 built on this competitive momentum, by requiring that utilities provide non-discriminatory transmission access for wholesale transactions, creating new classes of larger non-utility generators, including the Exempt Wholesale Generator, and deleting portions of the Public Utility Holding Company act to facilitate establishment of EWG/IPPaffiliates by regulated utilities. The recent restructuring bills in Congress have given incentives to state governments to act, in order that they maintain control of the regulatory process at the state level. Federal legislation could force states into retail competition on a set timetable. A recent announcement from Representative Schaefer’s office reads, “During the 105th Congress, Schaefer held nine legislative hearings and heard from dozens of witnesses on the issue of breaking up the electricity monopoly. The resulting testimony convinced Schaefer that the current monopoly system is harming consumers. He has since introduced legislation (HR 655) that will give all consumers choice of their electric provider by December 15, 2000.”59 As one environmental representative

56

POWER Working Group, 1. Cook, 78. 58 Davis, 195. 59 Levison, 1997, “Restructuring Goes on the Road” 57

ERG Master’s Project

Mark Stout

25

has noted, “the DOE bill does not mandate retail markets by any date certain, though it urges states to consider retail competition.”60

State Regulatory Policy Bidding programs for wholesale electric generation have been established in California, Colorado, Connecticut, Maine, Massachusetts, New York, and Wisconsin. Calls for bids have often been oversubscribed by a wide margin. In 1994, Michigan initiated a five year retail wheeling experiment involving two utilities, the same year that California’s Blue Book proposal was released.61 California Public Utility Commissioners Jesse Knight and Norm Shumway, both appointees of Governor Pete Wilson, were the key retail wheeling champions within the CPUC, according to Jeff Dassovich, an analyst with CPUC’s Division of Strategic Planning. Dassovich explained that they were frustrated with the “myriad of complex and controversial balancing accounts and rate adjustment mechanisms they had to contend with every 12 months” as part of the rate-making process. They “became increasingly perplexed about the arcaneness and gridlock that seemed to pervade the utility resource planning process,”62 a form of integrated resource planning know as the BRPU. One of the stated proposals of the Blue Book is to eliminate the Biennial Resource Planning Update (BRPU), a proceeding in which the Commission attempts to determine how much capacity will be needed and structures the acquisition process in great detail.63 This move towards greater reliance on the marketplace to make supply decisions is clearly in line with the free-market ideologies of the Republican Governor. Commissioner Knight,

60

Levison, 1997, “DOE Restructuring Bill” Stevenson, “Discretionary Evolution...”, 355-356. 62 Asmus, 1995, “Retail wheeling...”, 24. 61

ERG Master’s Project

Mark Stout

26

in a fit of political posturing, writes, “Freeing Californians from the monopoly grip of the utilities and granting consumers direct access to competitive power suppliers will greatly benefit the state’s economy and enhance the quality of life in my state.”64 As of October, 1995, nineteen state legislatures have reviewed bills in response to the potential for greater competition in the electric utility industry, including authorizations for legislative and regulatory study committees as well as direct access for certain customers to alternative generators.65

Analysis The California electric utility deregulation experience has often been described as a stakeholder-driven process. Many of the outcomes of the deregulation policy formulation were a result of negotiations between organizations representing different stakeholder groups. Based on my experience as a representative for an environmental organization, as well as interviews for this analysis, it was clear that the general public was not very involved in the process.

As a

staffperson for a prominent officeholder noted during our interview, “There was not enough education or public involvement. As it was too esoteric a topic, so there was not enough press coverage.” [see Anonymous Officeholder Staff Interview #1] Because of this stakeholder-representative orientation, I decided it would be insightful to interview people who represented stakeholder organizations that were active in the process, as well as the staff of the officeholders they were trying to influence. There are limits to this approach, in that not all interest groups who might be impacted by the process participated in the

63 64

CPUC Blue Book, 32. Knight, Jesse J., letter to the editor, Wall Street Journal, October 9, 1995, A15(Western).

ERG Master’s Project

Mark Stout

27

negotiations. Lukes has argued that there are three views or dimensions of power. His onedimensional view of power is based around observable actions by stakeholders. As Polsby has written, power may be analyzed by looking at, “who participates, who gains and loses, and who prevails in decision-making... presumably people participate in those areas they care about the most. Their values, eloquently expressed by their participation, cannot, it seems to me, be more effectively objectified.”

Lukes’ second, two-dimensional view of power accounts for the

development of a “mobilization of bias” explaining how a political institution can systemicly be biased towards a particular outcome, even without observable actions or non-actions by that institutions agents. As Goventa comments, on Lukes’ “second face” of power, “by which power is exercised not just upon participants within the decision making process but also towards the exclusion of certain participants and issues altogether.” In Lukes’ third, most “radical” view of power, he argues, “A may exercise power over B by getting him to do what he does not want to do, but he also exercises power by influencing, shaping, or determining his very wants... in a contradiction between the interests of those exercising power and the real interests of those they exclude.”66 By talking with active stakeholder representatives and officeholder staff, I primarily focused on Lukes’ first dimension of power, observable actions between participants.

The

officeholder staff were also able to add insight on who was able to set the terms of the debate (who decided which issues were excluded), opening up the analysis to the second view of power, but only at a superficial level. Unfortunately, these interviews do not shed much light on the

65 66

Sikkema, 2. Lukes, 1974, Goventa, 1980, p. 3-32

ERG Master’s Project

Mark Stout

28

exercise of power from Lukes’ most “radical” view, since such a broad analysis would be outside of the scope of this project.

Selection of Stakeholder Groups In selecting stakeholder groups to focus on, I tried to cover as wide a range of participants as possible, talking with at least one prominent representative from a number of categories: investor-owned electric utilities, municipal electric utilities, utility labor unions, independent producers, large electricity consumers, small electricity consumers, environmental advocates, and a state institutions.

I chose these categories based on personal experience representing a

stakeholder organization in the process, as well as considering those used in a status report from the CPUC to the Legislature.67

As I extended my analysis with a summary of campaign

contributions from stakeholders to the conference committee members, one important subcategory emerged because of its dominance: Oil and natural gas companies are often both large energy consumers, as well as independent producers.68

I have broken oil and natural gas

companies out as a separate category in the tabulations of campaign contributions.

Overview of What the Stakeholders Wanted and What They Got Before analyzing who got what they wanted, I first review what the different stakeholder groups wanted and got in both policy outcomes, based on 26 stakeholder interviews [see Appendix B], their comments on restructuring filed with the CPUC69, the December, 1995 CPUC Decision, and the final AB 1890 language.

67

CPUC, 1995, Status Report... CPUC, 1995, Status Report... 69 CPUC, 1995, Status Report... 68

ERG Master’s Project

Mark Stout

29

•

Investor Owned Utilities: The IOUs want to protect shareholders by maintaining their stock price and maximizing profits. Most resist retail competition, and pursue 100% stranded cost recovery from ratepayers. •

December Decision outcome: The IOUs did get the ability to recover 100% of stranded costs, including billions of dollars in rate settlements for PG&E’s Diablo Canyon and SCE’s SONGS nuclear plants. A five year phase-in to direct access may have been a little too fast for Edison, which was the strongest proponent of starting with a wholesale-only PoolCo proposal.

•

AB 1890 outcome: The legislation codified the utilities opportunity to recover 100% of stranded costs. While recovery period is limited to four years may limit their ability to achieve the full 100% cost recovery, they are comforted by a negotiated settlement that was reached to avoid future litigation.

•

Municipal Utilities: The munis want to retain their autonomy in making their own policy decisions, while ensuring their financial solvency. Most resist retail competition and pursue the ability to recover 100% of stranded costs from ratepayers, who are also their “shareholders”. •

December Decision outcome: The CPUC Decision did not address municipal utilities, except for on the subject of reciprocity for allowing direct access, where there was considerable support for staying clear of muni autonomy: “We have previously acknowledged that we do not have the authority to impose our vision on municipal or public power entities.

Under legal mandates which we scrupulously respect the

governance of these entities and their relation to their customers are committed to their duly constituted governing authorities.” The inclusion of direct access was not embraced by munis. ERG Master’s Project

Mark Stout

30

•

AB 1890 outcome: The municipal utilities lost autonomy in making decisions about direct access as a tradeoff to ensure their ability to collect stranded costs.

An

unexpected positive outcome was the improved leverage munis gained over IOUs, since AB 1890 required the munis and IOUs to work together on joint filings to FERC for the Power Exchange and ISO. As the lobbyist for the Sacramento Municipal Utility District points out, “If the IOUs do not respect the munis, we can point to the legislation, enhancing our stature at the federal level.” [see interview, Appendix B] The inclusion of direct access was not embraced by munis. •

Utility Labor Unions: Unions would like to protect the income of their members while faced by a down-sizing industry. They are strong proponents of maintaining system reliability as this requires adequate staffing, leading to an overlap of their interests with public interests. They resist retail competition, and pursue ratepayer support for worker severance payments and retraining. •

December Decision outcome: Although the Decision does allow for the collection of IOU employee severance and retraining costs in the CTC, it does not focus on maintaining system reliability.

•

AB 1890 outcome:

The legislation allows for the collection of IOU employee

severance and retraining costs in the CTC, while going further to directly support the goals of system reliability through adequate inspection and maintenance. AB 1890 also requires that IOU-divested generation plants come with two-year contracts for operation and maintenance by the existing staff.

ERG Master’s Project

Mark Stout

31

•

Independent Producers: Independent generators want to protect the sanctity of their existing contracts, ensuring their continued financial well-being, while having access to new customers made available to them. Most are proponents of direct access. •

December Decision outcome: Although the CPUC supports the renegotiation (buyout) of Standard Offer contracts with qualifying facilities, it leaves these negotiations as voluntary, protecting the sanctity of the QF contracts. Short-run avoided cost (SRAC) payments to QFs are to be set to the market-clearing price in the Power Exchange, resulting in generally higher prices paid to generators.

Independent

producers gain access to new customers through the adoption of direct access. •

AB 1890 outcome: The legislation nearly mirrors the CPUC Decision in terms of impacts on independent producers.

•

Renewable Technology Independent Producers: As a subset of independent generators, the renewables industry would like to rebound from difficult financial times many of them are facing due to the sunset or failure of previous policy support mechanisms. They would like continued funding to reflect the public goods benefits offered by their technologies (such decreased air pollution), while having access to new customers willing to pay more for “green” power. •

December Decision outcome: The CPUC’s endorsement of the Renewables Portfolio Standard was applauded by existing renewable energy generators, although a lack of specificity in the policy language with regard to percentage levels for the minimum renewables purchase requirement was a cause for concern.

Direct access with

community-based aggregation of load would help facilitate the development of bilateral “green” pricing contracts with residential customers. As with non-renewable ERG Master’s Project

Mark Stout

32

independent producers, SRAC set according to the Power Exchange market clearing price should result in higher payments to QFs under contract. •

AB 1890 outcome:

Many renewables generators were disappointed with the

replacement of a policy mechanism that had known outcomes, the RPS, with one that had known costs, renewables funding through a systems benefits charge. Some argue that the level of funding is too low to maintain the current state renewables base and will end in 2002, resulting in an industry shakeout. However, this industries financial woes are not solely because of deregulation, and AB 1890 does provide a significant amount of money to existing renewables developers to help mitigate any downsizing in the industry. As with non-renewable independent producers, SRAC set according to the Power Exchange market clearing price should result in higher payments to QFs under contract. •

Large Industrial & Agricultural Customers: The large consumers want the most efficient, competitive market possible to drive down rates. They support granting the IOUs less than 100% stranded cost recovery, and want a choice of their electricity supplier, making them the strongest proponents of direct access. •

December Decision outcome: Large customers did get the market structure they desired, allowing bilateral, direct access contracts. They lost out on rather generous terms for collection of stranded costs by the IOUs, which could extend until 2005.

•

AB 1890 outcome: Again, large customers won on the inclusion of direct access. As in the December Decision, IOUs still have the opportunity to collect 100% of their stranded costs, but limiting the competitive transition charge (CTC) cost recovery to 4.25 years greatly increased large electricity consumers’ satisfaction with the deal.

ERG Master’s Project

Mark Stout

33

•

Small Consumers: Small consumer advocates want any restructuring that occurs to have net benefits for even the least well off individual. They resist retail competition, want an equitable user class phase-in schedule for direct access, and support community aggregation for residential ratepayers to take advantage of bilateral contracts with low cost generators. Low income consumer advocates want IOUs to continue their low income assistance programs (baseline rate, low-income weatherization) on an as-needed basis, and have adequate customer education programs and protection from fraud put into place. •

December Decision outcome: Small consumer and low income advocates lost in their opposition to a market structure allowing direct access, as well as in their opposition to 100% stranded cost recovery by the IOUs. Small consumers benefited from the inclusion of language on community aggregation to allow residential customers some benefits from direct access. Funding for low income programs was good, with no cap on low income rate assistance. In principle, the consumer education and protection language was well received, although more specific details were required.

•

AB 1890 outcome: As in the CPUC Decision, small consumer and low income advocates lost in their opposition to a market structure allowing direct access, as well as in their opposition to 100% stranded cost recovery by the IOUs. Small consumers benefited from the inclusion of language on community aggregation to allow residential customers some benefits from direct access, although the anti-slamming language in the bill may make this unworkable if it is not fixed in this session’s cleanup legislation. Funding for low income programs was good, with no cap on low income rate assistance. Language on consumer education and protection did not go far enough in addressing the needs of a deregulated market.

ERG Master’s Project

Mark Stout

34

•

Environmental Organizations: Environmental organizations want the electric utility industry to evolve into a form which is environmentally and socially sustainable. These groups want to accelerate the removal of coal and nuclear plants from operation. They want the idea of leastcost planning through IRP to be protected. Mechanisms that continue to decouple utility profits from volume sales are pursued because of the positive impact they have on demand side management efforts (DSM). Direct access threatens to undermine both IRP and sales volume/profit decoupling. Environmentalists would like to see an end to the backsliding that has occurred in utility energy efficiency and R&D budgets.

Most groups resist retail

competition and support continued funding for new renewables, DSM, and public interest RD&D. There is a significant rift that has developed over whether existing renewables generators should continue to receive subsidies. •

December Decision outcome: Environmental advocates lost in their opposition to a market structure allowing direct access, as well as in their opposition to the tying of stranded cost recovery to continued operation of nuclear plants. The inclusion of the Renewables Portfolio Standard was heralded as strong renewables policy by some environmentalists, while others perceived it as continued charity for poorly-run businesses that had already received more than adequate support. The application of a public goods charge to pay for energy efficiency and public interest RD&D was good in principle, although a lack of specific funding levels was troubling.

•

AB 1890 outcome: Environmental advocates lost in their opposition to a market structure allowing direct access, as well as in their opposition to the tying of stranded cost recovery to continued operation of nuclear plants. The rift in the community that had developed regarding renewables policy was only torn wider by renewables funding

ERG Master’s Project

Mark Stout

35

levels that may not support the existing base of generators while allowing some new development to be placed on line. The application of a public goods charge with statutory spending level floors for energy efficiency, renewable energy, public interest RD&D, and low income programs was well received, but there is ongoing debate as to whether the adopted levels represented too much of a compromise with more powerful players.

Stakeholder Interviews Cluster Analysis Given the large amount of interview data to absorb from 26 stakeholder interviews, grouping the stakeholder interviews into categories allowed some overall patterns to emerge from this set of data. This clustering also allowed for a better correlation with a review of the officeholder staff comments. I used my original categories for this cluster analysis: investorowned electric utilities, municipal electric utilities, utility labor unions, independent producers, large electricity consumers, small electricity consumers, environmental advocates, and a state institutions. Appendix B has a full transcript of each interview. The organizations represented by each interview is listed, by category, in the table of contents for Appendix B. Because of the time-intensive nature of this research, combined with limited time and resources available, each clustered category has a small number of organizations. Because of the subjective interpretations required to code qualitative interview responses, and the small number of organizations per category, the following cluster analysis should only be used to point out rough trends. The raw coded data for this analysis is included in Appendix D.

ERG Master’s Project

Mark Stout

36

The stakeholder representatives were asked what outcomes their organizations wanted to obtain from the California electric utility restructuring process as it was just unfolding. When combined with comments filed by that organization early in the restructuring process at the CPUC, this provides a baseline to determine if they got what they wanted.

Figure 2: How much of what your organization wanted was in the December Decision?

Figure 1: How much of what your organization wanted was in the CPUC December Decision?

STATE INSTITUTIONS

Rather Little ENVIRONMENTAL ADVOCATES

SMALL ELECTRICITY CONSUMERS

Most

LARGE ELECTRICITY CONSUMERS

Rather Little

Mixed/Unclear

Mixed/Unclear Most

INDEPENDENT PRODUCERS

UTILITY LABOR UNIONS

The

stakeholder

representatives

were then asked how much of what their

MUNICIPAL ELECTRIC UTILITIES

INVESTOR-OWNED ELECTRIC UTILITIES

organization wanted was included in the CPUC December, 1995 Decision.

0

1

2

3

4

5

As

Figure 1 indicates, nearly half of the representatives say that their organization got most of what it wanted from the December Decision, a slightly smaller number of representatives report a mixed or unclear outcome, and the remaining minority claim that their organization got rather little. Figure 2 shows that all of the investor-owned utilities and independent producers, as well as the majority of large electricity consumers, say that their organizations got most of what they wanted ERG Master’s Project

Mark Stout

37

from the December Decision. The utility labor unions and municipal utilities representatives reported receiving relatively little from this policy outcome. The stakeholder representatives were also asked how much of what their organization wanted was included in AB 1890. As Figures 3 indicates, nearly half of the representatives

say

that

Figure 3: How much of what your organization wanted was in AB 1890?

their Rather Little

organization got most of what it wanted from AB 1890, a similar number of representatives report a

Most

mixed or unclear outcome, and the remaining minority claim that their

Mixed/Unclear

organization got rather little. Figure 4 shows that all of the investor-owned utilities

and

utility

labor

union

representatives, as well as the majority of large electricity consumers, say that their organizations got most of what they wanted from AB 1890. The small consumer and environmental organization representatives appear to have taken a step backwards in terms of getting what they wanted compared to the CPUC December Decision policy outcome.

ERG Master’s Project

Mark Stout

38

Figure 4: How much of what your organization wanted was in AB 1890?

One of the interview questions

STATE INSTITUTIONS

asked which policy outcome was ENVIRONMENTAL ADVOCATES

preferred by the subject’s organization, SMALL ELECTRICITY CONSUMERS

either the CPUC December Decision

LARGE ELECTRICITY CONSUMERS

or AB 1890. As Figures 5 indicates, most

organizations

preferred

Rather Little Mixed/Unclear

the

Most

INDEPENDENT PRODUCERS

language of AB 1890. Figure 6 shows that the only organizations interviewed that prefer the December Decision are among

the

environmental

and

UTILITY LABOR UNIONS

MUNICIPAL ELECTRIC UTILITIES

INVESTOR-OWNED ELECTRIC UTILITIES

independent power communities. It is 0

1

2

3

4

5

clear from the interview transcripts Figure 5: What Policy Outcome Does Your Organization Prefer? CPUC December Decision

No preference / Unclear

that those few organizations that stated

a

preference

for

the

December Decision did so based on

their

support

for

Renewables

Portfolio

Standard

that

selected

by

was

the

the

Commissioners as a renewables AB 1890

policy,

as

opposed

to

the

nonbypassable surcharge funding mechanism adopted in AB 1890

ERG Master’s Project

Mark Stout

39

[see American Wind Energy Association, Natural Resources Defense Council #1, and Union of Concerned Scientists interviews]. PG&E and SDG&E indicated that part of their preference for AB 1890 was to avoid future litigation. As excerpted from the PG&E

stakeholder

Figure 6: What Policy Outcome Does Your Organization Prefer?

interview, STATE INSTITUTIONS

“Although the CPUC Decision was financially easier on PG&E, restructuring as envisioned in the CPUC Decision would have been less likely to take place in an orderly manner due to legal wrangling and ongoing filings at the CPUC.” Many of the other

ENVIRONMENTAL ADVOCATES

SMALL ELECTRICITY CONSUMERS

LARGE ELECTRICITY CONSUMERS

CPUC December Decision AB 1890 No preference / Unclear

INDEPENDENT PRODUCERS

UTILITY LABOR UNIONS

MUNICIPAL ELECTRIC UTILITIES

stakeholders consider AB 1890 an incremental,

evolutionary

step

INVESTOROWNED ELECTRIC UTILITIES 0

forward

from

the

1

2

3

4

5

December

Decision.

Officeholder Staff Interviews Officeholder staff interviews are another data source that I now use to cross-check the previous cluster analysis on who did and did not get what they wanted out of the restructuring process, and to begin to build theories for why. I interviewed two subjects who were on the CPUC staff during the two years leading up to the December Decision, as well as three subjects

ERG Master’s Project

Mark Stout

40

who were staff for members of the legislative Conference Committee during the 1996 legislative session. The following are excerpts from the full interview transcripts in Appendix C.

Officeholder Staff Comments on Who Got What They Wanted and Why: •

This CPUC staffer points to IOUs and large customers as wielding the most influence in the CPUC process, particularly by negotiating a deal between them. The preferential access to Commissioners also stands out: IOUs were most influential, mostly focusing on market structure. Large customers were less influential, resulting in a partial phase in of Direct Access.... There was a lot of lobbying, with no ex parte rules during the pure rule-making period before December 20, 1995... Lobbying access is only as good as a Commissioner’s willingness to meet, resulting in the most influential stakeholders being granted the most access. It was conspicuous that an Edison employee always traveled with President Fessler on his trips to Europe. This offered a substantial opportunity for access... The Memorandum of Understanding was a major event that brought together two worlds, IOUs and large customers... The level of influence on AB 1890 was a function of who was in the Conference Committee hearing room.”

•

Large industrial customers, networking with utilities, were the focus of this staffer from Senator Peace’s office. He alludes to the financial resources required to fly in these business circles. A connection is made with obtaining the Governor’s buy-in, who then initiated the “very important” MOU process. The allusion to lobbying (“politically educate”) is joined with a theme of officeholder resonance to a pro-business message (“good for California businesses”): CMA and CLECA jointly made utility restructuring the issue for business. Large businesses articulated the issues, so that the [legislative] Members and Governor bought in that restructuring would be good for California businesses. As a member of CMA’s energy group ($10 thousand membership fee), WSPA made an effort to politically educate officeholders. Coalitions were very important. CMA’s energy committee got parties together, they were able to then get retailers and agricultural groups on board. PG&E’s President, Stan Skinner, who was also the President of CMA at one time, was personally engaged... The MOU process was very important because fighting parties came to an agreement... CLECA, CMA, and Edison set the

ERG Master’s Project

Mark Stout

41

tone. It would not have happened without DJ Smith [CLECA], Mark Timmerman [CMA], and Bob Foster [Edison]. They were a guiding light, encouraging other people to accept the process who otherwise would not have. •

A staffer from Senator Byron Sher’s office highlights the ideological CPUC appointments by Governor Pete Wilson as drivers for the process. Once again, the IOUs are pointed out for their influence in shaping the agenda, but this time they are joined by clean power interests, who were afforded protection by Senator Sher, a long-time defender of environmental interests. Many stakeholder interviews also alluded to the fear that a lack of legislation would result in a worse fate defined by the CPUC: The PUC laid out the framework for restructuring in the Blue Book, based on the free market-driven ideologues on the Commission. This had to be shaped by pressures on the Legislature. The utilities established early on the full reimbursement for stranded costs. Renewables and energy efficiency were also guaranteed protection. The Decision by the PUC was going to be implemented unless the Legislature was able to deliver a package.

•

The IOUs’ were able to get what they want, according to this staffer from then-Senator Bill Leonard’s office, through networking resources, legal expertise, and access to the Governor’s office: The IOUs were able to pull people together; they had the manpower to make sure their positions were taken care of. This was the greatest expression of coalition building... Linking up with the Governor’s office was critical. They also were able to offer a lot of help with technical drafting. A lot of their lawyers did technical language work in coalition with the legislative counsel. When the PUC December Decision came out, no one was happy. This put everything on the table... IOUs very quickly were able to get 100% stranded cost recovery firmed up, as well as an acceleration of recovery.

•

The large customers and IOUs were able to get what they want again, says this anonymous staffer, because of their financial resources can buy three things: lobbying of politicians, campaign contributions, and staff time to network anytime, anywhere.

The momentum

created by the Governor’s office initiating the MOU process is noted once again: ERG Master’s Project

Mark Stout

42

Large customers and the utilities both had the most money to spend. The IOUs got complete stranded cost recovery, while the large customers got the ability to go first on direct access, and look for ways to get around paying the CTC, such as irrigation districts and economic development rates... Once the Governor’s office was behind the MOU, it was all over. The ability to fund politicians helped. Political clout can be bought with lobbying and campaign contributions... If you had the resources to be there, in the coffee shops at three AM, you can be part of the decision making process. •

Another anonymous staffer focuses on the usual suspects, IOUs and large consumers. He gives several reasons for their influence, including connecting with a free-market Governor, ability to marshal staff resources, and legal expertise: IOUs and large consumers got everything they wanted... These influential players relied on a “fairness and competition” argument... This had validity for Committee Members, who deal daily with issues of economic development. The Governor has the same goal: empower people for economic development... Between the large manufacturers and utilities, they accounted for 2/3 of the people in the hearing room. But it was not the number of people in the room that mattered, but the resources that could be allocated. A key witness before the Committee was Ann Cohn, Senior Legal Counsel for Edison. The Committee staff did not write the first draft of the bill, Ann wrote it and brought it to the Committee for consideration... Ann sat down and read from the draft during the conference committee. This was the first time for the Members to be looking at actual language.

Synthesis of Stakeholder & Staff Comments on Who Prevailed, and Why: A familiar pattern emerges from these staff comments. IOUs and large customers are often cited as victors, oftentimes because of superior staff and financial resources, as well as their ideological resonance with a conservative Governor’s office. This supports the findings of the stakeholder cluster analysis, except that the labor unions which appear to fare well in the earlier analysis are not called out in any of the officeholder staff interviews.

ERG Master’s Project

Mark Stout

43

Officeholder Staff Comments on Who Got Rolled Over, and Why: •

Low income organizations and the renewables community could have improved their performance, according to this CPUC staffer, but for different reasons. The low income groups may not have the staff resources to lobby effectively, and the renewables community was perceived as not being able to make a paradigm shift. In AB 1890, small consumers are the recipients of a bogus rate-cut that they are self-financing: Low income advocacy groups did not make their issues big and high-profile like structural issues became... The low income groups participated on paper through filed comments, but did not do hall walking to the extent of other groups... The renewables players were probably asking for too much of the old world the PUC had engaged in... The 10% rate reduction for small customers was final packaging to sell the bill for voters, as rates were supposed to come down due to the QF cliffs anyway. The rate reduction bonds may not yield net present value benefits, but just result in rate deferrals for 10 years.

•

The clean power community’s inability to resolve differences between them has hampered their abilities according to a staffer from Senator Steve Peace’s office.

He also chided

municipal utilities and some small consumer advocates for resisting the process and not fully participating.

