TESTIMONY OF CALIFORNIA PUBLIC UTILITIES COMMISSION PRESIDENT MICHAEL PEEVEY BEFORE THE SENATE COMMITTEE ON UTILITIES AND COMMERCE

Tuesday, February 10, 2004

Senator Bowen and members of the Committee, a year ago as the newly appointed President of the Public Utilities Commission I committed to you to improve the effectiveness and timeliness of the Commission’s decisionmaking. Last month we provided the Legislature with our Workplan for 2004 and our SB 960 Report on processing formal filings.

Let me first highlight for you the major issues on our Workplan agenda this year. Then I will summarize how we are doing on processing filings.

2004 WORKPLAN
PG&E BANKRUPTCY

One of our most important tasks in 2004 will be to reduce rates for PG&E ratepayers. Our December decision approving a PG&E bankruptcy plan, and the federal bankruptcy court’s approval of the plan, coupled with other actions on PG&E, will reduce rates more than a cent per kilowatt hour. Implementing the plan will also finally pay PG&E’s creditors and restore the utility to creditworthy status. That in turn will enable PG&E to raise funds needed for infrastructure improvements at lower cost, and enable PG&E to procure energy for its ratepayers at favorable terms. We are committed to restoring the PG&E utility to financial health, to lowering rates over time, and to reinvigorating the utility’s obligation to serve its customers with reliable and reasonable cost electricity.

I take particular pride in two work items included in the PG&E bankruptcy decision. With PG&E and many stakeholders, we will be creating a nonprofit stewardship council to plan and oversee the public use of 140,000 acres of PG&E lands in the Sierras associated with their hydroelectric projects. No longer will there be fights about spinning off such lands to unregulated market driven companies. The council will have $100 million to plan and enhance the lands and to provide mountain experiences for inner city youth. Second, we will be establishing a $30 million clean technologies program to leverage investment in cutting-edge California businesses.

We are currently implementing these programs, and I hope to announce the selection of the Commission’s appointees to these Boards at our meeting of February 26.

ENERGY ACTION PLAN IMPLEMENTATION

We will continue aggressive implementation of the Energy Action Plan we developed with the Energy Commission and Power Authority. The Plan’s first priority is energy efficiency, reducing costs to ratepayers and improving the environment. In 2004 the Commission will make the final decisions on efficiency programs for two years. In a major innovation, we added $245 million in energy efficiency funding in our Procurement Proceeding on top of the efficiency funds authorized under the Public Goods Charge legislation.

We will also be aggressive in developing more renewable generation resources by implementing the Renewable Portfolio Standard on an accelerated basis beyond the requirements of SB 1078. This will be part of integrated resource planning taking place in our review of the electric utilities’ proposals for long-term resource acquisition. We will look at not only electricity contracts but also demand side management, distributed generation, transmission needs, and energy efficiency programs.

I am pleased to note that at our last business meeting, the Commission adopted long term regulatory procurement plans and an "activities framework" for PG&E, SCE, and SDG&E. This procurement order is extensive, and presents a hybrid market structure for generation consistent with the Energy Action Plan. I urge members to review it carefully and for this Committee to actively oversee the policies in the plan. The order is also notable because it was not adopted on a 3-2 vote. In fact, Commissioner Lynch and I were able to work together effectively to resolve our differing views on procurement policy and detailed implementation issues. Going forward, this decision indicates the Commission’s intent to open up resource decision making, better balancing the confidentiality concerns of the IOUs and market participants with the public’s need for information. We’ve stated our intent to expand the scope of utility planning data that is made public, to revise the review procedures for new utility projects and power purchase agreements brought before the Commission for pre-approval, and to address whether the quarterly reports that detail all individual procurement transactions executed by a given utility during the previous quarter should also be made public. Your voices of concern about overly broad confidentiality have been heard.

ASSURING ELECTRICITY RELIABILITY

On one electricity supply issue I would like to make our commitment to you very clear. Governor Schwarzenegger in his State of the State address expressed concern about adequate resources in 2006. Our procurement decisions, working with the Independent System Operator, assures, and will assure, that the investor-owned utilities provide adequate energy resources to the system operator for reliable service in 2006, and in every other year. After the ISO issued this warning, we have approved an additional 2,000 megawatts of new energy resources including 950 megawatts of peak load reduction from energy efficiency programs and the 1,000 megawatt Edison Mountainview power plant. Our Energy Procurement decision, adopted unanimously last month, sets out our plan to assure adequate electricity resources.

I recently sent a response letter jointly to Senator Feinstein and Governor Schwarzenegger emphasizing why I am confident we will have adequate supplies of electricity in the 2006 timeframe. Copies of the letter were sent to the leadership of this Committee. Again, I urge you to review the response and let me or our Office of Governmental Affairs here in Sacramento know if you have any questions or comments.

