July 20, 2006 - From the July, 2006 issue

State Public Utilities Commission Considers Methods to Reduce Greenhouse Gas Emissions

Though automobiles are the most familiar sources of greenhouse gases, a significant portion of California's pollution emanates from power plants. And whereas the habits of tens of millions of drivers may be slow to change, power plants and other utilities fall under the purview of the California Public Utilities Commission, which regulates the state's private utilities and goods movement industry. For an overview of the PUC's current agenda and especially its efforts to balance environmental concerns with the need to provide California with safe, reliable power, MIR was pleased to speak with PUC Commissioner John Bohn.


John Bohn

Greenhouse gases have never been on so many governmental and organizational lists of important things to address. What is the PUC's interest in intervening re climate change and greenhouse gases?

This is a big deal for the governor and the initiative that was outlined a while ago, and the PUC is trying to figure out how to deal with that. One of the interesting things for me as a newcomer is that this has became a major parameter in a lot of the policy process.

The debate-at least as far as California is concerned-is over. Everyone now realizes that this is a relevant consideration. So we are going ahead and trying to figure out a way to deal with that: to set up capacity limits-hopefully we will work our way into a cap-and-trade system so that we can permit the economics of the marketplace to make it easier and also, hopefully, a little faster to get to where we want to go.

In this area of jurisdiction-which covers only some of the greenhouse gases that are attributed to the state-we are developing a load-based cap, which means each utility is responsible for the greenhouse gas that it causes to be generated through the purchasing of its power. That establishes the amount of greenhouse gases that we will allow. After that we begin trying to achieve reductions over a fairly long period of time in conjunction with the governor's greenhouse gas targets.

The key aspect once you establish the cap is how you allow people to comply with it. Flexible compliance involves the ability to trade amongst each other so that everyone ends up under the cap through offsets and other means. That has been tried and true process for reducing emissions in other areas. We are at the very early stages and have laid out a broad policy direction of capping it based on this load base and then coming up with how offsets and all that will count up as we move forward.

You've articulated in the past that the PUC's goal is to identify those utility projects that have both the most benefit in terms of reducing greenhouse gas emissions and the fewest negative impacts to business and consumers. The private sector has always feared the impact state regulations might have on internationally competitive manufacturing and jobs in the state. Has the PUC found a balance?

That's a really tough question because in many cases, California business has a tough enough time already. It's a lot easier to do business in other states, particularly when you rack it up against the global competitive market place. This is clearly an issue for us. After all, business is what creates job and value.

On the other hand, to try to strike that balance is a part of our mandate. I am a little more concerned about small business and about attracting new business to California because at the end of the day, electricity is a big piece of almost any of the new businesses that I see coming here. Not only is it quantitative, it is also qualitative. Reliable electricity is a big part of many of the new enterprises.

Much of Europe has moved to a 10 percent requirement in all new construction for on-site renewable energy production. California was once on the cutting edge of renewable energy policies. What is your view on the role the PUC ought to play in encouraging on site investment in renewables?

I am unsure about the solar initiative that we passed a couple of months ago. When you look at the amount of money that is involved in that and you look at the way that program is designed, we are making a big bet that the technology will permit us to deal with a number of these issues. We could simply subsidize the consumption of solar energy at a rate that is going to decline over time, but give it a ten-year horizon. And we could tell the innovation and engineering businesses that we want the competitive technologies to come to California and gamble that the technology and the innovation that we want kick-started with this subsidy program, as one example, will do that.

The whole series of initiatives on new construction, building codes, and all that stuff, but within our little bailiwick here we're really talking about is trying to take advantage of the innovation in the marketplace.

I was in New York last week talking to the American Council on Renewable Energy and listening to some of those presentations about the level of innovation and the level of interest from investors, the level of innovation that has been prompted in the last year is really quite striking, so we think it is a good bet.

You spent some time with Moody's so you understand bets, and the state is about to bet on a $37 billion set of bonds for infrastructure investment. What role can the PUC, the utilities, and those you regulate play to leverage those investments to deal with greenhouse gases, climate change, and a healthy economic environment in California?

That's a tough question. The purpose of that bond is to address basic infrastructure improvement. That deals with transportation; it deals with a lot of neglected infrastructure. If we get it right and we are able to coordinate policies such that the utilities can participate or complement some of that infrastructure construction, we'll be better off.

