The just-retired former two-time president of the California Public Utilities Commission, Richard Bilas, sounded off Monday on the lack of political independence at the five-member state regulatory panel and a host of energy issues in the state that he thinks are not likely to get the nonpartisan leadership needed to resolve them. In an interview with NGI, Bilas said a little-recognized state law passed in 1999 (SB 33) “politicized” the CPUC to an extent never before seen, and that is “not good” for consumers or utilities.

In a wide-ranging discussion in which he reiterated that a series of personal and professional reasons caused him to resign suddenly with a week’s notice prior to his last day March 8, Bilas said he thinks Gov. Gray Davis’ selection of former utility executive and labor economist Michael Peevey will “balance” the CPUC, now dominated by what he calls “command-and-control regulators.” But they and the state’s political leaders face some daunting challenges that no elected official seems to want to tackle head-on.

From the time of the state law that gave the governor the authority to select a CPUC president and gave other new powers to that chief regulator, Bilas said “there was a policy shift of the commission from presumably giving consumers choice, to having government trying to protect the consumer without understanding, I think, the unintended consequences of such actions.

“The reasons we got into electricity restructuring in the first place was because heavy-handed regulation failed,” said Bilas, a free-market economist and former college economics professor. “One can argue that the restructuring of the state electricity industry was a failure as well, and I would agree with that. But that was because it was a flawed piece of legislation and flawed thinking at the CPUC [including his own, he says] with its preferred policy decisions.”

While the state political leadership may not have the will to get California’s Department of Water Resources out of the wholesale electricity buying role or to consolidate and reorganize a half-dozen agencies — including the CPUC — dealing with energy, Bilas said that sort of action is essential for the state to deal with what he thinks will be a series of power supply shortages in future years.

Meanwhile, the CPUC has the issues of how to retroactively implement its suspension of direct access retail electricity deals, another round of unbundling natural gas transmission and storage operations, rate-setting for retained generation by the three private sector utilities, and ultimately what to do with retail electricity rates generally, including the possibility of another rate increase on top of last year’s record 40% hike. A lot will depend on how “strong” the new commissioner, Peevey, wants to be, Bilas said.

“The state needs to get out of the power-buying business as soon as possible,” he said. “The state has no business being in the power business. And until, and unless, that is done, you have a tremendous amount of uncertainty in the marketplace. And that gets compounded by the fact that the governor, attorney general and everyone else is yelling and screaming about suing the generators.

“What I want to know is where the power is going to come from three years from now? We have a surplus today, but just because we have all of the proposed power plants doesn’t mean any of them will ever get built — even the ones with certificates. There is no reason to spend millions and millions of dollars in the California market when you don’t know what the market is going to look like.”

Bilas was equally outspoken on several other major issues hovering around the CPUC:

On the new appointee, Peevey: “He has a helluva lot of knowledge of the electricity market. I don’t know how much he knows about natural gas, and I know he knows little about telecommunications. But he has been in the real world, and has seen restructuring up close. And it is because of that (restructuring, customer choice), he made all his money in New Energy Ventures. He has a good sense of business. I look at him to balance out the desire for heavy-handed regulation on the parts of two commissioners (CPUC President Loretta Lynch and Carl Wood).” The two other commissioners tend to be more moderate.

On the PG&E bankruptcy: “When I left the commission last week the feeling among two commissioners was that they don’t want to settle with PG&E’s utility (as the CPUC did with Southern California Edison Co.). But that can change, depending on how strong Peevey is. I can’t guess what he is likely to do on this one. I would think that a settlement with PG&E would be the way to go because this could drag on (in bankruptcy court) for a long, long time. The bankruptcy judge (Dennis Montali in San Francisco) probably wants a settlement.”

On the CPUC’s future: “I think the commission is going to have to face reality one of these days and decide to do something about rates. I don’t know what they are going to do, but I think they have to face up to it. I don’t know where rates are going to go. They may have to face up to the fact that there will need to be rate increases. I think the CPUC is a very important agency, but it has to assert its independence, and if it doesn’t do that, and allows itself to be captured by any administration — now or in the future — I think that is a terrible thing for the state of California.”

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