May 4, 2004 - From the October, 2003 issue

PUC, Power Authority & Energy Commission Endorse New State Energy Action Plan

In the days and weeks following the recall election, Governor-elect Schwarzenegger has highlighted the retooling of California's energy production and distribution system as a key policy priority. However, Arnold's plans look a lot like the Energy Action Plan recently adopted by the state. MIR is pleased to present this interview with Sunne McPeak, CEO of the Bay Area Council and a boardmember of the California Consumer Power and Conservation Financing Authority, in which she addresses the strengths of the Energy Action Plan and the planning necessary to guarantee the availability of power going forward in California.

Sunne McPeak

Sunne, you serve as a board member on the State Consumer Power and Conservation Financing Authority, which recently collaborated on a state Energy Action Plan. Would you summarize for our readers which agencies helped prepare this plan, and why it's important to pay serious attention to the plan's findings and recommendations.

The Energy Action Plan was jointly prepared, released and endorsed by three of the power agencies in California: the California Energy Commission, California Public Utilities Commission, and the California Power Authority. Also, the California ISO was involved in a consulting role, providing input and advice, as we formulated the Energy Action Plan. The Plan is important because it is the first time in the history of the state that all three agencies have articulated a common framework for working together and taking action to ensure California's energy security. This document is also the most aggressive on conservation, efficiencies and renewable energy that has been set forth by all of the agencies in California.

Address first how the plan was constructed and then implemented. How will these three agencies advance their recommendations?

The first order of business was to establish a set of objectives that all of the agencies could agree upon, and therefore share with the Legislature and the Governor. The objectives outline the mix of actions needed to ensure that California has an adequate energy supply. The way that we envision this being implemented is by each of those agencies carrying out, within their defined responsibilities and authorities under the law, the appropriate actions and items within that Energy Action Plan.

To give an example, under a conservation and efficiency lead action, there are several individual steps that must be taken. One is to look at how much energy can be conserved if price signals are introduced to the consumer. So, last year the Public Utilities Commission, under the leadership of President Michael Peavey, conducted a rule making proceeding that included Energy Commissioner Art Rosenfeld and me from the Power Authority. We went through the rule making for dynamic pricing and advanced metering and have recommended a set of pilot programs. The experience from those pilots will be used in setting rates and incorporating into procurement the kind of pricing and advanced metering that would achieve those savings that we anticipate can be accomplished through dynamic pricing and the use of technology. So, here is an example of all three agencies working together under the jurisdiction of the PUC, coming to a common set of recommendations, and then the PUC acting, as they can, to turn these recommendations into actions.

Other examples include: The Energy Commission is responsible for building standards. Under the Energy Action Plan, it is envisioned to achieve electricity savings from more aggressive building standards for both residential and non-residential projects. So the Energy Commission will be taking the lead in achieving that objective. The Power Authority is responsible for ensuring that we have an adequate reserve supply in California, and we've got load management programs that we're implementing. We are, as a group of all three agencies, meeting quarterly. So all of the commissioners and directors of the agencies, with the ISO also in attendance, sit together once per quarter.

This is really helpful to understand energy policy, the players, the stakeholders and the plan of action. But in the opening page of the Energy Action Plan, it says, "the plan identifies specific goals and actions to eliminate energy outages and excessive price hikes in electricity and natural gas." It goes on, very importantly, to say, "these initiatives will send a signal to the market that California is a good place to do business, and that investments in the more efficient use of energy and new electricity and natural gas infrastructure will be rewarded." What, as a result of the release of this energy action plan, are the signals that you believe are being sent to the markets?

The first signal is that we have a plan of action that is rooted in analysis and has specific objectives. Each of the objectives is listed in what we call a "loading order." The thrust of this action plan is to say that we're going to optimize those options that are most cost-effective and environmentally-friendly. We begin with conservation and efficiencies, we go to renewable energy, and then we go to new generation, both to the replace old, dirty generation but also to keep up with growth.