He also touched on the un-level playing field created by a free-market

ideologue Governor: The environmental and renewables communities made the Committee punt. These groups could not come to a resolution, could not address the problem of a competitive market and participation. They waited until late in the process to get organized... The California Municipal Utilities Association folks lacked effectiveness also. LADWP was trying to cause trouble with restructuring. They did not want to participate. ...The big mistake for these small consumer groups was letting Pete Wilson get elected and stack the PUC with right wing ideologues. ...CalPIRG and some other consumer advocacy groups criticized the process without participating. This was very irresponsible; they had full opportunity, yet were not in the hearing for one minute. •

A staffer from Senator Byron Sher’s office also brought up the municipal utilities, for their inability to articulate positions. The clean power community was cited again for a lack of

ERG Master’s Project

Mark Stout

44

unity. Small consumer advocates faced an un-level playing field, due to the Governor and his CPUC appointees, echoing Senator Peace’s staffer quoted above: Early on the munis were not able to define a single coherent position or proposal. Peace was demanding in terms of defining your position. He threw the munis out, and they subsequently came around with an articulated position a day later. Later on in the Committee, the fact that the renewables and environmentalists were divided was damaging. This schism was a recipe for having the least influence. It was very unhelpful to have put themselves in that position... To a lesser extent, the residential ratepayers also had trouble... the playing field was tilted. Large, powerful interests already had an advantage from the PUC Decision. •

A staffer from then-Senator Bill Leonard’s office pointed to public interest organizations for opposition despite non-participation, and the much-maligned municipal utilities for an inability to articulate proposals. Groups that opposed the bill without participating also were ineffective, such as CalPIRG and one of Ralph Nader’s organizations... If they were there and could contribute, anyone could have influence. The munis had a hard time articulating how to maintain an exit fee [for direct access customers leaving their electricity procurement service] without joining the ISO.

•

A lack of unity in the clean power community, driven by an inability to compromise, caused them problems, in this anonymous staff comment. Small consumer advocates and brokers did not participate in a timely manner.

Finally, environmental and small consumer’s initial

resistance to deregulation hindered their ability to articulate positions in the new environment: The renewables community fractured itself as far as coming together behind a proposal. It had too many purists that need to learn the art of compromise. Also, small customers and the people who serve small customers. They needed to realize the process was happening, and pay attention to it then, not after the fact... The environmental and consumer advocates did not have a clear idea of what they wanted. This dissipated their effectiveness. At first, they were all against restructuring, which did not help. When the train was leaving the station, they did not know what seat they wanted to sit in... There was not enough education or public involvement. As it was too esoteric a topic, so there was not enough press coverage.

ERG Master’s Project

Mark Stout

45

Synthesis of Stakeholder & Staff Comments on Who Got Rolled, and Why: A pattern consisting of three stakeholder groups who may not have received what they wanted emerges from the staff interview data. The clean power community (renewables industry and environmentalists) were held back by a lack of unity in the face of more monolithic stakeholders.

The American Wind Energy Association and Environmental Defense Fund

interview transcripts provide ample evidence of a rift in the community. Some public interest (small consumer/environmentalist) advocates were not in the game at all, and were relegated to complaining after the deal was done. The clean power advocates, along with small consumer advocates, faced an un-level playing field all along, in large part due to the free-market ideology of Governor Wilson’s office which has been passed down to the CPUC Commissioners over years of appointments. The municipal utilities had trouble articulating proposed solutions to their concerns in the AB 1890 Conference Committee, but were able to recover when pressured by Steve Peace, minimizing this group’s losses. This pattern of stakeholder groups is consistent with the results of the stakeholder cluster analysis. A careful examination of the interviews with stakeholder representatives for environmental organizations draws out two other factors that may have impaired these public interest groups. First, most of the environmental organizations did not expend much effort in using their grassroots activists to challenge the large customer groups and IOUs, but depended on a consensus-based, “insider” strategy: •

A volunteer on the Sierra Club California Legislative Committee noted, “Some volunteer leaders wanted to be more vocal on stranded costs, but we have learned ‘when elephants dance, mice stay away’... We didn’t do grassroots letters, there was not enough time. Things were changing too fast, leaving it up to the lobbyists and insiders to cut a deal.”

ERG Master’s Project

Mark Stout

46

•

A senior analyst for the Environmental Defense Fund comments on their participation in the CPUC process, “Past EDF’s filing comments, there was not enough activity.”

•

Ralph Cavanagh has served as a lightning rod for praise and criticism of the environmental community’s focus on an insider strategy.70 [also see numerous comments in interview transcripts] An American Wind Energy Association representative was disheartened that Cavanagh would not pull NRDC’s endorsement for AB 1890, because he, “wanted a win, didn’t want to ruffle any strategies. NRDC had no media strategy, made no attempt to build clout, but relied on their name instead. In the end, AWEA endorsed the bill reported out of the conference committee, largely because no public interest group was willing to oppose the bill.”

•

Cavanagh offers a different perspective on NRDC’s substantial media work, “NRDC did press work through editorial boards including the San Jose Mercury News, the San Francisco Chronicle, San Francisco Examiner, and the Sacramento Bee focusing on public purpose programs.” Later in my interview with Ralph, it did become clear that NRDC’s strategy was based on coalitions of insiders, not grassroots activists: “It was a consensus-based process. Critical stakeholders who could have derailed did not. If environmental groups collectively walked, we could have killed it. The environmental groups and consumer groups such as TURN worked well together. We were on separate tracks with industrial customers to ensure no cost shifting occurred. NRDC’s relationship with the IOUs was important. It was strong going in and going out of the process. We were in constant contact, one on one, not turning it into a media tank battle.”

70

Weisman, 1997, “Environmentalist Defends His Stance”

ERG Master’s Project

Mark Stout

47

•

A representative from a Latino advocacy group comments on NRDC’s consensus-based, insider-coalition strategy, “Latino Issues Forum did not actively participate. Ralph Cavanagh carried our torch primarily. AB 1890 was a deal cut in back rooms between powerful players.” One staff member at the CPUC gives some credit to NRDC’s insider strategy, “Ralph Cavanagh was influential in making sure that public purpose programs stayed on the plate.” Goventa has commented on the hazards of consensus-based processes for less powerful

actors, such as public interest advocates confronting large corporate interests: ...the consciousness of the relatively powerless, even as it emerges, may be malleable, i.e. especially vulnerable to the manipulation of the power field around it. Through the invocation of myths or symbols, the use of threats or rumors, or other mechanisms of power, the powerful may be able to ensure that certain beliefs and actions emerge in one context while apparently contradictory grievances may be expressed in others. From this perspective, a consistently expressed consensus is not required for the maintenance of dominant interests, only a consistency that certain potentially key issues remain latent issues and that certain interests remain unrecognized--at certain times more than others... ‘Real’ consensus implies a prior process of agreement or choice, which in a situation of apparent consensus may or may not have been the case. The process may not have occurred; it could have been shaped or manipulated; the ‘consensus’ could be maintained by power processes, etc.71 An attorney with the small consumer advocacy group, The Utility Reform Network (TURN), also questioned the validity of the “consensus” process during our interview, “If you can get all of the big dogs to reach consensus, utilities, big customers, unions, IPPs, it is tough to stop the momentum. Public purpose concerns become peripheral, like an armadillo in the middle of the road. The “consensus process” was just everybody taking, nobody gave anything up, they just loaded up the plate. Critical consumer interests were not present, taking care of small consumers would have led to compromise.”

71

Goventa, 1980, 19+29

ERG Master’s Project

Mark Stout

48

A prominent example of a failed consensus was the 11th hour changes to the funding levels that had been agreed to in the Memorandum of Understanding. As a Sierra Club California legislative chair recounts on meetings between CMA, Industrial Users, CLECA, agricultural consumers, EDF, and the Sierra Club, “We reached a consensus on... funding for public purpose programs: low income, RD&D, renewables with an incremental cost estimate from the BRPU, and energy efficiency. These got translated into dollars. The 3% [it was actually a cap of 3.3% of utility revenues, roughly $660 million a year for the IOUs alone] of utility revenues for public purpose programs in the MOU came out of these discussions...” However, a perusal of legislative language that was proposed during the long, hot days of August in the 1996 Conference Committee reveals that this “consensus” funding level took a large hit on August 15, less than two weeks before the Bill would be reported out of committee. The August 15 language from a coalition of powerful interests, including IEP, reduced funding to an average of 2.1% of IOU revenues. TURN was one of several public interest organizations who opposed the change.72 At this point late in the game, the public interest groups did not have much leverage to oppose the dissolution of this consensus since they did not have an engaged constituency of activists to back them up. A legislative outcome related to “green” pricing for renewables provides another example of an ephemeral consensus. During the Conference Committee hearings, a representative from the American Wind Energy Association argued that customers paying more on their electricity bills to support renewable energy should cause an impact in terms of more kWh of renewable energy produced, not simply subsidizing other consumers or increasing IOU shareholder profits

72

Confidential binder of proposed language and other stakeholder notes

ERG Master’s Project

Mark Stout

49

for a static amount of renewables capacity.

She pointed out the public relations/marketing

dilemma that would result if “green” customers found out they were having no real impact on increasing the use of renewable generation. There was no significant opposition to this point during the hearing.73

However, the final language of AB 1890 allows IOU customers to

voluntarily contribute money to support renewable development, without making it at all clear if these voluntary contributions will actually decrease the amount the IOUs must contribute towards renewables support funding from their frozen revenues.74 Dryzek has voiced concern that by accepting a seat at government policymaking tables, public interest organizations have been “co-opted or bought off cheaply”, receiving “symbolic rewards only”. As he explains, ...the first imperative facing states in capitalist systems is what post-Marxists call “accumulation”. States simply must provide the conditions that facilitate capitalist investment and economic growth; if they pursue antibusiness policies, then they are punished by “capital strike”, recession, falling tax revenues, and unpopularity in the eyes of the public... To the extent that public policy remains under the sway of state imperatives, groups whose inclusion coincides with no imperative will not easily acquire the tangible goods they value. They may be allowed to participate in the policymaking process, but outcomes will be systematically skewed against them. 75 The state imperative of “accumulation” came up several times during interviews with officeholder staff. As noted earlier, one Senator’s Chief of Staff revealed, “Large businesses articulated the issues, so that the [legislative] Members and Governor bought in that restructuring would be good for California businesses.” An anonymous staffer’s comment also resonated with this state imperative, “...influential players relied on a “fairness and competition” argument... This had

73

California Senate TV video of August 10, 1996 Conference Committee on Electric Restructuring AB 1890, section 381, subdivision (e) 75 Dryzek, 1996 74

ERG Master’s Project

Mark Stout

50

validity for Committee Members, who deal daily with issues of economic development. The Governor has the same goal: empower people for economic development...”. Dryzek also notes the impact that this “democratization as inclusion” has had on the ability of progressive organizations to function in a democratic, bottom-up manner: the group may have to develop a more hierarchical internal structure in order to produce a stable leadership which government officials will recognize and deal with. Inclusion in the life of the state is, then, bought at the expense of relatively unrestricted democratic interplay in the oppositional public sphere. The democratic loss experienced by entry into the state can... be justified by the instrumental benefits thereby achieved. But if there are no instrumental benefits, the loss is harder to justify.76 Another factor that impaired the public interest groups was that Conference Committee Chair Steve Peace was able to coerce these groups into accepting compromises they would not have otherwise, under the threat of retribution.

During my experience representing an

environmental stakeholder organization in this process, I read accounts of public hearings chaired by Peace, where he bullied advocates for the Renewables Portfolio Standard. Senator Peace’s response to this policy mechanism was along the lines of, “quit beating a dead horse, the RPS is a “non-starter” because San Diego Gas and Electric (SDG&E) does not like it”, and Senator Peace represents a district in the San Diego area. According to an NRDC analyst who was interviewed, “It was very clear that if everyone did not work together, they may lose out altogether. Peace was threatening to handle renewable energy policy himself, and nobody would have been happy.” As Peace said himself during the Conference Committee’s August 10, 1996 meeting, “For those of you who have intra-familial differences, it will not inure to your benefit for those differences to still exist on Monday. We will

76

Dryzek, 1996

ERG Master’s Project

Mark Stout

51

start unilaterally resolving issues, and my rule is when we are forced to unilaterally resolve issues, everybody should suffer except for us, OK?... Our largest problem area, in terms of complicated problem area, is clearly renewable folks. So for those of you who have been working on other issues I encourage you all to be helpful in that area if you can, if there is something you can bring to the table. The other thing is, obviously there is going to be many political philosophies on that issue... I’m sure there are lots of votes in the legislature that would just as soon do electric restructuring without a renewables component.”

That same hearing session, Senator Peace

implored all of the parties to become “enthusiastic advocates” for the package, even though there some parts they might hate, in order to move forward with a product.77

Restructuring Stakeholder Campaign Contribution/Gift Analysis One way to track influence of elected officials is to look at the organizations paying for their campaign expenses and providing them with gifts such as meals and trips. The following campaign contribution summary tables were compiled from Officeholder, Candidate, and Controlled Committee Campaign Statements filed at the California Secretary of State Political Reform Division. A full breakdown of contributions for each legislator is included in Appendix E. Because of the difficulty of tracking the transfers of funds between different office-holder controlled accounts, no attempt has been made at determining total annual contributions from all sources to each officeholder. Gift information is also provided based on Statement of Economic Interest Forms filed at the Fair Political Practices Commission. Where data is available, these tables cover the years 1995 and 1996 for the author of AB 1890, Jim Brulte (R-Ontario), and the six members of the Conference Committee on Electric

77

California Senate TV video of August 10, 1996 Conference Committee on Electric Restructuring

ERG Master’s Project

Mark Stout

52

Industry Restructuring. The three Senators on the Committee were Steve Peace (D-El Cajon), Byron Sher (D-Palo Alto), and Bill Leonard (R-Upland). The three Assemblypersons were Diane Martinez (D-Alhambra), Mickey Conroy (R-Orange), and Steve Kuykendall (R-LA).

Gift

information is also compiled for the five Public Utility Commissioners presiding over the years 1994 and 1995 in Appendix E. Governor Wilson’s five appointees are President Daniel Fessler, Jesse Knight Jr., Norm Shumway, Josiah Neeper, Gregory Conlon, and Henry Duque. Only donations from organizations involved as primary stakeholders in California’s electric utility deregulation are included.

Campaign contribution totals for organizations include

donations by employees and volunteer leadership. These compilations do not provide comprehensive coverage for CLECA, CMA, or CIU member companies, but rather include a sampling of member company contributions. The California Energy Commission has compiled a useful, yet dated (12/18/95), reference titled, “California Lobbyists and Representatives in Energy-Related Legislation”.

This web page78 was used as an additional check of which

organizations have actively participated in influencing state energy legislation.

78

http://www.energy.ca.gov/energy/cectext/lobbyist.html

ERG Master’s Project

Mark Stout

53

ERG Master’s Project

Mark Stout

54

ERG Master’s Project

Mark Stout

55

ERG Master’s Project

Mark Stout

56

ERG Master’s Project

Mark Stout

57

ERG Master’s Project

Mark Stout

58

As one would imagine, the lobbying summary tables above, as well as the legislator breakdown tables and gift descriptions in Appendix E show that IOUs and large consumers, including oil and natural gas companies, were able to far outspend environmental organizations (who were usually spread thin over many issues), alternative energy producers, and small consumer groups. One example of the type of access to officeholders that money can buy is the junkets run by the California Foundation on the Environment and the Economy.

CFEE is a “non-profit,

charitable organization 501(c)(3)” funded by Edison to push Edison’s preferred wholesale PoolCo style market structure.79 From 3/16/94 to 3/27/94, CPUC President Fessler and Commissioner Gregory Conlon were taken by CFEE on an excursion visiting London, Brussels, and Paris, to meet with CEOs of the electricity industry, regulators, government ministers, and environmental groups to discuss the British experience with deregulation of electricity, for $7,167 per guest. According to investigative writer Peter Asmus, “though the CPUC had imposed a ban on communications regarding the Biennial Resource Plan Update (BRPU), a clean power auction the CPUC repeatedly postponed upon the urging of the utility, an Edison lobbyist was added to the international travel party at the last minute.”80

In April of 1995, CFEE took Fessler and

Conference Committee Assemblyman Mickey Conroy on an 11 day trip to talk with Chinese central government and provincial leaders in Beijing, Shanghai, and Inner Mongolia, paying up to $7,800 each. From 3/28/96 to 4/8/96, their “Travel project to Europe on Electric Restructuring, Conservation, and Privatization” took AB 1890 author Jim Brulte and Conference Committee

79 80

Asmus, 1996, 4 Asmus, 1996, 4

ERG Master’s Project

Mark Stout

59

Assemblymember Steve Kuykendall to London, Sweden, and Budapest, at the mere cost of $7,490 per guest.

Conclusion This project synthesized data from several sources including semi-structured interviews with stakeholder representatives & officeholder staff, state government archives, and academic literature, in order to find out which stakeholder organizations got what they wanted from California’s electric utility deregulation policy formulation process, and why or why not different groups were successful.

Rather than attempting to verify a pre-determined hypothesis, my

analysis uses patterns in the data to create emerging theories. Based on interviews with officeholder staff and a cluster analysis of stakeholder interviews, it appears the investor owned utilities, large industrial customers, and labor unions were the most influential in the deregulation process. It is not so surprising that these “thousand pound gorillas” did well in the process. This analysis generates the hypothesis that these parties were most influential because of superior staff and financial resources, as well as their ideological resonance with a conservative Governor’s office. Because these stakeholder groups support the capitalist state imperative of wealth “accumulation”, they are well suited for influencing inclusive, stakeholder-driven processes, such as the CPUC proceedings and legislative Conference Committee. Using the same officeholder staff interviews and stakeholder interview cluster analysis, several patterns emerged regarding which groups got far from all of what they wanted. The clean power community (renewables industry and environmentalists) were held back by a lack of unity in the face of more monolithic stakeholders. These clean power advocates, along with small

ERG Master’s Project

Mark Stout

60

consumer advocates, faced an un-level playing field all along, in large part due to the free-market ideology of Governor Wilson’s office which has been passed down to the CPUC Commissioners over years of appointments. These stakeholder organizations do not have the financial resources to support the level of policy staff, legal experts, and lobbyists that the larger commercial interests were able to bring to bear in order to gain and maintain access to decision-makers. Because they do not represent capitalist state imperatives, these alternative energy industry and public-interest organizations should not find inclusive, stake-holder driven processes such as California electric utility deregulation to be particularly fruitful for obtaining their objectives.

Bibliography Anderson, Douglas D., Regulatory Politics and Electric Utilities: A Case Study in Political Economy, Boston: Auburn House Publishing Company, c1981. Asmus, Peter. “Money, Politics and California Electric Restructuring”, August, 1996. Asmus, Peter. “Retail wheeling : California plans a grand experiment in electricity reform, but will it mean that clean power is scrapped for dirty?”, California Journal, Vol. 26, no. 4 (Apr. 1995). Asmus, Peter. “Who are the De-Regulation Advocates? Profiles of California’s Largest Electricity Consumers”, 1995. Asmus, Peter; Ed Smeloff. Reinventing Electric Utilities, Covelo, California: Island Press, c 1997. Blackwell, Savannah. “The Shame of San Francisco”, San Francisco Bay Guardian, January 29, 1997, 14-18. Boot, Max, “California’s Governor Isn’t Plugged Into Deregulation Debate”, Wall Street Journal, September 5, 1995, A15(West). Borenstein, Severin; Bushnell, James; Kahn, Edward; Stoft, Steven, Market Power in California Electricity Markets, Program on Workable Energy Regulation, December, 1995. Bryner, Gary C., Blue Skies, Green Politics: the Clean Air Act of 1990, Washington: CQ Press, c1993. California Energy Commission, “RD+D and Electric Utility Restructuring”, Draft Energy Development Volume I, Part II. California Energy Commission, California Historical Energy Statistics, P300-95-020, December 1995. California Energy Commission, Policy Report on AB 1890 Renewables Funding, P500-97-002, March 1997.

ERG Master’s Project

Mark Stout

61

California Governor’s Office, “Wilson Signs Historic Legislation Restructuring Electric Industry”, Governor’s Office Press Release, September 23, 1996. California Municipal Utilities Association, Highlights of Restructuring California’s Electric Utility Industry, Knowledge Mapping Systems, Sacramento, CA. California Public Utilities Commission, Division of Strategic Planning, California’s Electric Services Industry: Perspectives on the Past Strategies for the Future, filed February 3, 1993, referred to as the “Yellow Book”. California Public Utilities Commission, Consumer Choice Through Direct Access: Charting A Sustainable Course To A Competitive Electric Services Industry, filed May 24, 1995, referred to as the “Direct Access Proposal”. California Public Utilities Commission, Electric Restructuring Decision, D.95-12-063, filed December 20, 1995. California Public Utilities Commission, “Governor Signs Assembly Bill 1890, Restructuring California’s Electric Industry”, CPUC Press Release, September 23, 1996. California Public Utilities Commission, Majority Proposal, filed May 24, 1995, referred to as the “PoolCo Proposal”. California Public Utilities Commission, Order Instituting Rulemaking and Order Instituting Investigation: on the Commission’s Proposed Policies Governing Restructuring California’s Electric Services Industry and Reforming Regulation, R. 94-04-031 and l. 94-04-032, filed April 20, 1994, referred to as the “Blue Book”. California Public Utilities Commission, Roadmap Decision - Procedural Plan to Implement the December 20, 1995 decision, D. 96-030-022, filed March, 1996. California Public Utilities Commission, Status Report on Restructuring California’s Electric Services Industry and Reforming Regulation, Prepared in Response to Assembly Concurrent Resolution No. 143, Volumes 1 & 2, January 24, 1995. California Public Utilities Commission RD&D Working Group, “Working Group Report on Public Interest RD&D Activities”, filed September 6, 1996. California Public Utilities Commission Renewables Working Group, “Renewables Working Group Report to the CPUC”, August, 1996. California Secretary of State, Lobbying Expenditures and the Top 100 Lobbying Firms, March, 1997. California State Legislature, Assembly Bill 1890, passed by Legislature August 31, 1996, approved by Governor September 23, 1996, filed with Secretary of State September 24, 1996. Carter, Sheryl; Cavanagh, Ralph, memo: “California Restructuring Legislation”, Natural Resources Defense Council, September 19, 1996. Cavanagh, Ralph. “Energy-Efficiency Solutions: What Commodity Prices Can’t Deliver”, Annual Review of Energy. 1995., c1995. Cavanagh, Ralph. “Global Warming and Least-Cost Energy Planning”, Annual Review of Energy. 1989., c1989. Cavanagh, Ralph. “Don't be shocked: we're for competition.” Wall Street Journal (Fri, March 31, 1995):A13(W), A13(E).

ERG Master’s Project

Mark Stout

62

Cavanagh, Ralph. “Electricity shopping can be a bad deal.” New York Times v143, sec3 (Sun, June 12, 1994):F11(N), F11(L). Cavanaugh, Herbert A. “The IRP puzzle: Do the pieces fit in a competitive environment?”, v208, n9 (Sep 1994):23-27.

Electrical World

Cook, James. “Camel in the tent.”, Forbes v147, n6 (March 18, 1991)78-79. Davis, David Howard, Energy Politics, 4th ed., New York: St. Martin’s Press, c1993. Dryzek, J. S. “Political Inclusion and the Dynamics of Democratization”, American Political Science Review, 90(1), September, 1996. Ferguson, Tim F., “California Toys with Live Wires”, Wall Street Journal (Tue, March 21, 1995):A15(W). Flavin, Christopher, and Lenssen, Nicholas. “Reshaping the Power Industry”, State of the World 1994, New York: W.W. Norton & Company, c1994. Framework Parties, “Joint Motion for Consideration of Framework for Restructuring in the Public Interest and for Further Public Process; Joint Response to Memorandum of Understanding, submitted to CPUC 10/95. Gilbert, Richard J.; Henly, John E.; “The Value of Rate Reform in a Competitive Electric Power Market”, Regulatory Choices : A Perspective on Developments in Energy Policy, edited by Richard J. Gilbert. Berkeley : University of California Press, c1991. Glaser, Barney G. Theoretical Sensitivity, Mill Valley, California: The Sociology Press, 1978. Glaser, Barney G.; Strauss, Anselm L. The Discovery of Grounded Theory, Chicago: Aldine Publishing Company, 1967. Gordon, Richard L. “Perspectives on Reforming the Electric Utility Industry”, Electric Power: Deregulation and the Public Interest, Edited by John C. Moorehouse, San Francisco: Pacific Research Institute for Public Policy, c1986. Goventa, John. Power and Powerlessness, Urbana, Illinois: University of Illinois Press, 1980. Haddad, Brent M. “Federal Regulation Overview”, for the ER 251 Seminar, Nov. 1992. Hempling, Scott. “Electric Utility Holding Companies: The New Regulatory Challenges”, Land Economics v71, n3 (August, 1995):354. Hoffman, Matthew C. “The Future of Electricity Provision”, Regulation, 1994, no 3. Hogan, William H. Comments on Electric Industry Restructuring, before Pennsylvania House of Representatives Consumer Affairs Committee, July 11, 1994. Kansas, Dave. “For electrical utilities, the future is less than bright; emboldened, some users push for rate cuts, others for 'retail wheeling'.” Wall Street Journal (Thu, Feb 10, 1994):B4(W), B3(E). Kozloff, Keith Lee, Dower, Roger C., A New Power Base: Renewable Energy Policies for the Nineties and Beyond, World Resources Institute, c1993. Lau, Edie. “Full speed ahead on electricity free-for-all”, Sacramento Bee, May 7, 1997.

ERG Master’s Project

Mark Stout

63

Lau, Edie. “Law generates push for gas-fired power plants”, Sacramento Bee, A1. Lee, Patrick. “Edison wins PUC approval for $90-million pilot program.” Los Angeles Times v112 (Thu, Oct 7, 1993):D2. Levine, MD; Hirst, E; Koomey, JG; McMahon, JE; Sanstad, AH; Energy Efficiency, Market Failures and Government Policy. LBL-35376, ORNL/CON-383, UC-350. Oak Ridge, TN: Oak Ridge National Lab, March 1994. Levison, Lara. “DOE Restructuring Bill”, Critical Mass Energy Project elec-list email list, January 22, 1997. Levison, Lara. “Restructuring Hearings on the Road”, Critical Mass Energy Project elec-list email list, March 31, 1997. Lukes, S. Power: A Radical View, London: Macmillan, 1974. Marshall, Jonathan. “Electricity Monopoly Ends Jan. 1, Starting next year, you can pick your provider, PUC rules”, San Francisco Chronicle, May 7, 1997, A1. MOU Parties, Memorandum of Understanding, September 11, 1995. Mydans, Seth. “California Nears Competition Among Electricity Providers”, New York Times, April 21, 1994, A9. Natural Resources Defense Council. “Twenty-Five Years Defending the Environment, Natural Resources Defense Council 197--1995”, 1995. Parrish, Michael. “State unveils renewable energy plan.” Los Angeles Times v109 (Thu, Oct 18, 1990):A1. Pechman, Carl, Regulating Power: The Economics of Electricity in the Information Age, Boston: Kluwer Academic Publishers, c1993. POWER Working Group on Electric Industry Restructuring and Regulatory Reform, A Reader’s Guide to the Blue Book: Issues in California’s Electric Industry Restructuring and Regulatory Reform, Program on Workable Energy Regulation, June, 1994. Rader, Nancy, memo: “Summary of California's Electric Restructuring Bill”, American Wind Energy Association, September 20, 1996. Savage, J.A., “Deregulation Derby”, California Journal, v24, n12 (December, 1993): 33. Scheuer, James H. “Leadership on energy policy isn't found in Washington.” Christian Science Monitor v84, n62 (Tue, Feb 25, 1992):19. Sikkema, Eric; Brown, Matthew. Electric utility competition, Denver: National Conference of State Legislatures, 1995. Sirard, Jack. “Uncertain road ahead for utilities”, Sacramento Bee, October 20, 1996. Smith, Kari J. Customer Driven Markets for Renewably Generated Electricity, A Report From the California Regulatory Research Project, The Center for Energy Efficiency and Renewable Technologies, August 1996. Stevenson, Rodney E.; Penn, David W.; Gorak, Thomas C.; Ray, Dennis J.; et al. “Discretionary evolution: restructuring the electric utility industry.”, Land Economics v71, n3 (August, 1995):354.

