New faces, big choices may shape PUC in ’05;

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Nominees could shake up alliances on energy panel

The San Diego Union-Tribune

For the past two years, the complex world of gas and electric utility regulation in this state has boiled down to a simple combination of numbers: 3-2.

The combination represents the vote on most contentious issues before the California Public Utilities Commission, with President Michael Peevey and Commissioner Susan Kennedy frequently opposing Carl Wood and Loretta Lynch, while Geoffrey Brown functioned as a swing vote.

Despite the divergent votes, California traveled a long way from the disastrous deregulation experiment that led to the state’s power crisis of 2000-01. There are plans in place to quickly ensure reserve electricity supply, plans for building new power plants and plans for conservation and renewable energy.

Now all those decisions need to be implemented, which means deciding how much they will cost and who will pay for them. And with the departure of Lynch and Wood, who were generally applauded by consumer groups but criticized by business groups, a very different commission will be making the decisions.

The difference could be significant in several important matters, most prominently the contentious matter of shifting some $730 million in power-crisis costs onto the bills of large San Diego Gas & Electric customers.

In the decision to shift the crisis costs here, Lynch and Wood joined with Brown in voting in favor. The departing commissioners and Brown argued it was a fair allocation of costs among the state’s utilities.

Now, SDG&E is appealing the decision. Peevey and Kennedy – who supported a smaller shift of about $400 million – could find a new ally for overturning the larger shift in Steve Poizner or Dian Grueneich, the gubernatorial nominees to fill the seats that will be vacated by Lynch and Wood when their terms conclude at week’s end.

Most observers expect Poizner, a Silicon Valley entrepreneur, to tilt toward Gov. Arnold Schwarzenegger‘s preference for less utility regulation and for allowing large electric customers to buy power from companies other than local utilities. Consumer groups oppose that idea for fear that too much of the cost of ensuring electric reliability will fall to residential customers.

Grueneich, a lawyer with a record of representing environmental groups as well as large electricity customers before the PUC, is expected to advocate for renewable energy and conservation projects, as well as be generally sympathetic to small-consumer concerns.

Peevey, who often clashed with Lynch, predicts Grueneich, will “hit the ground running.”

“I think she and I will work very closely,” said Peevey, who added that he wants the commission to increasingly tackle global-warming issues.

Grueneich is a registered Democrat and past president of the California League of Conservation Voters. She did not return a call for this story.

Peevey said he knows less about Poizner, who co-founded and sold high-technology companies before turning to public service. But Peevey said he and Poizner would meet soon.

For his part, Poizner said he’s launched into a crash course in utility matters.

“Once I get my feet wet, I would be happy to comment,” Poizner said.

The nominee, who must still be confirmed by the Senate, noted that he developed a San Diego connection when Qualcomm purchased his last startup company, SnapTrack, for $1 billion in 2000. The company developed technology that allows cell phones to be located for emergency purposes.

“The technology is now in over 50 million phones and has saved dozens of lives,” he said.

More recently, he ran an unsuccessful race as a Republican candidate for the state Assembly from Silicon Valley and taught without salary in a public school.

“I spent most of my career starting and running high-tech companies and made a career shift into public sector service,” Poizner said.

Peevey said the top priority for the PUC is likely to be implementing its mid-December blueprint for new power projects. That plan envisions a competition for the new projects between local utilities and their unregulated affiliates with independent power plant builders such as Calpine Corp.

The plan includes a provision for an outside evaluator to ensure the competitive process is fair. Peevey said the bidding process should be much like the one SDG&E used earlier this year. That resulted in the utility winning PUC approval for a plan to buy a power plant in Escondido being built by a sister company and also to contract for electricity from a new power plant in Otay Mesa being built by Calpine Corp.

Peevey hailed the process as a breakthrough for the region, which he says badly needs additional electricity generating resources after decades without constructing a new plant.

But The Utility Reform Network and other consumer groups continue to challenge the bidding process as unfair and say it will result in excessive costs to local ratepayers. They also allege that Peevey inappropriately intervened in the bidding process.

The PUC president, meanwhile, said next year’s priorities should also include resolving a host of issues surrounding Sempra Energy – the parent company of SDG&E.

Those include the company’s controversial power supply contract with the state, which officials say is too expensive, as well as an ongoing investigation into the role played by Sempra companies in the natural gas price spikes that accompanied the power crisis four years ago.

The PUC also will hear SDG&E‘s appeal of the decision to shift $730 million in crisis-related costs to this region.

“I would like to see some way in which all these issues can be resolved, Peevey said.

Michael Florio, an attorney with TURN, said resolving the host of Sempra-related issues would be a step forward, under certain conditions.

“We don’t want to be taken to the cleaners,” said Florio, who noted that TURN plans a court challenge if its effort to overturn the SDG&E power plant plan fails at the PUC.

SDG&E priorities also include further implementation of the PUC decision to allow liquefied natural gas into the state from a terminal the utility’s sister company is planning near Ensenada in Baja California.

Denise King, a spokeswoman for the utility, said company executives want the commission to expedite transmission line upgrades around the state that would otherwise threaten power reliability as early as this summer.

Lynch, the departing commissioner, said the fundamental issues before the PUC will involve money.

“The PUC has created this big cost pie, and what is coming up in the next three to six months is who has to eat this pie,” Lynch said.

Among those costs, Lynch said, is up to $2 billion needed to upgrade California’s two nuclear power plants, including the one partly owned by SDG&E in San Onofre.

Lynch said she also anticipates an effort to reduce rates for large electricity consumers.

“They want to shift costs to other customer classes so when the big bills come due for nuclear upgrades, natural gas purchases and all the electricity projects, the big guys will pay less,” she said.

But Peevey, often at odds with Lynch over policy matters, said some adjustments are needed to allow more large customers to buy power from suppliers other than local utilities. New agreements of this type are barred by state law.

Peevey said he also hopes to smooth the way for communities to organize customers and seek their own such arrangements, known as community aggregation.

From the perspective of power plant builders, the new PUC is expected to quickly clear the way for a surge of new investment. Jan Smutny-Jones, executive director of the Independent Energy Producers Association, said the state’s push to ensure adequate power reserves plus its aggressive effort to build renewable energy projects should lead to solicitations for many new projects before this summer.

Industry is ready to respond enthusiastically, he said.

“We have definitely turned a corner,” said Smutny-Jones, who took issue with positions of Wood and Lynch in the past. “There is definitely interest in investing in California.”

But where industry sees opportunity, consumer advocates see a threat to smaller gas and electricity customers.

Doug Heller of the Foundation for Taxpayer and Consumer Rights, an advocacy group in Santa Monica, said Grueneich, at least, might play a positive role on the commission. He fears consumers could find themselves without a consistent vote on the five-member commission, which was established to guard against corporate abuse but which he said is the focus of more and more business lobbying.

“I am hoping Grueneich will be a voice of reason,” Heller said.

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