Michael R. Peevey President CA Public Utilities Commission March 1, 2005

1. PRESENTATION TO THE SENATE ENERGY COMMITTEE ON CA PUBLIC UTILITIES COMMISSION 2005 WORKPLAN Michael R. Peevey President CA Public Utilities Commission March 1, 2005

2. Purpose of the Workplan • Describes PUC’s Objectives and Priorities • Identifies Key Issues of PUC focus for 2005 • Required by Statute (PU Code 321.6)

3. Criteria for Determining Workplan Priorities • Ensure Compliance with Law • Interests of the Public • Dollars at stake • Vulnerability of Target Groups • Number of citizens affected • Importance of the service to the public • Degree of Monopoly characteristics • “Bang for the Buck” • Promote Regulatory Certainty

4. Energy Goals • The CPUC will continue its efforts to ensure California’s investor-owned utilities (IOUs) supply energy to California’s growing economy in an efficient, cost-effective, reliable, safe, and environmentally sound manner; • The CPUC also will ensure that the Direct Access Energy Service Providers provide adequate resources to their customers consistent with the CPUC’s resource adequacy requirements. • These efforts will be undertaken with collaboration and cooperation from state and federal agencies with energy responsibilities. ---2005 Workplan, p. 2

5. Energy Issues – Rates • Southern California Edison’s rates reduced by approximately 13%, $1.3 billion annually, to reflect the recovery of SCE’s historic procurement costs incurred during the energy crisis. (D.03-07-029) • PG&E’s rates reduced by approximately 8%, $800 million annually, to reflect resolution of bankruptcy issues and the issuance of the modified settlement agreement adopted in D.03-12-035. (D.04-03-062) • Reduced DWR’s revenue requirement by $1.002 billion to return reserves DWR no longer needed. (D.03-09-018) • The CPUC has taken other steps to reduce rates: • Participating at FERC in the renegotiation of DWR contracts and settlements with energy suppliers ($700 million passed through in rates) • Financing PG&E’s Regulatory Asset with lower cost debt financing using the dedicated rate component (DRC) ($1 billion nominal saving) • Ensuring cost-effective procurement contracts through competitive solicitations.

6. Energy Issues -- Reliability • Address Summer 2005 Reliability • Implement first Energy Action Plan (EAP) goals and develop second EAP • Continue on-going energy procurement activities of utilities • Develop resource adequacy rules for utilities and ESPs • Promote aggressive demand response programs • Examine long-term gas needs including LNG

7. Energy Issues – Continued • Implement Renewable Portfolio Standards (RPS) • Approve utility’s 2004 activities/New 2005 utility RFP/solicitations • Applicability to ESPs, Community Choice Aggregators, small utilities • Million solar homes initiative • Implement energy efficiency targets adopted in EAP • Implement Community choice aggregation (CCA) -- AB117 (Migden) • Develop long-term policy for expiring QF contracts • Reviewing over 123 new transmission projects to improve reliability

8. Energy Goals – Coordination • Integrate CEC and PUC resource planning and procurement functions • Develop common transmission need determination process between the PUC, CEC, and ISO • Participate in ISO Market Design activities

9. Telecommunication Goals • We will continue work to maintain appropriate policy and regulatory treatment for carriers and competitive use of the network, and facilitate the deployment of advanced telecom services. We will maintain and improve consumer access to high quality telecommunication services at fair terms, including universal service programs --2005 Workplan, p. 11

10. Telecommunication Issues -- Structure • Review Proposed Mergers of SBC-ATT and Verizon-MCI • Maintain appropriate policy and regulatory treatment for carriers • Provided the state’s four largest incumbent local exchange carriers (ILECs) with greater regulatory flexibility to meet an increasingly competitive telecommunication market. • Concurrently, enforced basic requirements of the ILECS for financial reporting and service quality. • In 2005, will commence the last part of the current NRF review • Address pricing issues, terms and conditions for competitive use of the network. • Pursuant to federal requirements, unbundled the local network elements (UNEs) that incumbent local carriers must provide to their competitors. • in November 2004 readjusted the penalty mechanism that was established to encourage Pacific Bell to provide competitors with fair access to their network. An overall review of this performance incentive will likely take place in 2005.

11. Telecommunication Issues -- Policy • Facilitate the deployment of new information technologies and services vital to California’s future. • Examining broadband technologies and services in response to Senate Bill 1563 • Begun focusing on Voice Over Internet Protocol (VOIP) issues • Strengthen customer protection and empower consumers against fraud • In D.05-01-058, the Commission stated its intention to specify clearly the effective date of the new consumer protection structure, and the termination date of the stay by no later than the end of 2005.

12. Telecommunication Issues • Maintain and improve access to high quality basic telecommunication services, at fair terms • Continue implementation of AB 140 providing grants for telecommunication access in unserved areas. • Provide stable program administration and contract oversight of the Deaf and Disabled Telecommunications Program (DDTP) that transitioned into state administration during 2004. • Continue administration of the California High Cost Funds A & B and the California Teleconnect Fund • Assure efficient carrier usage of telephone numbering resources to minimize unnecessary area code changes

13. Water Goals • Enforce increasingly stringent water quality requirements (with Dept. of Health Services); • Proactively plan for water supply; • Improve aging water infrastructure; • Address affordability; and • Manage increased audit and rate case workload.

14. Transportation Goals • Improve rail crossing and railroad safety • Identify and prioritize the most dangerous rail crossings in need of funding • Incorporate new data into analysis of rail safety: (1) “near-miss” accident data and; (2) draft Environmental Impact Reports of new rail projects • Inspect railroads for compliance with state/federal safety regulations • Although the CPUC will not meet its legislative mandate to conduct railroad safety inspections in 2005 due to lack of staffing, the CPUC plans to inspect and perform major operational testing on railroads (including Metrolink and CalTrain) • Investigate rail accidents and safety-related complaints • Enhance the safety of light rail public transportation • Improve consumer protection through effective and efficient enforcement of motor carriers

15. Commission-wide Initiatives • Continue our diversity and outreach efforts. • Expand efforts to reach communities with limited English proficiency, seniors, low-income customers, and local government outreach. • Continue to strive to provide timely assistance to consumers. • Improve e-filing capabilities • Begin to examine the effect of climate change on utilities