ERG Master’s Project

Mark Stout

64

Stevenson, Rodney E. “Social Goals and Partial Deregulation of the Electric Utility Industry”, Journal of Economic Issues v28, n2 (June, 1994):403. United States. Congress. Senate. Committee on Energy and Natural Resources. FERC electric utility restructure : hearing before the Committee on Energy and Natural Resources, United States Senate, One Hundred Fourth Congress, first session ... May 10, 1995. Washington : U.S. G.P.O. Wagner, Janet S., Rewriting the Rules, Nucleus, vol. 17, num. 2, summer 1995. Wald, Matthew L. “A new mantra from utility companies: use more electricity.” New York Times v143 (Thu, May 19, 1994):C6(L). Wald, Matthew L. “Utilities go to the source for efficient refrigerator.” New York Times v142 (Sat, Oct 17, 1992):25(N), 43(L). Wald, Matthew L. “Utilities offer $30 million for a better refrigerator.” New York Times v141 (Wed, July 8, 1992):A1(N), D3(L), col 2. Wald, Matthew L. “Power authority to offer energy-saving plan.” New York Times v139, sec1 (Sun, July 1, 1990):25(L). Walters, David C. “For 2,000 utilities in US, conservation efforts pay.” Christian Science Monitor v84, n119 (Thu, May 14, 1992):3. Weisman, Jonathan, “Congress Looks West for Lesson In Utility Deregulation” February 15, 1997, 412-419.

Congressional Quarterly,

Weisman, Jonathan, “Environmentalist Defends His Stance” Congressional Quarterly, February 15, 1997, 418. Weisman, Jonathan, “Primed for Congressional Battle” Congressional Quarterly, February 15, 1997, 416. Wiser, Ryan; Pickle, Steve; Goldman, Charles. California Renewable Energy Policy and Implementation Issues -An Overview of Recent Regulatory and Legislative Action, Ernest Orlando Lawrence Berkeley National Laboratory, LBNL-39247, UC-1321, September, 1996. Wooley, David; Cavanagh, Ralph. “The cooperative way to save energy.” New York Times v142, sec3 (Sun, Jan 3, 1993):F11(N), F11(L). “Labor, consumers join utilities against retail ‘wheeling’.” Los Angeles Times v113 (Wed, March 9, 1994):D2. “PSE&G's energy-saving plan.” Wall Street Journal (Thu, May 20, 1993):A5(E). “Firm seeks standard tariff for transmitting electricity.” Wall Street Journal (Wed, April 7, 1993):C18(W), C17(E). “Edison launches strategy to commercialize solar energy.” Los Angeles Times v112 (Thu, March 11, 1993):D2. “PSE&G is cleared to spend $100 million on conservation plan.” Wall Street Journal (Mon, Oct 19, 1992):B6E(E).

ERG Master’s Project

Mark Stout

65

Appendix A: Semi-Structured Interview Questions

Stakeholder Interviews •

What outcomes did your organization want to attain from the California electric utility restructuring policy formulation process?

•

How much of what your organization sought to obtain from the process was included (or represented) in the California Public Utility Commission’s December 20, 1995 Decision?

•

How much of what your organization sought to obtain from the process was included in Assembly Bill 1890?

•

Is your organization more comfortable with one policy decision over the other (i.e., CPUC vs. AB 1890)? Why?

•

Was your organization able to publicly maintain a consistent position or set of positions in the two sets of hearings, or over time?

•

What methods and approaches were used to advance your organization's goals and objectives in the CPUC hearings and the subsequent decision?

•

What methods and approaches were used to advance your organization’s goals and objectives in the Assembly hearing and the subsequent issuance of AB 1890?

Officeholder Staff Interviews •

Which stakeholder groups do you think were most effective in influencing the policy formulation process of ____________ and what were they able to obtain from the process?

•

What methods or strategies did these effective groups use to influence the process? Was any particular method or sets of methods most influential?

•

Which stakeholder groups do you think were best able to set the terms of the debate, and why?

•

Which stakeholder groups do you think could have been more effective in influencing the policy formulation process, and how could they have improved their approach?

•

Was it always clear what outcomes each stakeholder group wanted from the process?

ERG Master’s Project

Mark Stout

66

Appendix B: Stakeholder Interviews

Investor-Owned Electric Utilities

Pacific Gas & Electric Kathy Treleven is the Assistant to the Vice President for Policy Coordination & Regulation at PG&E. “Pacific Gas & Electric is a California Investor Owned Utility Company. PG&E provides gas and electric service to more than 13 million people in northern and central California.”81 What outcomes did your organization want to attain from the California electric utility restructuring policy formulation process? According to Kathy, PG&E had two main goals from the California deregulation process: 1) an orderly transition to a restructured generation environment, and 2) coverage for utility stranded costs and obligations. PG&E’s experience with the restructuring of the gas industry provided valuable insight that shaped this approach. PG&E initially said no to gas deregulation, eventually giving in to it while creating tensions with some parties. Now that PG&E has realized electric utility deregulation is inevitable, they want to be able to shape the outcome more effectively according to Kathy. For one, PG&E does not want to have to automatically take the blame when reliability issues arise. Secondly, PG&E wants to avoid the stranding of deals that were made in an era of an intact regulatory compact.

81

CPUC Renewables Working Group, E-1.

ERG Master’s Project

Mark Stout

67

How much of what your organization sought to obtain from the process was included (or represented) in the California Public Utility Commission’s December 20, 1995 Decision? PG&E got what it wanted on some of the more important issues in the CPUC’s Decision. Kathy indicated that the Decision included a plan for an orderly transition to a deregulated generation environment that PG&E desired.

Also, the CPUC Decision allowed for more

generous stranded cost recovery with a 5 year collection period, compared to the four year collection period in AB 1890. How much of what your organization sought to obtain from the process was included in Assembly Bill 1890? In the formulation of AB 1890, PG&E largely got what it wanted, but had to compromise a little more than in the CPUC decision. “Steve Peace forced everybody to confess what was important to them, and own up to what they would let go,” according to Kathy. Several areas of compromise for PG&E included irrigation district exemptions for collection of the Competition Transition Charge, what they perceive as significant funding for renewable energy support, and a shortened period for CTC collection, increasing the risk to full stranded cost recovery. Kathy said that it was important for the Legislature to use a process which brought disparate parties together. Is your organization more comfortable with one policy decision over the other (i.e., CPUC vs. AB 1890)? Why? Although the CPUC Decision was financially easier on PG&E, restructuring as envisioned in the CPUC Decision would have been less likely to take place in an orderly manner due to legal wrangling and ongoing filings at the CPUC.

ERG Master’s Project

Mark Stout

68

Was your organization able to publicly maintain a consistent position or set of positions in the two sets of hearings, or over time? At a macro level, PG&E was able to maintain a consistent position on issues throughout the CPUC and Legislative process, in Kathy’s view. However, she indicated that there was an occasional rough edge. For the formulation of the CPUC Decision, there was consensus within the organization on the basic decisions: direct access was to be supported, while the concept of a wholesale-only pool [President Fessler’s original PoolCo proposal] was to be resisted. However, at finer levels of technical detail, Kathy said that there was a, “healthy internal debate, that sometimes leaked,” outside of the organization. She thought this was due to the nature of the regulatory process: workshops, formal filings, and outside conversations. The legislative process can be even messier, however. PG&E had a core set of negotiators for AB 1890. Although they checked back in with company officers, the negotiating team was given complete freedom to make policy, which was required because of the Conference Committee environment created by Chair Peace. According to Kathy, this flexibility combined with the pressures of negotiation sometimes resulted in, “compromises that generated internal dissent.” What methods and approaches were used to advance your organization's goals and objectives in the CPUC hearings and the subsequent decision? To influence the CPUC Decision, PG&E relied upon lobbying at the Commission, discussions in open forums, the Working Group process, and responses to Commission requests for input. The most important strategy behind all of these tools was the use of a collaborative process to refine the organization’s thinking. More so than in the past, PG&E approached other parties to float proposal ideas by them. The collaboration that went into the MOU was an example of this approach. This more inclusive process is a, “way to advance goals with a

ERG Master’s Project

Mark Stout

69

reasonableness check. It allows an organization to get buy-in from other parties in advance,” according to Kathy. What methods and approaches were used to advance your organization’s goals and objectives in the Assembly hearing and the subsequent issuance of AB 1890? In contrast, Kathy said that what mattered most in influencing the formulation of AB 1890 was responsiveness to Steve Peace’s requirements. “People who influenced the outcome were present, and willing to be straightforward on what they can give on, while holding on to what they really wanted.” Organizations had to be able to make decisions right on the spot to shape the outcome.

San Diego Gas and Electric Jim Cassie is the Director of State Governmental Affairs for SDG&E.

SDG&E, “a

subsidiary of Enova Corporation, is a California Investor Owned Utility Company founded in 1881. SDG&E provides service to 1.15 million electric customers in San Diego and southern Orange Counties, and gas service to 0.7 million customers in San Diego County.”82 Enova Corporation has announced a merger with Pacific Enterprises, the parent company of Southern California Gas Company83, a gas utility which serves a territory largely overlapping with Southern California Edison’s.

82 83

CPUC Renewables Working Group, 1996, App. E. Sirard, Jack. 1996, “Uncertain road ahead for utilities” and Enova Corporation 1996 annual report.

ERG Master’s Project

Mark Stout

70

What outcomes did your organization want to attain from the California electric utility restructuring policy formulation process? Our main goals were stranded assets recovery and the creation of a new marketplace where we could compete. SDG&E was a supporter of the PoolCo market structure along with Edison. We were strongly opposed to the RPS. It does not make sense for SDG&E alone to go out and acquire more expensive renewable resources, everyone should pay. Throughout the ‘70s, we had the highest rates in the nation. When Tom Page came in as CEO in 1981, SDG&E wanted to become the lowest priced California IOU. The lucky Arizona utilities went with coal, they did not get there by investing in high cost renewables. We were very opposed to the BRPU. We went to FERC, and got it struck down. High priced renewables are OK if you are not moving to a competitive future, but are not viable with competition. Also, if you are a broker, it would be difficult to get 5% renewables. [The CPUC’s proposal in the December Decision would have required roughly 10% of all retail sales to be backed up by tradable credits for renewables.84] SDG&E does not have any renewables, except for electricity purchases from Mexican geothermal generators, so we would have to buy energy or credits. This would put us at a competitive disadvantage compared to PG&E and Edison. How much of what your organization sought to obtain from the process was included (or represented) in the California Public Utility Commission’s December 20, 1995 Decision? The PUC was on the right track. AB 1890 mirrors the Decision in many ways, with the exception of the legislation’s mechanism for a rate reduction.

84

CPUC Renewables Working Group, 1996.

ERG Master’s Project

Mark Stout

71

How much of what your organization sought to obtain from the process was included in Assembly Bill 1890? AB 1890 provides a framework set to achieve our goals. Whether this happens is up to SDG&E’s operation. Is your organization more comfortable with one policy decision over the other (i.e., CPUC vs. AB 1890)? Why? We supported the December Decision, and AB 1890 extended it. The PUC had fallen into low esteem with the Legislature. Had there been more coordination between the PUC and the Legislature, the process would have been smoother. If the Legislature had not done what it did to reconcile competing interests, there would have been litigation or more legislation. The PUC was not the right forum for this, the Commissioners have no authority over municipal utilities. Was your organization able to publicly maintain a consistent position or set of positions in the two sets of hearings, or over time? In getting ready for competition, we have started a non-regulated business At times, the goals of an unregulated affiliate may be different than a utilities. These differences were worked out internally with our affiliate, Enova [Enova Energy, which has formed a joint venture with Pacific Enterprises, Energy Pacific85], but we stepped all over each other internally. What methods and approaches were used to advance your organization's goals and objectives in the CPUC hearings and the subsequent decision? In addition to the filing formal comments, SDG&E took part in a series of hearings. We tried to participate in the process, tried to talk with everybody as much as possible. We have one

85

Enova Corporation 1996 annual report.

ERG Master’s Project

Mark Stout

72

or two full time staff in San Francisco, supported by regulatory attorneys and experts brought in when needed. What methods and approaches were used to advance your organization’s goals and objectives in the Assembly hearing and the subsequent issuance of AB 1890? We stuck to our two goals as the most important priorities. As AB 1890 started, nobody knew where it was going. SDG&E had eight people involved in the process, with three officers who had good control over what we were doing. Steve Peace would pick an issue, try to resolve it. If it could not be resolved yet, he would move on. The Conference Committee provided a forum for stakeholders to solve their problems in a collaborative approach. If they did not solve them, Peace would, and nobody would like the outcome. Peace created a mood that we could get the package done; he created momentum with no recess. The Republicans did not want any renewables funding. Jim Brulte and Bill Leonard wanted to bail on them, but Byron Sher needed appeasement. Over time, Peace became an advocate for resource diversity.

He was adamant against the RPS, because of the BRPU

experience. The renewables community has a problem, in that their money goes away in 2002, at which time they must get competitive. I will not be surprised if they push for new legislation in 2001. This was an exercise that none of us want to do soon. A delegation has taken AB 1890 to DC, all of the delegates have signed on. Have sold it that AB 1890 is not a model for the nation, because of the different characteristics of different states. We are asking Congress to leave California alone. We have a $1/4 billion to invest in the ISO, and need to hit the 1/1/98 deadline.

ERG Master’s Project

Mark Stout

73

Southern California Edison Tommy Ross is the Director of Public Affairs at the Sacramento office for SCE, “the nation’s second largest utility, based on number of customers. The 109-year old investor owned utility serves more than 4.2 million customers in Central and Southern California. The utility’s 50, 000 square mile service territory has a population of more than 11 million.”86 What outcomes did your organization want to attain from the California electric utility restructuring policy formulation process? In early 1995, we were positioned as an anti-restructuring, don’t rock the boat utility. We could have been perceived as opposing direct access. Over time, restructuring came to be viewed as inevitable, so we decided if this was going to come into play, let’s do this the right way. With the encouragement of the Governor’s office, we adopted a principled approach that recognized the interests of Edison, large and small customers, and other energy service providers. Our three principles, a manifestation of these mutual interests, were equity, opportunity, and return on investment. First, equity. If any customers are to benefit, all customers should at the same time, creating a level playing field, not “the big guys eat first”. We also pursued the opportunity for a return on investment. The regulatory compacts that we entered into need to be recognized, and SCE investors as well as independent energy producers should have the opportunity for a return on investment. This is best implemented under a transition, with a phase-in to direct access. How much of what your organization sought to obtain from the process was included (or represented) in the California Public Utility Commission’s December 20, 1995 Decision? Those three principles were significant components of the December Decision, and served as a basis for AB 1890. I would not say we got everything we wanted, be we did get a principled

ERG Master’s Project

Mark Stout

74

approach which recognizes the different parties interests. We will not know how Edison faired until after the transition. How much of what your organization sought to obtain from the process was included in Assembly Bill 1890? The same is true for this legislation. All AB 1890 represents is an unfolding framework. Since there are still issues for Edison around stranded cost recovery, in terms of headroom for shareholder returns, and CTC exemptions, we do not know how it will turn out. Is your organization more comfortable with one policy decision over the other (i.e., CPUC vs. AB 1890)? Why? We were satisfied with AB 1890, it validated the direction taken by the December Decision. Since regulatory changes are subject to regulatory whims, putting language in the statute made it more likely to get a known outcome. Was your organization able to publicly maintain a consistent position or set of positions in the two sets of hearings, or over time? Absolutely, we were very consistent. Generally, it is best to adopt a principled approach, otherwise you may open up doors to places you do not want to go. This allowed us to be consistent. We could always ask what principle is driving a requested amendment. This made for touchy meetings with the parties. What methods and approaches were used to advance your organization's goals and objectives in the CPUC hearings and the subsequent decision? Edison worked to ensure that the Commissioners and Legislators understood that the interests being served by our proposals were more than just our own. We made sure they knew

86

CPUC Renewables Working Group, 1996, App. E.

ERG Master’s Project

Mark Stout

75

that everybody was giving up something, not getting all they wanted. For both the Commission and Sacramento, we have a small, on-site staff, supported by policy, regulatory, and legal expertise from the corporate offices. This is why we were so successful in helping resolve issues, for instance with the MOU partners. What methods and approaches were used to advance your organization’s goals and objectives in the Assembly hearing and the subsequent issuance of AB 1890? In the political arena, Edison strived to keep it simple, working with broad-based coalitions. We also involved people at the highest levels, even now we have weekly meetings with corporate officers to discuss implementation. The Sacramento, San Francisco, and DC offices also have weekly meetings to coordinate strategy.

Municipal Electric Utilities

California Municipal Utilities Association - Interview #1 Stuart Wilson is the Assistant Executive Director for CMUA, a lobbying organization representing all but three of the municipal utilities in California, excluding electric co-operatives. What outcomes did your organization want to attain from the California electric utility restructuring policy formulation process? This was a mix of internal and external politics. CMUA members had a debate at the beginning of 1996 as to whether to pursue our own legislation. We put in legislation to prevent customers from avoiding CTC payment. On average, stranded costs are a bigger issue for municipal utilities than for the IOUs. There were two areas of concern: physical bypass, with customers removing themselves from our distribution service; and a Proposition 13 clause stating that local governments can not charge more than the cost of service for utility customers, which

ERG Master’s Project

Mark Stout

76

could be used to disallow CTC collection. CMUA decided that if we do not take a more proactive approach, we will end up playing defense. We had to stay at the table in order to ensure that our concerns were addressed. We wanted to avoid mandates or language on an “un-level playing field”. [IOUs have made arguments about unfair competition from municipal utilities, referring to access to tax-exempt bonds and inexpensive, Federal power, an argument which CMUA refutes.87] CMUA also sought the option of long CTC recovery periods for its members. How much of what your organization sought to obtain from the process was included (or represented) in the California Public Utility Commission’s December 20, 1995 Decision? CMUA had no clear objective at the CPUC, other than not wanting deregulation to happen. We came up with a proposal to prepare for the December Decision. Our proposal included voluntary participation in the PoolCo, and an outline of flexible, public benefits programs. How much of what your organization sought to obtain from the process was included in Assembly Bill 1890? There was no time limit for municipal utility CTC recovery, as well as a longer transition period for direct access. AB 1890 has good stranded cost recovery language which includes physical bypass. Also, we avoided “level playing field” language on tax exempt financing. The direct access reciprocity requirements were expected, a quid pro quo for CTC protection. This forced the munis to support full stranded cost recovery in the IOU CTC. AB 1890 also includes a requirement for our munis to begin direct access by January 1, 2000, in order to get the legislative authority for CTC recovery. The Legislature did not need to mandate this; our customers would have insisted on direct access because of competitiveness concerns. What

87

CPUC, 1995, Status Report on Restructuring..., App. 3.

ERG Master’s Project

Mark Stout

77

was not anticipated was the requirement for munis to be part of the ISO. Without us, the ISO would control transmission assets for only 2/3 of the system, which would have caused transmission constraints. This would not have passed the market power test at FERC. We had to agree with the IOUs on the FERC filing for the ISO, giving munis leverage. The legislation also allowed the ISO to be an independent entity before the FERC filing. We agreed to collection of public purpose program funds as a percentage of revenue at a level at least as high as the lowest IOU, with allocation decisions retained by the local municipal utility leadership. This was a compromise reached with Ralph Cavanagh. Is your organization more comfortable with one policy decision over the other (i.e., CPUC vs. AB 1890)? Why? The PUC did not do anything directly to munis in the December Decision. We did not have huge problems with their Decision, short of wishing deregulation would all go away. We are not worse off from the legislation, except for its accelerating the transition period on IOUs, quickening their move to a competitive posture. Was your organization able to publicly maintain a consistent position or set of positions in the two sets of hearings, or over time? In general, but we were forced to concede on the ISO issue. What methods and approaches were used to advance your organization's goals and objectives in the CPUC hearings and the subsequent decision? CMUA filed formal comments, including our proposal. We also appeared at full panel hearings. Municipal utility representatives attended working group meetings.

ERG Master’s Project

Mark Stout

78

What methods and approaches were used to advance your organization’s goals and objectives in the Assembly hearing and the subsequent issuance of AB 1890? The Conference Committee had a meeting in Anaheim to focus on muni issues. CMUA presented a slide graph showing rate forecasts, IOU levels dropping, muni levels rising. The pending rate decrease for IOUs provided a cushion for restructuring. Edison made threats that AB 1890 would be just as prescriptive for munis as it was for IOUs. Peace blew up when he realized he was dealing with an equation that would not balance, forcing the legislation. CMUA lobbied people, spending more time negotiating with other parties, but did spend significant time with Committee members. The only alternative was to walk away from the deal completely. It was better to stay with it than not have any leverage.

California Municipal Utilities Association - Interview #2 Jerry Jordan is the Executive Director of CMUA. Stuart Wilson [see previous interview] recommended that I speak with him also to gain additional insights. What methods and approaches were used to advance your organization's goals and objectives in the CPUC hearings and the subsequent decision? The PUC had no reason to listen to us as they do not regulate us. CMUA filed comments, and their final Decision had the suggestion of both a wholesale pool and bilateral trades [direct access]. Because of this, we did not oppose the Decision. What methods and approaches were used to advance your organization’s goals and objectives in the Assembly hearing and the subsequent issuance of AB 1890? “Blundering”. CMUA went in very concerned about collecting stranded costs. Munis have overlap constituencies in ratepayers and citizen shareholders. We had sponsored legislation to assure no customers could avoid paying the CTC, but were perfectly willing to see no

ERG Master’s Project

Mark Stout

79

legislation passed. We maintained flexibility, volunteering to do public purpose programs in exchange for other concessions. CMUA had two lobbyists, Stuart Wilson and me. In the Conference Committee meetings there were also 10 to 15 of our members present at any one time. We were called in by the Committee, beat up, and sent out to negotiate. CMUA did not have the army of people Edison did. We were prepared to oppose the bill if it did not include local control for municipal utilities.

Sacramento Municipal Utility District Allan Lind has been SMUD’s contract lobbyist since September, 1993.

SMUD is a

Publicly Owned Utility for the Sacramento region, created in 1946, and regulated by an elected district board which sets policy and rates for this electric utility. SMUD has a notable history of investing heavily in renewable energy and energy efficiency technologies.88 What outcomes did your organization want to attain from the California electric utility restructuring policy formulation process? We had one guiding principle: Preserve the autonomy of SMUD and other munis to determine their role in a restructured environment. SMUD also wanted to ensure that the ability to preserve our financial integrity was not adversely affected; in other words we wanted to be able to recover our stranded costs. Our mantra was lockstep with the California Municipal Utilities Association [CMUA, see interviews]. We never questioned that there would be stranded assets, but were concerned that legislation would handicap our ability to recover them. It was difficult to imagine how the Legislature would perceive a muni’s need.

88

Asmus & Smeloff, 1997, Reinventing Electric Utilities.

ERG Master’s Project

Mark Stout

80

Going into the process, it seemed obvious that these principles were a gimme. But in reality, there was a questioning of what role, if any, should a public agency have in a restructured environment, what equity or fairness issues were raised by them being in the marketplace. This is a classic question of public versus private decision making. Assemblyman Steve Kuykendall was direct in his comments; he does not see a role for munis in a deregulated world. The Legislature did not elevate this to a well-reasoned, philosophical debate. Since our rates were 25% below PG&E’s, this made the question go away. This was the bottom line. Even though municipal utilities have the authority to recover costs, there was a question of whether we would get 100% stranded cost recovery. Some would argue that the SMUD customer did not decide to open Rancho Seco, that some other source should pay. There was also a concern that munis would be constrained to the same clock as the IOUs in terms of the duration of the CTC recovery period. SMUD will finish recovering our CTC by 2002. In the June, ‘96 Rate Restructuring Settlement, it is planned that PG&E will drop their rates below SMUDs by 2002. SMUD responded; we have to resolve this by 2002. How much of what your organization sought to obtain from the process was included (or represented) in the California Public Utility Commission’s December 20, 1995 Decision? There is nothing of direct benefit to SMUD in the Decision. It created an environment of uncertainty. By constructing a brave new world for IOUs, this impacts munis. SMUD’s territory is a small island surrounded by PG&E. The munis are in a foreign land with the PUC. SMUD is very committed to renewables, energy efficiency -- clean energy. We are a consumer elected entity, with board candidates who run on platforms of clean energy and social responsibility that our consumers want sustained. It is difficult to maintain public purpose programs if everyone else abandons them. SMUD would have been well served if the PUC jacked up IOU commitments for ERG Master’s Project

Mark Stout

81

public purpose programs. It would have been difficult for the IOUs to keep up with us on these programs and bring down rates. How much of what your organization sought to obtain from the process was included in Assembly Bill 1890? It’s not like we were asking for a whole lot. We did not get everything we wanted, but got more than we asked for. AB 1890 has language written that denies a muni’s ability to impose a CTC unless they allow direct access. This is arguably a meaningless statement, not to say that we can’t operate as business as usual. But this language could burden us with litigation. If we do not go to direct access, someone can accuse us of having rates too high, because the repayment of current debt could be viewed as a CTC. AB 1890 also set time limits on the duration of CTC recovery, and conditions on CTC recovery. This is not a problem for SMUD, but it might be for others. For us, this is not onerous or burdensome, but arguably gives standing to third parties to contest SMUD’s approach to restructuring. This is an infringement on municipal autonomy, a cloud that we do not need. The state’s regulation of Investor Owned Utilities differs from a muni’s ability to decide how to serve. If the Legislature had respect for the municipal affairs doctrine, it would not have put this in. As I mentioned, SMUD did get something more than we asked for also. AB 1890 states that filings to FERC would be jointly between the municipal utilities and the IOUs. Going in, nobody saw the munis as co-equals to the IOUs. This is a profound shift in how munis and IOUs relate to FERC. How this is playing out, I do not know. A lot of AB 1890 is not crisp, this gives us political standing. If the IOUs do not respect the munis, we can point to the legislation, enhancing our stature at the federal level.

