California governor sets off energy debate

San Jose Mercury News, Calif. --Aug. 18

Aug. 18--As the tug-of-war over the future of California's electricity system heats up, critics of Gov. Arnold Schwarzenegger's market-oriented approach said Tuesday that it will be a bust for consumers and a boon for Calpine.

That's because the San Jose energy company now holds licenses to build new plants generating more megawatts of power than anyone else, which they say puts Calpine in an enviable position if the state makes utilities sign energy contracts quickly to bolster their reserves, as Schwarzenegger has asked.

"Calpine has most of the new possible generation coming on, so if you say no to utilities building plants and you've got to sign a lot of contracts now, Calpine has us over a barrel," said Lenny Goldberg, a lobbyist for The Utility Reform Network consumer group.

Calpine spokesman Kent Robertson called the assertion silly.

"Isn't the whole point of this exercise to sign contracts to get unbuilt power plants built?" Robertson said. "Either the state needs to license more power plants, or sole-source the next round to the utilities. We all know what happens when that happens. Prices creep up."

The Republican governor's administration last week formally opposed Assembly Speaker Fabian Nunez's energy bill, AB 2006, calling the legislation unnecessary and saying it would re-regulate the state's energy system and force cost overruns by monopoly utilities onto consumers.

Nunez, D-Los Angeles, whose bill is backed by the Southern California Edison utility as well as consumer groups like TURN, fired back in a letter Tuesday to Schwarzenegger saying the governor's policies would "return to the failed policies of electricity deregulation."

"Your energy policy," Nunez wrote, "not only fails to accomplish what you intend, but very well could result in higher-cost energy for California consumers."

Schwarzenegger spokeswoman Ashley Snee said that under the governor's plan "all market participants would have the opportunity to compete to provide power to the utilities, thereby assuring California ratepayers have the lowest costs possible."

Lawmakers, Schwarzenegger, large businesses and consumer groups agree California needs to formalize an energy policy that lays out the roles for utilities and private power generators so they can start building new power plants. Demand on the high-voltage grid already has hit record peak-usage levels this summer, and state officials fear another energy crisis as soon as 2006 if new plants aren't built.

But they disagree over how regulated utilities and unregulated private power generators will provide electricity, and the role of the Legislature and the California Public Utilities Commission in setting energy policy.

Schwarzenegger and administration backers, including independent power producers and big businesses, believe legislation is only needed so large customers can shop around again for the best electricity price instead of relying on utilities. Otherwise, they say, the PUC has the authority it needs.

Nunez said he doesn't want to "abdicate virtually all responsibility on energy policy" to utilities commissioners who are appointed by the governor, especially when the two considered most sympathetic to consumer groups finish their terms this year.

Nunez initially had included in his bill a provision for big businesses to shop for power, but dropped it because both business and consumer groups complained.

Concern about Calpine's role arises in the context of the governor's desire for utilities such as Pacific Gas & Electric to have by 2006 a 15 percent reserve supply of power providing a safety cushion over projected demand.

Calpine holds permits to build four power plants totaling 3,500 megawatts, more than half the total approved by the state but not yet built, according to the California Energy Commission. Nine other approved but unbuilt plants by other companies total 3,300 new megawatts. A megawatt powers about 750 homes.

Forcing utilities to build up reserves so fast would create a seller's market for independent power companies that already hold permits to build new plants, allowing them to name the price in their contract, critics say.

Robertson said the concern is unfounded, as state regulators would need to approve any electricity contract with a company like Calpine.

Calpine gave $25,000 to Schwarzenegger's California recovery team fund this year, but last year gave $20,000 to former Gov. Gray Davis' fight against the recall that made Schwarzenegger governor.

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