LAO 2006 Budget Perspectives and Issues: Reorganizing California’s Energy-Related Activities

The Governor has proposed to consolidate several energy-related activities in a new Department of Energy, to be headed by a cabinet-level Secretary of Energy. The Governor’s proposal would also transfer the responsibility for permitting new electricity transmission projects from the California Public Utilities Commission to the new department. In this analysis, we describe the existing energy organizational structure in the state, consider concerns raised about the existing structure, examine key points of the Governor’s proposal, and raise issues and make recommendations for reorganizing energy-related activities in California.

Introduction

In May 2005, the Governor submitted to the Legislature a plan to reorganize the state’s energy-related activities, known as the Governor’s Reorganization Plan 3 (“GRP 3”). Due to legal concerns raised about the use of the GRP process to make certain changes to the California Public Utilities Commission (CPUC), the Legislature rejected GRP 3.

The 2006-07 Governor’s Budget does not contain a proposal to reorganize California’s energy-related activities. Rather, the Governor’s budget document acknowledges that the administration is sponsoring legislation (AB 1165, Bogh) to reorganize the state’s energy-related activities statutorily (hereafter referred to as the “Governor’s proposal”).

In the following sections, we describe the status of the state’s electricity market, identify several problems with the state’s existing energy organizational structure, describe the Governor’s proposal, identify issues for legislative consideration, and make recommendations for reorganizing energy-related activities in the state.

Status of the State’s Energy Market

For most of the past century, California’s electricity market (excluding municipal utilities) was fully regulated, with investor owned utilities (IOUs) responsible for generating and delivering electricity, while electricity rates were set by CPUC.

California began the process of restructuring electricity service in the early 1990s by introducing competition into the generation of electricity. The ultimate goal was to lower prices for IOU customers. The plan ultimately adopted in 1996 included a “transition” period during which the IOUs sold off their fossil fuel power plants to independent generators, while retaining their hydroelectric and nuclear power plants. During this transition period, CPUC continued to regulate the IOUs’ rates. Eventually, however, electricity purchases and customer rates were to be determined in a competitive market.

The deregulation process was put on hold in response to the energy crisis that arose in 2000 and early 2001. Customers who elected to purchase their electricity from non-IOU providers were allowed to continue this “direct access,” but existing individual IOU customers were generally prohibited from switching away from IOU service.

Currently, approximately 10 percent of the state’s electricity is delivered through direct access contracts to non-IOU customers. Under existing law, the suspension of direct access will continue until long-term electricity contracts signed on behalf of the IOUs by the Department of Water Resources (DWR) expire. The last of the contracts expires in 2015.

The energy crisis and its aftermath created considerable instability in the state’s electricity market. The IOUs experienced financial problems stemming from the energy crisis and regulatory barriers made it difficult for IOUs to sign long-term power contracts with power plant operators. The lack of long-term power contracts has been seen as a destabilizing factor and an impediment to the construction of new power plants.

Recent developments in the state’s electricity market have created a greater level of certainty. For example, Chapter 835, Statutes of 2002 (AB 57, Wright), created a “procurement process,” under which IOUs are able to secure long-term electricity supplies through a competitive bidding process. Under this process, IOUs select a mix of electricity supplied by their own power plants and under contract from other generators. The CPUC approved the IOUs’ first long-term procurement plans in April 2004. While the market has seen increased stability recently, the Legislature continues to evaluate issues, such as direct access, the resolution of which could result in changes to the market structure in future years.

Current Energy Organizational Structure

There are many entities that have a role in the development and implementation of energy policy and the regulation of energy-related activities in the state. These entities also implement energy-related programs, often with overlapping areas of responsibility. These entities include:

Energy Resources Conservation and Development Commission (CEC). The CEC is the state’s primary entity for implementing energy policy. The CEC is governed by a commission made up of five members, appointed by the Governor and approved by the Senate for fixed terms. The primary duties of CEC are:

CPUC (Energy Division). The CPUC regulates the rates of IOUs, including electricity IOUs. The CPUC is governed by a commission of five members, appointed by the Governor and approved by the Senate for fixed terms. The primary duties of CPUC are:

Electricity Oversight Board (EOB). The EOB acts as a market monitor, overseeing the state’s electricity market. According to statute, EOB is to be governed by a board made up of three appointees of the Governor and one member appointed from each of the California Senate and Assembly. Currently, there is no quorum and EOB staff report to the Governor’s office. The primary duties of EOB are:

California Power Authority (CPA). The CPA was created to assist in the development of new electricity resources in the state, by providing revenue-bond supported financing. The CPA has not financed any electricity generation projects and is currently inactive; CPA’s bonding authority will expire in January 2007.

