UNIVERSITY OF CALIFORNIA SANTA CRUZ THE EVOLUTION OF THE REGULATORY STATE: ENERGY POLICY AND REGULATORY REFORM IN CALIFORNIA A dissertation submitted in partial satisfaction of the requirements for the degree of DOCTOR OF PHILOSOPHY in SOCIOLOGY Leslie Guliasi December 2018 This dissertation of Leslie Guliasi is approved: _____________________________ Professor G. William Domhoff ____________________________ Professor Paul M. Lubeck _____________________________ Professor Andrew Szasz ____________________________ Lori Kletzer Vice Provost and Dean of Graduate Studies Copyright © by Leslie Guliasi 2018 TABLE OF CONTENTS ABSTRACT - THE EVOLUTION OF THE REGULATORY STATE: ENERGY POLICY AND REGULATORY REFORM IN CALIFORNIA ................................. xi DEDICATION ........................................................................................................... xiii ACKNOWLEDGEMENTS ....................................................................................... xiv CHAPTER ONE - ENERGY POLICY AND THE POLITICS OF INSTITUTIONAL REFORM ...................................................................................................................... 1 Introduction ................................................................................................................... 1 The Role of Crisis and Institutional Dynamics ............................................................. 6 The Regulation of Industry by Agencies & Commissions ......................................... 12 The Theory of Structural Interests .............................................................................. 19 The Methodology of Institutional Analysis and Applied Sociological Research ....... 21 Organization of the Text ............................................................................................. 28 CHAPTER TWO - THE ANATOMY OF ENERGY DELIVERY AND REGULATION IN THE UNITED STATES ............................................................. 32 Republicanism and the Foundation of Regulation ...................................................... 32 The Present-Day Electric Power System in the United States .................................... 35 Generation ............................................................................................................. 35 Transmission ......................................................................................................... 39 iii Distribution ........................................................................................................... 39 System Interconnections ....................................................................................... 40 The Anatomy of Energy Delivery in the United Sates ............................................... 42 The Investor-owned Utility (IOU) ........................................................................ 43 The Publicly Owned Utility (POU) ...................................................................... 46 Electric Cooperatives ............................................................................................ 48 Federal Power Agencies (FPA) and Power Marketing Administrations (PMA) .. 49 Retail Choice and Direct Access (DA) ................................................................. 51 Community Choice Aggregation (CCA) .............................................................. 52 The Theory of Public Utility Regulation .................................................................... 53 The Organizational Framework of Energy Regulation ............................................... 58 Energy Regulation at the Federal Level................................................................ 59 Energy Regulation in California ........................................................................... 62 CHAPTER THREE - LANDMARKS OF LEGISLATION ...................................... 69 Holding Companies and The Early Years of Regulation............................................ 69 The National Energy Crisis and Modern Regulation .................................................. 79 The Public Utility Regulatory Policies Act of 1978 (PURPA)................................... 81 The Energy Policy Acts of 1992 and 2005 ................................................................. 87 Closing ........................................................................................................................ 90 iv CHAPTER FOUR - RESTRUCTURING CALIFORNIA'S ELECTRICITY INDUSTRY: IDEOLOGICAL AND INTEREST GROUP POLITICS .................... 92 Structural Interests and the Politics of Reform ........................................................... 92 The Yellow Book ........................................................................................................ 98 The Regulatory Compact Revisited ............................................................................ 99 Bureaucratic and Market Reform Strategies ............................................................. 100 Strategies for Regulatory Reform ............................................................................. 104 Economic and Ideological Motivations .................................................................... 109 Rates and the Consumer Revolt ................................................................................ 113 The Blue Book .......................................................................................................... 117 Structural Interests and Coalition Formation I - "Battle Lines Being Drawn" ........ 122 Ideology and the Regulator ....................................................................................... 129 The Failure of Regulatory Reform - Maintaining the Status Quo ............................ 133 Incentive-Based Ratemaking for PG&E's Diablo Canyon Nuclear Power Plant 138 Performance-Based Ratemaking: A Second Bite at the Apple .......................... 143 The Ideology of "Professionalism" and the Limits of Regulatory Reform .............. 144 Alternative Policy Proposals for Market Reform ..................................................... 150 Structural Interests and Coalition Formation II - Realignment of Interests .............. 152 The Preferred Policy Decision .................................................................................. 156 v Closing ...................................................................................................................... 158 CHAPTER FIVE - MARKET AND REGULATORY REFORM: DESIGN, IMPLEMENTATION, COLLAPSE......................................................................... 159 The Roadmap for Implementation ............................................................................ 159 Economics or Ideology ............................................................................................. 161 Structural Interests and Coalition Formation III - Designing the New Market Institutions................................................................................................................. 166 The Legislative Phase - The "Peace Death March" and Assembly Bill 1890 .......... 170 The Restructured Market & New Institutions - Provisions of Assembly Bill 1890 . 172 The New Market Structure.................................................................................. 173 Financing the Transition ..................................................................................... 175 Rate Freeze & Rate Reduction ............................................................................ 177 Funding Public Interest Programs ....................................................................... 178 Implementation: Back to the CPUC ........................................................................ 180 The Perfect Storm: The Restructured Market and Market Failure .......................... 182 The Aftermath of the Crisis ...................................................................................... 189 CHAPTER SIX - CHARTING A PATH FORWARD: THE ENERGY ACTION PLAN AND COMBATING GLOBAL CLIMATE CHANGE............................... 191 Restoring Order & Stability - New Institutional Arrangements ............................... 193 vi The Energy Action Plan ............................................................................................ 194 The Threat of Reorganization ................................................................................... 202 An Energy Czar? ....................................................................................................... 205 Charting A Path Forward .......................................................................................... 217 Promoting Energy Efficiency ............................................................................. 218 "Decoupling" Revenues and Profits .................................................................... 219 Gaining Efficiency Through Command and Control.......................................... 223 Advancing Renewable Energy Development - Goal Setting and The Renewable Portfolio Standard ............................................................................................... 226 The Energy Action Plan II ........................................................................................ 236 Addressing Global Climate Change - Aiming Ahead ............................................... 238 The Interventionist Regulator & The Problem of Agency........................................ 242 Back to the Future