June 24, 2004 - From the March, 2001 issue

Governor Davis' Remarks To Wall Street Analysts

February 28, 2001

The reason I'm here today is to give you a sense of what I inherited and what I'm doing to right the ship in California. I think some of this will give you comfort that we are making progress and we are going to put the utilities in a position to honor our obligations to the banks, the generators and the creditors.

First of all, what did I inherit? A deregulation scheme that deregulated the wholesale but not the retail market. In fact, rates were reduced 10% and frozen for five years. No rate increase was supposed to occur until March ‘02, at which time the 10% reduction, which was a seductive method of attracting consumers to support deregulation, will be restored . The second flaw was that while we required utilities to sell all their gas-fired power plants, we did not have a first claim on that power. So unlike a lot of other states that deregulated, we had no assurance that people would sell back into our market.

So what have I done? I took office in January 1999, and in April we started approving power plants. We approved nine-six are under construction, three will be on-line this summer, and two more will be on-line next summer. We have 14 more in the pipeline, and we now have a process in California that allows you to apply directly to the Energy Commission, which is an alternative process to the CEQA process. The process used to take a year, but I signed a bill saying it will now take no longer than six months. Recently, I used my emergency powers to declare that if you can put megawatts out this summer, we will reduce the permit process (if there's not widespread opposition) to 21 days to get peakers on-line this summer. We'll give you $1 million if you can get 50 megawatts on line if you're either a distributed-generator, co-generator or peaker. And we'll give the locality $10,000 for every megawatt they can produce. So we're accelerating the process, and providing financial incentives. I asked the President to put out a directive to his federal agencies that essentially mirrors our order, as a mandate to strongly urge all agencies to comply with the timeline that the Governor has laid out in California .

The second piece of the equation is more conservation. Again, the myth is that everyone in California is sitting around in a hot tub and all the lights, computers and appliances are on. The reality is quite the contrary. Only one state in America is more electricity-efficient than California, and that is Rhode Island. We rank 49th in terms of electric use and 47th in energy use. Why is that? Because in the last several years, we've had the most energy-efficient requirements for appliances, houses and buildings, and we just ramped up another set of regulations on commercial buildings that will pay dividends down the road. So we are not wasting power.

We need a lot more conservation this summer. I've asked every Californian to save at least 10% electricity this summer, which should not be hard. We're going to embark on a $20-million dollar paid television campaign to give consumers practical things to do: Turn out the lights when you leave a room, put your computer on sleep mode when you're not using it (that saves 40% of the power), turn down the temperature three to four degrees. [T]he State is doing its part. We conserve power 20% every time we have a stage two alert, and for 42 of the last 60 days we've had a stage three alert.


[W]e've also allocated $800 million to buy down demand, to incentivize corporations to employ energy-efficient lighting and demand-management techniques. We are going to install meters in every major commercial concern in the State this summer and go to real-time pricing with a premium for use of power derivatives. Many companies do that anyway because they want to be as efficient as possible. I have a Thursday morning call almost every Thursday with Craig Barrett, John Chambers, Scott McNally and the whole Silicon Valley technology crew. We're obviously doing everything we can to keep the power on, and they're very much in favor of these incentives to urge conservation among the corporate customers. In California about 70% of usage is corporate and 30% is residential.

We also have incentives for residential consumers. We will give you a 50% rebate if you buy a more efficient refrigerator and air conditioner, and have a lot of other incentives for commercial purchasers and more efficient lighting. We're also mandating that retailers reduce their consumption of electricity on outdoor lighting substantially starting March 15. Law enforcement is meeting with them to find a way to do that [while still] promoting public safety . We [anticipate] reductions of 40% to 60% after business hours. [Right now,] all the malls and shopping centers are lit up at night like it's the middle of the day. To the extent that we can save there, we will not only reduce power but will send a symbolic message to people: There is a reason the lights are out. We've reduced all but the essential lighting of the major bridges like the Bay Bridge. The lights on the dome of the State Capital have been turned down.

And the third and most important piece is to restore the utilities to some form of viability so they can meet their obligations.

[In general] I am trying to be forceful and stand my ground while still recognizing realities. The people are giving me the benefit of the doubt to resolve this issue. I'm going to solve it so that the banks get paid, bondholders get paid, the generators voluntarily agree to make a modest contribution, utilities are back in business, and we have a stabilized rate structure that avoids an initiative that could be counterproductive to us ever acquiring a surplus. I'm leaving you with a market that is still deregulated and will not collapse unto itself thereby precluding deregulation from ever working in California. As for deregulation, I have no beef for it or against it. I am an ultimate pragmatist; I want this to work out and I want to get back to what I care about, which is education.


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