McGeorge School of Law

Proposition 80

Proposition 80:
Electric Service Providers.

By

Amanda L. Kirchner
JD, McGeorge School of Law, University of the Pacific
to be conferred May, 2006
B.A., English, California State University Stanislaus, 2003

and

Kelly R. Nordli
JD, McGeorge School of Law, University of the Pacific
to be conferred May, 2006
B.A., Social Welfare, University of California, Berkeley, 2003

Copyright © 2005 by University of the McGeorge School of Law


Table of Contents

I. Executive Summary
II. The Law
III. The Effects of Proposition 80
IV. Drafting Issues
V. Constitutional Issues
VI. Public Policy Considerations
VII. Conclusion

 

I. Executive Summary

The California Legislature in 2004 sought to increase the power of the California Public Utilities Commission (“CPUC”) to regulate the electricity market. Institute of Governmental Studies-University of California, Proposition 80: Electric Service Providers Regulation-Energy Regulation and Deregulation in California. Governor Schwarzenegger blocked this attempt at reform by vetoing the Legislature’s proposed bill. Id. Proposition 80, an initiative statute, is based on the Legislature’s proposed reform and would make several changes to current energy policy. Id.

Under California’s original deregulation law, enacted in 1996, Electric Service Providers (“ESPs”) were allowed to directly compete for customers against the major investor-owned utilities (“IOUs”), such as Pacific Gas & Electric (“PG&E”), and Southern California Edison. This proposition rejects California’s earlier deregulation policies, such as direct competition, and attempts to make permanent many of the changes the Legislature made to the deregulation law after the energy crisis.

Specifically, Proposition 80 would expand the power of the California Public Utilities Commission (“CPUC”) to regulate ESPs in the same way that it regulates the IOUs, such as in establishing retail rates. California Official Voter Information Guide, Text of Proposed Laws, Proposition 80, § 8. Additionally, current utility customers would be barred from switching to ESPs for their electricity needs. Id. Further, the CPUC would also be given the responsibility of ensuring that ESPs and IOUs can adequately meet the demands of consumers. California Official Voter Information Guide, Analysis of Proposition 80 (Secretary of the State, 2005). Proposition 80 would allow the CPUC to set priorities for the electric providers in terms of energy procurement and accelerate current requirements that electric providers increase their reliance on renewable energy. Id. Proposition 80 would also require that some consumers pay different rates for electricity based on the time of day that they use electricity. Id. Thus, consumers would be forced to pay more for electricity during peak demand times, such as in the afternoon. However, most residential and small business owners would be exempt from time-differentiated electricity rates. Id. Lastly, Proposition 80 would restrict the Legislature’s ability to modify Proposition 80’s requirements by requiring a two-thirds vote of approval.

On July 22, 2005, the California Court of Appeal, Third Appellate District issued a stay to prevent the Secretary of State from placing Proposition 80 on the ballot for the November 2005, special election for which the initiative had qualified because the Court found Proposition 80 was unconstitutional under the California Constitution. Indep. Energy Producers Assn. v. McPherson, 2005 Cal. LEXIS 8236 (July 27, 2005) ["Energy Producers"]. On July 27, 2005, the California Supreme Court vacated the stay. Id. The Supreme Court held that pre-election review was not proper, and that the initiative should be voted on by the people before it is reviewed by the courts. Id. Should the voters approve Proposition 80, it will most likely be challenged again on the same constitutional grounds. The Court of Appeal found the initiative was unconstitutional because it attempted to grant more power and control to the CPUC, a right that the Court of Appeal found to belong solely to the California Legislature. Indep. Energy Producers Assn. v. McPherson, 131 Cal. App. 4th 298, 314 (3d Dist. 2005) [“McPherson”]. As the initiative improperly impinged on an area controlled exclusively by the legislature, it was therefore unconstitutional. Id. If the voters approve Proposition 80, and if the Supreme Court chooses to review the case, it may find that all of the initiative is valid, only parts of the initiative are valid and can be kept as law, or that the entire initiative is invalid.

Proponents of Proposition 80 encourage California voters to enact the initiative because it will protect California consumers from future price gauging, stabilize the market, and spur implementation and development of "green" energy sources. Analysis of Proposition 80. Re-regulating the electricity market ensures that California will never again be held hostage by big business energy producers. Id. Regulation will create a stable customer base, and in turn, stable electricity rates. Id. Proposition 80's provisions requiring the priority use of "green" energy sources and "best value" power plants will invigorate California's energy market. Id. With a stable market and new, more efficient, business growth, customers will see a drop in electricity rates as utilities are able to plan long term. Id. By voting for Proposition 80, proponents argue that energy prices will be set by the people, and not the big-business influenced legislator. Id. The supermajority voting requirement of the initiative ensures this safeguard. Id.

Opponents of Proposition 80 discourage California voters from enacting the initiative because it restricts consumer choice, will not lower rates, harms the energy market, and is redundant. Analysis of Proposition 80. Opponents urge that re-regulation of the electricity market will constrict consumers into purchasing electricity solely from their utilities. Id. With no competition for business, prices will never be driven down, and large electricity users like schools and hospitals will have to pay more for their electricity, passing those costs onto students, taxpayers, and patients. Id. Without direct competition, there will be no demand by consumers seeking to use only "green" energy, and without this demand, no real impetus for the ESPs to invest and produce cleaner energy. Id. Finally, Proposition 80 merely codifies several policies already implemented by the CPUC and in effect today. Id. Adding a two-thirds legislative voting requirement not only makes the policies redundant, but also much harder to change should the legislature, or the people of California, see fit. Id.