ERG Master’s Project

Mark Stout

82

The bill does a couple of profound things. As for 100% stranded cost recovery for the IOUs, it would have been appropriate for the Legislature to allow some lower percentage. This was no small feat for the IOUs. It skews the time until true competition. I would find that the IPPs see this as a huge giveaway. Since munis could recover 100%, it was used as a basis in the argument for 100% cost recovery by the IOUs, saying “What is good for the goose is good for the gander.” I think we got used, but would not want to change the outcome. It works to SMUD’s advantage to keep their rates high. The rate reduction bond is no skin off our nose either, since it places a premium on their bill extending into the future. The strategy of reducing rates to industrial customers, while keeping residential rates high works just fine; businesses will make location decisions based on electricity costs, but residential customers will not leave their jobs. Is your organization more comfortable with one policy decision over the other (i.e., CPUC vs. AB 1890)? Why? We prefer AB 1890 because of the language which was added to our benefit: The joint filing with FERC, principles for reciprocity on direct access, it codified that customers must sign up to a CTC. This could not have been done by the CPUC. Was your organization able to publicly maintain a consistent position or set of positions in the two sets of hearings, or over time? I think so.

ERG Master’s Project

Mark Stout

83

What methods and approaches were used to advance your organization's goals and objectives in the CPUC hearings and the subsequent decision? We participated in workshops and in written testimony. As a public agency, we have to play things straight up. We do not have a lobbyist at the CPUC, but do send attorneys to represent us. We also networked our position with other utilities, including through the CMUA. What methods and approaches were used to advance your organization’s goals and objectives in the Assembly hearing and the subsequent issuance of AB 1890? SMUD did the lobbying and advocacy that public agencies are allowed to do, which does not include campaign contributions. We met with legislative staff and members. In addition to myself, there were three other people with direct contacts: SMUD’s General Manager, Assistant General Manager, and Director of Public Affairs. They were not camping out at the Capital, but came in for visiting with the staff and members two or three times each. I was the point person in lining up meetings that several of us would attend, putting in 1/3 to 2/3 of my time. The IOUs have more resources to devote to this, more at stake. Comments on municipal utilities and taxation: LADWP [Los Angeles Department of Water and Power, California’s largest municipal utility89] is a favorite whipping boy of some of the members from Southern California, causing concern with other munis. The thing that sets people off is that LADWP transfers $100 million a year to their general fund from their utility revenues. LADWP is a creature of LA. If the city council needs this transfer to balance the budget, so be it. SMUD is an independent special district that can not do that. Munis can be divided into two groups: those that are creature of city governments, and those that are independent. There are also hybrids that fall in between such as

ERG Master’s Project

Mark Stout

84

the Santa Clara Municipal Utility District, which is a standalone district, with city council members as their board of directors. SMUD collects a utility tax for the city of Sacramento. By passing a tax, the city has imposed a duty on SMUD to collect this tax. Propositions 64 and 218 create a cloud over a muni’s ability to collect taxes. There was a bill in the Assembly to immunize the IOUs against Prop 218. They would not take munis in, saying this would jeopardize the bill, as it was expected to pass.

Utility Labor Unions

Coalition of California Utility Employees - Interview #1 David Marcus is a technical consultant to CUE, a coalition of labor unions whose members work at all of the electric utilities in California. David was referred to me by Carl Blumstein as playing a central role in this labor coalition’s strategy [see interview with Carl]. What outcomes did your organization want to attain from the California electric utility restructuring policy formulation process? The California unions decided early on that digging in our feet against deregulation was a bad strategy. In cases where fights would be inevitably lost, like protecting the jobs of meter readers, we decided to go for retraining. The strategy then was to protect people, not jobs. Existing regulated rate systems have incentives for reliability through excess capacity. In a competitive system, building inventory is stupid, no one is responsible for reliability. Generators want to keep reliability on the edge, driving up prices. With deregulation, you need to create a structure to ensure reliability. The ultimate idea of our strategy is to protect jobs, but this is a case when union interests and public interests coincide, owner interests do not.

89

CMUA, Highlights of Restructuring...

ERG Master’s Project

Mark Stout

85

How much of what your organization sought to obtain from the process was included in Assembly Bill 1890? Getting CTC recovery for worker retraining and severance packages was a major victory. Also, when a utility plant is divested to a new company, the existing unions get a contact for two years of plant operation. We are willing to compete, but with a rational transition. The legislation also attempts to ensure the reliability of the system by building in responsibility for inspection and maintenance into the new regulatory structure.

Coalition of California Utility Employees - Interview #2 Marc Joseph is an attorney actively representing CUE through both the CPUC and legislative tracks. Marc was referred to me by David Marcus, a technical consultant to CUE [see preceding interview]. What outcomes did your organization want to attain from the California electric utility restructuring policy formulation process? We hoped to shape restructuring policy to minimize the adverse impacts on utility employees while still achieving the goals of the Commission: Lowering rates while protecting employees, increasing efficiencies without sacrificing reliability and service, a result where the only criteria was not cents/kWh, but criteria of reliability and quality of service. We initially focused on whether, and to what extent, and how the market should be shaped. We pointed out that the only part of the industry subject to competition was the variable cost of energy. We already had viable wholesale competition, there are no savings to customers to be gained from retail competition. Enron now agrees with us. As it became clear that this argument would be lost, we shifted to focus on generation, transmission, and distribution reliability, and responsiveness to customer inquiries. Most customers want more than incremental savings. ERG Master’s Project

Mark Stout

86

How much of what your organization sought to obtain from the process was included (or represented) in the California Public Utility Commission’s December 20, 1995 Decision? Not very much. Some things were being addressed in other proceedings. For example, distribution reliability was in a separate rulemaking, and quantitative reliability measures were beginning in another rulemaking. The Decision fell considerably short of where it needed to be. It attempted to address the means for employees to be provided with assistance to handle their transition. But no standards were discussed for inspection and maintenance, and it did not provide for generation supply reliability. The Decision also did not recognize the importance of maintaining local generation throughout California, or the value of a highly skilled, dedicated workforce. How much of what your organization sought to obtain from the process was included in Assembly Bill 1890? Most of what we sought.

AB 1890 provided for recovery of reasonable employee

transition costs. It calls for the adoption of standards for the inspection and maintenance of distribution and transmission. It recognizes the need for divested plants to be operated by capable people, with a 2 year continuation of the existing staff. The CPUC is required to ensure that generation reliability is maintained before plants leave their jurisdiction. AB 1890 also gives the ISO the responsibility to achieve Western Systems Coordinating Council (WSCC) standards for planning reserve criteria. Is your organization more comfortable with one policy decision over the other (i.e., CPUC vs. AB 1890)? Why? Yes, we supported AB 1890, and have committed to the January 1, ‘98 start date because of that.

ERG Master’s Project

Mark Stout

87

Was your organization able to publicly maintain a consistent position or set of positions in the two sets of hearings, or over time? CUE has always spoken with one voice. We have had no trouble with consistency. What methods and approaches were used to advance your organization's goals and objectives in the CPUC hearings and the subsequent decision? CUE took part in the process with many written comments as well as in a full panel hearing. We participated fully in the public process at every opportunity. All comments we filed had yellow covers to stand out in stacks. We did not do much, but did some personal lobbying before the December Decision. What methods and approaches were used to advance your organization’s goals and objectives in the Assembly hearing and the subsequent issuance of AB 1890? CUE marched in the Steve Peace death march, spending all of August working hard, with three or four representatives in Sacramento much of the time.

Earlier in the summer, we

sponsored two bills, AB 3153 providing employee transition cost, and AB 2610 dealing with generation reliability. We participated fully in the Committee hearings and drafting of language. CUE also took part in a coalition, including PG&E, CLECA, CMA, and the oil companies, that held together.

This collaborative effort resulted in the June ‘96 PG&E rate restructuring

settlement, that featured a rate freeze in exchange for a finite CTC collection period, that was one of the basis for AB 1890.

Independent Producers

American Wind Energy Association Nancy Rader is the West Coast Representative for the American Wind Energy Association. AWEA, “has represented all facets of the U.S. wind energy industry since 1974. ERG Master’s Project

Mark Stout

88

AWEA’s 750 members, including 155 members in California, includes 7 turbine manufacturers, 10 project developers/operators, 12 accessory parts manufacturers, 22 consultants, academicians and interested individuals.”90 What outcomes did your organization want to attain from the California electric utility restructuring policy formulation process? Nancy says AWEA sought to attain a “strong renewable energy policy, such as the Renewables Portfolio Standard,” from the California electric utility deregulation process. The RPS, “corrects market failures and market barriers, and is a long-term, efficient policy mechanism,” for supporting renewable electricity generation. Nancy had developed the RPS concept for AWEA since being hired on. How much of what your organization sought to obtain from the process was included (or represented) in the California Public Utility Commission’s December 20, 1995 Decision? Nancy was successful in getting the RPS embodied in the CPUC’s Decision as a minimum renewables purchase requirement (MRPR). Although she says the Decision language was vague, with implementation details to be worked out through a CPUC stakeholder Renewables Working Group process, the essential elements of the RPS were included in the MRPR so that AWEA could largely get what they wanted.

However, the MRPR was, “undermined by EDF [the

Environmental Defense Fund] who actively sought to increase opposition to the policy in order to build support for their competing policy.” EDF led a coalition with the only non-MRPR proposal in the CPUC Renewables Working Group, which Nancy and I found to be clearly outside of the purview of the Working Group’s charter. She mentioned that another stumbling block for the

90

CPUC Renewables Working Group, E-1.

ERG Master’s Project

Mark Stout

89

RPS was a lack of support from the Sierra Club, and that consequently UCS’s support of the RPS was critical. How much of what your organization sought to obtain from the process was included in Assembly Bill 1890? Despite AWEA’s success in the CPUC Decision, they were not able to get any of what the organization originally wanted in the bill’s language. Nancy said that the allocation of Systems Benefits Charge money for renewables in AB 1890 was a temporary pile of dollars, whose outcome was dependent on allocation by a state agency, leading to no long term policy. It amounted to nothing more than a deal. The RPS, in comparison, is a long-term, market-driven policy. Was your organization able to publicly maintain a consistent position or set of positions in the two sets of hearings, or over time? According to Nancy, AWEA’s position in the CPUC and Legislature has been consistent since October of 1994, when Nancy was hired to develop a strategy for how renewables policy would be structured in a competitive industry. What methods and approaches were used to advance your organization's goals and objectives in the CPUC hearings and the subsequent decision? To achieve AWEA’s objectives at the CPUC, Nancy relied mainly on written testimony filed with the Commission, comprised of detailed arguments. Nancy, along with Jane Kelly of UCS, arranged for personal meetings with CPUC President Fessler and the staff of Commissioners Knight and Conlon. Nancy remembers that the meeting with President Fessler resulted in a “vague discussion”, and that she was not certain of his support at the time. In comparison, the meetings with Commissioner Knight’s staff were, “productive discussions”, and

ERG Master’s Project

Mark Stout

90

Nancy feels that, “Knight was sold on the RPS concept because he is a believer in markets.” She was also invited to participate in a full panel hearing on public purpose programs. In retrospect, Nancy said she, “trusted in the process, and it worked.” What methods and approaches were used to advance your organization’s goals and objectives in the Assembly hearing and the subsequent issuance of AB 1890? In contrast, the Legislative process in the summer of 1996 was a “nightmare” according to Nancy. AWEA relied mainly on Senate and Conference Committee hearings as well as input on draft legislative language to influence the policy outcome. Nancy remembers that the conference committee meetings were occurring in an, “incredible time crunch, with many issues being ironed out at once.” The Committee Chairman, Steve Peace, had killed the RPS before any discussion began. The new CPUC President Conlon tried to put the RPS back on the table for discussion, but Peace killed it again. Nancy continued to describe the process: “Time was too short, and people were not listening to arguments. There were major egos on the Conference Committee with pre-formed opinions.” One issue that hampered Nancy was that the Independent Energy Producers (IEP) representative “had control of the pen for draft language, resulting in very little control for AWEA.” Nancy did feel that AWEA got things derailed out of the conference committee that would have been worse than what eventually emerged. By melting down the proposed language, she was able to get rid of the Renewables Marketing Agent concept without insulting its creator, Chairman Peace. AWEA lobbyist Joe Caves was able to get John White’s customer rebate proposal pulled from the draft language. At one point towards the end of the Conference Committee process, Peace threw all of the stakeholders out of the room and told them to come back in one hour with their deals already ERG Master’s Project

Mark Stout

91

made.

This resulted in furious horse-trading between Southern California Edison (SCE),

California Manufacturers Association (CMA), and Pacific Gas and Electric (PG&E). The utilities were able to obtain a three month extension on to recovery of the Competition Transition Charge, along with gutting energy efficiency funding, in order to come up with the $540 million allocated for renewables support over the four year transition period. When Nancy saw the public goods money being stripped away from energy efficiency, she offered to walk away from the table and pull AWEA’s endorsement if Ralph Cavanagh of the Natural Resources Defense Council, the key advocate for energy efficiency funding, would do the same. She was disheartened that Ralph would not pull NRDC’s endorsement, because he, “wanted a win, didn’t want to ruffle any strategies. NRDC had no media strategy, made no attempt to build clout, but relied on their name instead. In the end, AWEA endorsed the bill reported out of the conference committee, largely because no public interest group was willing to oppose the bill.” Nancy added that if TURN had not endorsed the report, AWEA would have dropped their endorsement also. She was also disappointed that no discussion happened amongst legislators outside of the bipartisan conference committee, resulting in little debate on the Assembly or Senate floor.

Independent Energy Producers Jan Smutny-Jones is the Executive Director of IEP, “California’s oldest and leading trade association representing the interests of developers and operators of independent energy facilities, as well as independent power marketers. IEP’s primary goals are to safeguard the interests of operating independent energy projects, and ensure that California remains a healthy market for the development in the independent energy industry.”91 According to Jan, IEP was formed in 1982,

91

CPUC Renewables Working Group, 1996, App. E.

ERG Master’s Project

Mark Stout

92

and represents a diverse group of gas and coal-fired cogeneration and renewable energy plants. Over time, they had moved from using California’s Standard Offer process as a vehicle for the expansion of the independent power sector, to spending millions of dollars developing California’s integrated resource planning process, the CPUC Biennial Resource Plan Update. The BRPU had resulted in 1300 MW of contracts before being struck down, 300 MW set aside for renewable generation. [SCE succeeded in killing the BRPU at the Federal level in 1995.] What outcomes did your organization want to attain from the California electric utility restructuring policy formulation process? It was clear that the way we were doing things was not working well, independent producers were better off working with customers.

Direct access is a tool for future

development. IEP also sought to maintain a policy for resource diversity in the mix of generation. Ensuring the sanctity of existing contracts is our highest priority. How much of what your organization sought to obtain from the process was included (or represented) in the California Public Utility Commission’s December 20, 1995 Decision? Overall, IEP did well from restructuring. In May, the Governor’s office convened a meeting due to the hostilities between large customers and Edison at a time when Pete Wilson was trying to run a Presidential campaign. Initially, IEP was invited to the meetings, but not allowed to talk. Over time, we influenced the Memorandum of Understanding that was released in August of 1995. By allowing utilities an opportunity to recover 100% of their stranded costs, the MOU allowed the restructuring process to move forward. A large portion of the MOU is reflected in the December Decision. For IEP, the Decision allowed for a direct access market developing, and included a policy for maintaining resource diversity.

ERG Master’s Project

Mark Stout

93

How much of what your organization sought to obtain from the process was included in Assembly Bill 1890? Much of the same applies to AB 1890. Overall we did well in terms of direct access to customers, as well as support for resource diversity. The legislation also includes language on a method for calculating SRAC [short run avoided cost, the amount paid to QFs such as many IEP members under PURPA law]. Is your organization more comfortable with one policy decision over the other (i.e., CPUC vs. AB 1890)? Why? IEP prefers AB 1890. It was necessary to provide an underpinning, leading to an almost unanimous understanding of the need for legislation. Dan Fessler was a proponent of the PoolCo, which was not supported by IEP or customer groups who feared that we would wind up with a market structure which would cause unraveling. The municipal utility issue also needed to be dealt with. Was your organization able to publicly maintain a consistent position or set of positions in the two sets of hearings, or over time? Yes, we had historically tried to take the high road on public policy issues.

There

continues to be opportunities to take potshots over a lack of consistency. For example, on the issue of full stranded cost recovery, some members do not agree with this, but do not want their contracts challenged by the IOUs or have the IOUs driven into bankruptcy. What methods and approaches were used to advance your organization's goals and objectives in the CPUC hearings and the subsequent decision? Our primary focus was through the MOU, a “settlement negotiation with a critical mass of interest groups”. We also made a myriad of filings.

ERG Master’s Project

Mark Stout

94

What methods and approaches were used to advance your organization’s goals and objectives in the Assembly hearing and the subsequent issuance of AB 1890? A lot built on the MOU, with the creation of an expanding core group of people who decided this was the right way to go. An issue that had not been dealt with well at the CPUC was renewables. The Renewables Portfolio Standard was put in at the last minute, using oblique language. It did not have political legs within the Commission. The $540 million surcharge for renewables was Plan B. The RPS lasted about seven minutes at the Legislature. Strategically, there is a move away from command and control, which is how the RPS was perceived. Tactically, there was too much fighting with the Sierra Club and EDF, and not enough talking with other market players. CMA and CLECA offered to carry the CTC forward [three months] in order to include renewables funding in the public goods charge. The renewables community was like a family with a rich uncle dying and no will. I believe the vast majority of developers will survive the 11th year QF cliff, but there will be an industry shakeout, which would have happened without restructuring. Developers will be much better off selling to people who want to buy renewable energy rather than forcing it down utilities throats. General comments: In the December Decision, anybody going to self-generation would have to pay the CTC, even if construction of their plant started before December 20, 1995. The cogeneration-CTC waivers in AB 1890 were for the companies that were stuck in the predicament of having begun construction of new generation, who would still be required to pay the CTC or an exit fee. Three fascinating things have occurred since the issuance of AB 1890. First, there are the three or four merchant gas plants will be built in California in the next five years [see Edie Lau,

ERG Master’s Project

Mark Stout

95

“Law generates push for gas-fired power plants”]. Then there is the announcement by SCE that they will be divesting 100% of their generation. Finally, the fact that Enron [large, independent power developer] bought Zond [wind turbine developer] speaks of significant market potential.

Large Electricity Consumers

Agricultural Energy Consumers Association Michael Boccadoro is the Executive Director of AECA, a lobbing group representing all farm groups in California except for those represented by the Farm Bureau. What outcomes did your organization want to attain from the California electric utility restructuring policy formulation process? AECA was a strong advocate for direct access. This is based on input from growers, who have a choice in all of their other commodity inputs. Giving choices to folks will lower rates. We also desired that the IOUs share in some of the burden of their stranded costs. This got traded away. While we recognized that contracts with QFs were forced, the nukes were not, playing a significant role in planning and cost overruns. The IOUs were able to protect the whole concept of CTCs. To the PUC, non-bypassable meant something. Agriculture had been fuel switching for a number of years. An irrigation district is a type of water district, which has significant power to buy, sell, and distribute electricity. Although more than 70 irrigation districts never have sought to utilize this power, three have. Now others are precluded by the non-bypassability of the CTC which will not allow for competition. How much of what your organization sought to obtain from the process was included (or represented) in the California Public Utility Commission’s December 20, 1995 Decision? AECA got direct access with a slow phase-in, but lost everything else.

ERG Master’s Project

Mark Stout

96

How much of what your organization sought to obtain from the process was included in Assembly Bill 1890? AECA won on direct access, but we did not get less than 100% CTC recovery. Diesel and natural gas use was exempted. We were able to carve out roughly three hundred megawatts of CTC exemptions for irrigation districts, although ideally there would be no limits. Agriculture got the overwhelming majority of the CTC exemptions. Is your organization more comfortable with one policy decision over the other (i.e., CPUC vs. AB 1890)? Why? AECA preferred AB 1890, as did almost everybody except for Edison. What kept the utilities at the table was that if a party disagrees with the PUC, it can file for a rehearing, based on something in a Decision not supported by the record. This can go to the state supreme court if it is not dealt with early enough. The CTC could have been challenged as an exit tax. Was your organization able to publicly maintain a consistent position or set of positions in the two sets of hearings, or over time? AECA recognized that in the legislative debate, the CTC issue would not be resolved with less than 100% stranded cost recovery, so we left it alone, unlike at the PUC. What methods and approaches were used to advance your organization's goals and objectives in the CPUC hearings and the subsequent decision? AECA approached things differently than the other intervenors. We were leading, vocal opponents to the PoolCo. We made direct testimony at the PUC, with a grassroots effort generating letters to and from the Legislature.

We lobbied at the Governor’s office.

approach was very political.

ERG Master’s Project

Mark Stout

97

Our

What methods and approaches were used to advance your organization’s goals and objectives in the Assembly hearing and the subsequent issuance of AB 1890? The legislative debate was different. AECA participated with a customer coalition, but stayed out of the MOU. Steve Peace kept saying it would go with a unanimous Committee vote or it was not going to go at all. This was too complex a bill for a split conference committee. A couple of the Conference Committee members did not have a clue what was in the bill. We were one of the last groups hanging on the outside. The irrigation district CTC exemptions was one of the last amendments added, we could have pulled a lot of agricultural votes on the floor otherwise. The political leverage of agricultural votes was critical. We had an irrigation district bill which the utilities had previously killed, but managed to get its language in thanks to Curt Pringle. We also had a strategy based on financial market leverage, sending press releases to Wall Street analysts. IOUs care more than anything about their stock price. It is amazing how much time the CEOs of IOUs spend on Wall Street. A friendly analyst provided us with a fax list for Wall Street. We then made sure that anything negative about the utilities made it out to the analysts.

California Industrial Users Phil Stohr of Downey, Brand, Seymour & Rowher is Counsel for CIU, an organization that was formed in the late 1970s to represent industrial natural gas and electricity users, which has evolved into an electricity-oriented group, traditionally most active with CPUC proceedings.

ERG Master’s Project

Mark Stout

98

What outcomes did your organization want to attain from the California electric utility restructuring policy formulation process? We sought retail wheeling, the development of an option that would permit industrial customers to look somewhere else than the UDC for electricity generation.

This was not

perceived as realistic before the Yellow Book; there was no forum in which to advocate for it. In 1986 when ELCON [the Electricity Consumers Resource Council, representing 24 companies that consume over 4% of U.S. electricity92] mentioned retail wheeling to the CPUC, this sent the Commissioners scurrying. The overwhelming majority of our activity has been on traditional rate cases. Retail wheeling served as a muted backdrop. How much of what your organization sought to obtain from the process was included (or represented) in the California Public Utility Commission’s December 20, 1995 Decision? Quite a lot in terms of basic concepts. Much of that related to the MOU. Between May of 1995 and the Decision, the parties were involved in many conversations. The draft Decisions [May, 1995 CPUC proposals] were a major disappointment because of the dominance of PoolCo, with Direct Access pushed out on the horizon and tied to a range of contingencies. The work between May and September was critical. The December Decision had aspects which gave us pause, but in general was a step forward. How much of what your organization sought to obtain from the process was included in Assembly Bill 1890? The element at the core of AB 1890 came about as the result of informal negotiations between the December Decision and AB 1890, resulting in the PG&E rate restructuring settlement. This was a new element which brought a new dimension: a rate freeze with a well-

92

Asmus, 1995, “Retail wheeling:...”

ERG Master’s Project

Mark Stout

99

defined period of time in which CTC obligations would be disposed of. This carried over directly to AB 1890. There were a lot of areas of overlap between the December Decision and AB 1890, for instance both included language regarding no cost shifting. In terms of process, many parties felt legislation was necessary to assure a measure of permanence in the Commission’s policy Decision. Incorporation of the Commission’s policy and some additional elements into the Bill took California another big step down the road towards restructuring. Provisions of the MOU had a lot to do with the process moving to the Legislature, laying out requirements for the parties to get specific Legislation. CIU was not a signatory to the MOU. There was a perception that Edison’s zeal reflected a concern that their hard-fought victory for 100% CTC recovery might be ephemeral, and that they needed a legislative backstop. Is your organization more comfortable with one policy decision over the other (i.e., CPUC vs. AB 1890)? Why? The December Decision advanced the cause another step. To fully answer, need to get into the specifics of the bill. The provisions presenting a definite time period within which the CTC would have to be recovered were critical. Along with the rate freeze concept, this time frame foreshortened the transition to the new competitive market and meaningful customer choice. Was your organization able to publicly maintain a consistent position or set of positions in the two sets of hearings, or over time? CIU had no problem speaking with one voice. We have seen our position evolve at each major waystation. Each brought a new dimension and set of sub-issues to be absorbed into our area of interest. But the basics of our position have remained unchanged throughout

ERG Master’s Project

Mark Stout

100

What methods and approaches were used to advance your organization's goals and objectives in the CPUC hearings and the subsequent decision? We were involved in all formal proceedings. Early on, we commented on the Yellow Book, but our concerns at the time were still rate-case focused. The issuance of the Blue Book sent seismic waves through the community. Rather than have counsel speak, we had member company representatives participate in several full panel hearings. Our members are business entities with a nationwide presence, able to draw on experts knowledgeable on energy policy and acquisition. CIU took part in most full panel hearings, and filed comments at every opportunity. At some points, it felt like “we’ve been here before”, due to the length of the policy phase proceedings. We have also met with the Commissioners, bringing member company representatives in from time to time to discuss broader agendas. It is important for the Commissioners to hear from the people actually running the businesses whose electricity needs have been our focus. We have occasionally lobbied on more specific issues, for instance on the rate restructuring settlement. We thought that we were busy during the policy phases of restructuring, but had no idea of the magnitude of tasks in the implementation phase over the last 18 months. What methods and approaches were used to advance your organization’s goals and objectives in the Assembly hearing and the subsequent issuance of AB 1890? Our participation was largely a matter of being present and accounted for. This applies to the formal Committee, as well as the caucusing and preparatory sessions amongst parties. Some of these meetings were spontaneous, some were at the request or demand of the Committee. We were there for the great bulk of the hearings, and made our contribution, particularly in the collateral coalition meetings. The raw material of the initial bill came from coalition participants.

ERG Master’s Project

Mark Stout

101

This time spent, aside from being painful, has been very useful in the implementation phase. It is remarkable how much AB 1890 was a product of broad-based discussions. Some aspects of the Bill developed in off-line, direct visits with the members. The Governor’s office was also party to several discussions, and there was a perception of considerable influence emanating from the Governor’s office. CIU has never really included in its agenda a strong presence at the Legislature. We were interested, and have monitored the legislative process but have chosen to focus on the Commission. We have made some legislative appearances, however, such as in September of ‘95 at the SONGS hearings. This recent process marks the first time the Legislature has taken such a broad role interacting with the CPUC. President Conlon was there in the wee hours of the morning.

In the course of this process, there has been a warming in the cordiality of the

relationship between the Legislature and the Commission. There will likely be follow-up at the Legislature principally with respect to SB 960 which dealt with PUC reform. (SB 960 was pulled together over several days following the AB 1890 deliberations.)

California Large Energy Consumers Association - Interview #1 Dianne Hawk was a Utility Regulatory Consultant for Barkovich and Yap, Inc., representing CLECA during the process leading up to the CPUC December Decision. CLECA is an organization representing large, industrial electricity customers. What outcomes did your organization want to attain from the California electric utility restructuring policy formulation process? CLECA wanted lower rates in the long run, cost-based rates.

