California Resources Sec. Mary Nichols Freely Addresses Energy, Water, and State Infrastructure Policy

Mary, let's start with the energy crisis that's currently dominating California's public policy arena. What's the nexus between this crisis and the Department of Natural Resources' responsibilities? Given the dominance of this issue on the Capitol landscape, what advice and counsel have you given the Governor in shaping the policies that affect your Department?

The Resources Agency is directly involved in the energy crisis in several different ways.

First of all, I chair the team that's working to prevent the natural gas situation from becoming as stark as the electricity crisis, where we have simultaneous problems with both price and supply. Right now, we have opportunities to 1) expand our currently undersized intra-state pipeline distribution, 2) help our domestic gas suppliers increase production, and 3) keep costs within reasonable bounds. And that effort is actually going fairly well. We've been able to bring a lot of the right agencies to bear on the situation, and we're working with the private sector as well.

In general, the Resources Agency is in the middle of both the conservation and development side of the energy crisis. Right now, Tom Hannigan, the Director of Water Resources, is the head of the largest publicly owned utility in the country. DWR has always been a major purchaser and generator of electricity-even in good times-but now that they're buying the "net short" for all the investor owned utilities, they're buying electricity from all over the country. While they've been doing a remarkable job, it has been a big strain on the Department and is certainly not something they want to continue for the long-term.

Touch on some of the other implications, as this is not a crisis of the week or of the month, but a crisis of a couple years at best. How does it ripple through the priorities for the State's natural resources that you and the Governor oversee?

When Gray Davis ran for Governor, he talked about infrastructure as the looming crisis facing the State, and shortly after he was appointed, he created the Commission on Building for the 21st Century. The problem is, we were a little late in getting started.

The reality is that we have a severe infrastructure crisis in California. Even if we start now, we can't build our way out of it in the next year or two. Whether it's schools, water, energy-we don't have enough for the current population, much less what we're expecting. If we're not very adroit and creative in the next several years, there will be overwhelming impacts on our future and our economy.

Given the Governor's Commission for the 21st Century, the Treasurer's critical infrastructure effort, and various efforts in the Legislature, what recommendations do you see coming forward in this legislative session that will deal constructively with infrastructure? And given the budgetary implications of the energy fiasco, will there be any State resources left to address the recommendations that will be put forward from the above efforts?

California is blessed with a strong economy and a sound financial situation. I don't think the bankruptcy of PG&E will negatively affect that. In fact, in some ways, it will relieve strain on the system by presenting a clear path forward.

But we do need to eliminate some of the obstacles that prevent the private sector from investing in infrastructure projects. As a result of our efforts to expedite the siting of new energy facilities, we've found that the State itself is bound up in the same process requirements that people have been complaining about for years. We're realizing that some of these requirements really are putting up unnecessary roadblocks that don't achieve the environmental or other results that they were designed to achieve.

At some point, we're going to have to get serious about how to incorporate an appropriate amount of public involvement and process without completely tying our hands.

Your statement here, coming from a progressive environmentalist like yourself, is quite significant. Similar concerns of practicality arose with the siting of new schools, and now you're saying that public agencies in the energy business are facing the same exigencies and procedural hurdles. What do you see resulting in the way of new law or regulations that strikes a better balance between environmental concerns for our citizens and the need to build the infrastructure that is now perceived as vital?

Anyone who's ever been involved in infrastructure knows that if you have a strong planning process that adequately addresses your needs, you can shortcut much of the process on individual projects. By fitting things into the bigger picture, you can better mitigate the adverse effects of new construction and provide for the environmental needs of the public as well. It means simultaneously looking at securing open space, building roads, siting power plants, etc.

Unfortunately, it's been years since we've put any real money or intentions into the planning process. For example, my old friends at Environment Now are currently trying to generate greater public involvement in the long overdue L.A. County General Plan update, and a major lament is that the County has virtually no staff to work on it. It was only a couple years ago that planning schools were shutting down and people were leaving the profession in droves. Now, the chief planner for the federal Bureau of Land Management is thinking of creating an academic training program because they can't find planners to do the work that's both legally and politically required for federally owned land.

President Bush has been making headlines the last few weeks reversing legislation and regulations that the Clinton Administration put forward in its waning days. He's announced that his administration will not regulate carbon dioxide emissions, will not support the Kyoto agreement, will not enact the tough new rules for arsenic in drinking water (although that may be reversed), and wants to open up Alaska's ANWR to oil drilling. Give us your perspective on the President's pronouncements as they affect your work here in California.