II. The Current Law

A. Background on Deregulation

The move towards deregulation of energy production and distribution is linked to Congress’ response to the 1970s OPEC oil embargo and the resulting skyrocketing of energy prices. William A. Borders, Student Author, Learning from the Storm: Lessons for Illinois Following California’s Experience with Electricity Restructuring, 77 Chi.-Kent L. Rev. 333, 337 (2001). Congress passed the Public Utility Regulatory Act (“PURPA”) in 1978 which was designed to stabilize the price for energy by ensuring adequate supplies of energy. Id. Further, PURPA outlined several goals to help the nation develop more energy domestically in order to reduce dependence on foreign markets. Id. One of the key strategies of PURPA was to make the energy market more competitive in order to reduce energy prices. Id. Congress envisioned that competition could be introduced by creating an energy wholesalers market. Id. at 338. To achieve this PURPA encouraged the development of independent power plants by exempting new plants from several regulations that applied to the major utilities and required the major utilities to purchase some of the electricity the independent plants produced. Id. at 337-338. Additionally, PURPA required utilities to share their transmission lines with independent energy producers. Id. at 338. This requirement was designed to ensure that independent energy producers could deliver their energy to consumers. Id.

In 1992, Congress passed the Energy Policy Act which further allowed independent electricity suppliers to sell electricity. Id. at 339. Moreover, the statute expanded the power of the Federal Energy Regulatory Commission (“FERC”) to allow wholesale selling of electricity and the direct delivery of wholesale electricity to retail customers. Id.

In July 1996, the FERC issued Order No. 888 which authorized states to restructure their own electricity markets to increase competition on their own terms. Id.

B. California's Original Deregulation Law

Before 1996, California had a monopolized electricity market. Id. at 340. Investor-owned utilities (“IOUs”), which are the large, privately held utilities in California including PG&E, Southern California Edison Company, and San Diego Gas & Electric, were state regulated monopolies whose retail prices were fixed by the CPUC. Analysis of Proposition 80. The IOUs “controlled the generation, transmission, and distribution of power for a particular service area.” Maximilian Barteau, The Horses Have Bolted, but Close the Barn Doors Anyway: Utilities Told Not to Sell Their Generation Assets After All, 33 McGeorge L. Rev. 355, 362 (2002). Publicly owned utilities, such as the Sacramento Municipal Utility District and the Los Angeles Department of Water & Power, also provided electricity. Analysis of Proposition 80.

After the FERC issued Order No. 888, the California Legislature moved quickly to restructure the electricity market before the end of 1996 by passing Assembly Bill 1890. Borders, 77 Chi.- Kent L. Rev. at 340. This bill restructured California’s monopolized electricity market in four key areas.

1. IOU Restructuring

First, the law restructured the IOUs. IOUs were forbidden to enter long-term contracts with energy generators thus forcing them to purchase electricity in “real-time electricity trades.” Alexandra I. Metzner, Student Author, Were California’s Electricity Price Shocks Nothing More Than a New Form of Stranded Costs?, 52 Am. U. L. Rev. 535, 554 (2002). Additionally, the CPUC encouraged them to sell off their power plants. Barteau, 33 McGeorge L. Rev. at 361. Further, the law allowed IOUs to charge a licensing fee to newly formed ESPs for use of their transmission lines. Metzner, 52 Am. U. L. Rev. at 553.

2. Creation of Electric Service Providers ("ESPs")

Second, ESPs were allowed to sell electricity to retail customers who did not wish to purchase from the utility serving their area. Analysis of Proposition 80. ESPs selling directly to retail customers is known as “direct access.” Id. ESPs were required to register with the CPUC, however, the CPUC did not regulate their rates or service agreements with customers. Id. Currently, most ESP customers are large businesses and some government entities such as the California State University system, University of California campuses, community colleges, and public schools. Id.

3. Transition Period

Third, the law provided for a transitional period during which the IOUs would be able to recover the money they had spent on investing in power plants. Borders, 77 Chi.- Kent L. Rev. at 348. During this transition period, the CPUC allowed IOUs to add an additional surcharge, known as the "competitive transition charge," to its customers’ bills. Id. Thereafter, the CPUC froze the rates the IOUs could charge its customers at this new higher rate. Id. Since it was expected that the cost of purchasing electricity would decrease with the new competitive electricity market in place, the frozen rate also allowed IOUs to profit by allowing them to purchase electricity at lower prices, and yet sell to its customers at the higher frozen rates. Id. Hence, IOUs were expected to profit from the additional money they would be receiving from the competitive transition charge and lower costs of purchasing electricity. Additionally, IOUs were required to reduce their retail rates by 10 percent in 1998. This new rate would be frozen until the IOUs’ losses were recouped or until March 31, 2002, which ever occurred first. Metzner, 52 Am. U. L. Rev. at 554. Afterwards, IOUs would be free to charge the prevailing market rate. Analysis of Proposition 80. San Diego Gas & Electric was the only utility to complete the transition period. Borders, 77 Chi.- Kent L. Rev. at 348.

4. New Regulatory Agencies

Fourth, the law changed the government regulatory structure over California’s electricity market. The Independent System Operator (“ISO”), a nonprofit corporation, was created to control and manage all the transmission lines in California. Id. at 340-341. A five member board of directors oversees the ISO, and each director must be appointed by the Governor and receive Senate confirmation. Cal. Pub. Utils. Code Ann. § 337(a) (LEXIS 2005). The purpose of the ISO is to ensure that all utilities could deliver their energy by preventing misuse of the grid. Barteau, 33 McGeorge L. Rev. at 362.

