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Energy Issue For Emphasis

 

Interview with Michal Moore

On April 1^st, 2002, the League of Women Voters California Energy Committee interviewed Michal Moore, former California Energy Commission (CEC) Commissioner who held the Economist seat from October 1995 through February 2002. The objective of the interview was to get Commissioner Moore's view on the California (CA) energy crisis, and his vision for the future. Below are selected excerpts from that interview.

Question: What do you see as the most critical issues to be contemplated to solve our energy problems in the next few years?

Moore: "In order to try to answer that what I'm going to have to do is take you backwards a little bit and ask the question, 'what happened?' ….First of all, we undertook restructuring in order to try and lower the bills for some of the larger industries in CA. It was a grand idea with an incomplete map of what could be expected, and one of the biggest pieces that was left out of the map was any kind of prescription for how the regulatory institutions would work. As a matter of fact, there are several instances in which MOU [memo of understanding], the document that was agreed to by the California Public Utilities Commission (CPUC) and codified in their so called 'blue book,' looked out and said, 'you know what, if we put these structures in place they'll regulate themselves, practically, and once we give the authority back to the Federal Energy Regulatory folks for some of the tariffs and some of the set-up for the Independent Systems Operator (ISO), and for the Power Exchange (PX), we'll have set the rules in place so firmly that we won't need to intervene ourselves.' In fact they just basically took themselves out of the equation and it's that set of errors that really took us down at least the initial part of the path, where weather, in this case a couple of pretty hot summers, [and] a condition of unexpected spikes in gas prices, …[resulted in] a price arena that was soaring out of control and no regulatory institution in a place to stop it.

…I'll say that rather than market failure we had regulatory failure and it's that error that caused us to design a system to solve the wrong problem. Having set out on a course to solve the wrong problem, and doing it incompletely, we opened ourselves up for intervention on the part of the Legislature who is ill-equipped to institute intervention on such a fine basis as to match themselves up with regulatory institutions or regulated bodies; and [on the part of] the Executive Branch, which took on the task of trying to intervene in markets all by themselves without any real expertise, or without any consistency of action. The consequence is that we have a system that has no regulatory head, it has no regulatory central point, and it has no long term consistency. All it does have is the residue of the set of interventions, the residue of the set of actions that resulted in virtually the entire long market, out to about 10 years, being purchased using state incurred debt and that has taken one of the most desirable features of any kind of competitive market away - which is volatility. There is no price volatility left and as a consequence, some of the signals that investors might use to try and figure out whether or not to build new plants, whether to build new infra-structure, whether to build any sort of support facilities is basically gone. You see the result of that in the withdrawal of many of the major players from the market that would produce new generation within CA. [This is] in large part because of the lack of room in the contract arena to actually bid in and expect their bids to be honored over time.

…Now that takes us to the second part of my answer, which is to say where can we go next. The first step has got to be that we have to get our regulatory house in order. We've got to decide what areas the Federal Energy Regulatory Commission (FERC) will control, what lines of authority will be exerted by the CPUC, and frankly who is going to really oversee the activities of the ISO which is operating quite independent of anyone except the Executive appointed board of directors... Once we do that, it will be time to try and use the growth of the market, the growth in load, to create new opportunities for investment, and not squelch those by the use of public funds…

Right now we'll also need to be imagining a future that says every gas line that we build in this state further codifies the need for that investment to be repaid over a period of about 30 to 40 years. That means that we're going to institutionalize our dependence on natural gas as the primary form of energy to be used for generation in the state long after this Governor is gone, long after this Legislature is retired, and long after the settlement patterns that we're seeing now start to establish themselves. So, that's another way of saying that we need a new planning process that is as de-politicized as we can get it, to try and anticipate, not only what is happening in CA, but in the wider region as well. That's a job that the California Energy Commission (CEC) is uniquely suited to take on, but not under the current regime where basically their actions, their directives, and their motives frankly are all dictated by the Executive branch.

So the next step in reforming the regulatory institutions would be to give them back their independence and allow them to do the kind of forecasting, and the kind of report generation that will make the Legislature and the Executive smarter and more well informed about some of the options and the choices that they have ahead of them.

Finally, there is going to have to be a relationship established between the federal regulatory agency and the state regulatory bodies in such a way that we fit ourselves comfortably into the upcoming Regional Transportation Organizations or the West-wide authority that is a logical next step for the Western states. And it will mean a change in the way we think about how CA relates to other Government agencies and frankly how they relate to other private suppliers of energy.

So with those changes in mind, I think you can imagine that the volatile market world, the one that gives price signals is probably stifled for another 8 - 10 years. But it doesn't mean we can't use that time to rebuild the regulatory institutions that we once had and make them viable again so that they can begin to exert control and leadership in say the next two to three years and begin to bring the state and hopefully the energy markets out of the government dominated spot that they've been in the last at least two years."

Question: What is your vision for the best market structure for CA. Are you suggesting that we go back to a regulated model, or are you suggesting that the regulatory bodies assist with what the FERC is trying to do with opening the market to further competition?

Moore: "…I think it's going to be some kind of hybrid. …That leaves us with, 'What's the design of the hybrid? How does it work?' It starts with a power sharing arrangement between the federal regulatory agency and the state regulatory agency, which in my mind ought to be the CPUC - not the Governor's office, not the CA Power Authority, not the Legislature, not the Oversight Board, all of which are, if you'll pardon my French, bastard children of a failed system. No, it needs to be a strong regulatory institution like the CPUC invested with independence, invested with a power and a vision to see that there are market structures, …that will occur at the Federal level and will need Federal oversight, [and] market institutions at the local level including distribution systems.

Certainly if you look at the transmission system and you imagine that there are competitive opportunities that could be regulated by a quasi-monopoly oriented regulatory institution, congestion charges being one, up-lift and spinning reserve of generation facilities being another, it seems to me that you can imagine that the CPUC could step back in and play a stronger role especially in the local arena where they monitor for market power abuse, or localized withholding of electricity or energy on a larger forum. …I think there will be a greater vision that's advanced through something like the CPUC which produces a real plan to be adopted by the state which will show local government, which will show the state government, preferred locations for generation, preferred locations for expansion of transmission lines, or substitutions for those transmission lines by distributed generation.

…With those changes in mind, I think it will end up with a dynamic and probably evolving regulatory structure over about the next twenty years. One that is not likely to be defined in any text book, and one which is probably going to be subject to some fits and starts. But it will only succeed if it's given the proper amount of independence and if it gets Legislative oversight but not Legislative intervention."