Sacramento Bee

In a shake-up Tuesday of the board that oversees electric and telephone bills for millions of Californians, Gov. Gray Davis demoted the president of the state Public Utilities Commission and named one of his closest aides to the panel.

The twin actions could produce a more business-friendly commission, one consumer group warned, although administration officials predicted there would be little change in the PUC‘s overall direction.

By stripping Loretta Lynch of the presidency and giving it to Commissioner Michael Peevey, Davis has done two things. He advanced the more centrist, and some say more pro-utility, wing of a sharply divided commission. He also took substantial power away from Lynch, a forceful personality who sometimes alienated her colleagues.

It’s hard to know which motive topped his agenda, industry and political observers said, and spokesman Steve Maviglio would say only that “the governor wanted a fresh perspective.”

Along with changing the top officer and reappointing Peevey, Davis also named his Cabinet secretary, Susan P. Kennedy, to fill the commission seat being vacated by Henry Duque, whose term expires today.

With the other four commissioners often split 2-2, Kennedy’s views on everything from electricity deregulation to telephone access rules will be critical. Her votes will be felt directly in the pocketbook of virtually every Californian because the PUC sets utility rates and decides how closely the electricity, natural gas and telecommunications industries should be regulated.

In the Capitol, Kennedy has a reputation as an extremely bright, no-nonsense political operative who is one of a handful of Davis’ most trusted advisers. She predicted she will land “right in the middle” of the PUC divide.

“I am a die-hard moderate. I consider myself pro-business. But especially after what we’ve been through the past two years, the No. 1 responsibility is to protect consumers,” she said Tuesday.

When the state’s power problems escalated into rolling blackouts two years ago, Kennedy worked intensively on both the state’s energy conservation strategies and its effort to speed up the building of power plants.

“During the ugliest parts of the electricity crisis … she just had a tremendous ability to grasp the details,” said Michael Kahn, head of the board of the state Independent System Operator. “She was very loyal to the governor, extremely decisive and extremely well-organized.”

She was also “very effective” in negotiations to settle contract conflicts with small and alternative generators known as “qualifying facilities,” said Jan Smutny-Jones, head of the Independent Energy Producers Association.

Kennedy, who had planned to leave the administration at the end of Davis’ first term, said she did not seek the PUC post and decided “relatively recently” to accept it at the governor’s request.

“I had the best job in the Governor’s Office, bar none, including his,” she said, but at the PUC, “it’ll be a joy to be able to focus on just five or six things in an in-depth way instead of 100 things.”

Her appointment was slammed by the Foundation for Taxpayer and Consumer Rights as a missed opportunity to put a stronger consumer advocate in the job and an effort by Davis to control the PUC too closely.

But past Davis appointees have not always followed his lead.

Rumors have circulated that Davis would demote Lynch since March 2000, when she pushed through a hike in electricity rates that reportedly took the governor by surprise.

Although she lost the top job, Lynch remains on the PUC and said Tuesday, “I intend to continue my fight for the consumers.”

Lynch has often aligned with Commissioner Carl Wood, a harsh critic of deregulation. Peevey has more often shared common ground with Duque and Commissioner Jeff Brown.

A former president of both Southern California Edison and NewEnergy Inc., an energy service provider, Peevey has been criticized by some consumer advocates as too close to the industry he regulates and by others as too willing to advance deregulation even at consumers’ expense.

He rejects both notions.

“I see myself as more pro-California, pro-jobs than anything else,” Peevey said. “I want the PUC to play a major role in trying to get California back into a real economic growth mode.”

He also said he wants to share presidential powers, including directing division heads and setting agendas, more broadly among fellow commissioners.

“I would like to see more collegiality,” he said. “That doesn’t mean it has to come out in unanimous votes. It does mean a greater respect for one another and less kind of antagonistic behavior.”

With Duque’s term expiring, all five commissioners will be Davis appointees, and Kennedy said she hopes the board can become less “polarized.”

The new president and new commissioner will face a wide range of issues, including a major rate increase request from Pacific Gas and Electric Co.; assuring stable and fairly priced natural gas supplies; and enforcing consumer protection as SBC, formerly Pacific Bell, begins to compete in long-distance markets.

To a large extent, the current commission, whose members serve six-year terms, also will help determine how fully California re-regulates or deregulates its electricity industry, said consumer attorney Mike Florio.

“It’s a huge responsibility, and your actions have major consequences,” he said.

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The Bee’s Carrie Peyton Dahlberg can be reached at (916) 321-1086 or [email protected]