When Gov. Arnold Schwarzenegger used his veto power
to eliminate the obscure Electricity Oversight Board,
he put at risk $3 billion in state funds – money due the state from settlements with power merchants
who victimized California during the electricity crisis.
The governor’s 2007 action removing the EOB also means oversight over
the state’s electricity grid is likely to be placed under the
control of the PUC, which would entail a significant
expansion of the authority of the Public Utilities
This maneuvering comes amid an intensifying power clash
between the Legislature and the Public Utilities Commission,
led by president Michael Peevey.
Experts say the EOB, which was created to ride herd
on the manager of California’s power grid, was the signatory to billions of dollars
worth of hard-fought agreements, legally binding, that the state
negotiated after the crisis eased. The EOB represented
California’s interests before federal regulators in more than
135 federal appeals, served as a consumer representative
and, most importantly, served as the state’s overseer of the Independent System Operator, which
runs most of California’s vast power grid.
Now that the EOB no longer exists, it is unclear what
will happen to those settlement payments. That has
gotten the attention of the attorney general’s office, and Democratic lawmakers.
“The A.G. (attorney general) had been trying to work around the absence of an EOB
signature. However, the settlements are at risk of
falling through…,” Assemblyman Lloyd Levine, the head of the Assembly
Utilities and Commerce Committee wrote the governor.
“The longer the EOB is absent, the amount at stake will
continue and may reach the hundreds of millions of
dollars in losses to ratepayers. The PUC estimates
the total outstanding claims that ratepayers won’t recover as ‘up to $2 billion.’ The AG quantifies the total outstanding claims plus
interest as exceeding $3 billion.”
Levine added that banks “cannot release settlement funds that the EOB negotiated
because the funds are held in escrow accounts and the
EOB is the owner of the accounts. The deputy AG estimated
that tens or hundreds of millions of dollars thayt
belong to ratepayers cannot be released.”
He noted that the state has refund claims outstanding
against 60 energy-market participants “which cannot be consumated unless the EOB can sign
The money was “blue penciled” from last year’s budget by the governor, who said the EOB was no longer
necessary or functional--a move that may ultimately widen the PUC’s authority. This increase in the commission’s power comes at a time when its president, Peevey,
is under increased scrutiny from Capitol lawmakers
after repeated clashes. One clash with the Legislature
stems from Peevey’s attempts to engineer the creation of a $600 million ratepayer-financed institute at UC to study climate change—an institute over which he would wield influence. Senators
have vocally opposed Peevey’s plan.
In another dispute, Peevey is pushing for reinstatement
of what is known as “direct access,” a key component of market deregulation, in which electricity
users bypass utilities and purchase power directly
on the open market. It was intended to increase competition
and lower prices, but critics contend it was instrumental
in contributing to California’s power market meltdown of 2000-2001. Direct access was suspended in September 2001.
But five months ago, the PUC opened a proceeding to
reinstate direct access. The PUC said it had full authority
to bring back direct access, but the move outraged
then-Assembly Speaker Fabian Nunez and Senate Leader Don
Perata, both of whom asked the PUC to halt. The PUC
The result of these big-ticket disputes—there are others, as well—is to create an intense political battleground pitting
the state’s powerful utilities regulator against the lawmakers
who hold the purse strings. Potentially, billions of
dollars are at stake—a critical consideration in a tight budget year.
Those purse strings already are being pinched.
A subcommittee of the Senate Budget Committee decided
to cut $60 million in the PUC’s operating budget for 2008-09. The cut, destined to be included in the Senate’s initial version of the state budget, means that the
money likely will get an airing by the
two-house conference committee that writes the final version
of the budget.
There is little chance that the PUC’s budget ultimately will be cut. But such a move has
a time-honored history in the Capitol, where lawmakers choke
off dollars—at least temporarily--in order to get the agency’s attention.
But the most dramatic dispute involves the Electricity
Oversight Board, which even before its elimination
was relatively little known in California, even during
the electricity crisis, when the public focused more
on soaring prices and rolling blackouts.
The functions of the EOB ultimately will be shifted
elsewhere—presumably to the PUC—but its legal status in the settlements raises questions.
Absent the EOB, “California ratepayers are left without a state agency
actively monitoring the wholesale energy markets, investing
anomalies and substantiating demands for restitution
on behalf of all California ratepayers. Ratepayers
now remain vulnerable to being saddled with even more
costs resulting from market manipulation and energy
overcharges,” Levine wrote.
The final resolution of the dispute over the EOB is
likely to be contained in a so-called “trailer bill,” a bill that accompanies the state budget and makes
legal changes needed to put the budget agreement into
Meanwhile, Peevey’s California Institute for Climate Change, is being
renegotiated. Like the EOB, the climate change institute
will be placed in budget trailer bill. Its leadership
will include legislative representatives, and its funding
will include money from municipal utility customers
– not just the ratepayers of the investor-owned utilities, PG&E, Edison and San Diego Gas & Electric.
Sen. Christine Kehoe, D-San Diego, the chair of the Senate Energy Committee,
said discussions with Peevey were underway, and that
negotiations over the climate institute were separate
from talks involving direct access or the EOB.
“President Peevey and I have talked numerous times about
this. These are perfectly cordial conversations,” Kehoe said. Several senators, she said, had concerns
about “the setting and the funding of the institute without
legislative oversight,” and they want “greater legislative involvement, transparency and accountability.”
Kehoe said the idea of climate research was supported
in the Senate. “But we want it done correctly. One of the questions
we have is, who’s in charge?”