ERG Master’s Project

Mark Stout

102

How much of what your organization sought to obtain from the process was included (or represented) in the California Public Utility Commission’s December 20, 1995 Decision? The institutions in the Decision were designed with enough flexibility to give the opportunity for lower rates. I am unsure of whether it will happen. We did not have the expectation that it would happen tomorrow, but would trade off short term for long term gains. The defining of industry structure for competition to drive prices down was important. CLECA did not want a single market, but wanted multiple ways to purchase electricity. We also wanted the separation of the ISO and PX. There was a lot of compromise, given the PoolCo structure in the May, 1995 CPUC majority proposal, but we came closer. How much of what your organization sought to obtain from the process was included in Assembly Bill 1890? With regards to market structure, nothing changed significantly from the CPUC Decision. On this question, I suggest you speak with Barbara Barkovich. [See interview with Barbara] Was your organization able to publicly maintain a consistent position or set of positions in the two sets of hearings, or over time? CLECA’s positions were consistent, even over time. They were based on a consistent thread of how to organize a market. What methods and approaches were used to advance your organization's goals and objectives in the CPUC hearings and the subsequent decision? In addition to filing formal comments, we met directly with Commissioners. Barbara Barkovich also took part on numerous full panel hearings before the Commissioners. Prior to this proceeding, there was not as much coordination or compromise amongst stakeholders. It used to be that the IOUs were driving everything. The MOU set the tone for that.

ERG Master’s Project

Mark Stout

103

California Large Energy Consumers Association - Interview #2 Barbara Barkovich is an Energy and Utility Regulatory Consultant with Barkovich and Yap, Inc., representing CLECA throughout California’s electric utility restructuring process. I spoke with Barbara to build on the base of insights into CLECA’s positions that Dianne Hawk provided, extending them to include more of the AB 1890 process. What outcomes did your organization want to attain from the California electric utility restructuring policy formulation process? CLECA was one of the first parties to advocate retail wheeling, as early as our comments on the Yellow Book in the Fall of 1993. It seemed premature before then. Rates are very high in California, and we see competition as the only way to bring them down. We had experienced with the regulatory proceedings in the past. Our members are used to multiple suppliers for everything else, they are seeking the same for electricity.

CLECA wanted to make sure

unbundling and stranded cost recovery were done with no cost shifting. This was a big objective for the legislation, based on the concern that stranded cost recovery would be shifted onto industrial customers. We did not want customers to pay any more than they had been. How much of what your organization sought to obtain from the process was included (or represented) in the California Public Utility Commission’s December 20, 1995 Decision? Competition was there, it was very much influenced by the MOU. The May CPUC Proposal was lacking, which is why the MOU happened.

There was some language about

avoiding cost shifting, but no detail.

ERG Master’s Project

Mark Stout

104

How much of what your organization sought to obtain from the process was included in Assembly Bill 1890? More than in the December ‘95 Decision. It calculates CTC costs based on the residual method CLECA proposed, based on paying for the CTC with the same rates large customers are paying now. AB 1890 also includes comparable CTC treatment for direct access and non-direct access customers. The December Decision does not treat the CTC using the residual method. The rate restructuring for Diablo Canyon was along the lines of the residual method for CTC setting. This was absolutely essential for the legislation, allowing for a 2001 date for the end of CTC recovery. A residual CTC is left over when the PX price, transmission, distribution, and public purpose programs are subtracted from the frozen rate. We also kept interuptable rates in place for 5 years, with a lower CTC payment. Our members will not experience the rate increase they would have if this went away. We did pretty well, in general AB 1890 is a good bill. CLECA wanted to make sure small customers pay off their own bonds to finance the 10% rate reduction. I am not sure how much residential customers wanted cost reductions paid for by bonds. The legislation did a good job buying off people. One things I was disappointed with was the rampant green/renewable payoff, just like more pigs at the trough. Public purpose money should go to the next generation of technologies, not bail out developers that did not create a reserve with their subsidies. Many of the existing renewables companies have been managed poorly.

ERG Master’s Project

Mark Stout

105

Is your organization more comfortable with one policy decision over the other (i.e., CPUC vs. AB 1890)? Why? AB 1890. Some things were not addressed in the December Decision.

Also, CTC

recovery went on too long, we wanted it time-limited, not stretching till 2005. Was your organization able to publicly maintain a consistent position or set of positions in the two sets of hearings, or over time? Yes, CLECA is a small and cohesive organization. We had to give up on 100% stranded cost recovery, resulting in more of an opportunity for utilities to recover than we would have liked. We were not prepared to agree to the levels of public purpose funding in AB 1890; we also did not want funding floors, we wanted caps. Till the end, we did not like renewables money going to existing plants. A major win was that fuel price increases would not get passed through. If this eats into the CTC headroom, that is the utility’s problem. This does not guarantee full stranded cost recovery by a long shot. A lot of formulation went into the rate restructuring settlement. What methods and approaches were used to advance your organization's goals and objectives in the CPUC hearings and the subsequent decision? Of course, CLECA filed formal comments.

The most important thing we did was

negotiating the MOU. Even though the December Decision was not perfect, it was much better than the May, 1995 proposal as a result of the MOU. The May proposal was based on a PoolCo concept, with wholesale competition. This proposal was supported by Edison, SDG&E, and UCAN, but it angered the industrial customers. CMA hired Flanagan to talk to the Governor’s office and plan a campaign against Edison. Edison sent a letter to CMA’s board telling them that their members were, “off the reservation.”

CMA fired a response back.

Edison ran ads

supporting PoolCo, and CMA was about to retaliate, which Pete Wilson did not want when he ERG Master’s Project

Mark Stout

106

was running for President. CLECA did not want the utilities to have full stranded cost recovery, but this was negotiated before I was even at the table. Edison was not even willing to talk without it. Another big issue was the SONGS [SCE’s San Onofre Nuclear Generating Station] settlement, extending recovery for this stranded asset. Important elements of the MOU were the proposed market structure and phase-in of direct access. The 1/1/98 date to begin was CLECA’s idea. It was critical that the Power Exchange, ISO, and direct access all start at the same date so that you do not end up with a PoolCo. We went to the Legislature and the PUC, including direct meetings with the Commissioners, in order to explain the MOU. Since this was a rulemaking, ex Parte rules were not in effect. We also met with non-MOU parties to see what it would take to get them on board, but they all wanted too much. What methods and approaches were used to advance your organization’s goals and objectives in the Assembly hearing and the subsequent issuance of AB 1890? An important step was negotiating a rate restructuring with PG&E, CMA, labor, oil, agriculture, and other groups. The legislative process had an awful lot of horse trading in a public, political environment. Steve Peace wanted it done in front of him. Many more parties were involved in this process.

California Manufacturers Association Karen Lindh was CMA’s energy and environmental policy director through the CPUC and AB 1890 process, representing the organization in this area since 1976. CMA is an 800 member

ERG Master’s Project

Mark Stout

107

organization, representing mainstream California industries before the CPUC and Legislature.93 CMA has been involved in energy intervention since 1970, making arguments on cost of service rates and rate increases. What outcomes did your organization want to attain from the California electric utility restructuring policy formulation process? CMA wanted to achieve utility rates in California for gas and electricity in order to compete with out of state industry. It became clear that customer choice was the only way to do this. Services that are natural monopolies should continue to be regulated on a cost of service basis, on a customer class basis. We desire a free market for everything else. In 1984, CMA was involved in a battle for the customer choice of gas, a ten year effort. We then turned to electricity to pursue the same goals. At the time the electricity restructuring process began, California electricity rates were 40-50% above the national average. Our members’ electricity usage is very different by industry, with electricity comprising a varying percentage of input costs. How much customers paid was also dependent on their load factor. For many members electricity is a primary cost.

Coincidentally, the CPUC Division of Strategic Planning was thinking about

restructuring the electric utility industry, resulting in the Yellow Book. At the same time, CMA started a project for restructuring, and became involved in a series of workshops at the PUC. Our longer term goal is a reduction in costs. How much of what your organization sought to obtain from the process was included (or represented) in the California Public Utility Commission’s December 20, 1995 Decision? CMA got direct access and non-discriminatory ISO access to the transmission grid. I would say 75%. There were some flaws in the Decision, but there was tremendous progress since

93

Asmus, “Who are the De-Regulation Advocates: Profiles...”.

ERG Master’s Project

Mark Stout

108

the May draft. This was seen as a 100% improvement. The Decision had a lot of weakness on direct access phase-in. We were also concerned over the level of the CTC. CMA had worked out a methodology, but a lot of work was needed in the December Decision. How much of what your organization sought to obtain from the process was included in Assembly Bill 1890? AB 1890 added additional gains. The rate freeze put utilities at risk for recovering 100% of their stranded costs through the CTC. CMA did not want to pay any more for electricity than we were already paying. AB 1890 was an incremental improvement over the Decision. Was your organization able to publicly maintain a consistent position or set of positions in the two sets of hearings, or over time? Because of CMA’s long background dealing with energy issues, we had worked out many positions in advance. Along the way, some issues that were brought up had the potential for derailing the process. Some Eastern members thought they had been sold down the river by 100% stranded cost recovery, some thought it was politically possible to outmuscle the IOUs. We had to arrive at decisions cooperatively. Membership was voluntary, so people had to work with other members of the group. What methods and approaches were used to advance your organization's goals and objectives in the CPUC hearings and the subsequent decision? The primary thing was the MOU, which became the baseline for the December Decision. There were a series of meetings with the Governor. He did not want industries at a loggerhead, wanted us to go for a win-win solution. The Governor’s office sat in as a moderator on the negotiations, which went from May to August. SCE was the only utility involved; they did not want to give up their merchant plants and were opposed to direct access.

ERG Master’s Project

Mark Stout

The industrial

109

customers wanted direct access, not just contracts for differences. The customers agreed to 100% stranded cost recovery, using a different formula. The IOUs suggested a revenue stream approach to CTC calculation. The actual stranded costs are asset values that are no longer economic, with supra-economic assets netted out. The market structure agreed on was a power exchange and a separate ISO that would ensure non-discriminatory access to the transmission grid. CMA filed formal comments, and participated in two full panel hearings to explain the MOU to the Commissioners and the public. What methods and approaches were used to advance your organization’s goals and objectives in the Assembly hearing and the subsequent issuance of AB 1890? CMA was involved in every AB 1890 negotiation. We worked by bringing PG&E into the process, as well as other customer groups, including Lenny Goldberg from TURN. Steve Peace held marathon sessions. Groups were influential by being at the table, helping others to resolve their issues. Inter-member briefing was also important. Our chief representative was Mark Timmerman, chief counsel at the PUC was Keith McCray, technical support was provided by Glen Shearon of Inland Paperboard, and I was involved as an energy analyst. Each party got what was most important to it. Even in the legislation, no attempt was made to jam something down someone’s throat. The important thing was to make a positive contribution to the bill, and come to the table with a solution. There was a problem if you did not know what you wanted. The municipal utilities represented by CMUA were too diverse, and were not able to articulate what they wanted.

ERG Master’s Project

Mark Stout

110

Small Electricity Consumers

Latino Issues Forum Latino Issues Forum, a non-profit organization advocating for Latino Californians. Jane Kelly of UCS [see interview] recommended that I talk with someone at this organization. The interview subject preferred to remain anonymous. What outcomes did your organization want to attain from the California electric utility restructuring policy formulation process? Latino Issues Forum wanted to try to maintain as many public programs for low income and vulnerable populations, such as non-english speaking customers. We wanted to keep the CARE (California’s Alternative Rates for Energy) program funded at an uncapped, need-based level. We also wanted to fund low-income weatherization programs at as high a level as possible. In addition, we strove to put as much consumer education and protection in place as possible to guard against the market abuses we are seeing in the deregulated telecommunications sector. Overall, our goal was to protect as much of the old programs as possible, and add needed education and protection programs in order to at least maintain the status quo for small consumers. In some ways this was not a very lofty goal, but it was realistic. We realized it was not realistic to resist retail competition as TURN had tried in telecommunications. I do not think small consumers will benefit from retail competition. How much of what your organization sought to obtain from the process was included (or represented) in the California Public Utility Commission’s December 20, 1995 Decision? In an outline form, everything was included, but as Dan Fessler was fond of saying, “the devil is in the details”. The December Decision did a fairly good job in recognizing low income

ERG Master’s Project

Mark Stout

111

and vulnerable population issues, but did not go far in addressing them with specific solutions. At this stage perhaps it was not meant to. How much of what your organization sought to obtain from the process was included in Assembly Bill 1890? Not as much. Latino Issues Forum did not actively participate. Ralph Cavanagh carried our torch primarily. AB 1890 was a deal cut in back rooms between powerful players. It did not go nearly far enough in consumer protection and education. It did have the benefit of good language on low income rates and energy efficiency programs. Is your organization more comfortable with one policy decision over the other (i.e., CPUC vs. AB 1890)? Why? It is not entirely correct to contrast them, as the whole process has been sequential. In terms of consumer education and protection, AB 1890 did not go far enough. This needs to be cleaned up in this year’s legislation. The December Decision was a blueprint in recognizing these needs. Was your organization able to publicly maintain a consistent position or set of positions in the two sets of hearings, or over time? Probably ad nauseum, since we had a mantra that we recited at every chance: Deregulation had to be equitable. Small consumers had to at least be unharmed if not better off. Significant consumer protection and education is needed to protect the abuses happening in telecommunications today such as slamming. Public purpose programs for low income consumers must be maintained.

ERG Master’s Project

Mark Stout

112

What methods and approaches were used to advance your organization's goals and objectives in the CPUC hearings and the subsequent decision? We filed dozens of briefs in the last few years, and testified whenever we had the opportunity. We also had small consumers mail in postcards to the Commissioners on rate issues. We also participated with the Commissioners in community briefings to inform the public of upcoming changes, and spoke to the press on critical issues. At times, we interacted with the Legislature, but because of a lack of resources, have historically focused on the PUC. We also wrote letter to Commissioners that have been influential. After a meeting with the Consumer Services Division of the PUC, we found out that the staffing for PUC complaints was utterly inadequate. They were understaffed, had short hours, only part time, mono-lingual english only, and had no 800 numbers. This Division was actually using AT&T language translation, a very expensive service. Our letter to the Commissioners sparked modification and an investment of resources as part of the PUC’s internal restructuring plan. It caused some embarrassment because of the total inadequacy. What methods and approaches were used to advance your organization’s goals and objectives in the Assembly hearing and the subsequent issuance of AB 1890? Latino Issues Forum depended on Ralph Cavanagh to articulate positions there. We are also a member of the Greenlining Institute [a non-profit organization representing low-income communities of color], which has partnership agreements with PG&E and Edison that they will represent some of Greenlining’s issues. The utilities were hoping that they could administer CARE and low income weatherization, a possible profit source for them. This may come under attack in the future. Some of this year’s cleanup legislation will exclude municipalities from the anti-slamming

ERG Master’s Project

Mark Stout

113

language. Although we need as many consumer protections as possible, I am concerned about fly-by-night companies. I think we can safely exclude municipalities.

The Utility Reform Network Bob Finkelstein is a staff attorney specializing in electric utility issues for TURN, a nonprofit organization advocating for residential and small commercial utility ratepayers. What outcomes did your organization want to attain from the California electric utility restructuring policy formulation process? The Yellow Book laid out four options for the California electricity utility industry’s future direction. TURN took a firm position calling for the PUC to start regulating the utilities. With what we see as a failure of will by the regulator, California needs better regulation. Currently, there are different set of simultaneous proceedings, many annual, making the regulatory process impossible to track. TURN has called for a single annual rate-setting, getting rid of the multiple proceedings.

This annual rate setting would be based on cost of service with an

opportunity for profit and a risk of loss.

TURN was against the notion of retail wheeling

proposed by the Yellow Book, which could result in large customers leaving the system and smaller customers left holding the bag of higher cost resources. Our reaction to the Blue Book was that restructuring must provide competitive options for small customers, and that small customers should not suffer. There is also a need to deal with the market power of utilities, and not grant them 100% stranded cost recovery. This would allow all customers to benefit. 100% stranded cost recovery for the IOUs does not make any sense because they already had a risk-adjusted rate of return. These risk-based cost of capital decisions got more explicit in the ‘90s and were very explicit by ‘93 and ‘94. The utilities argument for full recovery is based on the notion of a regulatory compact with a quid pro quo of cost recovery. But they can only point ERG Master’s Project

Mark Stout

114

to Supreme Court decisions allowing a “reasonable chance of recovery”. Under these decisions they cite, it was OK for regulators to deny full recovery. Regulated entities can achieve their own version of the truth by repetition. How much of what your organization sought to obtain from the process was included (or represented) in the California Public Utility Commission’s December 20, 1995 Decision? There was good language on the non-bypassability of the CTC, but TURN did not like the allocation of CTC costs to different classes. We had advocated a community access model, based on geographical region, for aggregation of small customers to take advantage of direct access. Some commercial customers had wanted aggregation for different locations. The PUC was vague on aggregation, but did include language describing it. The Decision made a good commitment to maintaining public purpose programs, including low income. It also included a recognition of the importance of market power, with incentives for divestiture of utility generation.

TURN

applauded the focus, but the incentives were weak, amounting to $10’s of millions for divesting an industry segment with revenues in the billions. How much of what your organization sought to obtain from the process was included in Assembly Bill 1890? We fought AB 1890 because of its putting in place items from the PUC’s December Decision that we hated, and its inclusion of giveaways to large customer groups, everyone except for small consumers. TURN also did not like it because we got a rate freeze, as opposed to the rate cap in the PUC December Decision. TURN was able to knock out an earlier Brulte bill, in concert with oil companies. We thought there would not be comprehensive legislation that year, although by July, it was clear that the Legislature would be moving forward.

ERG Master’s Project

Mark Stout

115

So we were stuck with a bill that we hated, but had to be in the debate. Edison gets coal cost increases, PG&E gets a $0.5 billion increase. Some customers got away with no CTC; there were some self-generation projects in the pipeline, but a narrow set of projects. Unions got a huge bone by having the cost of retraining and severance included in the CTC. Also, divested power plants must come with a contract for the original staff for the first two years. It turns out that independent generation plants are run with much less staff. Is your organization more comfortable with one policy decision over the other (i.e., CPUC vs. AB 1890)? Why? At the end of the process, TURN felt it had turned AB 1890, a very, very bad bill, into a very bad bill. We had the option of opposing it and jeopardizing the concessions in it, leading to a heated internal debate. In the end, we did not oppose or support AB 1890. Since we felt that it was incrementally better than the December Decision, we decided not to oppose. On the good side, it limited CTC recovery to a shorter period of time, firmed up the nonbypassability of the CTC, and offered a good commitment to low income programs. On the bad side, its anti-slamming [slamming is a practice of switching a customers utility provider without their consent] language is really anti-community access language, requiring a written, signed document with independent verification that a customer wants to be included in an aggregation. This raises a substantial barrier for municipalities to aggregate their residents’ loads. We had suggested that community access provide an out for people that did not want in, but Edison successfully created this barrier under the guise of anti-slamming language. Peace’s residence had gotten slammed a couple times, so he was amenable to this.

ERG Master’s Project

Mark Stout

116

In hindsight, everybody at TURN wishes we had opposed this bill kicking and screaming. Unfortunately, the process was difficult to track, people were getting handed new language instantaneously for discussion. Was your organization able to publicly maintain a consistent position or set of positions in the two sets of hearings, or over time? The terms of the debate changed, leading to an evolution of positions. We would still agree with our Yellow Book and Blue Book comments, but just have more refined positions. Nobody gave enough reason for TURN to change its position. What methods and approaches were used to advance your organization's goals and objectives in the CPUC hearings and the subsequent decision? TURN made formal comments at most opportunities. We also appeared at full panel hearings. We did not do extensive lobbying due to a lack of resources. The process of adding restructuring on top of our normal work is skewed to favor the utilities. This led to the small customer groups scrambling to get things covered, while the utilities where up at the PUC everyday. The Commissioners were appointed with a viewpoint: “Do what’s right for business, and you’ll do what’s right for California.” The result is that the most favored groups, utilities and large industrials, get attention. In their first round comments to the Blue Book, Edison and SDG&E asked for a wholesale pool with transition to direct access.

PG&E requested direct access for large

customers immediately, trickling down to smaller customers. These positions were locked until May, 1995, when the PUC proposals were released. Fessler’s PoolCo was what Edison wanted, large customers attacked the pool, with an Edison nuke settlement going on at the time. When Wilson got wind of the CMA [California Manufacturers Association] fighting Edison, he arranged

ERG Master’s Project

Mark Stout

117

for the meetings leading up to the MOU. Once Edison was on board for Direct Access, with a troika of large customers, utilities, and IPPs [Independent Power Producers], it was all over, making it very easy for the Republican Commissioners to adopt. What was eye opening about working with the Framework Parties [Framework for Restructuring in the Public Interest] was the divergent positions of the environmental groups. What methods and approaches were used to advance your organization’s goals and objectives in the Assembly hearing and the subsequent issuance of AB 1890? TURN hoped that if you knocked out enough of the gifts, the whole thing would fall apart with parties leaving the table. Several times people did leave the negotiations. TURN contracted with Lenny Goldberg, supported by the appropriate staff.

Lenny was in the Conference

Committee every day, I went up three or four times. There were waves of utility employees, issue specific attorneys with support staff. Hearings were going on till two or three AM, creating a huge advantage to have a fresh mind. TURN tried to marshal support with kindred groups UCAN [Utilities Consumers’ Action Network, another small consumer advocacy group] and Greenlining Institute/Latino Issues Forum [low income and minority community advocates]. So much of the deal had been cut in advance by large powerful interests. If you can get all of the big dogs to reach consensus, utilities, big customers, unions, IPPs, it is tough to stop the momentum. Public purpose concerns become peripheral, like an armadillo in the middle of the road. The “consensus process” was just everybody taking, nobody gave everything up, they just loaded up the plate. Critical consumer interests were not present, taking care of small consumers would have led to compromise.

ERG Master’s Project

Mark Stout

118

Environmental Advocates

Environmental Defense Fund Dan Kirshner is a Senior Economic Analyst for EDF, “a leading non-profit organization, [which] represents 300,000 members nationwide, more than 55,000 of whom live in California. EDF links science, economics, and law to create innovative, economically viable solutions to today’s environmental problems. EDF has participated in California energy policy issues since 1975.”94 What outcomes did your organization want to attain from the California electric utility restructuring policy formulation process? EDF sought an environmental quid pro quo, we are in favor of competition, yes, if restructuring is implemented properly: 1) energy efficiency investments should continue, 2) an Integrated Resource Planning process should exist for energy efficiency, 3) externality accounting should ensure that customers weigh external costs in their decisions among alternate suppliers, and 4) incentives for uneconomic sales promotion minimized. Assuming these problems are resolved, EDF supports the earliest possible implementation of direct access for all classes of customers. As stated in EDF’s first round comments on the Blue Book, “There is no reason to proffer the benefits of competition first to only selected classes of customers.”95 How much of what your organization sought to obtain from the process was included (or represented) in the California Public Utility Commission’s December 20, 1995 Decision? Almost nothing. The Decision was vague, and punted on the details to the Legislature. It gave us nothing until the Legislature tells us otherwise, depending on interpretation. If focusing

94

CPUC Renewables Working Group, E-1.

ERG Master’s Project

Mark Stout

119

on a funding level, the Decision had the Renewable Portfolio Standard, which was never going to get past the industrial customers or utilities. By the time of December Decision, we were tied to the language in AB 1123, which dedicated about 3% of utility revenues to public purpose programs. The envisioned split for renewables was about $100 million per year. This was informally agreed to by the big boys. How much of what your organization sought to obtain from the process was included in Assembly Bill 1890? About 70%. There is a difference between what you ask for and what you expect. For renewable energy funding, we wanted one billion, the industrial customers thought that 1/2 billion was right, and we got 1/2 billion. Energy efficiency funding was lower than the historical peak, but in the realm of what we would settle for. I am hopeful that buying “green” electricity would be similar to recycling. At best case with 25% of residential customers purchasing “green”, that would result in roughly 9% of the electricity sold coming from renewables. There is nothing else to point to for renewables policy. Deregulation is not especially helping energy efficiency, it is a continuation of utility programs with different players. Is your organization more comfortable with one policy decision over the other (i.e., CPUC vs. AB 1890)? Why? If the PUC was God, the Decision may have been better. However, the PUC did not intend to choose a percentage requirement on the RPS, but left to the Legislature.

The

Legislature does have an environmental bone in its body, but the PUC has no environmental bones in it’s body.

95

CPUC Status Report on Restructuring..., Vol. 2.

ERG Master’s Project

Mark Stout

120

Was your organization able to publicly maintain a consistent position or set of positions in the two sets of hearings, or over time? Yes, from the beginning, EDF stated that we were for competition, and were sincere about it. This helped to keep a warm spot with free market ideologues. What methods and approaches were used to advance your organization's goals and objectives in the CPUC hearings and the subsequent decision? Past EDF’s filing comments, there was not enough activity. I spoke several times with Jeff Dasovich in the Strategic Planning Division. I took part in as many full panel hearings as I could get on to. Most direct contact was after the Decision. The selection of the RPS in the Decision gave comfort to people who had a worse uphill climb. What methods and approaches were used to advance your organization’s goals and objectives in the Assembly hearing and the subsequent issuance of AB 1890? I left the point contact to John White [the Executive Director of the Center for Energy Efficiency and Renewable Technologies] and Ralph Cavanagh [NRDC’s Energy Program Director]. CEERT is a diverse organization, making it difficult to get agreement. The process was like watching a movie, being difficult to influence the outcome. EDF did suggest draft language. It was the threat of a gun that got AB 1890 done. The outcome was a compromise that nobody liked much. I was concerned that fighting for all renewable funding go to new projects may have caused a backlash. I am surprised that AB 1890 came out as well as it did. I am liking the CEC report [California Energy Commission, Policy Report on AB 1890 Renewables Funding], but time will tell on the legislative response.

ERG Master’s Project

Mark Stout

121

Natural Resources Defense Council - Interview #1 Sheryl Carter is a Policy Analyst in the Energy Program at the Natural Resources Defense Council. NRDC is a nonprofit organization that has made a name for itself as a public interest environmental advocate in the courts and policy arenas. From their 25 year report, “NRDC has emerged as the national leader in fighting proposals to restructure the utility industry in environmentally destructive ways. Advocates of ‘retail wheeling’ systems propose a return to the days when electricity service was run on the discredited principle of ‘the more you use, the lower the unit cost.’ Such systems would be a strong disincentive to utility investment in efficiency and renewable resources--and would not deliver savings to residential customers.”96 What outcomes did your organization want to attain from the California electric utility restructuring policy formulation process? Initially, NRDC opposed the move to retail restructuring, but supported the introduction of competition through wholesale restructuring, where distribution utilities buy power in a competitive wholesale environment for resale to end-use customers in their territory. Sheryl argues that it did not make sense to jump to retail competition before wholesale, giving interested parties a chance to, “see how that works.”

As it became clear that opposition to retail

restructuring was a losing battle, NRDC adapted with a new position, as Sheryl explains, “For retail restructuring to occur, the rules had to be set so that there will be no diminishment in public purpose programs.” Specifically, NRDC advocated for a non-bypassable charge to cover the costs of public purpose programs in such areas as energy efficiency, renewables, low income customers, RD&D, and universal access. Sheryl noted that for energy efficiency and renewables,

96

Natural Resources Defense Council, 1995.

