Excerpted from - Vol. XIV, No. 5
February 5, 2001 

DAVIS DELIVERS ONE-TWO PUNCH TO COMBAT ENERGY CRISIS WITH EFFORTS TO DEAL WITH SUPPLY AND CONSERVATION

Declaring its provisions the “first critical steps on the road to recovery,” Governor Gray Davis on Thursday (Feb. 1) signed urgency legislation empowering the state to purchase power at more affordable prices and issued an executive order that requires businesses to dim their lights or be cited and fined.

The governor said passage of AB 1X (Keeley), which authorizes a $10 billion revenue bond program so the Department of Water Resources can purchase electricity, will  “calm the markets and give the signal that California is gaining control over this challenge.”

  Delivering a one-two punch, the governor outlined an $800 million “energy efficiency and demand reduction program.”  Signing an executive order, he said, “Yes, we have a power shortage, but we are far from powerless. Californians have enormous clout as consumers.” Effective March 15, shopping malls, car dealers and other retailers that use outdoor lighting must reduce their energy consumption or face $1,000-a-day fines. The governor said law enforcement agencies and the governor’s Office of Emergency Services will decide which businesses can turn off or dim lights without jeopardizing safety concerns. Effective immediately, the governor is asking retailers to voluntarily turn off or cut down their outdoor lighting.

Acknowledging that this has been a difficult two-week stretch, the governor sighed, “This job is absorbing all of my energy.” He said he was up until 2:15 a.m. Thursday calling state legislators and urging them to vote for the bill. At 7 a.m., he said he was on the phone assuring Silicon Valley executives that they would have electricity to run their businesses this summer.

“We’re making real progress,” a jubilant governor said of attaining goals of stabilizing the energy situation, promoting conservation and creating more electric generation capacity – “without raising rates” that consumers pay. However, the legislation does not protect consumers from higher energy costs if allowed by the Public Utilities Commission or the courts. The revenue bonds and the more than $400 million that the state has spent on short-term energy purchases are to be repaid over time by utility ratepayers. California has been spending $45 million a day to avoid rolling blackouts, which have occurred in parts of the state on two days during January.

“This measure offers our best hope of avoiding electricity rate increases in future years,” the governor said. “… it is my hope and expectation that we can live within the existing rate structure.”  The bill is designed to insulate residential users from rate increases if they limit their consumption of electricity to 130 percent of baseline usage.

With the signing of AB 1X, Governor Davis said he ordered the state’s power brokers to lock up as many favorable bids on energy as they can no later than close of business February 5. The goal is to limit the state’s exposure to expensive spot market purchases to no more than 5 percent. The state has been forced to purchase as much as one-third of its energy on the expensive spot market.

The bill appropriates $500 million from the state general fund as a loan to the Department of Water Resources (DWR) to purchase electricity, with the loan to be repaid through sale of the power to consumers. Revenues from sale of this energy will be deposited in a special DWR fund. The bill authorizes DWR to issue revenue bonds limited to an amount four times the annual revenues generated from wholesale power. This could be as much as $10 billion. The bill states that the state’s credit and taxing power are not obligated. DWR cannot own power plants or transmission lines.

The Senate approved the bill on Wednesday, 27-8, and the Assembly initially balked, as Republican members argued that it would lead to rate increases. Finally, on Thursday afternoon, a 54-25 Assembly vote, the bare two-thirds majority with Republicans providing key votes, sent the bill to the governor.

AB 1X, said Democratic Assembly Speaker Robert Hertzberg, puts California into the energy business. Assembly Member Rod Pacheco, a Republican, said it was a “pig in a poke” and could lead to unlimited rate increases. “This bill is about state government running the complex electric system when they can’t even run the DMV (Department of Motor Vehicles),” Mr. Pacheco said.  Added Assembly Republican Phil Wyman: “We need to solve the problem but don’t turn our back on the free enterprise system.”

Mr. Hertzberg said the bill was “simply the first step in a number of steps to deal” with the crisis. The Legislature must address problems of supply, conservation, energy generation and “do our best” to avoid rate increases.

The revenue bonds will be marketed by the state and paid off over time by consumers as part of their energy bills.

Assembly Member George Runner, another Republican, said he would vote against the bill because he wanted a guarantee that there would be no rate increases. He urged that $2 billion from the state surplus be set aside to off-set any rate increases approved by the Public Utilities Commission.

Fred Keeley, the bill’s Democratic author, said AB1 X will enable the state to buy electricity for 6 to 8 cents a kilowatt hour, not the 40 cents or more that the spot market demands. “The choice is, if we don’t do this (and investor-owned utilities PG&E and Southern California Edison go bankrupt) the direct effect on ratepayers is almost unimaginable.”

  The $800 million conservation program, including $424 million in efforts already funded, is expected to reduce peak demand by more than 3,200 megawatts this summer, according to the governor, who noted that business leaders from throughout the state have pledged support of his January 8 call for conservation. He announced that McDonald’s restaurants is printing four million tray liners with the state’s energy-saving message: “Flex Your Power.” They will include tips for residential conservation measures.

The program outlined on Thursday is expected to deliver a 10 percent reduction during peak periods of demand, which is the level governors of California, Oregon and Washington have agreed upon.

The largest-ever conservation campaign of any state, according to Governor Davis, sets aside $75 million to augment a Public Utilities Commission program of rebates to consumers who replace energy-inefficient appliances. It budgets $95 million for incentives to businesses to install demand-responsive systems in commercial buildings and to reduce commercial lighting, and  $60 million to fund innovative peak-load reduction proposals. It also launches a $20 million media advertising campaign sponsored by the Department of Consumer Affairs.