Division of Oil, Gas, and Geothermal Resources (DOGGR). The DOGGR, located in the Department of Conservation, regulates the drilling, operation, maintenance, plugging and abandonment of oil, natural gas, and geothermal wells in the state, and is responsible for preventing damage to the state’s natural resources from such operations.

California Energy Resources Scheduling Division (CERS). The CERS is a division within DWR, that was delegated the responsibility for purchasing electricity on behalf of IOUs during the 2000-01 energy crisis. At that time, with the financial stability of IOUs in question, the state stepped in to purchase power on the spot market and through long-term contracts. The CERS is no longer permitted to sign new power contracts, but it will continue to manage the existing power contracts through 2015, although the majority of the contracts will expire by 2011.

Independent System Operator (ISO). While not considered a state agency, ISO is a not-for-profit entity, created by the state to oversee the electricity transmission system. The primary duties of ISO are:

Figure 1 summarizes selected activities and responsibilities of the state’s energy-related entities and ISO. As the figure shows, and as discussed below, there is significant overlap among these entities.


Figure 1 Selected Activities and Responsibilities of the State's Energy-Related Entities
Activities/Responsibilities	CEC	CPUC	EOB	CPA	CERS	DOGGR	ISOa
Representing state at FERCb		P	P		P
Promoting energy conservation/efficiency	P	P		P
Forecasting electricity demand	P						P
Licensing generators	P					P
Promoting renewable resources	P	P		P
Planning natural gas infrastructure	P	P		P
Planning transmission infrastructure	P	P	P	P			P
Integrated resource planning	P	P		P
Monitoring the electricity market	P	P	P
Monitoring/planning system reliability		P	P				P

a The Independent System Operator (ISO) is not considered a state agency.
b Federal Energy Regulatory Commission.

Problems With the Current Organizational Structure

There have been a number of concerns raised in recent years about the organization of the state’s energy entities and the ability of these entities to work cooperatively to implement the state’s energy policies. These problems include multiple policy-making entities within the administration, duplicative and overlapping responsibilities, and limited accountability for policy decisions.

Multiple Policy-Making Organizations Within the Administration

The simple question, “What is the administration’s energy policy?” is not easily answered, because there are several entities within the administration that make energy policy. Moreover, some of these policy makers are in quasi-autonomous commissions that are not directly accountable to the Governor. For example, CEC is required to adopt an Integrated Energy Policy Report every two years and periodically prepares an Energy Action Plan, in conjunction with CPUC. These documents are adopted by their respective commissions, but do not necessarily reflect the Governor’s policy positions. Additionally, CPUC regularly adopts General Orders which promulgate general policy positions, but do not necessarily represent the Governor’s official policy positions. Because policy is formulated and articulated by the Governor’s office, CEC, and CPUC, it is sometimes uncertain which policy represents the energy policy of the administration as a whole.

Some industry observers have noted that the current decentralization of the policy-making role of the state’s energy-related entities means that the state does not always present a “unified front” when working with the federal government and other parties regarding energy-related issues. It is argued that this, in turn, inherently can hinder the state’s ability to be effective in achieving its energy-related objectives.

Duplicative and Overlapping Responsibilities Among Organizations

In several areas, the state’s energy entities perform similar or overlapping duties. This has resulted in duplication of effort-which is inefficient-and problems with coordination-which impedes program effectiveness.

Nonrenewable Energy Use. Both CEC and CPUC currently administer programs designed to reduce nonrenewable energy use. Specifically, CPUC oversees incentive programs designed to increase the adoption of energy efficiency measures, while CEC develops standards to promote energy efficiency. The CPUC is also responsible for ensuring that the state’s IOUs purchase electricity from renewable sources (according to the Renewables Portfolio Standard), while CEC is responsible for providing the subsidies that make these renewable resources competitive with other sources of energy.

Electricity Transmission Planning. In this area, overlapping and redundant permitting jurisdictions have been blamed for delaying investment in new infrastructure. According to CEC’s Strategic Transmission Investment Plan, multiple permitting processes have created duplication among local, state, and federal entities, often resulting in a failure to consider the long-term benefits of transmission from a statewide perspective. According to CEC, these multiple jurisdictions have resulted in delayed approvals and denial of needed projects. This is of particular concern because the recently enacted federal Energy Bill of 2005 stipulates that the federal Secretary of Energy can preempt state permitting responsibility for transmission projects that are in the national interest, if he or she finds that there are congestion or capacity constraints that need to be addressed. While such federal involvement might speed up infrastructure development, the potential shift in responsibility for permitting new transmission infrastructure from the state to the federal government could prevent the state from determining which new projects are in the state’s best interest.