The Power Exchange (“PX”) was created to “auction competitively generated power.” Institute of Governmental Studies-University of California, Proposition 80: Electric Service Providers Regulation-Energy Regulation and Deregulation in California (last updated June 2005). Like the ISO, it too was a nonprofit corporation. Borders, 77 Chi.- Kent L. Rev. at 341. The PX also had its own five-member board of directors who were each appointed by the Governor and received Senate confirmation. Cal. Pub. Utils. Code Ann. § 338 (LEXIS 2005). Its purpose was to ensure that everyone had equal access to buy and sell wholesale electricity. Borders, 77 Chi.- Kent L. Rev. at 341. All IOUs were required to purchase their electricity through the Power Exchange. Energy Information Administration, Provisions of AB 1890 < http://www.eia.doe.gov/cneaf/electricity/california/assemblybill.html> (last updated June 2003). Publicly Owned Utilities and ESPs could purchase elsewhere. Id. The PX set the price for electricity by examining the bids for generation and demand by market participants in day-ahead and hour-ahead markets. Borders, 77 Chi.- Kent L. Rev. at 341. Afterwards, the PX would “set a market-clearing price at which all the bids for the day were bought and sold.” Id. Further, since the PX involved the selling of wholesale electricity, it was subject to federal regulation under FERC. Barteau, 33 McGeorge L. Rev. at 365. Meanwhile, the retails rates of the IOUs were subject to state regulation under CPUC. Id. at 366.

C. Failure of the Original Deregulation Law

The failure of California’s deregulatory scheme lies in the PX and the ISO to operate co-existing markets for electricity. While the PX set rates for the day-ahead schedule, the ISO operated an additional electricity market where sellers could sell additional power to meet additional buyer needs that were not predicted in the PX’s day-ahead schedule. Borders, 77 Chi.- Kent L. Rev. at 341. IOUs lowered their bids in the PX’s day-ahead schedule, knowing that if they did so, they could get suppliers to lower their prices. California State Auditor, Energy Deregulation: The Benefits of Competition Were Undermined by Structural Flaws in the Market, Unsuccessful Oversight, and Uncontrollable Competitive Forces 18 < http://www.bsa.ca.gov/pdfs/reports/2000-134.1.pdf> (March 2001). IOUs hoped to profit from this scheme because they could get the vast majority of the next day’s electricity supply at cheaper prices even if they had to expend a little more to acquire a tiny amount of under predicted electricity needs in real time in the ISO market. Id. Thus, the ISO sequential market encouraged buyers to lower their bids in the day-ahead schedule, which in turn caused suppliers to reduce supply. Barteau, 33 McGeorge L. Rev. at 363. Since both buyers and sellers were under-predicting the amount of electricity that would be needed for the next day, the difference had to be made up in the ISO market in real time on that day. Borders, 77 Chi.- Kent L. Rev. at 342. Unintentionally, the ISO market wound up being the predominant market where energy was bought and sold. Barteau, 33 McGeorge L. Rev. at 363.

Hot weather, increased demand, and scarce supply (due to the failure to invest in new power plants and allegedly due to suppliers withholding supply) increased the wholesale price of electricity in the ISO market. Metzner, 52 Am. U. L. Rev. at 555. Even as the price of electricity went up, PG&E and Southern California Edison, who had not completed the transition period, were prevented from passing these costs onto their customers due to the frozen rates imposed by the CPUC. Id. Further, the IOUs were required by state law to continue to provide electricity to their customers even if they could not afford the wholesale prices. Id. at 556. Thus, under state law, both PG&E and Southern California Edison were forced to buy electricity at high prices and sell at low prices. Moreover, when these two IOUs tried to file for bankruptcy the CPUC blocked their attempts and forced them to continue providing electricity. Id. at 560.

As the IOUs began to run out of money, suppliers refused to sell to them and blackouts began to occur. Id. at 556. The California Legislature, in response, ordered suppliers to keep selling to the IOUs. Id.

Ultimately, the FERC ordered the PX closed in December 2000 and allowed the IOUs to enter into long-term contracts with energy suppliers. Borders, 77 Chi.- Kent L. Rev. at 350. The state secured several long-term contracts on behalf of the IOUs. Id.

D. Current Deregulation Law

In response to the electricity crisis, the Legislature implemented several changes to the original deregulation law.

First, IOU customers may no longer switch to an ESP provider. Analysis of Proposition 80. This restriction will remain until 2015. Id. However, a city or county may choose to switch electricity providers for their entire jurisdiction, including seeking an ESP. Id.

Second, IOUs are prohibited from selling their power plants. Barteau, 33 McGeorge L. Rev. at 364.

Third, the PX is abolished. Borders, 77 Chi.- Kent L. Rev. at 342.

Fourth, the CPUC has imposed a “Resource Adequacy Requirement” which requires that IOUs and ESPs demonstrate that they can fulfill the demand for electricity from their customers. Analysis of Proposition 80.

Fifth, electricity providers must increase their purchase of electricity from renewable resources (such as solar or wind power) by 1 percent every year until they reach 20 percent by 2017. Id. Current CPUC policy encourages electricity providers to meet this goal by 2010. Id.

Lastly, in 2004, the Legislature passed Assembly Bill 2006, which was designed to greatly expand the powers of the CPUC to regulate the electricity market. Institute of Governmental Studies-University of California, Proposition 80: Electric Service Providers Regulation-Energy Regulation and Deregulation in California (last updated June 2005). However, Governor Schwarzenegger vetoed that bill. Id. Proposition 80 was introduced as a statute initiative based on that failed attempt. Id.

III. The Effects of Proposition 80

Proposition 80 will make eight significant changes to energy regulation policy.

A. Public Policy

First, Proposition 80 will change state public policy by discouraging deregulation and favoring regulation. This is achieved by replacing the Legislature’s findings of fact that justified deregulation with findings of facts that oppose deregulation and encourage regulation. Proposition 80, § 2.

B. Regulation of ESPs

Second, the initiative will broaden the CPUC’s authority to regulate ESPs in the same manner that the CPUC regulates IOUs. Specifically, the CPUC will be able to regulate both ESPs and IOUs in terms of establishing retail rates, energy procurement, resource adequacy, energy efficiency, demand response requirements and determining the renewable portfolio standards. Proposition 80, § 9.

C. Direct Access

Third, while current law bars IOU customers from switching to an ESP until 2015, Proposition 80 would make this prohibition permanent. Proposition 80, § 8. This would likely freeze the customer base of ESPs. Additionally, ESP customers would be able to switch to IOUs under certain conditions such as giving one-year notice and paying a special rate. Id.

