- Forget about the Terminator, Arnold Schwarzenegger is
taking on a new role as Governor-elect of California: The Deregulator.
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- One of Schwarzenegger's first political moves as the
state's chief executive will be an effort to push the state's electricity
market closer toward deregulation, a move halted by Gov. Gray Davis two
years ago in the wake of California's energy crisis. Schwarzenegger, while
on the campaign trail, blamed Davis for his handling of the energy crisis.
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- Schwarzennegger drafted a comprehensive energy policy,
which can be found at ( http://www.joinarnold.com/en/agenda/#C1) that went
unnoticed for much of his campaign during the recall election. He said
he wants to eliminate public oversight on future power supply contracts
the state signs with energy companies and adopt a design plan for deregulating
California's electricity market from other states that restructured its
electricity markets, such as Texas, New Jersey and Maryland.
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- "As governor, I will create a working wholesale
power market based on the lessons learned from other states and the (Federal
Energy Regulatory Commission) standard market design," Schwarzenegger
said on his campaign website. "California is one of several states
that adopted electricity restructuring. However, only California's restructuring
caused severe price hikes and energy shortages. It is time to learn from
other successful restructurings enacted by Texas, the New England states,
and the Mid-Atlantic States of Pennsylvania, New Jersey and Maryland. In
addition, California should also look to the standard market design created
by FERC."
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- That could be Schwarzenegger's first disastrous move
as governor and it may cost him dearly. Here's why.
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- In August, the General Accounting Office issued a report
criticizing FERC, the nation's top watchdog for electricity and natural
gas markets, because the agency doesn't have the power to protect consumers
from the side effects of deregulation, such as soaring electricity and
natural gas prices, which ended up costing California more than $70 billion
and bankrupted the state's largest utility, Pacific Gas & Electric
Co.
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- Sen. Joseph Lieberman, D-Conn., the senior Democrat on
the Senate Governmental Affairs Committee and a contender for the Democratic
presidential nomination, said the report was disturbing in the wake of
this month's massive electricity blackout, past electricity woes in California
and the West, and the Enron scandal.
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- "Another year has gone by and FERC is still not
capable of effectively protecting consumers," Lieberman said, in a
statement.
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- In response to the California energy crisis and the Enron
scandal, FERC last year announced the formation of the Office of Market
Oversight and Investigations to scrutinize the electricity and natural
gas markets as they moved from regulated monopolies to competitive markets.
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- But the GAO report said the OMOI still hasn't defined
its roles and activities and has yet to develop many written procedures
that would ensure its efforts are "coordinated, systematic, understood
by its staff, and transparent to stakeholders."
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- In a letter to the GAO, FERC Chairman Pat Wood acknowledged
that FERC faces a "significant human capital challenge" and still
lacks the ability to prevent another California type crisis.
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- Under California's ill-conceived deregulation plan, investor-owned
utilities sold most of their power plants and then bought most of their
electricity from independent generators and other sellers. But while the
prices were subject to fluctuations in supply and demand, federal law said
prices had to be "just and reasonable" -- a vague term that FERC,
the state and the sellers have spent the past three years debating, the
Sacramento Bee reported in September.
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- But Schwarzenegger is unmoved by the GAO report. He still
believes that competition will bring lower electricity prices to consumers
in California.
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- Schwarzenegger said he will fire dozens of energy advisors
appointed by Davis to various posts in favor of his own energy team, one
that "respects free-market economics."
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- Schwarzenegger will also dismantle the California Consumer
Power and Conservation Financing Authority, the public power agency created
by the state Senate in August 2001 that financed small publicly owned power
plants in California to eliminate the possibility of future energy shortages.
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- Schwarzenegger explained on his website, http://www.joinarnold.com
that the goal of the Power Authority "to build and operate publicly
owned power plants is in direct competition with private industry and serves
only to divert private investment in electricity generation and transmission
away from the state."
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- Moreover, many of the state's other 13 energy agencies,
such as the Electricity Oversight Board, a watchdog agency that monitors
the performance of the California Independent System Operator, the agency
that balances California's electricity supply and demand, may also soon
be out of business, aides to Schwarzenegger said.
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- One of Schwarzenegger's boldest moves, however, will
be to enter into quick settlements with about a dozen energy companies
accused of manipulating the state's electricity market during the height
of the state's energy crisis two years ago, aides to Schwarzenegger said
Wednesday.
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- For three years, California has been engaged in a costly
legal battle against dozens of energy companies it said ripped off the
state by purposely withholding much-needed electricity from consumers,
creating an artificial shortage while boosting the companies' profits.
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- Federal regulators ordered electricity refunds for California
totalling about $3.3 billion, but Davis said the state deserves at least
$9 billion and "not a penny less."
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- Richard Katz, an energy advisor to Davis, told the Sacramento
Bee last month that he thinks the state will have to sue to recover significantly
more money; the state already has refund cases pending before the 9th U.S.
Circuit Court of Appeals.
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- "The governor has said he'll go to every court,
every venue," Katz said. Litigation "is the only process we have
for getting justice for ratepayers."
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- But Schwarzeneggeer aides said the lawsuits are deterring
energy companies from building power plants in California, which could
lead to another energy crisis in 2006, and the legal wrangling alone is
costing the state millions of dollars.
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- "It's time to settle and move on," a top aide
to Schwarzenegger said. "We don't want to inherit litigation."
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- Jason Leopold spent two years covering California's electricity
crisis and the Enron bankruptcy as bureau chief of Dow Jones Newswires.
He is writing a book about California's electricity crisis.
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- http://www.scoop.co.nz/mason/stories/HL0310/S00087.htm
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