California Public Utilities Commission Update to the Senate Energy, Utilities and Communications Committee Michael R. Peevey President CA Public Utilities Commission February 13, 2007

Introduction CPUC continues to make significant progress on several key initiatives:  Energy Action Plan – continued emphasis on energy efficiency, demand response and renewables as well as overall climate change activities  Telecommunications Consumer Protection Initiative  Water Action Plan  Railroad Safety Action Plan  New video franchise legislation

CPUC Climate Change Implementation Emissions Performance Standard - SB 1368 (Perata) CPUC adopted decision January 25, 2007 to meet February 1, 2007 deadline Working with CEC to ensure consistency with their standard to be adopted by June 30, 2007 for municipal utilities Participating in CEC workshops in January and soliciting input from CEC, ARB, CalEPA, and CAISO prior to finalizing CPUC decision Greenhouse Gas Cap - AB 32 (Nunez/Pavley) Held proceeding kickoff for Phase 2 of GHG rulemaking on November 28, 2006 Scoping memo released on February 2 with inquiry to proceed in 2007/2008 Volunteering to be venue for development of recommendations to ARB for electricity and natural gas sectors Encouraging municipal utility participation in CPUC proceeding on equal footing with IOUs to develop comprehensive and consistent set of recommendations Coordinating with CEC, ARB, CalEPA and CAISO on policy development

Energy Issues – Energy Efficiency Number one priority in the Energy Action Plan Loading Order – before demand response, renewables and clean fossil fueled generation Authorized $2 billion investment by IOUs over 3 years ( ).  Cuts energy costs for homes & businesses by more than $5 billion and provides a 2 to 1 return on the efficiency investment  Avoids building 3 large (500 MW) power plants over the next three years  Reduces global warming pollution by an estimated 3.4 million tons of carbon dioxide by 2008, which is equivalent to taking about 650,000 cars off the road CPUC hosted a Joint West Coast Public Utilities Commissions Workshop on Energy Efficiency in December 06.  Included Washington, Oregon and New Mexico Commissions  Explored key technologies and best practices in energy efficiency.

Energy Issues – Energy Efficiency Annual Energy Savings from EE Standards and Programs

Energy Issues – Demand Response July 06 Heat Storm Triggered new Demand Response measures Approved an AC Cycling Program for PG&E Approved $18 million for SCE to add 225 mWs to its AC Cycling Program, bringing its total AC Cycling Load to 600 mWs by July Approved a new Capacity Bidding Program (CBP) which will replace the Demand Reserves Partnership (set to expire in May 2007). IOUs anticipate 85 MWs (statewide) for this program. Approved SCE’s proposal to add a 15-minute option for its interruptible tariff. The option will provide greater operational flexibility for the CAISO for day-of emergencies. Modified existing DR programs by increasing incentives or reducing penalties for both day-ahead and day-of programs, giving greater flexibility on rules and operation of certain programs, streamlining application and paperwork for customers

Energy Issues – Renewable Portfolio Standard (RPS) CPUC is aggressively implementing RPS Based on contracts currently approved or in the pipeline, IOUs should get very close to 20% by 2010 Pending contracts from the 2006/07 solicitations MAY put the IOUs over 20% by 2010 – though there is some risk that contracts currently scheduled to produce by 2010 will not do so Bottom line – we will continue to push hard to reach the 2010 goal 2007 activities  Implementation of SB 107 (Simitian) Potential REC trading system Developing additional RPS procurement mechanisms for ESPs Determining the appropriate ratio of long and short-term RPS contracts Developing a short-term market price referent (MPR) for utility short-term contracts Recruiting and staffing a long-term RPS procurement planning group

Energy Issues – RPS Progress

Energy Issues - Transmission Active Transmission Cases SCE’s Devers-Palo Verde 2  Increases import capacity from Arizona in LA Basin by 1,200 MW; projected on-line date Summer 2009; estimated costs $600M; CPCN approval January 2007 SDG&E’s Sunrise Powerlink  Increases import capacity into San Diego Region by 1,000 MW; projected on-line date 2010; estimated cost $1-1.4B; CPCN decision early 2008 SCE’s Tehachapi Region Projects  Provides 4350 MW of capacity from wind-rich resource area into LA Basin  First two phases projected on-line dates 2009; provides 2500 MW of capacity; estimated cost $225M; issuance of two CPCN’s March 2007  Final project phase to be filed by SCE June 2007; projected on-line date 2011  Total project cost $1.8 Billion Green Path (joint venture of LADWP, IID, & Citizens)  Accesses renewables and increases transfer capacity into LA region; projected on-line date 2010; non-jurisdictional project

Energy Issues – California Solar Initiative CPUC continues implementation of the California Solar Initiative Provides $2.16 billion in incentives between 2007 and 2017 to customer-side photovoltaics (PV) under 1 MW capacity. Incentives paid for expected or actual solar performance, and decline to zero by CSI regulatory horizon for 2007:  Innovative financing and/or ownership models for low-income and affordable housing.  Targeted expansion of R&D funding to bring new solar technologies to market.  Bring valuable project cost and performance information into public domain.