Energy Market Representation. Several entities appear before FERC on matters relating to California energy markets, including EOB, CPUC, CERS, the Attorney General, and the Division of Ratepayer Advocates (within CPUC). It is not clear which entity, if any, is the lead in representing the state’s interest in these proceedings or which entity represents the administration’s official energy policy.

Limited Accountability for Policy Decisions

The current structure of California’s energy entities reduces accountability by diffusing responsibility for policy making and regulatory decision making across multiple entities. In addition, the structure places policy-making decisions in the hands of commissioners who are not directly accountable to the administration or the Legislature.

Because there are many areas in which the responsibilities of the state’s energy entities overlap, it is difficult for the Legislature and the public to determine which entities are responsible for decision making and to hold each one accountable for performance. In the area of electricity transmission permitting, for example, the actions of several entities can delay or reject a specific project, but no single entity is responsible for ensuring that there is adequate investment in new infrastructure.

The current energy organizational structure includes a mix of department and commission structures, and this mix creates its own set of accountability problems. The independence of a commission can be beneficial under circumstances in which decision makers should be insulated from outside pressure, such as ratemaking. However, because commissioners are generally appointed to fixed terms and cannot easily be dismissed by the Governor or the Legislature, the independence of commissions can also reduce accountability to the Governor and the Legislature. To some extent, this allows commissions to make policy independent of the policy-making processes of the Legislature and the administration.

For example, under a decision recently adopted by CPUC, the state will use $2.8 billion of ratepayer funds over the next decade to subsidize the installation of solar energy systems. The policy was adopted by CPUC without authorizing legislation, despite the fact that such legislation is currently under review by the Legislature (SB 1, Murray).

Reorganization Proposals

Governor’s Reorganization Plan. As his initial plan to reorganize the state’s energy-related activities, the Governor submitted GRP 3 to the Legislature in May of 2005. The plan would:

Due to legal issues concerning proposed changes involving CPUC-a constitutionally created body-through the GRP process, the Legislature rejected GRP 3.

Revised Governor’s Proposal (AB 1165, Bogh). To address issues regarding reorganization, the Governor resubmitted his proposal to the Legislature in bill form last summer, including certain policy changes made in response to issues raised during hearings on GRP 3 held by the Little Hoover Commission. The Governor’s proposal was substantially the same as GRP 3 with three primary exceptions. It:

Other Legislative Proposal. In addition to the Governor’s proposal, AB 1190 (Canciamilla), also introduced last session, addressed the issue of energy organizational structure. The bill proposed to create a new Energy Agency, headed by a cabinet-level Secretary, and required the Governor to submit a detailed plan for reorganization that would accomplish the general goals of consolidating energy-related functions within the new agency and transferring all policy-making responsibility from CPUC to the new agency. This bill is currently inactive.

Issues for Legislative Consideration

When evaluating the Governor’s and other proposals to reorganize the state’s energy-related activities, there are a number of issues that the Legislature should consider. These issues, which we discuss in the following sections, include:

Timing of Reorganization-Is it Premature?

Evolving Nature of California’s Electricity Market. One of the concerns raised in the hearings held by the Little Hoover Commission on GRP 3 was that it may be premature to reorganize the state’s energy-related activities, given that the long-term market structure for electricity in the state has not been settled.

While the state is still evaluating elements of the electricity market-such as direct access-we note, as discussed earlier, that recent developments have brought increased stability to the market.

State Will Benefit From a More Accountable and Efficient Organizational Structure, Even if the Market Structure Changes. While we recognize the inherent uncertainty in the structure of the state’s electricity market, we think that a well-designed reorganization can improve accountability and efficiency, regardless of the market structure. Whether a future electricity market is fully regulated, completely open to competition, or something in between, the state will still make and implement statewide policies and operate programs in the energy area. The potential for gains in accountability and efficiency are largely independent of the larger debate about market structure. Therefore, in our view, it is not premature for the Legislature to proceed with a reorganization of the state’s energy entities at this time.

Creating Clear Lines of Accountability

Current Organizational Structure Reduces Accountability. As discussed previously, the current energy organizational structure-in which multiple state entities have responsibility for policy making and program implementation-reduces accountability by spreading responsibility for the success or failure of these activities across multiple organizations.

