Schwarzenegger promises market-based energy programme

Arnold Schwarzenegger, newly elected governor of California, has vowed to use market-based approaches to address the state's ailing wholesale energy markets.

The actor-turned-politician has unveiled a 16-step programme which he says will encourage the continued development of a competitive energy market, including a new law to accelerate rulings by the California Public Utilities Commission on utility purchased power contracts. Schwarzenegger also plans to link retail prices to wholesale costs for large commercial and industrial end-users, and to make sure there are adequate power reserves to prevent market manipulation.

Federal regulators are still in the process of fining a number of US energy firms for alleged market manipulation in California through the use of derivatives contracts leading up to the state’s energy crisis of 2001. Earlier this week, for example, the US Commodity Futures Trading Commission (CFTC) fined William Taylor, formerly vice-president of Avista Energy in Houston, $155,000. The CFTC charged Taylor with manipulating the settlement prices of the Palo Verde and California-Oregon-Border electricity futures contracts traded on the New York Mercantile Exchange during April 1998 through to July 1998. This increased Avista Energy's net gain on its cash-settled OTC options contracts - the value of which was based on the daily settlement prices of the electricity futures contracts.

“Government mismanagement has contributed to an energy cost crisis in California, putting the state at a competitive disadvantage, while placing a severe drag on our economy,” a statement on Schwarzenegger’s campaign website said. “Businesses in California now face energy rates nearly twice as high as businesses in other Western states. California residents face rates that are 61% higher. These high energy rates are an unacceptable burden for people who live and do business in California. And the current bureaucratic rules are making the crisis worse, instead of better," the statement added.

The current lack of a clear policy and regulatory guidance means California cannot “attract investments and build the needed energy capacity under the current regulatory framework, because potential investors do not know whether they will be allowed to sell electricity in a viable market”, Schwarzenegger argued.

The Republican governor plans to create a wholesale power market based on the lessons learned from other states and the US Federal Energy Regulatory Authority (Ferc) standard market design. “California is one of several states that adopted electricity restructuring. However, only California's restructuring caused severe price hikes and energy shortages,” Schwarzenegger said. “It is time to learn from other successful restructurings enacted by Texas, the New England states, and the Mid-Atlantic states of Pennsylvania, New Jersey and Maryland.”