PUC-approved institute at UC kindles suspicions

A plan pushed by California’s top utilities regulator to set up a ratepayer-financed, $60 million-a-year institute at the University of California is running into opposition in the Capitol, where the legislators’ lawyer says the scheme is illegal and angry lawmakers sense a ploy to circumvent their authority.

Michael Peevey, the president of the Public Utilities Commission, described the California Institute for Climate Solutions as a “groundbreaking path to find solutions to the most pressing problem of our time.” Republican Gov. Arnold Schwarzenegger, following the PUC’s unanimous vote in April to approve the institute, agreed, saying the new facility would “bring together the state’s preeminent colleges, universities and laboratories to fight climate change.”

But in the Capitol, especially in the Senate, different views of the institute are emerging, few of them positive. Privately, ranking lawmakers say the plan has been halted—at least temporarily.

One, is that the institute—dubbed “Peevey’s Plan” by lawmakers—would provide a power base for Peevey who, as PUC president, would be co-chairman of the institute and a key player in the institute’s executive committee. Another concern is accountability over the institute’s use of a surcharge on the investor-owned utilities’ ratepayers’ bills—perhaps 12 cents to 20 cents a month per bill. That would raise about $600 million over 10 years, with some 10 percent going to administrative costs, including salaries and staffing.

“Sixty million dollars a year to deal with the greatest challenge of our times,” Peevey, the former head of Southern California Edison, told a Senate hearing. To date, the PUC has not begun collecting the surcharge, pending the outcome of the political battle in the Legislature.

Another problem arises over the institute’s legality.

The Legislative Counsel, the office whose attorneys advise the Legislature, said the PUC has no statutory or constitutional authority to create the institute. Peevey said the PUC legal staff disagreed. “We have dueling lawyers,” he said on May 6, adding that he would provide the PUC’s legal opinion to the Senate. As of this week, he has not, Senate sources said.

Peevey's chief of staff, Nancy Ryan, said the question of legality had been discussed at the PUC at length. "This is obviously an issue that was raised right from the very start of the proceeding. There is nothing new in there. Our attorneys examined the arguments that they (Legislative Counsel) raised and did not find them persuasive. We do indeed think we have the authority, to protect ratepayers in the short term and in the longer term." 

Key lawmakers, however, aren't convinced. 

“You need a bill to establish the institute, that’s my direction to you,” Sen. Christine Kehoe, D-San Diego, the chairwoman of the Senate energy committee, told Peevey.  “And when you pursue that conversation, figure it out, post haste.”

Kehoe said that on critical, high-stakes issues, such as broadband regulation and power customers’ direct access to the energy market, some in the Capitol question the PUC’s role.

“And now the climate institute. We are getting a feeling on the legislative side that our only alternative is to exercise more vigorous oversight, because counting on you to communicate directly to this committee or the Senate on what your proposal is and your plans going doesn’t seem to be happening,” Kehoe said. Peevey said Kehoe’s comments were “an overstatement,” although referring to communication with lawmakers, he said, “maybe it could be a lot better.”

The larger policy question for lawmakers is straightforward: Who should take the lead on carbon emissions project development and research?

For Peevey and the PUC, establishing the institute at UC–an institution with the ability to attract world-class researchers and talent–makes more sense than placing it in state government. But energy industry observers note that responsibility over enforcing California’s greenhouse gas laws rest with the state—not an institute.

The institute would not do the research and development itself. Rather, it would dispense grants to those who do.

“That’s one of the difficulties here,” said V. John White of the Center for Energy Efficiency and Renewable Technologies. “Where should the research occur? Who should manage it and how should that be accomplished? … There is a need for research, but is UC the right place? And should it financed by no one but the ratepayers of the investor-owned utilities?”

The governor says publicly that he favors coordinating climate-change research. But last fall, he vetoed legislation that would have done exactly that.

The bill, SB 660 by Senate Leader Don Perata, D-Oakland, would have set up a strategic research and investment council to develop and coordinate clean-energy projects to limit greenhouse gases. The council would have submitted its plans to the Legislature. In his veto message, Schwarzenegger said the bill would create “another substantial layer of administration (that) will hinder, rather than support the current coordination that occurs within the administration….”

Last week, the Senate approved and sent to the Assembly another, similar bill—Perata’s SB 1760. That bill also would set up a high-level state team to coordinate greenhouse gas research. “”Californians pay more than $300 million for energy and climate research every year. Under the current system, those funds are divided among six different agencies and used in a disconnected fashion,” Perata’s office said.

 The following April, the governor lauded the latest effort to coordinate greenhouse gas research. “I applaud the CPUC for taking another important step by creating the California Institute for Climate Solutions,” Schwarzenegger said.

The institute’s governance structure, according to material supplied by the PUC, is somewhat involved.

There is a 21-member governing board that has overall authority over the institute, co-chaired by the president of the PUC and the president of the University of California. Seats on the board also go to the Senate and Assembly, the Division of Ratepayer Advocates and assorted state agencies, universities, utilities, private firms and others.

The core of the governing power is a seven-member executive committee, with the PUC president and his appointees comprising four of the seven. The other three are the UC president and his two appointees.

Peevey’s term as president of the PUC expires at the end of the year. Peevey, who was appointed by Schwarzenegger, has not said publicly whether he wants to be reappointed, although there is speculation in the Capitol that he wants to stay in order to complete work on direct access and other issues.

His wife, former Assemblywoman Carol Liu, D-La Canada Flintridge, is running for the state Senate this year.