Energy Issues – Natural Gas Activities CPUC works to assure adequate natural gas supplies and infrastructure, rational gas transmission framework, reasonable gas utility rates, and safe LNG terminals Adopted reliability standards, procedures for firm delivery on local transmission, terms for operational agreements between pipelines & suppliers and utilities, and new gas quality specifications CPUC/AG 2006 settlement with Sempra related to gas curtailments will provide significant consumer benefits Adopted a gas transmission framework for Southern California and will focus on implementation in 2007 Other 2007 Plans:  Address comprehensive operational, structural, and regulatory proposals set forth by SoCalGas, SDG&E, and other parties in “omnibus” proceeding  Determine reasonable utility costs & expenses in IOUs in their general rate cases  Continue to participate in state agency LNG group to assure safe siting

Telco Issues – Implementation of AB 2987 (Nunez) – Video Franchise Competition CPUC has begun implementation of AB 2987(Nunez) Digital Infrastructure and Video Competition Act (DIVCA). CPUC has responsibility for issuing, suspending, terminating, and renewing state video franchises, and enforcing non-discrimination and build-out requirements. Local governments retain control over environmental protection, consumer protection, and use of their public rights of way, and will continue to receive franchise fees from video service providers. Proposed rules were released in January - scheduled for vote on March 1 Established a Video Franchising Team and will begin accepting applications for state franchises by April 1, 2007, as required by DIVCA.

Telco Issues – Consumer Protection Initiative (CPI) Accomplishments Since March 2006 decision: Website – Staff developed a consumer website, to assist telecommunication consumers. Information on website is available in 12 languages. Brochures – A committee of consumer groups, utilities and CPUC staff developed brochures covering issues the committee determined would be most beneficial for consumers. Increased Number of CAB Representatives – 15 hired since August 2006 with 12 of those hires bilingual - Cantonese (3), Spanish (9), and Mandarin (1) Language Report - Collaborating with utilities, CBOs, and other interest groups staff examined issues affecting consumers with limited English proficiency. Staff report issued in October Rulemaking opened January 11, Consumer Complaint Backlog - CAB staff have reduced the backlog by over half, in spite of an unprecedented caseload surge relating to a new federal requirement for income verification to be eligible to receive Universal Lifeline Telephone Service.

Water Issues – Water Action Plan and Other Activities CPUC regulates 140 investor owned water and 12 sewer utilities The CPUC’s Water Action Plan sets forth the approach for regulating investor owned water utilities and rests on four key principles:  Safe, high quality water  Highly reliable water supplies  Efficient use of water  Reasonable rates and viable utilities Water Highlights: Opened a rulemaking to consider revisions to the General Rate Case Plan for Class A Water companies. Conducted a symposium with CEC, DWR, and CAISO addressing policies for improving energy and water conservation and efficiency. Issued a ruling requesting energy and water utilities to propose pilots which achieve energy and water conservation and efficiency. Conducted a symposium with DWR, SWRCB, and CalEPA focusing on policies which enable water utilities to provide high quality, reliable water supply. Opened an investigation to consider conservation policies for Class A water utilities.

Rail Safety – Progress on Rail Safety Action Plan Continued push to amend federal laws to allow state regulation of local safety hazards Increased the number of focused track, equipment & operating practice inspections by CPUC staff  AB 3023 (Nunez) and AB 1935 (Bermudez) mandate increased railroad safety requirements Investigated all rail-related fatalities & significant crossing accidents  CPUC staff completed investigations of more than 100 rail related fatalities in 2006, and has begun the collection of “near-miss” rail crossing/trespasser accident data in an effort to identify high-risk locations before accidents occur Improved communication and coordination with the Federal Railroad Administration  Conducted weekly, monthly and quarterly coordination meetings/conference calls between CPUC and FRA regional management Developed of a citation process to allow for more efficient enforcement of Commission’s rules and General Orders Hiring additional staff inspectors per budget authorization

Commission Wide Initiatives SB 960 Compliance  Resolved 93 percent of 398 proceedings consistent with legislative deadlines and continue to work on closing older proceedings.  Closed 512 cases during 2006, an increase of 11 percent from Modernizing the Commission  Continued to streamline processes and procedures to take advantage of new technology while maintaining parties' due process rights.  Launched electronic filing and currently receive 60 percent of filings electronically and have reduced average processing time by 25% for all formally filed documents.  Continued to promote settlement and alternative dispute resolution.  Adopted a pilot program to streamline processing of Sec. 851 applications. CPUC Annual Report/Work plan  The CPUC’s Annual Report/Work Plan informs the Governor, Legislature, and public about the major activities the Commission undertook in the previous year and sets forth goals and plans for the coming year.  The Annual Report/Work Plan is submitted pursuant to Public Utilities Code §321.6 and §321.7.