NATURAL GAS

Regarding natural gas supplies, with the Energy Commission we have assessed California’s future needs for gas supplies and for interstate pipeline capacity. Natural gas demand continues to grow as our population increases and as electric power plants are built that use gas. In 2004 our natural gas outlook rulemaking will make the decisions needed to allow the gas utilities to diversify gas sources and obtain all the supply, storage, and pipeline capacity needed for reliable service at competitive prices. A new source will be liquefied natural gas from sources around the world, including the Middle East, Australia, and South America. There are nine proposals at present to construct marine terminals to receive LNG that would serve our market, some in Baja California and some onshore and offshore the California coast. We will be sorting out what combinations of supplies and utility contracts will best serve ratepayers.

TELECOMMUNICATIONS

The telecommunications industry, with its rapid technological innovations and multiple services, continues to challenge us to define a useful role for consumer protection regulation that does not hinder innovation and competition. We will be reviewing our regulatory framework for the incumbent local exchange companies, setting prices that competitive carriers must pay the incumbents for network elements, determining in what areas of the State the incumbents must continue to offer network elements for lease to competitors, and revising our measures of the incumbent’s performance. The Commission has been developing a consumer bill of rights for three years, and we hope to bring that effort to a conclusion this year.

The Legislature will be studying Voice Over the Internet Protocol (VOIP) telecommunications this year. We will consider opening a rulemaking and investigation to determine how best to address this growing way to carry telecommunications services over the internet at our meeting tomorrow. So also is the Federal Communications Commission looking at VOIP issues. Internet VOIP and the growth of wireless services are changing the landscape and requiring a new look at universal service funding programs and regulation in general. To assist our coordination with the FCC, Commissioner Kennedy has been appointed to the FCC/State PUCs Joint Board on Broadband Issues.

I understand your Committee heard testimony on this issue from our Director of Telecommunications, as well as Commissioners Kennedy and Wood. We look forward to working with you in this area.

WATER UTILITIES

Our regulation of water service to 20 percent of California water consumers is challenged by increasingly stringent water quality standards and the need for water utilities to upgrade their facilities. In addition, legislation requires us to double the number of water district general rate cases from about ten to more than 20 per year. However, the staff positions for the increased workload were not provided, so we will do our best to be efficient.

TRANSPORTATION AND SAFETY

We will continue to make sure railroad crossings, light rail systems, and railroad rights of way are safe at the same time as our population expands and light rail systems are growing. We must also continue, in a time of reduced staffing, to inspect electric and gas lines for safety problems and to make sure household goods carriers, limos, shuttles and other transportation carriers are licensed, insured, and safe.

CONSUMER PROTECTION

Californians looks to us for help with billing disputes, abusive marketing, and service problems with the companies we regulate. We received about 60,000 complaints in the last fiscal year, with about 15,000 currently active. Our calls from limited English speaking consumers have doubled from 2002 to 2003, with 60,000 calls in 2003, 90 percent speaking Spanish. So we appreciate the approval to hire 8 bilingual consumer service representatives when we have lost eight positions last year.

For the rest of our work in 2004, please refer to our Workplan. We would be happy to provide you with any more information you need.

MANAGING THE COMMISSION’S WORKLOAD AND PRIORITIES

Second, Senator Bowen, the Bureau of State Audits last fall provided recommendations regarding our processing of formal and informal filings. I commit to you our complete implementation of all the improvements recommended by May of this year, and I have attached here each item and its status.

The Audit was a comprehensive one that looked at 1602 formal proceedings and 16,000 advice letters handled by the Commission in a two-and-a-half year period, January 2000 through June 2003. This period included the extremely stressful energy crisis.

The Audit report of November 2003 speaks for itself. To summarize, we completed 1425 of 1602 proceedings on time, 89 percent. And we decided 13,500 of 16,000 advice letters within 90 days, 88 percent. The auditors investigated in depth a sample of 45 overdue formal proceedings and 90 advice letters and presented a variety of reasons for the extended processing times. Many reasons were technical, such as the proceeding had been reopened for issues such as setting intervenor compensation, and some were simply not tracked accurately. Some were low priority. The auditors found that in general we applied our priority criteria and concentrated on the most important cases. New legislation, AB 1735, provides a statutory basis for the deadlines for more types of proceedings. The audit, and our SB 960 report, submitted on January 12, show we have been managing our proceedings closely, with attention to the deadlines, even though certain deadlines had not been statutory.

The current report for calendar year 2003 shows the Commission resolved 515 of 607 formal proceedings on time, 85 percent. In 86 of the 110 formal proceedings involving hearings that did not meet the SB 960 deadlines, the Commission actually issued at least one decision and has been actively managing the cases. Many of the long proceedings relate to the energy crisis, such as the PG&E bankruptcy and industry restructuring cases, or depend on issues being resolved in other proceedings, or are simply low priority.

We are continuously working, at all levels of the Commission, to develop and issue effective and timely decisions within the legislative deadlines. I hope you judge we are doing allright, with room for improvement. I hope next year to provide you with an even more positive report.

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