POWER BATTLE HEATING UP OVERHAUL PLAN SPARKS DEBATE.

Byline: David M. Drucker Sacramento Bureau

SACRAMENTO - While focusing the public's attention on his efforts to rebuild the California economy, Gov. Arnold Schwarzenegger has quietly started overhauling the state's dysfunctional power system, with the goal of completing the task in time for a 2006 re-election bid.

Critics say another electricity crisis - like the one in 2001 that soured voters on former Gov. Gray Davis, led to his low job-approval ratings and made his recall possible - is imminent, and that Schwarzenegger is not doing enough to prevent it.

But administration officials say the Republican governor has a strategy to head off short-term power supply and transmission problems, and to create long-term stability to benefit business and consumer ratepayers.

``The governor's plan is simple: more reliable power and better prices for all ratepayers,'' Schwarzenegger spokeswoman Ashley Snee said.

His plan is particularly needed to protect Southern California (except for Los Angeles which has its own power utility), and the San Francisco Bay area, administration officials say.

Unlike his solutions for the state budget crisis and high workers' compensation insurance rates, the governor's electricity fix does not require much negotiation or compromise with the Democrat-controlled Legislature.

Using his authority to appoint members to state regulatory boards like the Public Utilities Commission, Schwarzenegger can call most of the shots.

His intricate plan involves the complex tasks of writing new regulations, accelerating the implementation of previously-passed legislation and expanding the state's power-industry infrastructure to meet two key goals - making sure that supply meets demand and that electricity can be delivered where it is needed at any time.

But the governor's plan won't solve the state's problems, said Assembly Speaker Fabian Nunez, D-Los Angeles.

Nunez said Schwarzenegger would leave too many decisions to the PUC - a move that contributed to the last crisis, he said - and would not encourage the building of new generating plants, or provide the ratepayer protections the state needs.

Nunez was an author of Assembly Bill 2006, the Democratic counter- proposal to the governor's plan.

As was widely expected, Schwarzenegger on Saturday vetoed AB 2006, which was co-authored by Sen. Debra Bowen, D-Redondo Beach, chair of the Senate Energy, Utilities and Communications Committee.

``His energy policy does absolutely nothing,'' Nunez said. ``I'm not saying mine is perfect, but I think it's the closest thing to getting us out of this crisis.''

Several consumer-watchdog groups and other Democrats are suspicious - if not highly critical - of Schwarzenegger's proposals. They contend the governor is too cozy with the power industry, and that his plan would cost ratepayers, possibly leading to another electricity crisis like the one that occurred a few years ago.

The Foundation for Taxpayer and Consumer Rights, a Santa Monica organization that regularly criticizes Schwarzenegger and operates Arnoldwatch.com, accuses him of proposing the same electricity deregulation ``agenda'' that led to the 2001 energy crisis and ended up costing Davis his job.

The group says the governor's plan to streamline and consolidate some of the state's energy regulatory boards would eliminate protections for ratepayers and make another ``phony'' shortage possible.

``Californians were devastated by energy deregulation,'' FTCR spokesman Doug Heller said.

He said Schwarzenegger's plan to build more power plants risks weakening environmental standards.

Heller said AB 2006 was designed to ``restore regulatory balance to our state,'' but Schwarzenegger seems to be operating on the assumption that ``deregulation can work.''

Administration officials vehemently dispute such criticism, pointing out that this past summer included seven days of record-breaking electricity demand but ended with no power blackouts because of policies the governor had already set in motion.

Among the the major components of his plan:

--Having the PUC and other state regulatory boards speed up the implementation of state regulations to make it easier for - and to entice - investor-owned utilities and independent power companies to build new power plants and power transmission lines.

--Requiring energy suppliers to keep 15 percent worth of reserves available to meet unusual and unanticipated spikes in demand. The administration expects to see this goal met in 2006.

--Creating a dual market, with consumers being able to depend on the stability of buying power from the utilities they are used to, and large businesses and cities having the option of purchasing electricity from the supplier of their choice.

--Increasing natural gas supplies, as 45 percent of California power plants are powered by natural gas. When natural gas is scarce, the cost to generate power increases, as does the cost of electricity.

--Encouraging conservation and the use of alternative fuels like wind and solar power so that, by 2020, roughly a third of all power consumed by California comes from environmentally-friendly sources.

--Reducing costs immediately by renegotiating the long-term contracts for electricity signed by the Davis administration at the height of the 2001 energy crisis, and accelerating and increasing the amount of refunds from energy suppliers to California ratepayers that have already been ordered by the Federal Energy Regulatory Commission.

``I think this plan recognizes the complexity of the energy market in California,'' said Dominic DiMare, a spokesman for the California Chamber of Commerce. ``It allows for both public utilities and independent producers to participate in the marketplace - and I don't think a market that excludes some participants is right for California.''

David M. Drucker, [phone]

david.drucker(at)dailybulletin.com

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ARNOLD'S POWER PLAN

SOURCE: Governor's Office and staff research

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