D. Procurement Process

Fourth, the CPUC will be required to implement a long-term energy procurement process that establishes a hierarchy for IOUs in procuring new electricity. Proposition 80, § 11. IOUs should first seek energy from “cost effective” energy efficiency and conservation programs, then from cost-effective sources, then from fossil fuels. Analysis of Proposition 80. Further, the CPUC is charged with ensuring that IOUs comply with the procurement process. Id.

E. Resource Adequacy Requirements

Fifth, IOUs and ESPs are required to demonstrate that they have adequate energy reserves and a reliable means to meet peak electricity demand. Id.

F. Renewables Portfolio Standard

Sixth, the initiative moves forward the deadline for IOUs and ESPs to meet their requirement that 20 percent of their energy be secured from renewable energy sources to December 31, 2010, instead of 2017. Proposition 80 § 10(b)(1). Additionally, it removes a provision in the law that states that IOUs and ESPs are not required to increase their consumption of renewable energy once the 20 percent threshold is reached. Analysis of Proposition 80.

G. Implementation of Time-Differentiated Electricity Rates

Seventh, retail rates for electricity consumption could fluctuate according to the demands of the day. Proposition 80, § 11(e). Thus, using electricity during peak hours would be more expensive than at other times of the day. However, “[r]esidential and small commercial customers with electricity use under a specified amount and in a building built before January 2006 could not be required to pay time-differentiated electricity rates without their consent.” Analysis of Proposition 80.

H. Ability to Amend Energy Law

Eighth, the Legislature’s power to change these new provisions would be restricted by requiring any modification to receive a two-thirds vote of the Legislature. Proposition 80, § 12.

IV. Drafting Issues
A. Severability

Proposition 80 contains a severability clause which may be useful if the initiative is challenged in court. Specifically, Proposition 80 states, “[t]he provisions of this act are severable. If any provision of this act or its application is invalid, that invalidity shall not affect other provisions or applications that can be given effect without the invalid provision or application.” Proposition 80, § 13. The intent in providing this provision is to prevent a court from invalidating the entire proposition should any one specific part be invalid under the law. This provision directs courts to strike down only the invalid parts and to give effect to the remaining valid parts.

The courts, however, will apply their own three-part test to determine if particular invalid provisions can be severed from the whole proposition. An invalid provision is only severable where it is grammatically, functionally, and volitionally separable. Gerken v. Fair Political Practices Commn., 6 Cal. 4th 707, 714 (1993) [“Gerken”]. An invalid provision is grammatically severable where, after it has been excised from the act, the remaining parts, when read together, make grammatical sense. People’s Advocate, Inc. v. Super. Ct., 181 Cal. App. 3d 316, 331 (3rd Dist. 1986) [“People’s Advocate”]. An invalid provision is functionally severable where the remaining provisions can stand independently. Id. at 332. The remaining valid provisions must be “unaided by the invalid provisions nor rendered vague by their absence nor inextricably connected to them by policy considerations.” Id. Lastly, an invalid provision is volitionally separable where the Legislature or the voters would have voted for the remaining valid provisions even if they knew that the accompanying invalid provisions would not become law. Id. A court will examine the initiative’s express policy statement or declaration of purpose, along with the measure’s text and ballot materials to ascertain whether the particular valid provision was “sufficiently highlighted to identify it as worthy of independent consideration.” Gerken, 6 Cal. 4th at 718-719.

Most of the provisions in Proposition 80 are linked to expanding the regulatory power of the CPUC. For example, the initiative requires the CPUC to regulate ESPs, establish a long-term procurement process, ensure that energy providers have adequate energy resources, and to encourage the use of new energy technologies such as time-differentiated rates. Proposition 80, §§ 3, 9, 11. If these provisions violate the Constitution by infringing on the Legislature’s plenary power over the CPUC, then these provisions will fall. However, two provisions may be severable because they do not likely involve the CPUC.

First, section 8, which prohibits IOU customers from switching to ESPs, does not require CPUC involvement. This section does not contain any invalid provisions, thus the entire section is grammatically intact. Further, since section 8 does not rely on any other section of the initiative to take effect, it is mechanically severable. Third, the voters might very well adopt this measure standing alone considering that Proposition 80’s declaration of purpose specifically

mentions twice that direct access undermines the ability of utilities to provide electricity because they may have a fluctuating customer base. Proposition 80, §§ 2(a)(5), 2(b)(2). Further, this information is also highlighted in both the Attorney General’s Official Title and Summary and in the analysis prepared by the Legislative Analyst’s Office. Analysis of Proposition 80.

Second, parts of section 10, which require energy suppliers to increase their consumption of renewable energy, may also be severable. Even when the potentially invalid parts of section 10 are excised, section 10(b)(1) is left grammatically intact. It would read, “Beginning on January 1, 2003 each retail seller shall increase its total procurement of eligible renewable energy resources by at least an additional 1 percent of retail sales per year so that 20 percent of its retail sales are procured from eligible renewable energy resources no later than December 31, 2010.” Further, § 10(b)(1) does not rely on any other section of the initiative to take effect, so it too is mechanically severable. Third, voters might very well adopt this measure standing alone considering that this goal was mentioned in Proposition 80’s declaration of purpose. Cal. Prop. 80 § 2(b)(4). Additionally, it was also highlighted in both the Attorney General’s Official Title and Summary and in the analysis prepared by the Legislative Analyst’s Office. California Official Voter Information Guide, Analysis of Proposition 80 (Secretary of the State 2005).

B. Future Changes

The California Constitution provides that initiative statutes can only be amended or repealed by the voters themselves unless the initiative statute authorizes the Legislature to make changes. Cal. Const. art. II, § 10(c). Proposition 80 provides that the Legislature may amend the act only to further the purposes and intent of the act, and only by a two-thirds vote of the Legislature and the governor’s signature. Proposition 80, § 12.

