In the News: Recent Developments

Wednesday, January 01, 2003

Governor shakes up PUC positions

By Mike Taugher

With the addition of a former top aide, all five now are Davis appointees

Gov. Gray Davis shook up the California Public Utilities Commission on Tuesday by appointing a former aide to the panel and replacing combative commission president Loretta Lynch with a former utility executive.

Lynch, who earned support from consumer groups but frequently butted heads with industry officials, said she would continue to serve on the commission “to fight for consumers and for California’s families and businesses.”

Consumer activists called the moves a gift to businesses at the expense of utility customers, but other observers said the new commission would stabilize an agency that was faulted for worsening the energy crisis.

The new commission president will be Michael Peevey, a former president of Edison International and Southern California Edison, as well as an executive in other energy companies.

In addition, Davis named Susan Kennedy, a former top aide to the governor, to replace outgoing commissioner Henry Duque.

With the appointment of Kennedy, all five PUC commissioners are now Davis appointees.

“I think the transition from Lynch to Peevey will be good for ratepayers, because it will probably bring back a more stable regulatory environment, which will lead to more investment in the state,” said Joseph Fichera, chief executive officer of Saber Partners, a New York investment banking firm that was a financial adviser to Davis during the energy crisis.

Fichera said that with the exception of Davis’ chief of staff, Lynn Schenk, Kennedy probably was the governor’s most trusted adviser during that time.

“She is incisive, demanding, practical, focused and a quick study,” Fichera said.

The commission, which regulates privately owned electricity, telecommunications, natural gas, water, railroad and passenger transportation companies, went from an obscure and shrinking agency before the electricity crisis to one of the most visible arms of state government.

In the summer of 2000, as wholesale electricity prices skyrocketed, it insulated utility customers from soaring prices only to be forced less than a year later to institute record rate hikes.

In the next year, it is expected to decide if utilities must assume financial responsibility for the state’s multi-billion-dollar long-term electricity contract portfolio, and its decisions will help shape what PG&E and Southern California Edison look like as they emerge from their respective financial black holes.

In addition, it might consider lowering electricity rates.

Doug Heller, a consumer advocate with the Foundation for Taxpayer and Consumer Rights, said Peevey’s background raises questions.

“I think things will be worse for consumers with Mike Peevey in charge,” Heller said. “He’s an energy industry executive now in charge of regulating energy.”

Industry officials and Wall Street analysts faulted the PUC under Lynch’s leadership for contributing to the severity of the electricity crisis, a charge Lynch has repeatedly disputed.

But commission policies in the months leading up to the crisis discouraged the state’s utilities from purchasing long-term contracts for electricity, leaving them to buy large shares of their power on the volatile short-term markets, according to utility officials.

The utilities were then caught buying huge volumes of electricity at sky-high prices, and the commission steadfastly refused to raise consumer rates or provide assurances that the utilities would get the money they needed to pay their bills, according to Lynch’s critics.

“The actions that they failed to take in 2000 is what led directly to the financial crisis and insolvency of California’s two largest utilities in January 2001,” said John Nelson, a spokesman for PG&E. “And that’s what led the state to enter into the market to buy power, and that’s what led the state to panic and buy (long-term power contracts) at the highest prices in the history of mankind.”

Lynch did not return a phone call Tuesday, but in the past has blamed the problem on the utilities and energy companies.

Her tenure as commission president has been the subject of speculation since early 2001, after she ushered through record electricity rate increases in defiance of Davis. But the governor waited until nearly two years later to remove her from the president’s post.

“I’m sure people are going to portray this as dumping Loretta, but it’s not that,” said Davis spokesman Steve Maviglio. “We’re making changes throughout state government.”

“The governor wants some new perspective and some new blood,” Maviglio said.

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