As part of his larger 2004-05 fiscal year budget, California Gov. Arnold Schwarzenegger Friday proposed a significant downsizing of the state government bureaucracy overseeing the energy industry and further renegotiation of the state’s long-term power contracts with suppliers.

Under the current plans, the California Consumer Power and Conservation Financing Authority (“power authority”) will be phased out by September, according to the new governor’s Resources Secretary Mike Crisman. The power authority was created in the aftermath of the state energy crisis by the past administration and was expected to be “self-funding,” but has never been able to generate any revenue, Crisman said.

Without offering any specifics, Crisman reiterated that Schwarzenegger plans to reorganize and streamline the patchwork of 13 state agencies dealing with energy, but other than the power authority he has not come to any conclusions on how to do it yet. Included in those plans could be elimination of the electricity oversight board, a remnant of the state’s original electricity restructuring under its 1996 law (AB 1890).

“Hopefully, the governor will take the first steps to streamline a more reliable energy market,” said a state government staffer. The governor holds a well-known dislike for the wholesale power contracts negotiated by the Department of Water Resources (DWR), but the majority of those deals were renegotiated in the past two years by former Gov. Gray Davis’s administration.

In reforming and reorganizing, Schwarzenegger is expected to be a champion of power plant construction and renewable energy to greatly boost the state’s electricity reserves. Crisman in a press briefing late Friday cited the need for aggressive power plant development as one of the cornerstones of the new governor’s evolving energy policy.

As the Resource Secretary, Crisman oversees DWR, and he and the governor view the added power reserve margins as an important protection against a recurrence of the market manipulation that allegedly took place in 2000-2001, during Davis’ watch.

A Resources agency spokesperson said the new governor has encouraged the California Public Utilities Commission and the California Independent System Operator to work more closely to boost future power reserves and to also work with the Federal Energy Regulatory Commission and with wholesale market participants to “reform the flaws in the market.”

On the issue of long-term contracts, Schwarzenegger’s people are going to go after “unfairly priced contracts,” the spokesperson said. “There may be another level of reform that can be sought. Many of the contracts have been re-done, but they haven’t been renegotiated with this governor.”

The largest and most hotly debated of the remaining contracts that haven’t been reworked is a $6 billion, 10-year deal with San Diego-based Sempra Energy providing up to 1,900 MW. Sempra’s CEO Steve Baum has repeatedly said that he will prevail in court if necessary to preserve the contract, although he has confirmed that talks periodically have continued with the state Department of Water Resources (DWR).

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