V. Constitutional Issues
A. Federal Constitution

As stated earlier, following FERC Order No. 888, issued in July 1996, states are authorized to restructure their own electricity markets on their own terms. Therefore, there are no federal constitutional issues, or federal issues of preemption.

B. State Constitution

1. Procedural History

On July 22, 2005, the California Court of Appeal, Third Appellate District issued a stay to prevent the Secretary of State from placing Proposition 80 on the November, 2005 special election for which the initiative had qualified because the Court found Proposition 80 was unconstitutional in light of California Constitution article XII, section 5. Energy Producers, 2005 Cal. LEXIS 8236 (July 27, 2005). On July 27, 2005, the California Supreme Court vacated the stay. Id. The Court, citing a previous case, explained in a one paragraph opinion that because it was not clear to that Proposition 80 was obviously unconstitutional, the initiative should be placed back on the November ballot. Id. (citing Brosnahan v. Eu, 31 Cal. 3d 1, 4 (1982)). The Court retained jurisdiction over the case. If Proposition 80 should be approved by the electorate, the Court may choose to not rehear arguments, or if it chooses to rehear the case, may possibly rule that all of the initiative is constitutional, only parts of the initiative are unconstitutional, or that the entire initiative is unconstitutional.

Given the possibility that Proposition 80 may be approved by the voters, and a challenge will then be almost certain, it is worth the time to understand what faults the Court of Appeal found with the initiative that prompted it to declare the proposition unconstitutional.

2. Court of Appeal Decision

The Independent Energy Producers Association ("IEPA"), filed a motion seeking a writ of mandate to keep the Secretary of State from placing Proposition 80 on the November ballot. McPherson, 131 Cal. App. 4th at 302. It listed the proponents of Proposition 80, The Utility Reform Network ("TURN"), and Robert Finkelstein, as the real parties at interest. Id. The IEPA contends that Proposition 80 is invalid because it usurps the plenary power to confer additional authority and jurisdiction on the CPUC. Id. The Court of Appeal agreed. Id.

The Court's analysis hinged on California Constitution article XII, § 5, which provides: "The legislature has plenary power, unlimited by the other provisions of this constitution but consistent with this article, to confer additional authority and jurisdiction upon the commission, to establish the manner and scope of review of the commission action in a court of record, and to enable it to fix just compensation for utility property taken by eminent domain." Cal. Const. art. XII, § 5.

As previously discussed, the CPUC currently has authority only to have ESPs register with the Commission for licensing purposes. Analysis of Proposition 80. By changing the ESP definition, Proposition 80 would extend the CPUC's statutory power over ESPs to include jurisdiction, control, and regulation. Analysis of Proposition 80. It is this expansion of power that the Court of Appeal found most troubling.

The Court focused its analysis on three key words and phrases within article XII, § 5: "Legislature," "plenary power," and "unlimited by the other provisions of this constitution."

The Court looked first at the meaning of "plenary power" within the California Constitution. Following case law, the Court reasoned that when interpreting a constitutional provision the court's primary task it to determine the voter's intent in adopting the provision. McPherson, 131 Cal. App. 4th at 308 (citing Delaney v. Super. Ct., 50 Cal. 3d 785, 789 (1990)). To find the voter's intent, the Court first examined the words of the article as the best source of what the voters wanted as they are the most reliable indicator of intent. McPherson, 131 Cal. App. 4th at 308 (citing Moyer v. Workmen's Comp. Appeals Bd., 10 Cal. 3d 222, 230 (1973) and People v. Lopez, 31 Cal. 4th 1051 (2003)). Following the general rules of statutory construction it found that the words "plenary power" should be given their ordinary meaning. McPherson, 131 Cal. App. 4th at 309. Citing both Webster's Dictionary and the Oxford English Dictionary, the Court assigned "plenary" the definition of "full," "absolute," and "unqualified." Id. It connotes total power. Id. The Court then examined the phrase "unlimited by the other provisions of this constitution" and assigned the definition of "unlimited" as "not bounded by exceptions." Id.

After assigning universal definitions from which to work, the Court next analyzed the ordinary definition of "legislature" to decide if it included the voters through the power of initiative and referendum. TURN argued that "constitutional references to the 'Legislature' include the People acting by initiative." Id. While recognizing that the voters do have legislative power, the Court found that under California case law, this power was not the same as being recognized as a 'Legislature.' Id. at 310. Since Article XII, § 5 specifically and unambiguously uses the term "legislature," the Court found that voter intent was to limit the authority over the CPUC to the legislature. Id. at 312. Therefore, following the plain meaning definitions, the Court found that the legislature, not including the people's power of initiative, has unlimited, total power, without exception to the other provisions of the Constitution, including the provisions granting the initiative and referendum power, to confer additional power and jurisdiction to the CPUC. In other words, the legislature alone has the power over the CPUC, and no one else. The Court held that the provisions of Proposition 80 that would enhance and expand the power of the CPUC to regulate ESPs and set CPUC policy were invalid as this change of authority could only be granted by the California Legislature. Id. at 313.

The proponents of Proposition 80 argued in the alternative that restricting power over the CPUC to the legislature alone is an absurd result in light of the long history behind the use of the initiative power in California, and given that Article XII, § 5 was enacted at the same time the initiative power was added to the California Constitution. Id. Proponents argue it is an illogical conclusion to find that the same voters who voted to create the initiative power would then limit that same power from being exercised over the CPUC. The Court, however, did not agree. "TURN's contention taken to its logical conclusion, is that the Constitution can never limit the initiative power. Not so. A constitution that creates the initiative power obviously can impose limitations on that power. Article XII, section 5 plainly and ambiguously does so." Id. at 311. Furthermore, since the Court found that the words of article XII, section 5 were unambiguous, following case law and rules of statutory construction, it refused to look at extrinsic evidence, such as legislative and constitutional history, for the purpose of ascertaining the intent of the voters in enacting the provision. Id. at 313 (citing People v. Robles, 23 Cal. 4th 1106, 1111 (2000)). Even if the Court had looked to extrinsic evidence, the Court also seemed less than receptive to TURN's argument. "[W]e cannot say it is an absurd result that follows from giving literal meaning to the plain, unambiguous language of article XII, section 5, even in light of the nature of California politics at the time the provision was adopted." Id. at 314.

