EX-UTILITY CHIEF TO HEAD PANEL

San Jose Mercury News

Gov. Gray Davis on Tuesday named a former energy executive to head the California Public Utilities Commission, shifting leadership from the more consumer-oriented Loretta Lynch, whose maverick streak was said to have annoyed him.

In a rush of New Year’s Eve nominations, Davis named Michael R. Peevey, a former Southern California Edison president and utilities commissioner since March, as the agency’s new president. He also appointed Cabinet secretary and adviser Susan P. Kennedy to the panel.

The move solidifies Davis’ influence over the commission, which regulates privately owned electric, natural gas, water, telecommunications and transit companies. Peevey and Kennedy replace appointees of former Gov. Pete Wilson. All five commissioners are now Davis nominees. Consumer advocates decried Tuesday’s appointments as cronyism.

“With billions of dollars in consumer rates at stake, Californians need an independent consumer voice on the PUC rather than another Davis insider,” said Doug Heller of the Foundation for Taxpayer and Consumer Rights.

Peevey was unavailable for comment Tuesday.

Heller said given Peevey’s industry connections, his appointment bodes poorly for consumers.

”After what this industry did to California, allowing one of its brethren to be chief regulator is disgusting,” Heller said.

Pacific Gas & Electric officials, who have fought bitterly with the commission under Lynch’s leadership, had no comment Tuesday. But a Southern California Edison official praised the appointments.

”We have had a good working relationship with Ms. Kennedy and Mr. Peevey and look forward to working with them to help rebuild the state’s infrastructure,” said Bob Foster, the utility’s president.

Lynch, who will remain as a commissioner, was among the first California officials to blame power companies and federal regulators when electricity prices began spiking in the summer of 2000, and became one of the state’s most visible industry critics during the energy crisis.

But Lynch and Davis sparred publicly over raising electricity rates in early 2001. After Davis publicly vowed to oppose higher rates, Lynch’s commission approved record 40 percent increases in January and March 2001, aimed at staving off utility bankruptcy.

Insiders said the move surprised and outraged Davis.

”The governor has for certain since the energy crisis been very dissatisfied with Loretta,” said one state official, who nonetheless called Lynch ”very smart” and ”quite good.”

Davis later proposed his own smaller rate increase but never blocked the commission’s plan, leading consumer advocates to wonder whether he was letting Lynch take the fall for the politically unpopular increases.

”Davis wanted rates to go up, while at the same time, to keep his fingerprints off the rate hike,” Heller said.

Lynch issued a statement defending her work.

”I am proud of my record as president of the commission in defending consumers and the public interest,” Lynch said Tuesday. ”It is the governor’s prerogative to choose the president of the PUC. But I will continue to fight for consumers and for California’s families and businesses as a commissioner.”

Energy industry officials had long contended that Lynch, a Yale-educated lawyer and former head of Davis’ office of planning and research whom he named to the commission in 1999, was in over her head.

”She was a total neophyte — she never understood this industry,” said Gary Ackerman, executive director of the Western Power Trading Forum, an energy trade group. Peevey’s appointment, he added, will restore ”balance.”

”I think the chaos will end and we’ll get some order back into the commission,” Ackerman said.

Lynch also drew fire from consumer advocates for presiding over the biggest electricity rate increases in history and a controversial $3.6 billion bailout — which remains under court challenge — for Edison‘s energy crisis debt.

”It’s hard for us to judge Loretta Lynch in any way except for noting that during her presidency the PUC defied the state constitution and the Legislature to bail out Edison,” Heller said.

But fellow commissioner Carl Wood, who often votes with Lynch, praised her as a consumer champion. The alternative to rate increases and bailouts was utility bankruptcy that could strip state regulators of authority over the companies, he said.

”Sections of the industry don’t like the policies she represents because she represents the assertion of regulatory authority,” Wood said. ”She’s really demonstrated intellectual superiority over all these academics who maintained there was a shortage of generating capacity when in fact we now know it was pure and simple manipulation.”

Consumer groups have criticized Peevey for voting to allow big businesses to keep private contracts for cheap power, potentially sticking consumers with higher costs from the state’s deregulation debacle. Lynch and Wood opposed the move.

Kennedy was an influential adviser to Davis on energy matters, and has been described as one of few insiders able to stand up to the governor without having been considered insubordinate.

Utilities commissioners serve six-year terms, with a standard salary of $114,191. The president gets $117,818. Peevey and Kennedy must be confirmed by the state Senate, but they can serve for a year without confirmation.

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Contact John Woolfolk at [email protected]