Consolidated Energy Department Would Improve Accountability. A department, into which functions from multiple entities are consolidated and headed by a Secretary, would provide a single point of contact for many energy-related activities. (We do not take a position on whether the head of a new department should or should not be a cabinet-level secretary; for simplicity, we follow the terminology of the Governor’s proposal.) This would improve accountability within the administration, by integrating the development of policy and the implementation of programs in one entity that would answer directly to the Governor. It would also improve accountability to the Legislature by creating a single point of contact through which to focus legislative oversight of policy development and program implementation. Both the Governor’s proposal and AB 1190 adopt the consolidated department approach. We recommend the Legislature adopt this organizational structure.

Deciding Who Should Make Policy

Policy-Making Decisions Currently Reside With Commissions. Currently, policy making responsibilities at both CEC and CPUC reside with commissioners who are appointed to fixed terms and have little direct accountability to the Governor or the Legislature for their decisions. In addition, because these commissions make decisions collectively, individual commissioners are not easily held to account for decisions made by the commission as a whole.

A Secretary Would Be More Accountable. A Secretary, as head of the department, would answer directly to the Governor, and can be required to explain policy decisions to the Legislature much more easily than can the multiple members of a commission. We recommend that the Legislature adopt a structure that includes an individual department head, either a Secretary or department director.

While the Governor’s proposal would consolidate policy making with the Secretary of the new department, we note that there is no specific provision in his proposal requiring CPUC (which would still retain energy-related functions under his proposal) to abide by those policy decisions. On the other hand, AB 1190 contemplated that CPUC would base its regulatory decision making on the policies developed by a new Energy Agency.

We think that any proposal to reorganize the state’s energy entities should explicitly address CPUC’s policy-making role. This is because CPUC has interpreted its duty to protect ratepayers broadly, and has made significant energy-related policy decisions under this authority.

Deciding the Placement and Structure of Regulatory Functions

When deciding where to place and how to structure the state’s energy-related regulatory functions, it is important to consider the special requirements for independence and public involvement of regulatory decision making. Therefore, we recommend that most regulatory functions be carried out under a commission structure. We also recommend that the Legislature reevaluate the state’s regulatory system for planning and permitting new transmission infrastructure, to address concerns about existing impediments to transmission infrastructure investment. We discuss these recommendations in detail below.

Responsibility for Energy-Related Regulation Is Spread Over Many Entities. Currently there are energy related regulatory functions spread over several entities, including CEC (permitting new power plants, adopting efficiency standards), CPUC (rate setting, permitting new transmission projects), EOB (market monitoring and initiating regulatory proceedings at FERC), and DOGGR (regulating oil, gas, and geothermal wells). In some cases (CEC and CPUC), these regulatory functions are invested in commissions. In other cases (EOB and DOGGR), these duties are not performed by commissions. The Governor’s proposal would move several regulatory functions to the new department, including transmission permitting (from CPUC) and electricity market oversight (from EOB).

Most Regulatory Activity Should Remain Under a Narrowly-Focused Commission, With Potential for Consolidation. In many cases, regulatory decisions can be controversial and therefore it can be useful to insulate them from outside pressures that may threaten the independence of the decision makers and thus the objectivity of their decisions. Hence, it is appropriate for these decisions to be made by commissioners who are appointed to fixed terms and are not easily removed from their position by the Governor or the Legislature. For example, CPUC-in addition to having a long history and considerable expertise in the regulation of utility rates-is governed by commissioners who are appointed to fixed terms. We believe that this gives the commissioners a degree of independence that is useful for the regulation of utility rates. We therefore recommend that utility rate-setting regulatory authority be retained in CPUC, under its commission, in any energy reorganization plan.

Currently, CEC’s appointed commissioners oversee all activities of the commission, including developing and adopting policy, presiding over regulatory functions, and implementing nonregulatory programs. We recommend that under a reorganized department, the duties of a new California Energy Commission be limited to making regulatory decisions, namely the permitting of new power plants and the adoption of energy efficiency standards. We would also recommend that the development and adoption of policy and the oversight of the implementation of nonregulatory programs be the responsibility of the Secretary.