Section 9 of Proposition 80 contains a standard severability clause, allowing the Court of Appeal to analyze whether any of the provisions of the initiative could be cut away and be found constitutional. The Court held the severability clause did not save any portions of the initiative that may have been valid. Id. In pre-election review, severability of invalid portions from valid portions of the initiative would only serve as a deception to voters, and severability clauses in this context do not save the entire provision. Id. at 315 (citing City and County of S. F. v. Patterson, 202 Cal. App. 3d 95, 105-106 (1998)); Citizens for Responsible Behavior v. Super. Ct, 1 Cal. App. 4th 1013, 1035 (1991). Since no provision of the measure could be saved, the Court of Appeal found the entire initiative to be unconstitutional and void.

Should the California voters approve Proposition 80, the Court of Appeal’s analysis may be altered in three main ways.

First, once an initiative has been adopted by the people, the Court is loathe to disrupt the will of the voters and tends to interpret questionable provisions in the light most favorable to the initiative power. Gerken, 6 Cal. 4th at 720-721 (1993) (Baxter, J. concurring) (citing Raven v. Deukmejian, 52 Cal. 3d 336, 341 (1990)). "Accordingly, the initiative power must be liberally construed to promote the democratic process. Indeed, it is our solemn duty to jealously guard the precious initiative power, and to resolve any reasonable doubts in favor of its exercise." Id.

Second, should it be necessary or possible, the Court has the power to rewrite sections of the initiative to bring it in line with constitutional standards and preserve the intent of the voters. Ca. Prolife Council Pol. Action Comm. v. Scully, 989 F. Supp. 1282, 1300 (E.D. Cal. 1998) (citing Kopp v. FPPC, 11 Cal. 4th 607, 660-661 (1995) ["Kopp"]). An approved proposition may be reformed by the court if it meets a two part test: (1) "it is possible to reform the statute in a manner that closely effectuates policy judgment clearly articulated by the enacting body"; (2) "the enacting body would have preferred the reformed construction to invalidation of the statute." Id. Courts will reform statutes and initiatives, whether enacted by the Legislature or the electorate, when invalidation would be more destructive to the electorate's will. Kopp, 11 Cal. 4th at 661. This is especially important as applied to initiative statutes where they cannot be as easily amended by the electorate, or the legislature, given the very nature of initiative statutes and the inherent difficulty in amending them. Cal. Const. art. II, § 10(c).

When reforming an initiative statute, the Court looks to disturb as little of the phrasing of the enacted statute as possible while still maintaining the electorate's policy choices. Kopp, 11 Cal. 4th at 661. Proposition 80 faces significant difficulty in being reformed, if necessary, as the portions the Court of Appeal found unconstitutional, and the Supreme Court would therefore have to reform, conferring additional power to the CPUC, is the central policy enacted by Proposition 80. The Court will be hard pressed to find a way of reforming the initiative to confer this additional power to the CPUC if it rules that the original provision conferring this power is unconstitutional. If the electorate, through the initiative, cannot confer this power because it infringes on the constitutional power of the legislature, it follows that the judiciary, through its powers of reformation, and in light of the doctrine of separation of powers, should not be able to confer this extra power outside of the legislature either.

Third, the test for severability will be different in post-election review. As discussed earlier, the Court will use the three-part severability test laid out in People's Advocate, analyzing to see if the provisions are grammatically, functionally, and volitionally severable. People’s Advocate, 181 Cal. App. 3d at 331. In other words, the Court will examine each provision of Proposition 80 to determine if any of the separate provisions can stand independently in both form (grammatical) and application (functional) from the other provisions of the proposition. Further, the Court will ask if the electorate would have voted the remaining independent provisions into law had they known that the other provisions would not be enacted as well. Id. at 332.

Each of these factors contains a strong standard and difficult analysis. The Supreme Court will give it great thought before making any determinations. However, with these options open to the Court, and given the contentious nature of the pre-election challenge and issues raised, it is likely that the Court, should Proposition 80 be enacted by the voters, will at least grant a review of the case to resolve the constitutional issues.

VI. Public Policy Considerations

A. Proponents

Proclaiming deregulation of the electricity market a "failed experiment," the proponents of Proposition 80 seek to re-regulate the California electricity market. California Official Voter Information Guide, Argument in Favor of Proposition 80. Blaming energy trading companies such as Enron, the move to re-regulate the market comes in response to the apparent price gauging and market manipulation that occurred during the summer of 2000-2001. Argument in Favor of Proposition 80. High temperatures and skyrocketing energy prices drove electricity rates to peak prices of $1400/MWH (megawatt-hour). William A. Borders, Learning from the Storm: Lessons for Illinois Following California's Experience with Electricity Restructuring, 77 Chi.-Kent. L. Rev. 333, 344 (2001). The high prices and unstable market led to supply related rolling blackouts across the state, as utilities could not adequately, or affordably, purchase enough electricity on a daily basis to satisfy the fluctuating need. Inevitably, utilities either purchased too much energy, or as happened more often, too little, as they tried to gauge demand from consumers. As electricity is a unique commodity that needs to be used as generated or lost to waste, it left energy purchasers with no choice but to buy at the higher daily energy prices instead of long term. Id. at 335-336.