The Bush Administration has made some very bad first steps in attempting to signal that they are shifting direction from the Clinton Administration. They put a number of regulations on the chopping block that had been many years in the making and reflected some difficult choices-without any advance notice to the public.

It's awfully hard to understand how it's a politically smart idea to be in favor of more arsenic in people's drinking water. I understand that there are issues about the cost effectiveness of the regulation and whether it's even achievable, particularly in some parts of the country that have high amounts of arsenic in their natural supply. But simply to announce that you're reversing the decision without a strong case behind how you're going to protect the public health certainly doesn't look like a smart political move. And justly, the administration is receiving a lot of heat for it.

The activities on Kyoto are different—you'd be hard pressed to find two out of ten people on the street that even know what the Kyoto Treaty is, and being against it is hardly a major liability. On the other hand, coming into this year will be a series of international meetings to develop protocols for implementing this Treaty, which the Clinton Administration of course never even tried to submit to the Senate for ratification. The public may not be in favor of signing international treaties on limiting greenhouse gases, but they've definitely gotten the message that global warming is a real problem and the United States is the world's largest contributor of greenhouse gases. By forfeiting a leadership position and actually thumbing our noses at the rest of the world, the United States is just playing into the hands of the people who blocked the streets in Seattle during the World Trade Organization meetings a year ago. There is a serious danger of disaffection-not just from anarchists and extremists, but from all the young people of this country-if we don't start talking about what the U.S. is willing to do that not only serves our own economic needs, but acknowledges our role in making life on this entire planet either more or less comfortable.

Just to drive the nail into this, Mary, as California's Secretary of Resources—quite a substantial responsibility—you're not being invited to White House dinners about relations between the Bush Administration policies and the State of California, are you? What does it mean not to have much communication re: the policies and priorities of California with leaders in the federal government?

We're watching from the sidelines as the Bush Administration takes some of these first steps that seem to be in the wrong direction. But California has a history of developing its own energy and environmental policies, which have frequently led the rest of the country. And I think we'll be doing that with greenhouse gas emissions as well.

We're proud that California is already the second most energy efficient state in the country per capita-and that's not just electricity; it's energy as a whole. We've been careful and progressive, but we certainly have more work to do.

In the meantime, we're forging ahead with a program to implement Senator Sher's bill that the Governor signed last year, which will create a greenhouse gas registry for California. It's a voluntary program at this stage intended to provide a template for how to do it at the national level. So far, we're getting a lot of interest-not only from companies like BP that are ahead of the pack in curbing CO2 emissions from international operations, but also from the forestry and agriculture industries.

The State Air Resources Board recently voted to reduce by nearly 80% the zero emission vehicles (ZEVs) that auto-makers must now offer within two years, marking the third time in a decade the Board has scaled back its plan to require the big six auto-makers to move away from gasoline powered engines, the biggest contributor to smog. You've worked on this issue for more than two decades; what's the significance of that ruling?

The Air Resources Board is justly proud of the ZEV mandate's impact on the auto industry over the years, and can declare victory in having pushed them towards such a major shift away from the internal combustion engine. However, the cars that initially looked like the winners-the battery-powered electrics-have turned out to have some insurmountable problems of cost and technology. I'm convinced that even with best efforts, the purely electric vehicles are just too costly and represent too many compromises for all but a very small number to buy them. Battery-powered commercial vehicles can be used for delivery vehicles, for example, or for industrial uses on big lots, but in general they serve a niche market.

However, much of the design and invention-better materials, better components-is now being redirected into the hybrid electric vehicles. Although they're not 100% ZEVs, they're extremely low emission and very efficient. And unlike their zero emission counterparts, they're flying off the lots.

The program may have evolved away from the pure ZEV, but it will succeed. I think the Board was wise to recognize the reality that you can lead the market, but you can't drag it in a direction that it just won't go.

Let's turn to some successes. When we last interviewed you for the Metro Investment Report in February of last year, we talked a lot about State Propositions 12 and 13, the parks and water bonds, both of which passed. It's a year later. Give us an update on the impact of those bonds, and the successes and obstacles in terms of achieving their full potential.