Under this recommendation-and similar to the Governor’s proposal-the new California Energy Commission would reside within the department and would have access to department staff to support its regulatory activities. However, because members of the new commission would be appointed by the Governor, confirmed by the Senate, and would not answer directly to the Secretary, the commissioners would be able to make regulatory decisions relatively independently of outside interference. In addition, the commission structure provides significant opportunity for public participation in regulatory proceedings, which allows the public to be sure that regulatory decisions are made impartially.

Finally, we think that the permitting of new oil, gas and geothermal wells-currently the responsibility of DOGGR and not proposed for transfer under the Governor’s proposal-should be made the responsibility of the new California Energy Commission within the new department. These activities are regulatory in nature, and are similar to the permitting activities currently undertaken by CEC.

Activities Currently Performed by EOB Can Be Overseen by a Secretary. On the other hand, we think that the unique duties of EOB, while regulatory in nature, can be performed by staff who answer directly to the new Secretary. Under current law, EOB acts as a market monitor and exercises this responsibility by initiating proceedings at FERC when it finds there has been illegal market manipulation or anticompetitive behavior. The EOB is not a decision making body. Rather, EOB presents evidence to FERC or the courts, and these bodies make the ultimate decision on the issue at hand. Because EOB does not make regulatory decisions itself, it is appropriate for EOB’s duties to be transferred to the new department, to be overseen by the Secretary.

Department Should Be Designated as the Lead Entity Before FERC. In many instances, several state entities appear before FERC in the same proceeding. In order to avoid confusion over which entity represents the administration’s official position, the department should be designated as the state’s official lead representative, as proposed by the Governor. This would allow the administration to ensure that the state’s interests, as a whole, are represented in proceedings at FERC and in the courts. However, as also proposed by the Governor, we recommend that other state entities be allowed to continue to appear before FERC as necessary for them to address issues corresponding to their particular area of technical expertise.

We note that there are some relatively minor activities that would be performed by the new department under our recommendation and the Governor’s proposed reorganization that may, under FERC rules, create a conflict of interest with market monitoring activities. This would occur in cases where the department could be considered a market participant. For example, CEC currently provides subsidies to certain renewable energy providers, such as solar or wind power generators. This financial relationship could potentially make it a market participant. If these programs and the responsibilities of EOB (as a market monitor) were consolidated in a new department, this could create a potential conflict of interest. Accordingly, if the responsibilities of EOB were consolidated in the new department, it may be necessary to create a system of procedural firewalls to prevent any potential conflicts of interest between market monitoring activities and other programs in the department.

Legislature Should Consider Reorganizing the State’s Electricity Transmission Permitting Process. The Governor’s proposal would transfer the authority to permit new electricity transmission projects from CPUC to the new California Energy Commission in the new department. This component of the Governor’s proposal is an attempt to address concerns that the state’s current system for planning and permitting new transmission projects (which can involve multiple entities at the local, state, and federal levels) is substantially impeding investment in this type of infrastructure. However, the Governor’s proposal does not comprehensively address this issue.

Addressing problems with the transmission permitting process is a particularly complex one, as it involves not only multiple state entities but also multiple levels of government. While we make no recommendation on this issue, we believe that the Legislature should determine a policy that explicitly lays out each entity’s responsibilities. Such a policy would need to address the fundamental issue of allocating responsibilities, including system wide planning, determination of the system reliability and economic need of a project, permitting, environmental review, and the allocation of costs to ratepayers.

Deciding the Placement and Structure of Nonregulatory Programs

Both CEC and CPUC Operate Nonregulatory Energy Programs. As was mentioned above, there are energy-related programs that are nonregulatory in nature currently performed by several entities. As the state’s primary energy entity, CEC operates several programs, such as supporting new investment in renewable energy (including providing subsidies for solar energy). On the other hand, CPUC also administers several nonregulatory programs, some of which are similar in purpose to CEC programs. Specifically, CPUC’s new California Solar Initiative appears duplicative of an existing solar energy program at CEC.

Program Consolidation Can Potentially Improve Program Efficiency and Effectiveness. To the extent that similar programs are operated by different entities, this can create inefficiencies, for example, by increasing the cost it takes to advertise multiple programs to consumers. Additionally, several small programs are often less effective than a consolidated program, because program beneficiaries may not be aware of all the overlapping programs and may not take advantage of existing programs. Finally, the operation of duplicative programs in different entities can result in unnecessary administrative costs. While the Governor’s proposal does not consolidate these solar energy programs, we recommend that CPUC’s California Solar Initiative and CEC’s existing solar energy program be consolidated in the new department.

