California is facing unprecedented challenges in providing reliable access to energy for California residents at reasonable rates. The enactment of Chapter 854, Statutes of 1996 (AB 1890), began a restructuring of California's energy system and transferred much of the control over the system from the State to the federal government. As part of restructuring, electricity rates were frozen until the regulated utilities sold their power generating facilities and paid off uneconomic investments. San Diego was the first area in California to have its rate freeze lifted; subsequently, electricity rates in San Diego skyrocketed to unprecedented levels. Governor Davis, in conjunction with the Public Utilities Commission and the Legislature, implemented a plan to stabilize rates in San Diego and provide assistance to residential and business customers. In addition, the Governor called on the Federal Energy Regulatory Commission (FERC) to investigate the market conditions and act to ensure adequate, reliable, and affordable electricity.
FERC's investigation has found that California's energy market is dysfunctional, that the market is not competitive, and that energy prices have not been just or reasonable. However, the FERC has not exercised its authority to curb price increases, resulting in wholesale costs that approach fifty times the prices charged one year ago. Additional power generation is necessary to ensure that supply will continue to exceed demand growth and prevent future shortages. Although over 6,000 mega-watts (MW) of electricity are under construction or in the permitting process, completing construction will take time. It is not clear that new power generation alone will improve reliability and stabilize prices without effective market rules that curb marketplace manipulation.
Governor Davis has taken a series of executive and regulatory steps to reduce energy demand on the power system, promote conservation, bring additional power generation online, and stabilize rates, including:
Three Executive Orders designed to reduce energy consumption by State government and speed up the time it takes to approve new power generation. Under these Orders, the State achieved more than 180 MW of peak electricity reduction in summer 2000, and is moving quickly to realize another 250 MW of demand reduction for summer 2001.
A voluntary agreement with the California Grocers Association to save enough electricity to power between 50,000 and 60,000 homes during periods of peak demand.
Legislation creating the Governor's Clean Energy Green Team, which aggressively commits California to accelerate the siting and permitting of electricity generation by coordinating federal, State, and local agency review.
Urgency legislation providing $50 million for demand reduction programs that can be implemented by summer 2001, and legislation that ensures $500million of funding annually for 10 years to support energy efficiency, research and development, and renewable resource support.
These efforts constitute a three-pronged strategy:
Increasing conservation and efficiency
Adding generation capacity within the state
Ensuring a reliable supply of electricity at stable prices
In further pursuit of this strategy, the Governor's Budget includes $1 billion for programs that will increase energy efficiency, reduce consumption, and increase the supply of electricity. These programs will assist residents, small businesses, industry, agriculture, and State and local governments to meet the energy challenge confronting California.
Numerous proposals for funding from this $1 billion set-aside are currently being analyzed for their potential to provide relief in the near future and in years to come. These proposals will be developed in consultation with the Legislature at the beginning of the 2001-02 Legislative Session.
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