The importance of this loading order is that we are identifying what we think can be accomplished to optimize each of those actions. Plus, we are not saying they're going to be done sequentially, rather they're going to be done simultaneously. And we're inviting investment back to California with the commitment that there will be support from the agencies to ensure that there is accountability.

The next sentence in the Plan's Forward says: "this approach recognizes that California currently has a hybrid energy market, and that state policies can capture the best features of a vigorous, competitive, wholesale energy market and renewed positive regulation." Are the agencies recommending reregulation of energy generation?

Well, some of us would argue that there was flawed re-regulation in the legislation that was called de-regulation. If you've got a public commodity-power is regarded as something that is needed in the public interest-and it is provided in part by private interests, there needs to be a regulatory framework to ensure fairness. So, the mention of our hybrid energy market is actually meant to refer to the fact that there is an evolution towards load-serving entities also having generation-and procurement for that generation-under their responsibility.


Let's focus on the state's power grid, on which you have great expertise and authority. The east and midwest, as well as Italy, have just experienced blackouts. What in the Energy Action Plan should give Californians and investors comfort that there will be sufficient generation and a reliable transition system in California going forward?

Even before the blackouts on the East Coast and in Europe, this Energy Action Plan said we have to make very significant improvements and upgrades in transition. To the extent we do that, that will offset, in part, some of the generation that would be needed. So first, to identify that, to say we're now moving aggressively to approve it by having a schedule for proceedings and very regular public oversight to the implementation of this plan is a mechanism we've never had before in California.

It is rumored that there have been discussions with Baja California about the development of liquefied natural gas facilities across the border. Is investment across the border contemplated in this energy action plan, and is it important that such joint efforts go forward?

The plan recognizes that we're going to continue to have a reliance on natural gas as a fuel for most of the central generation that cannot be filled by renewable sources. Therefore, the source of that fuel has to be part of the concern and review and purview of all of the agencies together. We are intending, in our schedule of meetings, to explore those issues with greater depth. The Energy Commission is responsible, under legislation that was offered by Senator Bowen, for producing an integrated energy resource plan that they've got on the street-and they are doing public hearings on the plan throughout California. So that's one of the forums and arenas in which this is being addressed. The Energy Commission is directly addressing fuels for transportation and power generation in their report. It's interesting to note the reference to the Energy Action Plan in their report pursuant to the state legislation.

We do this interview before the recall election on October 7. So in that context, how is this report going to be received by the new governor? Is it a bipartisan report? Is it valuable for whomever win, in terms of its significance and import?

It's very much a bi-partisan report and, more importantly, it is a report that has broad-based support among all the key participants in the power arena. Both load-serving entities, the IOUs (investor-owned utilities) in particular, and the merchant generators have welcomed the fact that the agencies are working together. We're not only just saying we're going to cooperate, but we have put into this framework the objectives and a set of actions that we're going to pursue.

If you were writing a memo for the governor's desk on October 8th about this Energy Action Plan, what would be the thrust of your one page memo?

We're preparing for California to have a secure energy future and this is the most cost-effective, environmentally friendly plan that's ever been advanced in the marketplace. This plan tells the market that if you invest in California, you can get a return on that investment.

Given that you've been deeply involved in water policy in California for a very long time, let's conclude with your views on CalFed and the Colorado River/Imperial Valley negotiations? What's the status, today, of water policy in California and what should be on the top of the Governor's agenda on October 8th?

The good news is that we are coming to a resolution on the Colorado-Imperial plan, which is significant. With respect to CalFed, the CalFed staff is trying to move forward the Record of Decision, the plan adopted by both the federal and state government, with limited resources, and its only California resources. The federal government is not engaged, and that is very much a hindrance to the kind of progress that must be made. So if we're to avoid a water crisis following the energy crisis, there needs to be an aggressive implementation of the CalFed plan and the expenditure of the bond monies already approved by the voters.


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