ERG Master’s Project

Mark Stout

122

a non-bypassable charge mitigates for a lack of integrated resource planning excluded by retail competition. How much of what your organization sought to obtain from the process was included (or represented) in the California Public Utility Commission’s December 20, 1995 Decision? NRDC got most of it: a reaffirmation of the need to continue public programs funded through ratepayers, which was unclear in earlier proposals. For renewable energy, NRDC had taken the position that the Renewables Portfolio Standard and a non-bypassable systems benefits charge can work together, with systems benefits charge funding used for the development of emerging technologies. They did not take a position on the percentage level of stranded costs recovery by utilities, but had advocated that recovery not be linked to the continued operation of uneconomic plants. The December Decisions language on nuclear plant rate structuring did make this link, however. How much of what your organization sought to obtain from the process was included in Assembly Bill 1890? NRDC got most of what it wanted in terms of policy mechanisms, although the levels for public purpose programs were not what they seeked. Funding levels were roughly the levels being spent by utilities when the bill was drafted, although these were down from pre-Blue Book levels, and not as high as merited. NRDC can live with AB 1890. They supported this legislation because it set a good precedent; the included systems benefits charge was a re-affirmation of public purpose programs. It was not perfect, and not everything they were pushing for.

ERG Master’s Project

Mark Stout

123

Is your organization more comfortable with one policy decision over the other (i.e., CPUC vs. AB 1890)? Why? AB 1890 expanded the rift in the renewables community. The detailed language on renewables left much to be desired.

It is not looking at what is best for the future of

sustainability. In a perfect world, may have been better to specify goals for a renewables policy. Was your organization able to publicly maintain a consistent position or set of positions in the two sets of hearings, or over time? Yes, NRDC relied on consistent people and tried to be clear throughout. Sheryl noted that Peter Miller, Ralph Cavanagh, and herself have similar ideologies. They decided to not oppose restructuring, but instead ensure that the rules were set up to achieve a good outcome. They also wanted to make sure the different proposed renewables policies not set up to be exclusive. What methods and approaches were used to advance your organization's goals and objectives in the CPUC hearings and the subsequent decision? One key approach was talking with the Commissioners themselves, with coalitions of varying members depending on the issue. They tried to get a mixture of environmental, low income, and consumer advocates in these coalition visits. NRDC also relied on formal comments, participation in full panel hearings, and talking with staff. Another tactic was a joint public outreach mailing with other environmental organizations including the Union of Concerned Scientists that resulted in letters and telegrams targeted at the Commissioners. In response to the MOU, NRDC entered into a public-interest coalition known as the Framework Parties to draft the “Joint Motion for Consideration of Framework for Restructuring in the Public Interest and for Further Public Process; Joint Response to Memorandum of Understanding”. ERG Master’s Project

Mark Stout

124

What methods and approaches were used to advance your organization’s goals and objectives in the Assembly hearing and the subsequent issuance of AB 1890? The big thing was groundwork prior to the formulation of legislation. If the other parties had not understood NRDC’s position, there would be no chance of consensus on a compromise. During the drafting of Byron Sher’s Assembly Bill 1123, Ralph Cavanagh was important in pulling parties together. This got the municipal utilities signed onto the systems benefits charge. NRDC also talked one on one with legislators and aids, as well as testifying in legislative committee hearings. During the debate, energy efficiency funding levels dropped as soon as renewable energy was placed into the mix of public purpose programs. When Steve Peace said no to the RPS, it created problems. Long meetings were held to make sure renewable energy funding was not left out. It was very clear that if everyone did not work together, they may lose out altogether. Peace was threatening to handle renewable energy policy himself, and nobody would have been happy.

Natural Resources Defense Council - Interview #2 Ralph Cavanagh is NRDC’s Energy Program Director.

I selected him as a second

interview subject for this organization because, as I spoke with other stakeholders, it became clear that he played a central role in organizing the public interest community during the California restructuring process and would have personal insights that should not be omitted. How much of what your organization sought to obtain from the process was included in Assembly Bill 1890? For energy efficiency funding, AB 1890 locked in PG&E and SDG&E where they were [$106 million and $32 million per year, respectively], and increased Edison from $50 million to $90 million per year. The total funding level for public purpose programs increased $600 million ERG Master’s Project

Mark Stout

125

per year over ‘96, and this would have been heading to zero if AB 1890 was not passed. All public purpose funding levels were converted to floors instead of ceilings on spending. Is your organization more comfortable with one policy decision over the other (i.e., CPUC vs. AB 1890)? Why? AB 1890 had distinct improvements.

For instance, energy efficiency programs had

funding levels laid out. What methods and approaches were used to advance your organization's goals and objectives in the CPUC hearings and the subsequent decision? In addition to the formal comments, NRDC took part in two full panel hearings. More importantly, we worked in three broad coalitions: the Framework Parties, a broader coalition of 80 parties on market structure, and a utility/ESCO/public purpose coalition on energy efficiency focusing on using a non-bypassable systems benefit charge to sustain historic momentum. NRDC did press work through editorial boards including the San Jose Mercury News, the San Francisco Chronicle, San Francisco Examiner, and the Sacramento Bee focusing on public purpose programs. There were other ways we put pressure on the Commission, including a letter written in the Legislature by Byron Sher and Glen Moore after the Blue Book. There was not much one on one with Commissioners or their staff. What methods and approaches were used to advance your organization’s goals and objectives in the Assembly hearing and the subsequent issuance of AB 1890? This process occurred over three weeks, in a public forum, and was unusual in that regard. It was negotiated by six legislators with an audience of stakeholders. stakeholders were important for ironing out details.

Meetings between

The three critical Legislators were the

Senators. Sher was critical in supporting the environmental agenda. Over time, Steve Peace

ERG Master’s Project

Mark Stout

126

became more supportive. Campaign contributions were meaningless. It was a consensus-based process.

Critical stakeholders who could have derailed did not.

If environmental groups

collectively walked, we could have killed it. The environmental groups and consumer groups such as TURN worked well together. We were on separate tracks with industrial customers to ensure no cost shifting occurred. NRDC’s relationship with the IOUs was important. It was strong going in and going out of the process. We were in constant contact, one on one, not turning it into a media tank battle.

Sierra Club/Center for Energy Efficiency and Renewable Technologies Rich Ferguson is the Energy Chair of the Sierra Club California Legislative Committee and the Research Director of CEERT. The Sierra Club is a national, non-profit organization chartered, “To explore, enjoy, and protect the wild places of the earth; to practice and promote the responsible use of the earth’s ecosystems and resources; to educate and enlist humanity to protect and restore the quality of the natural and human environments.”97

CEERT is, “a non-

profit public education organization dedicated to the sustained, orderly development of energy conservation and clean power resources.” CEERT’s members include EDF, NRDC, the Sierra Club, and UCS, as well as members of the energy efficiency and renewable energy industries. During our interview, Rich spoke as a representative of Sierra Clubs positions, stating that although there were some divergences between the Sierra Club and CEERT positions, these positions are substantially similar to those of CEERT.

97

Sierra Magazine, May/June 1997, page 4.

ERG Master’s Project

Mark Stout

127

What outcomes did your organization want to attain from the California electric utility restructuring policy formulation process? We did not pay much attention to the Yellow Book, but considered it a “think piece”. About the time of the Blue Book, I was approached by CMA, Industrial Users, CLECA, and agricultural consumers to find out what the environmental community reaction to the restructuring proposal was. Dan Kirshner [see Environmental Defense Fund Interview] and I started meeting with them. Our response was that economics was not the environmental issue, as long as environmental commitments were honored. I was concerned that this may become a backdoor way to beat up on environmental programs. There were several qualitative outcomes we sought. We had built a commitment to renewables at the Legislature, the CPUC, and CEC [California Energy Commission], with funding levels based on calculations from the BRPU [Biennial Resource Plan Update, California’s implementation of Integrated Resource Planning (IRP)]. Energy efficiency budgets had already been cut, we wanted to restore investments at pre-Blue Book levels, averaging 1993 and 1994. In a series of meetings, consumer groups aired their pet peeve with environmental programs. There is a lot of waste in some energy efficiency programs. We reached a consensus on the need for independent administration of energy efficiency programs, as well as funding for public purpose programs: low income, RD&D, renewables with an incremental cost estimate from the BRPU, and energy efficiency. These got translated into dollars. The 3% of utility revenues for public purpose programs in the MOU came out of these discussions, and was built into AB 1123 [Byron Sher’s restructuring bill]. When the Renewables Portfolio Standard was mentioned, there was opposition.

ERG Master’s Project

Mark Stout

128

How much of what your organization sought to obtain from the process was included (or represented) in the California Public Utility Commission’s December 20, 1995 Decision? The Renewables Portfolio Standard (RPS) was included in the Decision as a renewables policy [the Sierra Club California Legislative Committee had voted to endorse AB 1202, an earlier legislative vehicle for the RPS98]. The customer groups had the same attitude, “set up the market, and we won’t need this regulation stuff”. In the PUC Decision, environmental programs are seen as transitional. A deal was made with the consumer groups and IOUs: Take a wait and see approach on the duration of renewable and energy efficiency funding. Energy efficiency and RD&D funding does not sunset in AB 1890, while the latest CPUC Decision sunsets energy efficiency. We did not want to have to pass new legislation, so Senators Peace and Sher sent a letter to the CPUC pulling the sunset language out for energy efficiency. How much of what your organization sought to obtain from the process was included in Assembly Bill 1890? Because of the lack of acceptance for the RPS, we didn’t want it or not want it.

People

close to Sacramento knew the RPS did not have a chance, I do not know why the PUC put it in the Decision. Perhaps Commissioner Conlon latched onto the idea of spreading out QF costs amongst different players. There always was a disconnect between what Nancy Rader [West Coast Representative for AWEA, see interview] thought she got and what she got from the Commission; the RPS Working Group is not reality. It is a hard call from a policy standpoint: Sierra Club members would love the RPS, but you have to be a political pragmatist, creating a tension. I knew the consumer groups and power marketers hated it. There was a concern that the RPS was seen as ratcheting up the compact of the BRPU [Biennial Resource Plan Update,

98

Personal communication with Sierra Club Committee members.

ERG Master’s Project

Mark Stout

129

California’s implementation of integrated resource planning (IRP)] that everyone had agreed to. When developing a strategy, you need to make sure you have Plan B, in case Plan A [the RPS] does not work out. On stranded costs, I wrote an article for the CEERT newsletter a few years back on how much money could be saved by shutting down Diablo Canyon and paying PG&E by giving them all of their money back. The SF Bay Guardian [a long time opponent of PG&E] picked up this article, and got angry because PG&E would get paid large sums. Peace had a hearing back then, and asked me where to get the money from. I said, “Do a revenue bond”. Peace poo-pooed the idea at the time, but then unearthed it for AB 1890. The magnitude of the CTC collection is bothersome, but if CMA and CLECA go along, the Sierra Club is not going to make much of a difference. The most outrageous part is special rates for the nukes. When the MOU came out, President Fessler was livid, saying that if stranded cost recovery is to be guaranteed, one needs to reduce the rate of return on utility investments. I and others agreed. I said that if you want competition, how can you guarantee above market rates for the nukes; AB 1890 delivered the $3 billion laid out in the December Decision. Fessler did not get the rate of return reduction he wanted. In AB 1890, CTC money is defined as a property right so that future attempts to repeal it can be secured against as a taking. Ralph Cavanagh [NRDC Energy Program Director, see interview] did much of the speaking for low income programs. Low income advocates insisted their programs were outside of the 3% of revenue cap for other public purpose programs. On public interest RD&D funding, Peace would send the hagglers off, and we would go to IEP’s [Independent Energy Producers] office. The IOUs wanted only $10 million per year, the public interest community wanted a figure closer to the historical average [1994 California IOU ERG Master’s Project

Mark Stout

130

RD&D expenditures = $140 million, including RD&D for transmission and distribution, which will be handled separately as regulated RD&D.]99, arriving at an agreement of $62.5 million. An argument ensued on how much of this figure would be under their control. Since the IOUs got some money for “reliability”, they agreed. The details were left out of AB 1890 on allocation of this money. On energy efficiency, Ralph Cavanagh and I agreed not to go to war on who would handle administration of funds, Ralph advocating for utility administration, while I preferred independent administration. I felt double-crossed, fearing that if administration of this funding was confused, we would lose dollars. John White [Sierra Club lobbyist and CEERT Executive Director] was on the fence because of a split in CEERT members. The Framework language [Framework for Restructuring in the Public Interest] said that they would consider an Independent Administrator. This was a sore point that had to be finessed between players. In the negotiations, the DSM funding levels got dinged, we didn’t actually get pre-Blue Book levels. In the end, we don’t think AB 1890 is a good deal, and the Sierra Club didn’t endorse. Is your organization more comfortable with one policy decision over the other (i.e., CPUC vs. AB 1890)? Why? Overall, the legislation does a better job. First, there is the presumption that energy efficiency money would die in the CPUC Decision. I would have wanted to see what was done with the RPS. The final stake through the heart was where the RECs [Renewable Energy Credits] where going. Having QF developers getting them was a political miscalculation. The value of the RECs should go to the contract holder. Renewables did well funding-wise in AB 1890. There was an offer on the table for renewables that had been agreed to, but the utilities

99

CPUC RD&D Working Group, App. III-3.

ERG Master’s Project

Mark Stout

131

wanted less. We got the Sierra Club level, and the IOUs continued their CTC collection for three more months. The legislative process lets you get your oar in the water. Was your organization able to publicly maintain a consistent position or set of positions in the two sets of hearings, or over time? Yes. If I had nothing new to say at a hearing, I would not chime in. For developing Sierra Club policy, there is a white paper process. I wrote a paper with goals, and schlepped it around internally. Some volunteer leaders wanted to be more vocal on stranded costs, but we have learned “when elephants dance, mice stay away”. The Sierra Club will be more successful if we focus on the environment. What methods and approaches were used to advance your organization's goals and objectives in the CPUC hearings and the subsequent decision? In addition to filing formal comments, we also had contact through meeting with President Fessler. We attended the first restructuring weekend down in LA during the summer of ‘94. There was a huge number of meetings between parties. We had influence by having IEP, CLECA and CMA build funding levels in, and then making sure they did not get booted off the table. What methods and approaches were used to advance your organization’s goals and objectives in the Assembly hearing and the subsequent issuance of AB 1890? We didn’t do grassroots letters, there was not enough time. Things were changing too fast, leaving it up to the lobbyists and insiders to cut a deal. The legislators outside of the Conference Committee did not have a clue what was in the bill, nobody wants to reopen it. There were many discussions between parties, cutting deals, meetings going on morning, noon, and night. Jan Smutney-Jones [Independent Energy Producers Executive Director, see interview] and

ERG Master’s Project

Mark Stout

132

John White were the front folks. As long as the Sierra Club and other groups were happy, Byron Sher was fine. Peace was the idea person.

Union of Concerned Scientists Jane Kelly is the California Policy Coordinator for the Union of Concerned Scientists, “an independent nonprofit public interest organization which works on issues where science and technology play a critical role. UCS has 100,000 sponsors nationwide, including 13,000 in California”.100 What outcomes did your organization want to attain from the California electric utility restructuring policy formulation process? According to Jane, UCS’s initial position after the release of the CPUC Blue Book Proposal was that the deregulatory roadmap laid out in this proposal was too hasty. Integrated Resource Planning (IRP), manifest in California as the Biennial Resource Plan Update (BRPU), was just beginning to be used as a policy option in several states, pointing towards a future based on environmentally cleaner electricity generation and energy efficiency.

Deregulation of the

electricity industry threatened to tear this house of cards down. Jane conjectured that one of the driving forces behind deregulation was to do away with utility requirements that were designed to protect environmental quality.

As the deregulation process unfolded at the CPUC, UCS’s

overriding goal was to ensure policy were developed that would provide for continued environmental protection with regards to renewables and energy efficiency.

The level of

renewables support included in the BRPU served as a target for UCS. UCS was also opposed to 100% “stranded cost” recovery for utilities, a policy decision that is widely viewed as a financial

100

CPUC Renewables Working Group, E-3.

ERG Master’s Project

Mark Stout

133

bailout for poor investments in nuclear power generation.101 To Jane, working in progressive coalitions was important for UCS, so UCS also supported low income program protection as defined by coalition partners, The Greenlining Institute, and Latino Issues Forum. How much of what your organization sought to obtain from the process was included (or represented) in the California Public Utility Commission’s December 20, 1995 Decision? UCS was pleased that the CPUC’s December Decision called for a minimum renewables purchase requirement, based on the Renewables Portfolio Standard devised by UCS’s coalition partner Nancy Rader of the American Wind Energy Association. Jane said the inclusion of the renewables purchase requirement was, “one of a few good pieces UCS was in a position to defend”. She also noted that no stakeholders seemed to resist the lack of a cap on surcharge collection for low income programs. How much of what your organization sought to obtain from the process was included in Assembly Bill 1890? UCS was not at all pleased with the poor support for renewable energy and energy efficiency codified in AB 1890. Jane indicated that, “despite other interpretations, AB 1890 was not a victory” for environmental goals. Jane said that environmental organizations were, “thrown a bone” with the moderate level of public-interest research, development, and demonstration (RD&D) funding, an allocation that was “responsible public policy”. As for renewable energy, the legislation, “did not set public policy so much as doling out money in the transition period, with no support for commercialization over a longer duration, and no guaranteed market for renewable energy.” She said the whole battle for continuing renewables support will need to be refought in a few years.

101

Weisman, “Environmentalist Defends...”

ERG Master’s Project

Mark Stout

134

Is your organization more comfortable with one policy decision over the other (i.e., CPUC vs. AB 1890)? Why? Jane contrasted AB 1890 with the CPUC Decision, stating that the CPUC made a public policy decision for environmental protection, while AB 1890 simply doled out ratepayer dollars according to disparate levels of power that special interest groups could bring to the Legislature, a process that she said environmentalists do not usually fare well in. Was your organization able to publicly maintain a consistent position or set of positions in the two sets of hearings, or over time? When asked about UCS’s ability to maintain a consistent position over the CPUC and legislative policy formulation process, Jane said that her organization stood firmly behind the stance that the Renewables Portfolio Standard was the best policy for supporting renewables, relying heavily on Nancy Rader of AWEA and their jointly commissioned lobbyist Joe Caves to represent this position in the heat of the 1996 summer Conference Committee meetings. “In the end, [Committee Chairman] Steve Peace was banging heads together, the press had gone home, and a huge decision was being made behind closed doors.” An alternative strategy that Jane considered would have been to oppose retail wheeling all the way along. However, there was a real split in the public interest community as to whether retail wheeling was good or bad for social welfare. Some environmentalists think retail wheeling threatens environmental protection, while some see it as an opportunity for renewable energy generators to increase their markets. The small consumer advocate community also experienced this rift, Jane noting that The Utility Reform Network, an organization representing small ratepayers, didn’t have a unified, clearly articulated position on the desirability of retail wheeling.

ERG Master’s Project

Mark Stout

135

What methods and approaches were used to advance your organization's goals and objectives in the CPUC hearings and the subsequent decision? UCS used a dual approach outsider/insider strategy to influence policy formulation at the CPUC.

By helping to get Assembly Concurrent Resolution No. 143 adopted, the CPUC

deregulation process was thrown open to a much wider spectrum of public input than initially envisioned by the public utility commissioners. UCS then planned an outsider strategy that included turning out large numbers of supporters at public hearings, as well as generating a large number of letters to the CPUC. UCS took part in a mailing to 60,000 environmentalists in California, asking them to respond to the CPUC through a Western Union automated fax number, resulting in over 2,000 faxes to the CPUC demanding that the environment not get forgotten in the policy formulation process. Jane thought this amounted to a level of public pressure that was outside of the usual institutional experience at the CPUC. To compliment this public participation strategy, UCS’s insider approach was composed of elements such as filed comments and full panel hearing testimony by UCS senior energy analyst Donald Aitken, as well as meetings arranged jointly by Jane and AWEA’s Nancy Rader to lobby for the Renewables Portfolio Standard with then-current CPUC President Fessler, as well as staff people for Commissioners Knight and Conlon. One interesting outcome of the meeting with President Fessler was that he started to lobby Jane and Nancy to support his position, which Jane believes was a response to the effectiveness of UCS’s outsider strategy to generate public support for the RPS. What methods and approaches were used to advance your organization’s goals and objectives in the Assembly hearing and the subsequent issuance of AB 1890? UCS made use of a similar outsider/insider strategy to influence the legislative outcome. UCS volunteers and staff were active at over a number of 1996 Earth Day events throughout

ERG Master’s Project

Mark Stout

136

California in April, gathering dozens of hand written letters from California residents to their state legislators, demanding continued environmental protection and renewable energy development after the transition to a deregulated industry. Thousands of UCS California activists received letters asking them to write their state senator in support of the Renewables Portfolio Standard, as included in Assembly Bill 1202, which had passed the Assembly the previous year, resulting in over two hundred letters to Sacramento, counting only those copied to UCS. UCS worked closely with AWEA at a June 1996 Senate Utility Committee hearing with both lobbyist Joe Caves and myself advocating for the Renewables Portfolio Standard and AB 1202. While Joe continued to lobby Senators, I worked for UCS coordinating our participation in Clean Power Day, a legislative education and lobbying event in early August. Thousands of UCS Northern California activists and supporters were informed about this opportunity to lobby legislators on renewable energy and energy efficiency issues in a coordinated way. Jane believes that Clean Power Day was the one unifying experience for environmental and renewable energy organizations throughout an otherwise splintered legislative lobbying process. She went on to say that if the whole environmental community was working under a unified strategy, the legislative outcome would have been different, at the very least they could have stopped AB 1890 from passing unanimously. Because of splintering and infighting within the public interest community, “progressive legislators did not have the usual suspects all opposing it”.

State Institutions

California Energy Commission Eric Saltmarsh was serving as Staff Counsel in the CEC during the prior CPUC proceedings as well as the past Legislative session. He is currently the counsel for the Oversight ERG Master’s Project

Mark Stout

137

Board which has been created as a result of AB 1890. The CEC is a state agency that implements state energy policy and collects data on California energy usage and generation. What outcomes did your organization want to attain from the California electric utility restructuring policy formulation process? Well before the December Decision, the Energy Commission had been supportive of core aspects of the proposed generation deregulation, including open transmission access, customer direct access, reciprocity for direct access, and the unbundling of rates and services. We did not share the sentiments as to the structure of the December Decision. There is an added cost of having two mandatory entities, the completely distinct power exchange and ISO. We were more inclined to a unified structure, as has been put into place in foreign nations as well as US regional pools. The commission has been supportive of investments with payouts over time for energy efficiency and RD&D. How much of what your organization sought to obtain from the process was included (or represented) in the California Public Utility Commission’s December 20, 1995 Decision? The commission did not like the discrete power exchange and ISO. I can understand the concern for the concentration of power in one entity that drove this separation, but had trouble applying it to this situation. The wholesale pool is not really a buyer, except for voltage support to let transactions occur, it is really just a clearinghouse. There is a need for much of the same information in both entities, and the ISO winds up making schedule changes for physical feasibility anyway.

ERG Master’s Project

Mark Stout

138

How much of what your organization sought to obtain from the process was included in Assembly Bill 1890? The same concern with the separation of the power exchange and ISO applies in this case also. In core concepts, the Commission got the outcomes it wanted. In general terms there was substantial RD&D funding. While the Commissioners may not have endorsed a particular funding level, they were supportive of their being a real benefit to public purpose RD&D, that there has not been an excessive amount of money spent in the past. Is your organization more comfortable with one policy decision over the other (i.e., CPUC vs. AB 1890)? Why? AB 1890 happened in real time, while the decisions of government institutions generally do not happen that way in terms of scheduling. There was no opportunity for the Energy Commission to make a policy statement, since this would require holding a meeting with 10 day meeting posting requirements. We only took generalized policy positions, all input was technical. Was your organization able to publicly maintain a consistent position or set of positions in the two sets of hearings, or over time? Our positions were consistent, but generalized. The CEC was not in a position to come up with detailed solutions. We had the luxury to legitimately decide on generalized principles. A large percentage of AB 1890’s time was taken up on a few issues where the CEC had no positions. The calculation of the CTC was not actually addressed in AB 1890. [It flowed in large part from the June, 1996 PG&E Rate Restructuring Settlement. See interviews with Barbara Barkovich and Phil Stohr.] The CEC did believe in the opportunity for reasonable cost recovery.

ERG Master’s Project

Mark Stout

139

What methods and approaches were used to advance your organization's goals and objectives in the CPUC hearings and the subsequent decision? The Energy Commission was a party in every comments filing. We also made testimony and participated in CPUC hearings as an examiner. There was little, if any other forum we took part in, outside of a disinterested role in hearings and filings. What methods and approaches were used to advance your organization’s goals and objectives in the Assembly hearing and the subsequent issuance of AB 1890? We were technically relevant in the process. A few people, including Assistant Chief Counsel John Chandley, our Executive Director, our Public Affairs Director, and I, were called up to testify on specific issues as an information source only. There was no advocacy at all, except for when I read into the record a statement for the Energy Commission Chair on the governance of the ISO and PX: they should have a significantly disinterested makeup in order to remove market power influence. The legislative language has multiple categories that should be included on the power exchange and ISO boards, some of which would be “interested”. For the ISO, a simple majority is to be unaffiliated with generation, transmission, or distribution companies. These board members will not certainly be disinterested, however. Edison and PG&E made arguments on takings [with regards to less than 100% stranded cost recovery] and coerced divestiture. The legislators were in a vacuum trying to figure out how the allocation of public program funding got made, some members perceived it as a tack-on. The Governor’s office’s participation was punctuated. They weighed in against the minimum renewables purchase requirement.

They also killed the state agency renewable purchase

requirement, put in by the renewables community. This would have required state agencies to

ERG Master’s Project

Mark Stout

140

purchase a given percentage of their electricity, phasing in over time, from renewable generators. One would need to augment budgets so the agencies were not hit. AB 1890 passed unanimously on the floor, there was no attempt to amend it. The CEC has a role allocating the lion’s share of the $62.5 million public purpose RD&D annual budget. After the passage of AB 1890, contacts between the two commissions has been informal.

