Conversation with California’s Senator Sandra Bowen
Chair of the California Senate
Conservation is still important as California figures out how to ensure reliable, adequate, and affordable power both this summer and in the longer term.
Senator Debra Bowen was elected to the California Senate in 1998 and has served as chairwoman of the Senate’s Energy, Utilities & Communications Committee since 1999. In this position she has been centrally involved in the debate over how the state should respond to the imbalance in supply and demand and the large price increases in the electricity industry.
Before being elected to the Senate, Ms. Bowen represented the 53rd Assembly District for six years, and prior to that she had her own law firm specializing in small business start-ups, tax law, land use, and environmental issues.
GBR recently had the opportunity to ask her about her perspective on the current electricity crisis and what needs to happen next.
GBR: If we could go back to 1996, given the value of hindsight, what would be your position on de-regulation? Should California have attempted to de-regulate the electric industry in the way it did?
Bowen: Hindsight is always 20/20, so I actually prefer to look ahead at what we need to do in the future, not look back at what we should have done five years ago. We really need to decide what we want our energy market to look like – not just tomorrow, but in a year, five years, and fifty years.
People and businesses want a reliable supply of power at stable, predictable rates. As the California experience has shown, those goals can’t always be achieved in a free market system when there isn’t true competition between power sellers. The price for stability may be slightly higher, but you do avoid the wild up and down swings that come with a free market system. Do we want the supply and price of an essential commodity like electricity to continue to be subject to the whims of the free market? That’s the first decision we need to make.
GBR: It sounds like you would be willing to consider re-regulating the electricity industry. . . .
Bowen: Remember, even though it’s known as the ‘deregulation legislation,’ the buying and selling of electricity was never fully deregulated. Most of the wholesale side of the equation was deregulated, but the retail side wasn’t — which is why people never saw the wild gyrations in price at the wholesale market level reflected in their bill. I think whatever kind of a system we develop for the future is going to be a system with a greater degree of regulation than the one we have now. How much more? It’s tough to say right now. We can’t “unring” the bell that we rang five years ago, but we ought to be able to make sure it doesn’t ring that way again.
GBR: If there is not a lot of merit in looking back, at this point, what do you think is the best solution to get us moving forward?
Bowen: Let’s not confuse action with progress. First, we need to decide what we want the electricity world to look like. Do we want the convenience of “choice” even if it comes with the risk of skyrocketing prices? Do we want the safety that comes with reliable prices, even if it means those prices won’t be the lowest of the low? Getting the utilities back to creditworthy status isn’t the most important thing we need to do. The most important thing is to figure out how we can guarantee Californians a safe, reliable supply of electricity that is reasonably priced. The proposed Memorandum of Understanding that SCE has with the Governor has a lot more cons than pros, but we’re still working on something that may be able to serve as an alternative to the SCE proposal. The test here, in my book, is what makes sense for ratepayers, not what makes sense for SCE’s shareholders.
GBR: The state is, of course, purchasing wholesale electricity for the utilities at this point. Do you think that the state will actually recover the money it is spending to do this? And what has been the impact on the state budget?
Bowen: Eventually, the state will get its money back, but it’s going to be years before that happens. We’ve drained more than $8 billion out of the budget so far to buy power, and that’s had an impact on every facet of the state budget. It’s hit schools, it’s hit health care, it’s hit police and fire services, and it’s eliminated the state’s ability to create new programs to serve people who are truly in need of help. We’re essentially doing last year’s budget all over again this year, because we just don’t have the money to do anything differently.
GBR: How much of an impact on the state economy do you think this crisis will cause? What should California business people be considering as they try to plan for the next year?
Bowen: The impact on every ratepayer’s wallet and the overall economy will be tremendous, but it’ll be quite some time before we know just how far the dominoes have fallen. The impacts aren’t always direct either. A business, say a restaurant, that’s hit with a higher energy bill can try to pass those costs along to its customers, but if you’re a homeowner or a renter, you can’t pass those costs on to anyone. If people are spending more on their power bills, it means they have less money available to buy a car, go out to eat, see a movie, buy school clothes for their children, or pay rent or buy food. That means businesses see their sales slump, which, in turn, affects their bottom line and their ability to pay employees. It’s a vicious circle that we need to make sure doesn’t turn into a death spiral.
Conservation can go a long way to helping drive down not only individual power costs, but everyone’s overall costs. But it’s hard to say what people should plan for right now, since I’m not sure what the electricity market is going to look like in six months or six years.
GBR: Wholesale prices for energy actually started rising last summer. How would you respond to the criticism of some that the state has been very slow in responding with a positive program to deal with the crisis?
Bowen: I think the criticism is accurate. We put a band-aid on a problem that really needed open-heart surgery and hoped it would go away. We put a little money into conservation programs and did a little bit to encourage new generation to come on line, but not nearly enough. Had we put the recently-enacted $1 billion conservation program into place last fall instead of waiting until this spring, who knows how much better off we would have been. The conservation program has knocked anywhere from 2,000 to 5,000 megawatts off the grid, which is the equivalent of bringing anywhere from four to ten large power plants on line.