Consolidation Problematic for Some Programs or Functions. On the other hand, there are some existing programs or functions that are proposed for consolidation under the Governor’s proposal where consolidation would create limited benefits and could create organizational problems. First, the Governor’s proposal would move the functions of CPA and CERS into the new department. We think this would produce little benefit and generate problems by creating potential conflicts of interest within the new department.

Given that CPA has not financed any new power plants and its bonding authority expires at the end of the year, it is unlikely that the department would finance any new power plants using CPA’s existing authority. If the department did use this authority to finance new power plants, however, it could conflict with other department duties, including market monitoring. Therefore, we recommend that CPA’s bonding authority be left out of the new department and be allowed to expire.

Similarly, CERS’ current participation in the electricity market, as the manager of multimillion dollar energy contracts, could create a potential conflict of interest with the new department’s market monitoring responsibility. Because CERS is not signing any new power contracts and the existing contracts that it manages will expire over the next several years, there is little benefit from including it in a new department. Therefore, we recommend that CERS remain in DWR.

Finally, the Governor’s proposal would consolidate certain functions or programs from the Department of General Services and the Office of the State Architect in the new department. For the most part, the activities of these programs are limited to procuring energy for state agencies and implementing energy efficiency measures in state buildings. There does not seem to be any significant benefit from moving these programs into a consolidated energy department. Therefore, we recommend against transferring these functions to the new department as proposed by the Governor. The Governor also proposes to transfer a nonoperational energy program from the Office of Planning and Research to the new department. Because this program is no longer in operation, this transfer is unnecessary.

Conclusion

While some uncertainty remains surrounding the structure of California’s electricity market, we think that the time is right for the Legislature to create a more efficient and accountable organizational structure. Our proposed reorganization does not depend on a particular electricity market structure and provides enough flexibility to allow the state to respond to changing market conditions. With or without our recommended reorganization, the state still faces many energy challenges. For example, in the coming years, the state will have to ensure that adequate electricity production and transmission infrastructure is developed to accommodate a growing population, while at the same time ensuring that energy efficiency and renewable energy production goals and standards are met. We think that our recommendations to create a more accountable and efficient organizational structure should improve the state’s ability to address these challenges in a comprehensive manner, while allowing enough flexibility to adapt to new challenges as they arise.

We summarize our recommendations for a reorganized structure and contrast these with the Governor’s proposal in Figure 2.


Figure 2 Energy Reorganization Proposals
Function/Structural Issue	Governor's Proposal	LAO Alternative
Organizational structure	Department of Energy.	Same.
Organizational head	Cabinet-level "Secretary."	Secretary or director.
Energy policy development	Responsibility of department head.	Same.
CEC	Abolish entity, transfer duties to new department, some of which would be handled by new commission.	Same.
Duties of new commission within new department	Limited to regulatory functions: permitting new power plants, approving energy efficiency standards, and permitting new electricity transmission projects.	Limited to regulatory functions: permitting new power plants, approving energy efficiency standards.
EOB	Abolish entity, transfer duties to new department.	Same.
CPA	Abolish entity, transfer duties to new department.	Allow authority to expire.
CERS	Transfer duties to new department.	Leave as is.
DOGGR	Leave as is.	Transfer duties to new commission within new department.
CPUC	Retain rate regulation responsibility and California Solar Initiative; responsibility for permitting electricity transmission projects transferred to new department.	Retain responsibility for rate regulation and electricity transmission permitting. Transfer California Solar Initiative to new department.
Electricity transmission permitting	Transfer permitting authority from CPUC to new commission within new department.	No recommendation; Legislature needs to determine allocation of responsibilities.
FERC representation	New department would appear before FERC as the lead representative of California energy policy. Other state entities could appear as needed.	Same.
Other nonregulatory programs	Transfer energy programs in Office of Planning and Research, Office of the State Architect, and Department of General Services to new department.	Leave as is, no transfer.

A consolidated department reflecting a reduced number of separate entities developing and implementing policy would improve accountability. We recommend that energy policy-making responsibility rest with a department head who is directly answerable to the administration and the Legislature, while regulatory functions should largely continue under a commission structure within the new department. We recommend that the Legislature adopt a process to comprehensively address the system for planning and permitting new transmission. Finally, we find that opportunities exist to consolidate energy program activities, thereby creating efficiencies. However, we recommend leaving other programs specified in the Governor’s proposal out of a consolidated department due to limited benefits or problems which would be created by doing so.

Analysis of the 2006-07 Budget Bill

Legislative Analyst's Office
February 2006

Reorganizing California’s Energy-Related Activities

Summary