University of California, California Institute for Energy Efficiency Carl Blumstein is the Associate Director of the California Institute for Energy Efficiency (CIEE), a group at the University of California involved with energy efficiency research and development (R&D). In this interview, he is not representing the position of the University, but is instead offering personal observations. What outcomes did your organization want to attain from the California electric utility restructuring policy formulation process? The general policy of the University has been that public goods R&D is a good thing that should be preserved. This has been affirmed in statements by University Provosts, for instance by Jud King, the Vice-Provost of the UC system. In the process of recent years, utility funding for CIEE had been cut off. We were fighting for restoration of this funding from October of ‘94 to December of ‘95. This R&D funding cut provided a concrete example of what was being lost in the move to deregulate the electric utility industry. How much of what your organization sought to obtain from the process was included (or represented) in the California Public Utility Commission’s December 20, 1995 Decision? We agreed with the stated principles of the Decision. It could have gone further by laying out steps needed in legislation. Also, there were no dollar figures given for public interest RD&D. Consequently, it was vague. ERG Master’s Project

Mark Stout

141

How much of what your organization sought to obtain from the process was included in Assembly Bill 1890? The University supported AB 1890, realizing the dollars available for public purpose programs were limited. More money could have been spent on public interest RD&D, but it was a reasonable outcome. Is your organization more comfortable with one policy decision over the other (i.e., CPUC vs. AB 1890)? Why? I would see them as an appropriate sequence of decisions, working well together. The funding for public interest RD&D will be reviewed after three years, the Legislature or PUC could modify. There is an agreement that the PUC could continue funding after 4 years. Steve Peace and Byron Sher recently sent a letter to the PUC, stating that their intent was that the PUC retain authority for energy efficiency funding, not end this authority after four years. In the February 14, ‘97 Decision on public purpose programs, most public interest RD&D money was allocated to the CEC: $61.8 million per year, compared to just 0.7 per year to the utilities. Whether or not the Legislature intended this was a point of contention. Was your organization able to publicly maintain a consistent position or set of positions in the two sets of hearings, or over time? I think so, we did not change our stance. What methods and approaches were used to advance your organization's goals and objectives in the CPUC hearings and the subsequent decision? We invited the Commissioners and public interest groups to briefings. Also, briefings to the IOUs were a standard part of the communication. We have good people involved in research, very committed, and this comes through in our briefings. Conlon attended a briefing a few years back, Neeper did after the December, ‘95 decision, Fessler attended one earlier. Duque was very ERG Master’s Project

Mark Stout

142

interested in technology and became a CIEE board member. We filed comments, and spoke at one public hearing. We had informal contacts with the CPUC staff, and their was a steady chatter amongst parties. The University has a counsel on the PUC service lists, but nobody dedicated to the PUC proceedings. Would you say that there is a noticeable difference between Governor Wilson’s CPUC appointees and those from the previous administration? There is no big difference between the two governor’s appointees in sympathy towards public goods R&D. The Governor can appoint one Commissioner a year, allowing for inertia. They have been favorable in principle the whole way through. In practice, they have usually been good, but they permitted some very big cuts in R&D funding in late 1994. These cuts were part of the utilities' cost cutting efforts that followed the April 20th decision. What methods and approaches were used to advance your organization’s goals and objectives in the Assembly hearing and the subsequent issuance of AB 1890? We were part of many informal groups discussing the bill, and commented publicly at the Conference Committee. The University is represented by a legislative affairs office. The office has two advocates, supplemented by several support staff, who handle all University issues. For the conference committee we had an attorney representing the University, myself and another University employee were there off and on, about five people in the meileu. We had a presence, but not an overwhelming one.

ERG Master’s Project

Mark Stout

143

Anonymous Stakeholder Comments

Anonymous Comments #1: Parties who could have improved their performance The renewables and municipal utilities were very poorly represented in hearings. For example, at one point Steve Peace threw all of the renewables community out of the room to resolve an issue. After seven hours of negotiation, the renewables community cam back in, and a representative told Peace that the group still had not come to an agreement on who would present the proposal that they still had not negotiated. The renewables could have fared much better if they stuck together as a coalition. The municipal utilities angered Peace so much that he asked, “Do people have to fail intelligence tests to run a muni?”

Anonymous Comments #2: AB 1890 funding levels for Public Interest RD&D The initial funding levels being discussed for public interest RD&D were very low. University of California representatives and I advocated for higher, pre-Blue Book, historic levels [combined SCE, SDG&E and PG&E RD&D funding fell from over $120 million in 1994 down to just over $60 million in 1995102]. The IOUs wanted to use post-Blue Book, current levels for moving to a future restructured market. They proposed to me funding at current RD&D budget levels, but they allowed me to put in definitions derived from the CPUC RD&D Working Group Report on RD&D [which distinguished between public interest and regulated T&D RD&D] and other language.

They probably thought that this funding level included regulated transmission

and distribution RD&D, but they were too busy negotiating other aspects of AB 1890 to followup on my requests for further discussion of RD&D. After they finally recognized the problem

ERG Master’s Project

Mark Stout

144

several nights later, at approximately 11:30 PM, all of the language that I had inserted earlier was removed, including the $62.5 million per year funding level for public interest RD&D. I believe that this was done by the IOUs. I went before the Conference Committee during discussion and it was explained as an error in redrafting. All parties agreed that the earlier negotiated language, preserving $62.5 million in public interest RD&D, would be included back into the bill.

102

Chart by Carl Blumstein based on 1995 CEC and PG&E data.

ERG Master’s Project

Mark Stout

145

Appendix C: Officeholder Staff Interviews

California Public Utilities Commission Tom Thompson was a project supervisor in the CPUC’s Commission Advisory and Compliance Division during the December 1995 Decision formulation process. He later acted as a project manager of support teams analyzing the drafts of AB 1890. In this interview, he is not representing the position of the Commission, but is instead offering personal observations. Which stakeholder groups do you think were most effective in influencing the policy formulation process of the December 1995 Decision and what were they able to obtain from the process? IOUs were most influential, mostly focusing on market structure. Large customers were less influential, resulting in a partial phase in of Direct Access. There was nothing for small customers, except for a rate cap that was set high anyway. What methods or strategies did these effective groups use to influence the process? Was any particular method or sets of methods most influential? There was a lot of lobbying, with no ex parte rules during the pure rule-making period before December 20, 1995. Senate Bill 1960 legislates that there must be a record of who was granted and who was denied ex parte communication, personal meetings with the Commissioners, when ex parte rules are in effect.

Lobbying access is only as good as a Commissioner’s

willingness to meet, resulting in the most influential stakeholders being granted the most access. It was conspicuous that an Edison employee always traveled with President Fessler on his trips to Europe. This offered a substantial opportunity for access.

ERG Master’s Project

Mark Stout

146

Which stakeholder groups do you think were best able to set the terms of the debate, and why? The Memorandum of Understanding was a major event that brought together two worlds, IOUs and large customers. It featured a phase-in of direct access, while diverting some money to public purpose programs. Ralph Cavanagh was influential in making sure that public purpose programs stayed on the plate. It is important to keep in mind the history of Edison and SDG&E being able to kill the Biennial Resource Plan Update (BRPU) at the FERC. Which stakeholder groups do you think could have been more effective in influencing the policy formulation process, and how could they have improved their approach? Low income advocacy groups did not make their issues big and high-profile like structural issues became. The Commissioners may not have been predisposed to dismantle low income programs, preferring to punt them to Sacramento. The low income groups participated on paper through filed comments, but did not do hall walking to the extent of other groups. Was it always clear what outcomes each stakeholder group wanted from the process? The independent power industry was split. The renewables players were probably asking for too much of the old world the PUC had engaged in, with the rest of independent power producers looking to a new world of deregulation. The investor-owned utilities were split also, with PG&E and SDG&E more willing to move forward on direct access and Edison resisting. General Comments on AB 1890 AB 1890 endorsed much of the December Decision. It included a rate freeze for the IOUs, as opposed to a revenue freeze. Since rates were poised to come down due to the 10-year QF cliffs [when qualifying facility contracts go from a high, fixed price to much lower short run avoided cost], a rate freeze created extra revenue for the CTC, adding so much certainty to stranded cost recovery. As a result, even though the duration of the CTC recovery period got ERG Master’s Project

Mark Stout

147

shorter compared to the December Decision, utilities were fine with the rate freeze.

The

PX/ISO’s insertion into Federal jurisdiction was arrogant; since the FERC will approve their structure, the PX/ISO Oversight Board is not important. The 10% rate reduction for small customers was final packaging to sell the bill for voters, as rates were supposed to come down due to the QF cliffs anyway. The rate reduction bonds may not yield net present value benefits, but just result in rate deferrals for 10 years. This reduces the risk of stranded cost recovery to the IOUs. The utilities are trying to get an untaxed ruling from the IRS on these bonds. It is tough to sell delayed gratification. The Office of Ratepayer Advocates’ [Tom’s current CPUC division] position is that there is no link between a rate reduction and these bonds. The utilities would fight this interpretation, claiming that they are linked. The level of influence on AB 1890 was a function of who was in the Conference Committee hearing room. As a sidenote, the current criticism of QFs ignores the real competition that they founded.

Legislative Conference Committee, Office of Senator Steve Peace David Takashima is Senator Steve Peace’s Chief of Staff and a former Edison lobbyist. A stakeholder representative recommended that I speak with him because of his level of involvement with the Conference Committee. Which stakeholder groups do you think were most effective in influencing the policy formulation process of AB 1890 and what were they able to obtain from the process? CMA, CLECA, and WSPA [Western States Petroleum Association]. CMA and CLECA jointly made utility restructuring the issue for business. Large businesses articulated the issues, so that the [legislative] Members and Governor bought in that restructuring would be good for ERG Master’s Project

Mark Stout

148

California businesses. Activity at the PUC did not create the political momentum. As a member of CMA’s energy group ($10 thousand membership fee), WSPA made an effort to politically educate officeholders. What methods or strategies did these effective groups use to influence the process? Was any particular method or sets of methods most influential? Coalitions were very important. CMA’s energy committee got parties together, they were able to then get retailers and agricultural groups on board. DJ Smith of CLECA and Mark Timmerman of CMA were able to organize people. PG&E’s President, Stan Skinner, who was also the President of CMA at one time, was personally engaged. PG&E tried to make a lot of accommodations to CMA. This made Edison and SDG&E very uneasy, causing Edison to get very active. Initially, most utilities opposed restructuring. PG&E was the first to come along, eventually Edison made the decision. No one would support the December Decision, so it brought the situation to everyone’s attention. The Legislature became the place to find a solution. George Dunn and Phil Romers from the Governor’s office encouraged the parties to sit down and talk. The MOU process was very important because fighting parties came to an agreement.

These parties hoped the

Legislature would ratify the MOU as opposed to the PUC vision. The Legislature did not know whether to engage in this issue. There was a lot of legislation in process, all of it spot bills as opposed to comprehensive legislation. There was not much debate or serious discussion in the Assembly. The utilities, agricultural consumers, WSPA, and retailers were all opposed to each other, causing chaos and uncertainty as to what would happen. No one in the Legislature was taking a lead on the issue. The Governor’s office needed to figure out if the December Decision needed to stand. All the parties went to the Governor’s office to criticize the PUC. ERG Master’s Project

Mark Stout

149

During the summer recess in July, Senator Peace was making a decision, having conversations with the Governor’s office, CLECA, CMA, and Edison. He had a conversation with Senator Lockyer to staff up the Conference Committee. John Rozsa and I were brought on board. The Conference Committee tried to put together legislation that made sense. Peace’s mind was made up, we have to get everyone to sign off on the bill. It was unclear whether consensus among the Committee Members was going to happen. Most parties felt that with the right bill, you could get four votes, but not all six. Senator Peace decided on a process with long discussions. He wanted people who would get engaged, decision makers at the table. Peace’s past experience with workman’s comp reform involved an extensive hearing process, getting everyone engaged for buy-in. DJ Smith [CLECA] and Bob Foster [Edison] wanted to make a case to ratify the MOU. The Committee engaged in months of hearings issue by issue. Which stakeholder groups do you think were best able to set the terms of the debate, and why? CLECA, CMA, and Edison set the tone. It would not have happened without DJ Smith, Mark Timmerman, and Bob Foster. They were a guiding light, encouraging other people to accept the process who otherwise would not have. Which stakeholder groups do you think could have been more effective in influencing the policy formulation process, and how could they have improved their approach? The environmental and renewables communities made the Committee punt. These groups could not come to a resolution, could not address the problem of a competitive market and participation. They waited until late in the process to get organized. The California Municipal Utilities Association folks lacked effectiveness also. LADWP was trying to cause trouble with restructuring. They did not want to participate. All of the munis were trying to figure out what to do in a restructured world that will not allow residential ERG Master’s Project

Mark Stout

150

subsidies on the backs of industrials. They feared the PUC would get jurisdiction over them. They did not think this was going to happen. As for consumer groups, TURN and UCAN participated in every which way. They were helpful and gave useful recommendations. Lenny Goldberg [TURN] was exceptional. The big mistake for these small consumer groups was letting Pete Wilson get elected and stack the PUC with right wing ideologues. On the other hand, CalPIRG and some other consumer advocacy groups criticized the process without participating. This was very irresponsible; they had full opportunity, yet were not in the hearing for one minute. Was it always clear what outcomes each stakeholder group wanted from the process? Stakeholders knew what they wanted, but no one knew what the end product would look like; the conference committee had to balance all interests: IOUs, labor, oil companies. The oil companies had lost their CTC exemption at the PUC. The MOU signatories did not include PG&E, irrigation districts, or labor unions. They did not know what they were willing to settle for. Most parties did not want to go back to the PUC Decision, but knew if they did not resolve things at the Legislature this would happen. They felt if they were willing to participate, they could compare AB 1890 with the December Decision; they were willing to do the Death March to find the Land of Oz. It took a special relationship and trust between Senators Peace and Leonard to keep things together. If the Committee could do something for labor, they could get the unions. Agricultural consumers wanted CTC exemptions on pumping. IOUs wanted full stranded cost recovery. PG&E proposed a shorter CTC collection period to please Wall Street. A shorter CTC period was beneficial for utilities, a longer period would discount them as marketable stocks. All of the parties went for an acceptable negotiated solution to avoid litigation or disputes at the PUC. ERG Master’s Project

Mark Stout

151

Legislative Conference Committee, Office of Senator Byron Sher Kip Lipper is Senator Byron Sher’s Chief of Staff.

A stakeholder representative

recommended that I speak with him because of his level of involvement with the Conference Committee. Which stakeholder groups do you think were most effective in influencing the policy formulation process of AB 1890 and what were they able to obtain from the process? None were terribly effective. Senators Byron Sher, Steve Peace, and Bill Leonard were the masterminds. The template was in large part formed by the CPUC’s December ‘95 Decision. Senator Peace established a process that was a model of openness, establishing a level playing field. What methods or strategies did these effective groups use to influence the process? Was any particular method or sets of methods most influential? All employed lobbyists, lawyers, and accountants.

One strategy was to get bills

established early on in the session, getting a place at the table. Because of the genius of the legislators, all of the outside lobbying did not matter. If your case fit into the unfolding structure, then your voice was heard, due to the egalitarian nature of the structure. Groups participated in coalition building. There were also “grassroots” astroturf groups based on utility shareholders. The IOUs spent millions on astroturf such as “Shareholders for Equity”. Some groups also used press conferences. A lot of PR and press consultants got rich from this, but it mainly was a waste of money. Which stakeholder groups do you think were best able to set the terms of the debate, and why? The PUC laid out the framework for restructuring in the Blue Book, based on the free market-driven ideologues on the Commission. ERG Master’s Project

Mark Stout

This had to be shaped by pressures on the 152

Legislature.

The utilities established early on the full reimbursement for stranded costs.

Renewables and energy efficiency were also guaranteed protection. The Decision by the PUC was going to be implemented unless the Legislature was able to deliver a package. Which stakeholder groups do you think could have been more effective in influencing the policy formulation process, and how could they have improved their approach? Early on the munis were not able to define a single coherent position or proposal. Peace was demanding in terms of defining your position. He threw the munis out, and they subsequently came around with an articulated position a day later. Later on in the Committee, the fact that the renewables and environmentalists were divided was damaging. This schism was a recipe for having the least influence. It was very unhelpful to have put themselves in that position. As a general matter, large entities had unified positions. To a lesser extent, the residential ratepayers also had trouble. Lenny Goldberg from TURN was stellar, but the playing field was tilted. Large, powerful interests already had an advantage from the PUC Decision. He ended up doing quite well, considering the situation. Was it always clear what outcomes each stakeholder group wanted from the process? Peace forced clarity, as when he threw the munis out of the Committee for their inability to articulate what they wanted.

Legislative Conference Committee, Office of Senator Bill Leonard Delaney Hunter is a Legislative Aide for Republican Assemblyman Bill Leonard. Leonard was a Senator on the Conference Committee during the summer of ‘96. Since several interview subjects described Bill Leonard as a powerful, fiscally conservative member of the Conference Committee, it is illuminating to get a perspective from one of his key staff who was quite active on the Committee. ERG Master’s Project

Mark Stout

153

Which stakeholder groups do you think were most effective in influencing the policy formulation process of AB 1890 and what were they able to obtain from the process? The IOUs were able to pull people together; they had the manpower to make sure their positions were taken care of. This was the greatest expression of coalition building. The full recovery of their stranded assets was very important to them. They needed to get their nukes off of the books, could not go to a competitive market with a debt hindrance. What methods or strategies did these effective groups use to influence the process? Was any particular method or sets of methods most influential? Linking up with the Governor’s office was critical. They also were able to offer a lot of help with technical drafting. A lot of their lawyers did technical language work in coalition with the legislative counsel. Which stakeholder groups do you think were best able to set the terms of the debate, and why? When the PUC December Decision came out, no one was happy. This put everything on the table. The Committee Members took some things from the Decision, otherwise blew it up. IOUs very quickly were able to get 100% stranded cost recovery firmed up, as well as an acceleration of recovery. Which stakeholder groups do you think could have been more effective in influencing the policy formulation process, and how could they have improved their approach? Power marketers such as Enron, NEVs, and Working Assets were just not there when their issues came up. Groups that opposed the bill without participating also were ineffective, such as CalPIRG and one of Ralph Nader’s organizations. To contrast this, Wayne Rafesberger, a small generation developer, was a one-man machine.

He represented himself well in the

hearings and actually helped to draft language that made it into the bill. If they were there and could contribute, anyone could have influence. The munis had a hard time articulating how to ERG Master’s Project

Mark Stout

154

maintain an exit fee [for direct access customers leaving their electricity procurement service] without joining the ISO. Bill Leonard said that if you want to charge an exit fee, you must play. He walked out at one point to force the munis to make up their mind, causing chaos. There was a lot of play between SMUD and the large customers. Was it always clear what outcomes each stakeholder group wanted from the process? Yes. The IOUs were clear that they wanted full recovery. Labor wanted to protect their employees. However, it was very interesting how the environmentalists and renewables fought each other when it was clear the money had to be split. Bill Leonard did not historically support ratepayer funding for renewables. SB 90 is the vehicle to make the CEC report on allocating renewables funding into statute. It looks most likely that it will be adopted.

Anonymous Officeholder Staff Interview #1 Which stakeholder groups do you think were most effective in influencing the overall policy formulation process and what were they able to obtain from the process? Large customers and the utilities both had the most money to spend. The IOUs got complete stranded cost recovery, while the large customers got the ability to go first on direct access, and look for ways to get around paying the CTC, such as irrigation districts and economic development rates. What methods or strategies did these effective groups use to influence the process? Was any particular method or sets of methods most influential? Getting the help of the Governor’s office. Once the Governor’s office was behind the MOU, it was all over. The ability to fund politicians helped. Political clout can be bought with lobbying and campaign contributions.

ERG Master’s Project

Mark Stout

155

Which stakeholder groups do you think were best able to set the terms of the debate, and why? Again, the large customers and utilities. If you had the resources to be there, in the coffee shops at three AM, you can be part of the decision making process. Which stakeholder groups do you think could have been more effective in influencing the policy formulation process, and how could they have improved their approach? The renewables community fractured itself as far as coming together behind a proposal. It had too many purists that need to learn the art of compromise. Also, small customers and the people who serve small customers. They needed to realize the process was happening, and pay attention to it then, not after the fact. Once something like AB 1890 is done, it is too late to change. Was it always clear what outcomes each stakeholder group wanted from the process? No. The environmental and consumer advocates did not have a clear idea of what they wanted. This dissipated their effectiveness. At first, they were all against restructuring, which did not help. When the train was leaving the station, they did not know what seat they wanted to sit in. There was not enough education or public involvement. As it was too esoteric a topic, so there was not enough press coverage. As customers learned more about what was going on, they did respond with thousands of cards and letters, influencing the CEC’s report to the Legislature.

Anonymous Officeholder Staff Interview #2 Which stakeholder groups do you think were most effective in influencing the policy formulation process of AB 1890 and what were they able to obtain from the process? IOUs and large consumers got everything they wanted. IOUs got 100% stranded cost recovery, while large customers got to move forward with direct access. ERG Master’s Project

Mark Stout

156

What methods or strategies did these effective groups use to influence the process? Was any particular method or sets of methods most influential? These influential players relied on a “fairness and competition” argument to Committee members: equity in access to the grid allowing competition to bring prices down. This had validity for Committee Members, who deal daily with issues of economic development. The Governor has the same goal: empower people for economic development. Between the large manufacturers and utilities, they accounted for 2/3 of the people in the hearing room. But it was not the number of people in the room that mattered, but the resources that could be allocated. A key witness before the Committee was Ann Cohn, Senior Legal Counsel for Edison. The Committee staff did not write the first draft of the bill, Ann wrote it and brought it to the Committee for consideration. Along the way the draft was changed of course. Ann sat down and read from the draft during the conference committee. This was the first time for the Members to be looking at actual language. Which stakeholder groups do you think were best able to set the terms of the debate, and why? The same stakeholder groups ran the discussions. Which stakeholder groups do you think could have been more effective in influencing the policy formulation process, and how could they have improved their approach? Power marketers and brokers were not as involved. Was it always clear what outcomes each stakeholder group wanted from the process? No. Often what groups indicated that they wanted was not what they actually wanted. For example, TURN would say they want “X”, and the conference committee comes back with a 10% rate reduction instead. However, the ratepayer groups did not jump up and grab it. So

ERG Master’s Project

Mark Stout

157

while the Members were trying to do the right thing, it appeared as if they were not doing that at all.

ERG Master’s Project

Mark Stout

158

Appendix D: Cluster Analysis of Stakeholder Interview Data

How much of what you wanted was in the December Decision?

Rather Little Mixed/Unclear

Most

INVESTOR-OWNED ELECTRIC UTILITIES Pacific Gas & Electric San Diego Gas and Electric Southern California Edison MUNICIPAL ELECTRIC UTILITIES California Municipal Utilities Association - Interview #1 California Municipal Utilities Association - Interview #2 Sacramento Municipal Utility District UTILITY LABOR UNIONS Coalition of California Utility Employees - Interview #1 Coalition of California Utility Employees - Interview #2

0

0

1

1 1

INDEPENDENT PRODUCERS American Wind Energy Association Independent Energy Producers LARGE ELECTRICITY CONSUMERS Agricultural Energy Consumers Association California Industrial Users California Large Energy Consumers Association - Interview #1 California Large Energy Consumers Association - Interview #2 California Manufacturers Association SMALL ELECTRICITY CONSUMERS Latino Issues Forum The Utility Reform Network ENVIRONMENTAL ADVOCATES Environmental Defense Fund Natural Resources Defense Council - Interview #1 Natural Resources Defense Council - Interview #2 Sierra Club Union of Concerned Scientists STATE INSTITUTIONS California Energy Commission

0

University of California, California Institute for Energy Efficiency Total

1 1

0

0

0

0

0

2 1

2 1 1 3

1

1 1 1 1 2 1 1 1

1 1

Mark Stout

0

2 1

1 0

2 1 1 8

3

note: 1 selects column

ERG Master’s Project

3 1 1 1 0

159

1 0

10

How much of what you wanted was in AB 1890? INVESTOR-OWNED ELECTRIC UTILITIES Pacific Gas & Electric San Diego Gas and Electric Southern California Edison MUNICIPAL ELECTRIC UTILITIES California Municipal Utilities Association - Interview #1 California Municipal Utilities Association - Interview #2 Sacramento Municipal Utility District UTILITY LABOR UNIONS Coalition of California Utility Employees - Interview #1 Coalition of California Utility Employees - Interview #2

Rather Little Mixed/Unclear Most 0 0 3 1 1 1 0 2 0 1

INDEPENDENT PRODUCERS American Wind Energy Association Independent Energy Producers LARGE ELECTRICITY CONSUMERS Agricultural Energy Consumers Association California Industrial Users California Large Energy Consumers Association - Interview #1 California Large Energy Consumers Association - Interview #2 California Manufacturers Association

1 1

SMALL ELECTRICITY CONSUMERS Latino Issues Forum The Utility Reform Network ENVIRONMENTAL ADVOCATES Environmental Defense Fund Natural Resources Defense Council - Interview #1 Natural Resources Defense Council - Interview #2 Sierra Club Union of Concerned Scientists STATE INSTITUTIONS

1

0

0

1 1

1 1

1 0

1 3

1 1

0

4 1 1 1 1

0

1

1

1 .

1

3

Mark Stout

1

1 1

9

note: 1 selects column

ERG Master’s Project

2 1 1

1

California Energy Commission University of California, California Institute for Energy Efficiency Total

1 0

0

160

10

Which Policy Outcome Does Your Organization Prefer? INVESTOR-OWNED ELECTRIC UTILITIES Pacific Gas & Electric San Diego Gas and Electric Southern California Edison MUNICIPAL ELECTRIC UTILITIES California Municipal Utilities Association - Interview #1 California Municipal Utilities Association - Interview #2 Sacramento Municipal Utility District UTILITY LABOR UNIONS Coalition of California Utility Employees - Interview #1 Coalition of California Utility Employees - Interview #2

CPUC DD AB 1890 No preference/Unclear 0 3 0 1 1 1 0 1 1 1

0

1 1

0

1

INDEPENDENT PRODUCERS American Wind Energy Association Independent Energy Producers LARGE ELECTRICITY CONSUMERS Agricultural Energy Consumers Association California Industrial Users California Large Energy Consumers Association - Interview #1 California Large Energy Consumers Association - Interview #2 California Manufacturers Association

1 1

SMALL ELECTRICITY CONSUMERS Latino Issues Forum The Utility Reform Network ENVIRONMENTAL ADVOCATES Environmental Defense Fund Natural Resources Defense Council - Interview #1 Natural Resources Defense Council - Interview #2 Sierra Club Union of Concerned Scientists STATE INSTITUTIONS

0

1

2

1 3 1

0

1

0

1 4 1 1

0

1 1 1 1 0

1 1 1 1 0

0

2

California Energy Commission University of California, California Institute for Energy Efficiency Total

1 1 3

14

4

note: 1 selects column

ERG Master’s Project

Mark Stout

161

Appendix E: Restructuring Stakeholder Campaign Contribution/Gift Analysis Detail

Table 1: Assemblymember Jim Brulte, 1995 Campaign Contributions INVESTOR-OWNED ELECTRIC/GAS UTILITIES El Paso Natural Gas General Electric (nuclear generation) Pacific Gas & Electric San Diego Gas and Electric/Enova Southern California Edison/Edison International Southern California Gas/Pacific Enterprises UTILITY LABOR UNIONS Int. Brotherhood of Electrical Workers (various locals) INDEPENDENT PRODUCERS CalEnergy Co. (geothermal) Pacific Lumber Company (solid fuel biomass) LARGE ELECTRICITY CONSUMERS Adams Steel California Farm Bureau Federation PAC California Manufacturers Association California Mining Association PAC California Steel Industries (CLECA member) Fontana Steel Louisiana Pacific (CMA member) Mitsubishi Cement (CLECA member) National Cement (CLECA member) Riverside Cement (CLECA member) Tamco Steel (CLECA member) OIL AND NATURAL GAS COMPANIES ARCO (Atlantic Richfield Co.) California Independent Oil Marketers Association Chevron (CMA member) Mobil Unocal (CMA member) SMALL ELECTRICITY CONSUMERS ENVIRONMENTAL ADVOCATES

ERG Master’s Project

Mark Stout

$22,191 $2,000 $1,000 $2,000 $2,495 $10,896 $3,800 $1,000 $1,000 $4,500 $1,000 $3,500 $22,429 $498 $1,000 $1,000 $500 $1,995 $300 $12,000 $495 $950 $696 $2,995 $21,495 $7,000 $3,000 $7,495 $1,000 $3,000 $0 $0

162

Table 2: Assemblymember Jim Brulte, 1996 Campaign Contributions INVESTOR-OWNED ELECTRIC/GAS UTILITIES El Paso Natural Gas Pacific Gas & Electric San Diego Gas and Electric/Enova Southern California Edison/Edison International Southern California Gas/Pacific Enterprises UTILITY LABOR UNIONS Int. Brotherhood of Electrical Workers (various locals) Southern California Pipe Trades INDEPENDENT PRODUCERS CalEnergy Co. (geothermal) Pacific Lumber Company (solid fuel biomass) LARGE ELECTRICITY CONSUMERS Adams Steel California Manufacturers Association California Mining Association PAC California Steel Industries (CLECA member) Fontana Steel Mitsubishi Cement (CLECA member) National Cement (CLECA member) Riverside Cement (CLECA member) Southwest Portland Cement Co. (CLECA member) Tamco Steel (CLECA member) OIL AND NATURAL GAS COMPANIES ARCO (Atlantic Richfield Co.) California Independent Oil Marketers Association California Independent Petroleum PAC Chevron (CMA member) Exxon Mobil Texaco Unocal (CMA member) SMALL ELECTRICITY CONSUMERS ENVIRONMENTAL ADVOCATES

ERG Master’s Project

Mark Stout

$28,990 $1,000 $8,500 $6,000 $10,995 $2,495 $4,250 $2,500 $1,750 $4,500 $1,000 $3,500 $47,460 $200 $500 $750 $2,000 $1,995 $1,500 $800 $498 $200 $9,995 $14,511 $3,017 $749 $750 $3,000 $1,000 $1,000 $2,000 $2,995 $0 $0

163

1995/1996 Stakeholder Gift Information for Assemblymember Jim Brulte In 1995, AB 1890 author Assemblyman Jim Brulte accepted no gifts from stakeholders. From 3/28/96 to 4/8/96, Brulte was taken on a $7,490 “Travel project to Europe on Electric Restructuring, Conservation, and Privatization” visiting London, Sweden, and Budapest, by the California Foundation on the Environment and the Economy. CFEE is a “non-profit, charitable organization 501(c)(3)” funded by Edison to push Edison’s preferred wholesale PoolCo style market structure103. Paling in comparison, Mobil treated Brulte to a $60 event in 1996. Not to be outdone, Chevron treated Brulte to two meals, as well as an event, totaling $101.