GBR: Natural gas prices have also moved sharply higher this last year, but there does not seem to have been the same degree of public outrage about that as here has been about electricity rates. If the wholesale costs for electricity had been passed along to consumers as the higher cost of gas was, would the public reaction have been more like it was for gas — some complaining and some cutting back on use, but adjustment to higher prices over time?
Bowen: There’s no doubt the price freeze served to hide ratepayers from the true cost of electricity and it made it harder to encourage conservation since people – up until last December – never saw their rates change one iota. If by saying the public “adjusted” to higher gas prices you mean that people got used to them and have come to accept them, I don’t agree with that assessment. I think people changed the way they used gas in the places they could. Prices have come down significantly since new supplies have come on line and since the Southern California pipeline problem was fixed. The retail price freeze protected ratepayers from the out-of-control wholesale prices, which is a good thing, but the downside is, any time you subsidize the true cost of anything, people’s behavior is going to be different than if they were faced with paying the true cost of the product. Some have said that had we started sending price signals a little earlier by raising rates slightly, we would have avoided the much larger rate hike the PUC was forced to enact in May, and there’s a lot of truth in that assessment.
GBR: The point about “accepting” high gas prices is well taken. But to move to another topic, the Federal Energy Regulatory Commission, or FERC, is the agency that regulates the transmission and wholesale sales of electricity, as well as natural gas, in interstate commerce. Earlier this year it was very reluctant to intervene in the markets at all. Now it has two new members and in June imposed some price “mitigation” on the spot market. What is your assessment of FERC at this point?
Bowen: I think the new FERC commissioners are sympathetic to the impact that the unjust and unreasonable rates charged by power generators and marketers have had here in California, and I think they’re more willing to play a more activist role in helping to correct that problem. The generators need to get FERC approval to continue charging market-based rates, and they know they’ll have a hard time getting that approval if the problems with the wholesale market we’ve experienced aren’t brought under control.
GBR: On a related issue that could involve the federal government, in the June 14th L.A. Times there was an article about the federal government inviting private companies to submit bids to build and own an expansion of the Path 15 part of the transmission grid. What is your response to that initiative?
Bowen: Clearly, the Path 15 upgrades need to be done, but the California Public Utilities Commission has ordered PG&E to build out that infrastructure, even while it’s in bankruptcy. I have a great concern that if the private companies do the upgrades, the state could have even less control over the system than it has now.
GBR: Speaking of private companies, in your view, was PG&E’s decision to file for bankruptcy necessary? Was it a good business decision for them, even if not a good decision for the state? What would be the impact on the state is SCE were forced into – or voluntarily chose – bankruptcy?
Bowen: Well, PG&E felt it was in its best interest to file for bankruptcy, so I can’t say whether it was or wasn’t a good decision for the company. I don’t think they’ll know – or the ratepayers will know – whether the decision was a good one for anybody for a number of years. I’ve said before that if you have one utility in bankruptcy, it probably doesn’t make much difference – other than from a public relations standpoint – if you have two utilities in bankruptcy. The state is already buying power on behalf of SCE’s customers because it’s not credit worthy, so whether it’s in or out of bankruptcy probably, at least in the short term, doesn’t make much difference to ratepayers. If there’s a way to keep SCE out of bankruptcy that makes sense for ratepayers and for the state, I think it’s something we should do, but keeping it from going bankrupt at all costs would be a huge mistake.
Remember that bankruptcy, while it isn’t any business’ first choice, isn’t an uncommon proposition. Many businesses have used it to help them re-organize their debt and deal with creditors. Then they’ve emerged to go on to become successful enterprises. The benefit of bankruptcy court, for debtors and creditors, is that there’s some certainty to the process and everyone is on an equal footing. Bankruptcy courts exist for a reason. They do this stuff for a living and they’re used to dealing with multi-billion dollar business deals. The Legislature isn’t equipped to do that – it’s not what we’re set up to do.
GBR: Thank you, Senator Bowen. We appreciate your taking time from your busy schedule to share your perspective with GBR’s readers.
About the Author(s)
Charla Griffy-Brown, PhD, is an associate professor of information systems at the Graziadio School of Business and Management. In 2004, Dr. Griffy-Brown received a research award from the International Association for the Management of Technology and was recognized as one of the most active and prolific researchers in the fields of technology management and innovation. A former researcher at the Foundation for Advanced Studies on International Development in Tokyo, she has also served as an associate professor at the Tokyo Institute of Technology. Dr. Griffy-Brown graduated from Harvard University, is a former Fulbright Scholar, and holds a PhD in technology management from Griffith University in Queensland, Australia. She has worked for NASA at the Kennedy Space Center and has taught innovation/technology management courses in Australia, Singapore, Indonesia, Malaysia, and Japan. She has also served as a consultant for the United Nation's Global Environmental Facility and the European Commission.