Proponents of Proposition 80 believe that it will protect California consumers in several ways from future price gauging and help stabilize the market and spur the implementation of more "green" energy sources. First, Proposition 80 will repeal deregulation of the electricity market, and through a change in the statutory definition of "electric service provider," expand the CPUC's power over energy producers. Analysis of Proposition 80. Currently ESPs only have to register with the CPUC for licensing purposes. Proposition 80 would amend the CPUC code to read: "[E]lectricity service provider is subject to the jurisdiction, control, and regulation of the commission. …" Proposition 80, § 3. Regulation of the market will mean that large commercial customers will not be able to change between utility/non-utility providers, ensuring that utilities will be certain how much energy they need to purchase, and can do so far in advance to get the lowest prices. The Utility Reform Network, Backgrounder: Electric Re-Regulation and Blackout Prevention Initiative, (accessed Sept. 13, 2005).

Second, once the market has been re-stabilized, electricity rates will eventually be lower. With a reliable client base, ESPs and utilities will be able to better plan for electricity need and use. This will also reduce the amount of "stranded," or unrecoverable costs to the ESPs and utilities. Lower stranded costs and more efficient planning means utilities will not need to charge consumers as much for service and procurement of electricity. Id. During the energy crisis many producers pulled out of the unstable California market. Borders, 77 Chi.-Kent. L. Rev. at 350. Proposition 80 requires "best value" power plants which proponents hope will encourage producers to come back to California and compete to build these plants, thus reducing the initial stranded costs usually associated with new power plants. The Utility Reform Network, Backgrounder: Electric Re-Regulation and Blackout Prevention Initiative, (accessed Sept. 13, 2005). Prices will also drop, proponents contend, because the initiative requires the priority use of conserved energy and increases the use of renewable resources, creating less dependence on natural gas which has its own fluctuation prices. Id.

Third, Proposition 80 protects Californians because it prevents small ratepayers from being forced to pay time-of-use rates for electricity. Argument in Favor of Proposition 80. Proponents feel these time-of-use rates and "smart" metering systems, which would charge consumers more for daytime electricity use than at night, have not yet shown a proven value and would disproportionately hurt elderly consumers. Telephone interview with Mindy Spatt, media director, The Utility Reform Network, Sept. 7, 2005 (notes on file with the McGeorge School of Law, University of the Pacific, Capital Center for Government Law and Policy). With most consumers out of their homes during the daylight hours because of employment, leaving their homes dormant, it would be the elderly consumers who need air conditioning and electricity that will be charged the higher daytime rate. Telephone interview with Spatt. Proposition 80 would prevent these rates and ensure all consumers are treated equally.

Fourth, Proposition 80 should be enacted by the voters because it will enhance the protection of California's environment by accelerating the 20 percent renewable energy goal from 2017 to 2010, and require utilities prioritize conservation energy and energy from renewable sources as main sources of electricity. The Utility Reform Network, Backgrounder: Electric Re-Regulation and Blackout Prevention Initiative, (accessed Sept. 13, 2005). This will protect the environment by cutting seven years of possible pollution, as well as decrease the amount of unnecessarily generated electricity from power plants.

Finally, Proposition 80 requires that should the legislature seek to change any of the enacted provisions, it must do so by a supermajority vote instead of the current requirement of a simple majority. Analysis of Proposition 80. Citing big business lobbying efforts as the original push for deregulation of the electricity market, proponents urge that this higher voting requirement keeps legislators distanced from changing electricity policy and therefore distanced from big business special interests. Telephone interview with Spatt. Since normal citizens don't have this type of access or influence, they reason, it should be harder for big business to effect change through the legislature. Id. Of course, because Proposition 80 is an initiative statute, absent this two-thirds vote requirement provision in the initiative, the legislature would not be able to amend its terms at all without a return to the people for their approval. Cal. Const. art. II, § 10(c). Thus, Proposition 80 both provides flexibility for the Legislature while ensuring that big business does not exert undue influence on the legislative process.

Proponents of Proposition 80 encourage voters to enact the initiative because re-regulation will lead to reliable energy needs, reliable energy prices, greater protection of the environment, and stimulated energy development markets.

B. Opponents

"Poorly drafted" and "flawed" are just two of the ways that opponents describe Proposition 80. California court axes re-regulation initiative, 10 Megawatt Daily 5, 5 (July 26, 2005). Believing the initiative to be unduly restrictive and resting too much power in the initiative process, opponents strongly urge voters to defeat Proposition 80 for several reasons.

First, it sharply restricts consumer's choice regarding from whom they purchase electricity. California Official Voter Information Guide, Argument Against Proposition 80. Deregulation allowed consumers to choose whether or not to purchase their electricity from IOUs or to enter into direct access contracts with ESPs. If the electricity market were re-regulated again under Proposition 80, consumers would have to purchase their electricity from an IOU alone unless they were already in a direct access contract, which most consumers are not. Analysis of Proposition 80. While most consumers would not be affected by this, large consumers such as hospitals, schools, and colleges would not have the freedom to shop for the cheapest rate, and therefore would be forced to pay a higher premium for electricity. This extra cost would be passed onto students, taxpayers, and patients. Argument Against Proposition 80. There would be no real energy rate savings because the cost would get shifted to other consumers in the chain.

Second, California energy policy should not be created through the initiative process. Argument Against Proposition 80. Within the initiative system, "proponents have absolute control of the framing and drafting of the measure… measures are fixed and unamendable at an early stage of the process. Initiative proponents are accountable to no one, and routinely exclude the measure's opponents and other interested parties from their decisions on how to draft the measure's language. There are no open meeting laws, public notice requirements, hearings to solicit public input, or other guarantees to give the press and public access to the drafting and editing stage of the initiative policy-making process." Kenneth P. Miller, Constraining Populism: The Real Challenge of Initiative Reform, 41 Santa Clara L. Rev. 1037, 1051-1052 (2001). California energy policy is complex. Opponents argue that by setting this policy through the initiative it will be even more difficult to make any future changes, as initiative statutes by their nature are inherently resistant to alteration. Telephone Interview with Dan Pellesier, No on Proposition 80, Sept. 22, 2005 (Notes on file with the McGeorge School of Law, University of the Pacific, Capital Center for Government Law and Policy). Further, opponents of Proposition 80 feel that given the nature of politics, California's energy policy will become "collateral damage" during the November 2005 special election. Telephone interview with Pellesier.