Table 3: Senator Steve Peace, 1995 Campaign Contributions INVESTOR-OWNED ELECTRIC/GAS UTILITIES El Paso Natural Gas Pacific Gas & Electric San Diego Gas and Electric/Enova Southern California Edison/Edison International Southern California Gas/Pacific Enterprises UTILITY LABOR UNIONS Int. Brotherhood of Electrical Workers (various locals) INDEPENDENT PRODUCERS CalEnergy Co. (geothermal) Indpependent Energy Producers OIL AND NATURAL GAS COMPANIES California Independent Petroleum PAC Chevron (CMA member) Unocal (CMA member) SMALL ELECTRICITY CONSUMERS ENVIRONMENTAL ADVOCATES

103

$11,750 $750 $1,750 $2,750 $3,000 $3,500 $1,000 $1,000 $2,000 $1,000 $1,000 $2,250 $500 $1,000 $750 $0 $0

Asmus, 1996, 4

ERG Master’s Project

Mark Stout

164

Table 4: Senator Steve Peace, 1996 Campaign Contributions INVESTOR-OWNED ELECTRIC/GAS UTILITIES El Paso Natural Gas Pacific Gas & Electric San Diego Gas and Electric/Enova Southern California Edison/Edison International Southern California Gas/Pacific Enterprises UTILITY LABOR UNIONS Int. Brotherhood of Electrical Workers (various locals) Southern California Pipe Trades Utility Workers Union of America INDEPENDENT PRODUCERS CalEnergy Co. (geothermal) California Solar Energy Industry Association Cannon Energy (windpower) Destec (gas-fired) Independent Energy Producers Pacific Lumber Company (solid fuel biomass) SeaWest Windpower Zond Windpower DSM ENERGY SERVICE COMPANIES (ESCOS) SESCO (energy services) LARGE ELECTRICITY CONSUMERS California Manufacturers Association California Retailers Association California Steel Industries (CLECA member) OIL AND NATURAL GAS COMPANIES ARCO (Atlantic Richfield Co.) California Independent Petroleum PAC Chevron (CMA member) Unocal (CMA member) SMALL ELECTRICITY CONSUMERS ENVIRONMENTAL ADVOCATES

ERG Master’s Project

Mark Stout

$48,815 $750 $6,500 $16,115 $18,450 $7,000 $6,100 $2,600 $2,000 $1,500 $8,050 $3,000 $300 $1,000 $750 $750 $750 $1,000 $500 $2,250 $2,250 $7,072 $2,572 $1,500 $3,000 $4,250 $750 $500 $1,250 $1,750 $0 $0

165

1995/1996 Stakeholder Gift Information for Senator Steve Peace Given Steve Peace’s prominence as chair of the Conference Committee on Electric Utility Restructuring, as well as chair of the Senate Energy and Utilities Committee, he maintained a pretty low profile in 1995 and 1996 in terms of accepting gifts and trips. In 1995, Peace was treated to a $52 sports event by Mobil Oil. SDG&E pulled on Peace’s ear over a sports event and meal totaling $89. Southern California Edison was granted a high level of access, taking Steve to 11 meals. Peace began a practice of reimbursing all utilities for meals and outings starting with Edison in 1995. In 1996, SDG&E had Peace out to six meals, while Edison treated him to five meals and a sports event. IEP made a gift of $241 for his speech at a conference.

Table 5: Senator Byron Sher, 1995 Campaign Contributions INVESTOR-OWNED ELECTRIC/GAS UTILITIES Southern California Edison/Edison International UTILITY LABOR UNIONS California State Pipe Trades Council PAC INDEPENDENT PRODUCERS Indpependent Energy Producers LARGE ELECTRICITY CONSUMERS SMALL ELECTRICITY CONSUMERS ENVIRONMENTAL ADVOCATES California League of Conservation Voters

$500 $500 $500 $500 $500 $500 $0 $0 $5,000 $5,000

Table 6: Senator Byron Sher, 1996 Campaign Contributions INVESTOR-OWNED

ELECTRIC/GAS $6,900

UTILITIES Electric Power Research Institute (EPRI)

$250

General Electric (nuclear plants)

$1,100

Pacific Gas & Electric

$2,450

ERG Master’s Project

Mark Stout

166

San Diego Gas and Electric/Enova

$1,000

Southern California Edison/Edison International Southern California Gas/Pacific Enterprises UTILITY LABOR UNIONS California

State

Association

$500 $1,600 $13,100

of

Electrical

$500

Workers California State Pipe Trades Council PAC

$2,500

Int. Brotherhood of Electrical Workers (various $9,000 locals) Southern California Pipe Trades

$1,000

United Assoc. of Journeymen & Apprentice

$100

Underground Utility/Landscape INDEPENDENT PRODUCERS

$9,482

AES Pacific/SF Energy Co. (gas-fired)

$100

American Wind Energy Association

$1,882

Bonnie Hays Consulting (Clean Power Day

$100

organizing) CalEnergy Co. (geothermal)

$2,000

Colmac Energy Inc. (biomass) Edson

+

Modisette

(lobbyist

$500 for

indep.

$500

Hansen, McQuat, and Hamrin, Inc (consultants)

$200

producers, EVs)

ERG Master’s Project

Mark Stout

167

Indpependent Energy Producers Modesto

Energy

Limited

$1,000

Partnership

(tire $1,000

burning) SeaWest Windpower

$100

United American Energy

$100

Wadham Energy Limited Partnership (biomass)

$500

Zond Windpower DSM

ENERGY

$1,500 SERVICE

COMPANIES $1,250

(ESCOS) Appliance Recycling Centers of America

$500

Onsite Energy (energy service company)

$500

Preferred Energy Services (energy service

$250

company) LARGE ELECTRICITY CONSUMERS Adams Steel California

$3,250 $100

Large

Energy

Consumers

$50

Association California Retailers Association

$1,000

California Steel Industries (CLECA member)

$1,000

Louisiana Pacific (CMA member)

$1,000

Schnitzer Steel Industries (CLECA member) OIL AND NATURAL GAS COMPANIES

ERG Master’s Project

Mark Stout

$100 $1,000

168

Tosco Corp. (gasoline refining and marketing) SMALL ELECTRICITY CONSUMERS California

Nevada

Community

$1,000 $300

Action

$300

Association ENVIRONMENTAL ADVOCATES

$22,448

California League of Conservation Voters

$14,585

Energy Foundation

$100

Environmental Defense Fund

$500

Natural Resources Defense Council

$2,000

Planning and Conservation League

$700

Sierra Club California

$4,462

Union of Concerned Scientists

$100

STATE INSTITUTIONS

$900

U. of California, California Institute for Energy

$400

Efficiency California Integrated Waste Management Board

$500

(biomass proponents)

ERG Master’s Project

Mark Stout

169

1995/1996 Stakeholder Gift Information for Senator Byron Sher In 1995, the National Association of Regulatory Utility Commissioners (NARUC) bought Sher two plane tickets for quick trips to the Steering Committee meetings of the Electric Utility Restructuring Project, totaling $2608. Sher received no other gifts that year from energy utility stakeholders, but his Statement of Economic Interest reveals large holding of oil and electricity stocks. Sher holds over $100,000 in each of Amoco, Exxon, Mobil, and GE. In 1996, NARUC treated Sher to a two day trip to DC for another meeting, totaling $758.

Table 7: Senator Bill Leonard, 1995 Campaign Contributions INVESTOR-OWNED ELECTRIC/GAS UTILITIES El Paso Natural Gas Pacific Gas & Electric Southern California Edison/Edison International Southern California Gas/Pacific Enterprises UTILITY LABOR UNIONS INDEPENDENT PRODUCERS LARGE ELECTRICITY CONSUMERS California Steel Industries (CLECA member) Riverside Cement (CLECA member) Tamco Steel (CLECA member) SMALL ELECTRICITY CONSUMERS ENVIRONMENTAL ADVOCATES

ERG Master’s Project

Mark Stout

$3,300 $500 $1,000 $1,500 $300 $0 $0 $2,400 $750 $150 $1,500 $0 $0

170

Table 8: Senator Bill Leonard, 1996 Campaign Contributions INVESTOR-OWNED ELECTRIC/GAS UTILITIES Pacific Gas & Electric San Diego Gas and Electric/Enova Southern California Edison/Edison International Southern California Gas/Pacific Enterprises UTILITY LABOR UNIONS Int. Brotherhood of Electrical Workers (various locals) INDEPENDENT PRODUCERS CalEnergy Co. (geothermal) Pacific Lumber Company (solid fuel biomass) LARGE ELECTRICITY CONSUMERS California Mining Association PAC California Portland Cement Co. (CLECA member) California Steel Industries (CLECA member) Mitsubishi Cement (CLECA member) Tamco Steel (CLECA member) OIL AND NATURAL GAS COMPANIES ARCO (Atlantic Richfield Co.) Texaco Unocal (CMA member) SMALL ELECTRICITY CONSUMERS ENVIRONMENTAL ADVOCATES

$19,730 $2,000 $5,080 $10,000 $2,650 $2,000 $2,000 $1,000 $500 $500 $4,650 $500 $1,000 $2,500 $150 $500 $3,000 $1,500 $500 $1,000 $0 $0

1995/1996 Stakeholder Gift Information for Senator Bill Leonard In 1995, SDG&E bought Leonard a $125 ticket to the Pete Wilson Inaugural Gala. Edison’s lobbyists got to spend a little more quality time with Leonard for their money. SCE treated Leonard to dinner and lodging for Legislative Ski Day, for a paltry $20, saving up for a $77 dinner with head lobbyist Bob Foster, and a $75 dinner at the American Legislative Exchange Council’s annual meeting. Senator Leonard was courted a little more heavily by energy stakeholders in 1996. The Pacific Rim Conference of Seattle, WA paid $734 for Leonard to moderate a conference session on utility deregulation, extending his stay from 12/8/96 to 12/13/96. While the Senator was there, SCE treated him to a $30 beach party and a $20 lunch with lobbyist Bob Foster. Edison again ERG Master’s Project

Mark Stout

171

had Senator Leonard out for Legislative Ski Day, paying $44 for two meals and lodging. They also had Leonard out for two meals in Sacramento, including lunch with Bob Foster. PG&E took Leonard out to a Kings game, for the modest tab of $56. ARCO treated Leonard to a $19 meal at a reception.

Table 9: Assemblymember Mickey Conroy, 1995 Campaign Contributions INVESTOR-OWNED ELECTRIC/GAS UTILITIES El Paso Natural Gas Joint Electrical Industry Fund Pacific Gas & Electric San Diego Gas and Electric/Enova Southern California Edison/Edison International Southern California Gas/Pacific Enterprises UTILITY LABOR UNIONS California State Association of Electrical Workers INDEPENDENT PRODUCERS Indpependent Energy Producers LARGE ELECTRICITY CONSUMERS Adams Steel Louisiana Pacific (CMA member) OIL AND NATURAL GAS COMPANIES ARCO (Atlantic Richfield Co.) Chevron (CMA member) Unocal (CMA member) SMALL ELECTRICITY CONSUMERS ENVIRONMENTAL ADVOCATES

ERG Master’s Project

Mark Stout

$6,600 $750 $750 $500 $1,250 $1,600 $1,750 $1,000 $1,000 $750 $750 $650 $150 $500 $3,000 $1,000 $1,250 $750 $0 $0

172

Table 10: Assemblymember Mickey Conroy, 1996 Campaign Contributions INVESTOR-OWNED ELECTRIC/GAS UTILITIES El Paso Natural Gas Pacific Gas & Electric San Diego Gas and Electric/Enova Southern California Edison/Edison International Southern California Gas/Pacific Enterprises UTILITY LABOR UNIONS California State Pipe Trades Council PAC Int. Brotherhood of Electrical Workers (various locals) Southern California Pipe Trades INDEPENDENT PRODUCERS Destec (gas-fired) Pacific Lumber Company (solid fuel biomass) LARGE ELECTRICITY CONSUMERS Adams Steel California Portland Cement Co. (CLECA member) California Steel Industries (CLECA member) Louisiana Pacific (CMA member) Tamco Steel (CLECA member) OIL AND NATURAL GAS COMPANIES ARCO (Atlantic Richfield Co.) California Independent Petroleum PAC Chevron (CMA member) Southern Counties Oil Co. Unocal (CMA member) SMALL ELECTRICITY CONSUMERS ENVIRONMENTAL ADVOCATES

$9,600 $500 $1,500 $2,000 $3,000 $2,600 $3,000 $500 $2,000 $500 $750 $250 $500 $2,700 $750 $450 $250 $250 $1,000 $5,050 $1,700 $500 $300 $550 $2,000 $0 $0

1995/1996 Stakeholder Gift Information for Assemblymember Mickey Conroy In April of 1995, the California Foundation on the Environment and the Economy took Conroy on an 11 day, $7,300 junket to talk with Chinese central government and provincial leaders in Beijing, Shanghai, and Inner Mongolia. CFEE is a “non-profit, charitable organization 501(c)(3)” funded by Edison to push Edison’s preferred wholesale PoolCo style market structure104. PG&E treated him to a basketball game with $51 tickets, two meals for $44, and to

104

Asmus, 1996, 4

ERG Master’s Project

Mark Stout

173

make sure Conroy kept a sweet spot in his heart for them, $10 in candy. Edison wined and dined the Assemblymember with four meals at $134, four rounds of “refreshments” for $30, and $25 of cookies and candy. Chevron took Conroy out for two business meals, costing $99. In terms of investment, the Assemblymember seems to have a penchant for electric utilities and nuclear power plant manufacturers, with investments of greater than $10,000 in Orange & Rockland Utilities, and less than 10,000 each in Edison, SDG&E, Kansas City Power & Light, Pacificorp, General Electric, and Westinghouse Electrical. After such a busy social calendar in 1995, it is surprising that no electric utility deregulation stakeholders made any gifts to Assemblymember Conroy in 1996.

ERG Master’s Project

Mark Stout

174

Table 11: Assemblymember Diane Martinez, 1995 Campaign Contributions INVESTOR-OWNED ELECTRIC/GAS UTILITIES El Paso Natural Gas Pacific Gas & Electric San Diego Gas and Electric/Enova Southern California Edison/Edison International Southern California Gas/Pacific Enterprises UTILITY LABOR UNIONS California State Pipe Trades Council PAC Int. Brotherhood of Electrical Workers (various locals) INDEPENDENT PRODUCERS CalEnergy Co. (geothermal) Indpependent Energy Producers OIL AND NATURAL GAS COMPANIES ARCO (Atlantic Richfield Co.) Chevron (CMA member) Mobil Texaco Unocal (CMA member) SMALL ELECTRICITY CONSUMERS ENVIRONMENTAL ADVOCATES

ERG Master’s Project

Mark Stout

$7,750 $1,000 $1,250 $1,000 $1,750 $2,750 $2,175 $500 $1,675 $2,750 $1,000 $1,750 $4,250 $1,750 $750 $500 $500 $750 $0 $0

175

Table 12: Assemblymember Diane Martinez, 1996 Campaign Contributions INVESTOR-OWNED ELECTRIC/GAS UTILITIES El Paso Natural Gas Pacific Gas & Electric San Diego Gas and Electric/Enova Southern California Edison/Edison International Southern California Gas/Pacific Enterprises MUNICIPAL ELECTRIC UTILITIES Gualco Group (lobbyist: Imperial & Modesto Irigatn. Dist.) UTILITY LABOR UNIONS California State Association of Electrical Workers Int. Brotherhood of Electrical Workers (various locals) Utility Workers Union of America INDEPENDENT PRODUCERS CalEnergy Co. (geothermal) Destec (gas-fired) Enron Capital & Trade (gas-fired) GWF Power Systems (oil and coal-fired) Pacific Lumber Company (solid fuel biomass) Sithe Energies Co. (member of IPPs of NY) Zond Windpower LARGE ELECTRICITY CONSUMERS California Manufacturers Association California Portland Cement Co. (CLECA member) California Steel Industries (CLECA member) Tamco Steel (CLECA member) OIL AND NATURAL GAS COMPANIES ARCO (Atlantic Richfield Co.) Chevron (CMA member) Mobil Texaco Unocal (CMA member) SMALL ELECTRICITY CONSUMERS ENVIRONMENTAL ADVOCATES

ERG Master’s Project

Mark Stout

$20,750 $1,000 $7,250 $1,000 $5,500 $6,000 $500 $500 $5,000 $500 $3,500 $1,000 $4,500 $1,000 $1,000 $500 $500 $500 $500 $500 $3,500 $1,000 $500 $1,000 $1,000 $4,500 $1,500 $500 $500 $1,000 $1,000 $0 $0

176

Table 13: Assemblymember Steve Kuykendall, 1995 Campaign Contributions INVESTOR-OWNED ELECTRIC/GAS UTILITIES El Paso Natural Gas General Electric (nuclear plants) Pacific Gas & Electric San Diego Gas and Electric/Enova Southern California Edison/Edison International Southern California Gas/Pacific Enterprises UTILITY LABOR UNIONS INDEPENDENT PRODUCERS LARGE ELECTRICITY CONSUMERS Louisiana Pacific (CMA member) OIL AND NATURAL GAS COMPANIES ARCO (Atlantic Richfield Co.) California Independent Oil Producers Chevron (CMA member) Kaiser International Corp. (bulk terminals) Mobil Tidelands Oil Tower Energy Group (oil, natural gas, diesel) Unocal (CMA member) SMALL ELECTRICITY CONSUMERS ENVIRONMENTAL ADVOCATES

$7,058 $500 $500 $1,500 $1,500 $1,850 $1,208 $0 $0 $1,000 $1,000 $8,900 $3,100 $100 $1,000 $500 $500 $1,600 $1,600 $500 $0 $0

1995/1996 Stakeholder Gift Information for Assemblymember Diane Martinez In 1995, the Illinois Energy Association flew Martinez out for a $1,467 trip to Northwestern University to discuss the deregulation of public utilities. The Assemblymember enjoyed no such gifts from deregulation stakeholders in 1996.

ERG Master’s Project

Mark Stout

177

Table 14: Assemblymember Steve Kuykendall, 1996 Campaign Contributions INVESTOR-OWNED ELECTRIC/GAS UTILITIES El Paso Natural Gas Pacific Gas & Electric San Diego Gas and Electric/Enova Southern California Edison/Edison International Southern California Gas/Pacific Enterprises UTILITY LABOR UNIONS INDEPENDENT PRODUCERS Bechtel (gas-fired) Pacific Lumber Company (solid fuel biomass) LARGE ELECTRICITY CONSUMERS California Farm Bureau Federation PAC California Mining Association PAC Kaiser Aluminum Louisiana Pacific (CMA member) OIL AND NATURAL GAS COMPANIES ARCO (Atlantic Richfield Co.) California Independent Oil Producers California Independent Petroleum PAC Chevron (CMA member) Mobil Texaco Tidelands Oil Tower Energy Group (oil, natural gas, diesel) Unocal (CMA member) Victory Oil Co. SMALL ELECTRICITY CONSUMERS ENVIRONMENTAL ADVOCATES

$10,374 $500 $2,000 $1,000 $2,374 $4,500 $0 $1,500 $1,000 $500 $2,350 $500 $1,250 $100 $500 $35,443 $6,254 $200 $500 $4,000 $1,000 $1,500 $1,000 $19,989 $500 $500 $0 $0

1995/1996

Assemblymember

Stakeholder

Gift

Information for

Steve

Kuykendall In 1995, Western States Petroleum Association treated Kuykendall to a reception and a dinner totaling $62. However, Kuykendall’s social calendar was destined to pick up in 1996. From 3/28/96 to 4/8/96, Kuykendall was taken on a $7,490 “Travel project to Europe on Electric Restructuring, Conservation, and Privatization” visiting London, Sweden, and Budapest, ERG Master’s Project

Mark Stout

178

by the California Foundation on the Environment and the Economy. A trade association, known as the Council of States Government - WEST, paid $1,916 for the Assemblymember to speak and moderate a panel discussion on electric utility deregulation. Chevron treated Kuykendall to two dinners for $131. The California Mining Association took him out for an evening of recreation and dinner costing $89.

1994/1995 Stakeholder Gift Information for CPUC President Daniel Fessler From 3/16/94 to 3/27/94, Fessler was taken on a $7,167 junket visiting London, Brussels, and Paris, by the California Foundation on the Environment and the Economy, to meet with CEOs of the electricity industry, regulators, government ministers, and environmental groups to discuss the British experience with deregulation of electricity. Edison, one of CFEE’s funders, was very interested in California moving to the UK-style, wholesale PoolCo model. According to investigative writer Peter Asmus, “though the CPUC had imposed a ban on communications regarding the Biennial Resource Plan Update (BRPU), a clean power auction the CPUC repeatedly postponed upon the urging of the utility, an Edison lobbyist was added to the international travel party at the last minute.”105 The Consolidated Edison IOU spent $1,051 to fly the President out to New York City for a ConEdison Management Conference. The Large Public Power Council, a trade association for publicly owned utilities, spent $1402 to fly Fessler to Charleston, SC to address their membership. The Energy Foundation flew him to Colorado twice for “Future of Utilities” and “Utility Futures IV” meetings, for $610. Another non-profit organization, The Aspen Institute, spent $516 to fly Fessler to a “Series on Energy Efficiency in the 21st Century”, in Aspen, CO. The California

105

Asmus, 1996, 4

ERG Master’s Project

Mark Stout

179

Energy Coalition flew him to Wyoming to join roundtable discussions at an Aspen Accord Working Group meeting, for $323. Kansai Electric utility spent $222 to fly Feeler to roundtable discussions at the NARUC/Kansai Electric Senior Executives Meeting in New York City. Fessler was flown to The National Association of Energy Service Companies for $249 to speak at their annual conference in Boca Raton. The Western States Coordinating Council, a utility planning association, spent $249 to fly him to their annual meeting in Las Vegas. The Illinois Power Company spent $427 to bring the CPUC President out to speak at the Edison Electric Institute Joint Executives Symposium. EEI is a trade association representing investor owned utilities. Synergics Resources Corporation had Fessler out to Princeton, NJ to speak at the 1994 DSM Implementation Conference.

Finally, PG&E had him out for two lunches, for $61. On the

investment side, Fessler holds over $10,000 in Ohio Edison stock. In April of 1995, the California Foundation on the Environment and the Economy took Fessler on an 11 day, $7,802 junket to talk with Chinese central government and provincial leaders in Beijing, Shanghai, and Inner Mongolia. The Energy Foundation brought him to Dallas and Salt Lake City for the “Utility Futures V and VII meetings, spending $1006. The Cato Institute, a libertarian think-tank, had Fessler speak at their conference in Washington, DC, for $467 airfare. The Rocky Mountain Electrical League, a utility association, spent $314 to bring him to speak at their Spring Conference. in Fort Collins, CO. The American Enterprise Institute for Public Policy spent $120 for Fessler to make it to their Energy Policy Forum in Washington, DC. Finally, the Center for Resource Management flew him to Midway, Utah to speak at the “Utility Restructuring, ZEV’s and Rethinking the Environment Conference, spending $291.

ERG Master’s Project

Mark Stout

180

1994/1995 Stakeholder Gift Information for Commissioner Gregory Conlon From 3/16/94 to 3/31/94, Conlon was taken on a $7,167 junket visiting London, Brussels, and Paris, by the California Foundation on the Environment and the Economy, to meet with CEOs of the electricity industry, regulators, government ministers, and environmental groups to discuss the British experience with deregulation of electricity. Edison, one of CFEE’s funders, was very interested in California moving to the UK-style, wholesale PoolCo model. In 1995, The Edison Electric Institute spent $279 to fly the Commissioner to a conference on the results of State Competition in Boca Raton.

1994/1995 Stakeholder Gift Information for Commissioner Jesse Knight, Jr. Knight did not report any electricity deregulation stakeholder gifts in 1994 or 1995.

1994/1995 Stakeholder Gift Information for Commissioner Norm Shumway In February of 1994, the Northwest Electric Light and Power Association flew Shumway to their 3rd annual Non-Utility Generation Conference, spending $258. PG&E had him out to three meals for $71. He left office on February 23, 1995.

1994/1995 Stakeholder Gift Information for Commissioner Josiah Neeper Knight did not report any electricity deregulation stakeholder gifts in 1994 or 1995. He does own less than $10,000 in each of Montana Power Company and Exxon stock.

1994/1995 Stakeholder Gift Information for Commissioner Henry Duque Duque did not report any electricity deregulation stakeholder gifts in 1994 or 1995. He does own more than $10,000 in each of Central & Southwest Corp. utility and General Electric stock, and less than $10,000 in each of Chevron, Unocal, and Schlumberger oilfield services stock.

ERG Master’s Project

Mark Stout

181