I don't know how much we can do, because of the decisions of deployment of those bonds don't rest here. I think we have to be cognizant of where it's going. We have to understand that there are wide needs for infrastructure improvement in the state of California. It's a huge thing whether it's water, power, or roads. I think the PUC can be effective at the edge, but our jurisdiction doesn't give us a lot of leverage other than trying to be sensitive to the infrastructure that needs improvement.

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You attended an LAEDC Southern California Leadership Council panel in San Francisco that presented a "green freight initiative" that asks the PUC to encourage grade separations and utility relocations to improve mobility and leverage these bond funds. Is there a role for the PUC in trying to connect the dots between grade separations and utility relocations and where we place our roads, freeways, and public transit?

One of the things that puzzled me as a consumer long before I got involved in this job is why the streets always get torn up for each particular utility that gets put down. That is true in New York and other places that I've lived as well, so that's probably not a fair criticism. Our job in terms of grade separations is to identify how we think the funds can be best spent. Our job is to take a look at a whole array of these crossings, of the dangers and all those things, and try to set out the ones that we think are the most dangerous.

The more planning and joint participation-joint conversations at least-the various agencies can have in this process, the better. We had all kinds of jurisdictional disputes in the past, but I think we've reached the stage where we have to put the interest of the people and the ratepayers and the citizens of California-not just current citizens but the next generation-in perspective.

We need to provide upgrades in a whole range of infrastructure and we need to create a business climate and an investment climate that will help the private sector do what it does best, namely, complement these type of public sector infrastructure developments with the private sector funds and ingenuity that make it work.

In that panel discussion in the Bay Area, you were quite eloquent in noting that sometimes change produces some "broken glass." Some things have unintended consequences and just don't work. Can you elaborate more on your concerns as the economy changes, as we grapple with the changes in the utility industry and others for the health and vitality of California's economy?

Let me make one caveat: I think any kind of observation on that depends on which utility you are talking about. The teleco business is moving so fast that it's breaking its own glass. The thing that we can do is to make sure that the consumer is protected and elegantly get out of the way and watch the process take place.

In the case of water, I was reading an article on American water that said that the battle between the private water companies and the municipal water companies occupies a lot of time and a lot of energy. I am hoping that at some point we can begin to talk about these things rather than, in this case, breaking each other's glass-or at least attempting to.

In the energy and electricity business some will win and some will not win, but in the process of making these market rule changes there will be people that don't like them, and will feel that the changes will be inadvisable. All we can do at the commission is try to achieve the best balance for new industry and investment to go forward. It's easy to say, but it's tough to do.

MIR carried a presentation by Ken Desforges last month, and he suggests that the rules and regulations about municipal WiFi are a little anachronistic right now-especially over who controls the poles and the values, and who the players will be over time. Does the PUC have a role there?

We certainly have a role in connection with the wires and all of that stuff. But the debate is really a microcosm of a much larger economic debate. That is the appropriate role for the state-in this case the municipality and the tax base-and the private sector. Debates like this have been going on for a long time, and the question then becomes, at what point is government-supported infrastructure as a base for new business-by encouraging the private sector-appropriate? You get answers all along the spectrum on this. That, to me, is what the discussion is all about in macroeconomic terms, but we'll get involved in it no matter what we do simply because we have jurisdiction over some parts of that puzzle.

In particular, the issue of access to utility poles to the extent that the poles are owned and controlled by utilities will be an issue in municipal WiFi depending on how it's structured. But it has also been a long-standing issue. We had the same issue of room on the pole with respect to the wires for cable television access and most recently with wireless cell phone carriers.

If we interview you again in a year, what will have changed in terms of the PUC's agenda regarding reduction in greenhouse gases and related energy priorities?

Let me make three predictions. I think we will have put our energy trading system in place so that people can begin to utilize it and begin to make market-based processes actually work and we'll begin to see the results. Second, relative to the teleco business, I think we'll see a whole bunch of new players and new problems that we haven't even thought of yet as the technologies change, we get voice over internet, and all of those kinds of economic dislocations happen. The third issue is that a year from now we will still be arguing about the relative roles municipal and private water companies.

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