Third, following naturally from the last argument, Proposition 80 should be defeated because it would require a two-thirds voting requirement to amend or alter any of its provisions. Proposition 80, § 12. Currently all that is required is a simple majority to enact legislation regarding electricity regulation. Should it become necessary or beneficial to revise the energy policies put in place if Proposition 80 is enacted, including increasing or decreasing the use of "green" energy sources, a supermajority vote would make it much more difficult to implement change. This is especially true in California as no one party has enough members in the legislature to constitute a two-thirds majority on its own, requiring a bipartisan effort to create the supermajority. California State Assembly, Member Directory.

Fourth, opponents fear that the stronger voting requirements and loss of consumer choice will actually harm the environment. Argument Against Proposition 80. Opponents feel that Proposition 80 actually discourages the construction of privately owned power plants and skews the energy market in favor of larger, investor owned utilities. Mark Lifsher, Court Kicks Initiative Off Election Ballot, L.A. Times, C2 (July 23, 2005). Investors will be wary of building new power plants as Proposition 80 creates a new "best value" standard that has not been fully defined. Telephone interview with Pellesier. Without knowing the rules of the game, investors will not want to participate in the electricity market. Telephone interview with Pellesier. This not only prevents consumers from purchasing electricity from independent providers who use 100 percent "green" technology, but also will create more blackouts in California because the uncertainty in the market requirements will delay construction on the much needed new power plants. Telephone interview with Pellesier.

Opponents also reason that preventing time-of-use rates and "smart" metering systems will also negatively impact conservation efforts. Memo. from Jonathan A. Bromson, Public Utilities Counsel III, to Public Utilities Commission, State of California, Proposition 80, "Electric Service Providers. Regulation. Initiative Statute. 2-3. By making consumers pay more for electricity during the day, it will encourage simple conservation when they are not at home. "[T]he greatest savings come from allowing individuals to balance their energy needs with the market." Borders, 77 Chi.-Kent. L. Rev. at 355. Without the sting of higher prices, there will be no impetus to conserve and large amounts of electricity will be wasted daily. This type of conservation is cheaper and more efficient then building new power plants and will help to reduce the serious strain on the electricity grid. Telephone interview with Pellesier. Opponents further contend that Proposition 80's ban on time-of-use rates and "smart" meters is not for the protection of elderly or low-income Californians who cannot afford higher electricity rates, but really is for the protection of union electricity meter reader jobs. Telephone interview with Pellesier. The "smart" meters have remote reading capacity, thereby eliminating the need for manual reading of the electricity meters. Telephone interview with Pellesier. By creating a time cut off for the implementation of the "smart" meters (banning their use on residential dwellings built before 2006), instead of out right exempting elderly and low-income customers, opponents argue that Proposition 80 actually creates a disincentive for utilities to ever use "smart" meters on new developments, despite the energy conservation possibilities, because utilities would still need meter readers for all housing units built before 2006. Telephone interview with Pellesier.

Finally, opponents argue that Proposition 80 should not be approved by voters because it is repetitive and unnecessary. Memo. from Jonathan A. Bromson, Public Utilities Counsel III, to Public Utilities Commission, State of California, Proposition 80, "Electric Service Providers. Regulation. Initiative Statute. 2-3 (Sept. 6, 2005). In a memo created for the CPUC, it is recommended that the CPUC oppose Proposition 80 because it merely codifies many current CPUC policies. Id. Key provisions of Proposition 80 such as integrated resource planning are already current CPUC policy. The Utility Reform Network, Backgrounder: Electric Re-Regulation and Blackout Prevention Initiative, (accessed Sept. 13, 2005). To duplicate these provisions over again as statutes would be unduly burdensome and needless as utilities and ESPs are already following these guidelines as part of the requirements of licensing and regulation. Also, as discussed previously, codification through the initiative process poses a unique problem, however, in that it makes it much more difficult for the CPUC to change any policies that have been set by Proposition 80, even if they are needed.

Opponents argue against Proposition 80 because they believe it robs consumers of needed choice, will not reduce electricity rates, will harm the environment, is repetitive, and makes it too difficult for the legislature or CPUC to make any needed changes to electricity policy because it has been created through the initiative process.

VII. Conclusion

On November 8, 2005, the California voters will determine whether to enact Proposition 80, an initiative statute seeking to expand the state’s regulatory power over electricity supply and consumption. If approved by the voters, Proposition 80 would make several changes to current law. First, the initiative would expand the regulatory power of the CPUC. This would allow the CPUC to regulate the ESPs in the same way as IOUs. It would also allow the CPUC to establish energy procurement targets and require IOUs and ESPs to demonstrate their ability to handle consumer demand. Second, Proposition 80 would make permanent the temporary ban on direct competition for customers between IOUs and ESPs by barring IOU customers from switching to ESPs. Third, the initiative would accelerate to 2010 the deadline for requiring ESPs and IOUs to acquire 20 percent of their energy supplies from renewable resources. Fourth, Proposition 80 would allow for time-differentiated electricity rates, except that most residential and small businesses would be excluded from these rates.

Proponents argue that California has suffered too long under deregulation and that only by re-regulating the market through Proposition 80 and creating a stable consumer base can electricity rates go down. Opponents urge that Proposition 80 will not lower electricity rates and that the initiative makes it much more difficult to effect any changes to California energy policy. If Proposition 80 is enacted it is expected to be challenged on constitutional grounds once again, leaving the fate of the initiative, and re-regulation, in the hands of the California Supreme Court.