State of California


LITTLE HOOVER COMMISSION



FOR IMMEDIATE RELEASE
December 10, 1996


For Additional Information Contact:

Jeannine L. English
Executive Director
916-445-2125



Little Hoover Report On State Utility Oversight


The Little Hoover Commission on Tuesday recommended that the State fundamentally reform its oversight of public utilities so consumers can fully capture the benefits of emerging competition in the energy and telecommunications markets.

"Over the last 20 years policy makers have charted a course toward competition among utility providers, allowing whenever possible for market forces to replace government regulation," said Commission Chairman Richard Terzian. "But the promised benefits of competition -- lower prices, better service, more choices among providers -- may not be reaped unless California restructures the government agencies that have historically regulated these industries."

The Little Hoover Commission recommended that the California Energy Commission be assigned the new state functions needed to assure that competitive electricity and natural gas markets function effectively, and that over time all energy market oversight responsibilities be consolidated at the Energy Commission.

The Little Hoover Commission recommended that the Public Utilities Commission, which has set rates for investor-owned monopoly utilities, play a diminishing role in energy services as the monopoly markets open up to competition. The recommended realignment would allow the PUC to focus on ushering competition into the telecommunications industry.

Commissioner Charles Bakaly, who chaired the Little Hoover Commission study, said the recommendations reflect the changing needs of the public in competitive utility markets.

In place of government rate-setting, consumers need agencies committed to ensuring that markets operate fairly -- by policing fraudulent business practices and preventing the largest companies from controlling the market," Bakaly said.

In a competitive market, Bakaly said, consumers will benefit the most from having choices among suppliers who compete to offer low prices and better services.

"The Energy Commission has developed an expertise in many of the functions needed by more competitive energy markets," Bakaly said. "For example, the Energy Commission has a record for expeditiously approving new power plants while protecting the environment and public health. This expertise will be crucial in a market where the first competitive pressures will be among electricity generators."

Bakaly said the new government structure also would end a 20-year-old turf battle between the Energy Commission and the PUC, while reducing the PUC's workload so that it can make the rapid decisions needed in the fast-paced telecommunications marketplace.

The Little Hoover Commission -- a bipartisan and independent state agency comprised of citizens and legislators -- relied on more than 100 industry, interest group and academic experts to identify state functions that will be obsolete in competitive utility markets, identify new functions that will be needed and identify the agencies best able to perform the functions.

The recommendations are contained in a report titled, "When Consumers Have Choices: The State's Role in Competitive Utility Markets." The recommendations will be forwarded to the Governor and Legislature for their consideration. The report builds on previous legislation - including the landmark electricity market restructuring bill passed earlier this year -- by providing for the next step: an evolution of responsibility that match the new utility markets.

In addition to defining the future roles for the PUC and the Energy Commission, the report recommends that the State:

# # #




Attachments


Richard R. Terzian
Chairman, Little Hoover Commission
PUC & Energy Report / Press Conference
December 10, 1996



Today the Little Hoover Commission is releasing a comprehensive report on the State's oversight of public utilities. The report is the result of a year-long study aimed at making certain that California consumers are able to fully realize the benefits of competition now evolving in the energy and telecommunications markets.

Over the last 20 years policy makers have charted a course toward competition among utility providers allowing whenever possible for market forces to replace government regulation. But the promised benefits of competition -- lower prices, better service, more choices among providers -- may not be reaped unless California restructures the government agencies that historically have regulated these industries.

The work of the Public Utilities Commission over the past two years and the landmark bill passed by the Legislature last summer laid the groundwork for opening the electricity market to competition. Competition among telecommunications providers has been underway for more than a decade and in the coming years will involve nearly all aspects of the industry. The Little Hoover Commission recommendations begin the next step: realigning state government to match those competitive markets.

Specifically, the Little Hoover Commission analyzed three factors: What state government functions are obsolete in a competitive environment. What activities are needed to protect the public interest and facilitate competition. And what agencies have the necessary competencies and culture to perform the needed tasks. In conducting this year-long study the Little Hoover Commission held five days of public hearings at which we heard from 45 witnesses. The Commission also held more than a dozen meetings with two advisory committees each made up of more than 50 public officials, academic experts and representatives from industry, environmental and consumer groups.

In these meetings and hearings we heard two overriding concerns:


The Commission's recommendations are not an endorsement of the sweeping measures underway to induce competition. Rather they provide a government structure that is aligned with those policy choices that already have been made. It also is important to remember, that in enacting these reforms the threshold for agreement should not be that the plan solves every problem imaginable. If that were the test, progress would never be made. But we believe this realignment protects the public interest in these evolving markets significantly better than the status quo.




Charles G. Bakaly, Jr.
Chairman, PUC & Energy Subcommittee
Press Conference
December 10, 1996



The Little Hoover Commission is recommending today that the State fundamentally reform its oversight of public utilities. For almost a century utility services have been delivered by monopoly companies that were granted exclusive rights to serve customers in exchange for rate regulation. The Public Utilities Commission has protected the public by setting rates charged by electricity, natural gas, telecommunications, transportation and private water companies.

In 1974, the California Energy Resources Conservation and Development Commission was created to work with energy suppliers -- including monopoly utilities -- to provide more efficient energy solutions.

But the landscape has changed. In place of monopolies, competing companies are vying to provide utility services. In place of government rate-setting, consumers need agencies committed to ensuring that markets operate fairly -- by policing fraudulent business practices and preventing the largest companies from controlling the market.

Because of the importance of energy to the economy, the public welfare and the environment, the Little Hoover Commission recommends that the State consolidate the oversight of that industry into a single agency expert in energy issues.

Over the past 20 years, the Energy Commission has developed an expertise in many of the functions needed by more competitive energy markets. For example, the Energy Commission has a record for expeditiously approving new power plants while protecting the environment and public health. This expertise will be crucial in a market where the first competitive pressures will be among electricity generators.

Because of its expertise, the Energy Commission is a good place to consolidate oversight of the industry. This transfer should occur as the monopoly portion of the industry diminishes.

In addition, the Energy Commission's research and development programs should be moved to the Department of Conservation. This reform will protect the Commission's neutrality among market players by placing elsewhere the advocacy role associated with the public goods programs. The chart illustrates this evolution of responsibilities.

In the telecommunications industry, the increasing number of market players and the complexity of policy issues requires an agency focused on that specialized market. Because of its experience, the PUC is uniquely qualified to fill that role. And if relieved of other responsibilities, the PUC could concentrate on that fast- changing industry.

The time also has come to transfer oversight of transportation carriers and investor-owned water companies to agencies better equipped to address the public interests now affecting those industries.

The PUC no longer sets rates for the transportation industry. As a result, it is left with safety and licensing responsibilities that are similar to functions performed by the Department of Motor Vehicles and the California Highway Patrol. The Legislature this year moved responsibility for licensing and safety of trucking companies to the DMV and the CHP. The Little Hoover Commission recommends that the State complete this process expeditiously by transferring the safety and licensing duties for all transportation providers to those agencies.




Milton Marks Commission on California State Government Organization and Economy

660 J Street, Suite 260 * Sacramento, CA 95814 * 916-445-2125 * fax 916-322-7709 * e-mail little.hoover@lhc.ca.gov





URL: http://www.energy.ca.gov/releases/96_releases/96-12-10_little_hoover.html