In one year, we've handed out all the money designated in the bonds for specific projects. With the Legislature's help, we've already spent close to a quarter of all of the money approved by voters, which is a phenomenal rate of payout for a bond. State bond money is normally doled out over a period of more than a decade, and these bonds will be mostly spent in less than five years. What that reflects, of course, is the pent up demand after so many years of n o capital funds.

The best thing about these bonds is that we'll soon be in a position to show people in every corner of the State results. There are projects underway that will be complete in the next year or two. Not only will land be added to the State Parks system creating new habitat, but there will also be new swing sets and tennis courts and soccer fields all over the place-amenities that really give people a sense that "their State tax dollars are at work." That's good not only for politicians, but for people's sense that they can accomplish things through government.

Let's turn to water, beginning with the Cal-Fed process. In the October issue of MIR, Bill Craven, then with the State Assembly and now with the Senate Natural Resources Committee, said, "There hasn't been nearly enough emphasis on the potential benefits that can come from conservation. But it's not just the agriculture industry that can improve conservation; it can happen at the municipal level as well." As Resources Secretary, what's your reaction to Bill's comments, and what's the status of the Cal-Fed process?

There is certainly room for more conservation. Unfortunately, it doesn't get much attention because the responsibilities are spread out among both agricultural and urban water agencies. And frankly, the urbans have not been very well organized or effective in lobbying for the program because a good third of the Cal-Fed funds are designated for conservation programs-such as L.A. DWP's pioneering low-flush toilet program. These programs are labor intensive, but they also afford many opportunities to involve community organizations, youth groups, and people in low-income communities in water issues. And there is definitely a need for more engagement on that front.

Right now, the focus for Cal-Fed is on the federal side. The Bush Administration has just announced its budget containing $20 million for Cal-Fed. The fact that it's in the President's budget at all is a good sign, but it is far less than what we need. Our major emphasis will be on getting the program reauthorized because we understand authorization is a prerequisite for anything more than a token contribution from the federal government. We'll then be seeking a much larger commitment because as both an environmental restoration and a water supply program, Cal-Fed is as large and worthy of major federal support as the Florida Everglades. We're hoping to unify our delegation behind it, and I've recently had some very positive meetings with both Senator Feinstein and Congressman Calvert, who is putting the bill together in the House.

Moving to water marketing, in December MIR interviewed MWD GM Ron Gastelum who claimed that the agency is supportive of an open market for water transfers. We also interviewed Tom Graff of Environmental Defense, who noted that the California Court of Appeals' recent rejection of the 1995 Monterey Amendments may pose a challenge in terms of the State's ability to supply future water needs, making water markets more necessary today than ever before. As a past champion of water markets, what's your take on the evolution of water marketing?

It's ironic that Tom Graff-who's been one of the great champions of markets-was also a plaintiff in the case that has successfully challenged the Kern Water Bank, one of the State's first attempts to get involved in water marketing. The fact is, people's position on water markets is totally situational. And for whatever reasons, we can't seem to get consensus behind any individual project. Whether it's the Cadiz project, the Kern Water Bank, the Governor's Drought Water Bank-there's always a reason to be opposed, which suggests this is not going to be easy.

However, the State is now involved in the water marketing business. We've set up an Environmental Water Account under Cal-Fed to address fish flow problems in the Delta, and we've already begun purchasing water. It hasn't been completely successful-some fish have been killed at the pumps-but we have committed to the federal government not to disrupt the system for three years while we learn how to operate it better. The Department of Water Resources is also purchasing water for agencies both inside and outside the State Water Project. We're doing our best to build experience and demonstrate that we can make a market work without causing problems in the areas of origins. But it's very much an education stage at the moment.

Bringing this to a close, Mary, the runoff race for Mayor of L.A. is commencing. What should the two candidates be addressing re: State environmental policy that affects our Basin's livability?

Both candidates have been saying the right things about the need for parks to be planned in conjunction with other important public services, including schools.

With the L.A. Department of Water & Power, there are some big decisions to be made by the new Mayor, particularly with City-owned lands in the Owens Valley. The City's long-term water future is in desperate need of good planning and assessment. Expectedly, the Department has been focused on the energy issues, and I know that when David Freeman recently tried to do something to provide some long-term environmental protections in the Owens Valley, he nearly had his hat handed to him by the Commissioners. But the new Mayor will need to address these important planning issues-while the topic may have been quiet lately, it won't be quiet forever.