Gov. Gray Davis on Tuesday ousted Loretta M. Lynch as president of the state Public Utilities Commission and replaced her with Michael R. Peevey, an advocate of deregulation who once headed Southern California Edison.
Lynch, who led the PUC through the energy crisis of 2000-01, said she intends to serve the remaining three years of her six-year term as a commissioner. But Davis took an additional step to influence the panel by filling a vacant seat with a trusted Cabinet secretary, Susan P. Kennedy.
All five seats are now filled with Davis appointees as the PUC wrestles with critical issues and reshapes California's energy landscape.
The New Year's Eve maneuvers prompted an immediate outcry from some consumer advocates, who feared that Peevey is too close to the energy industry and Kennedy is too close to the governor.
"Gov. Davis is cloning himself at the PUC to make sure he can get whatever he wants out of that agency," said Douglas Heller of the Santa Monica-based Foundation for Taxpayer and Consumer Rights Commission.
Peevey, 64, had served as an unpaid advisor to Davis during the energy crisis. He was appointed in March to fill the seat of retiring Commissioner Richard Bilas, whose term expired Tuesday. Davis reappointed Peevey to a full six-year term and designated him president, which pays $117,818 a year.
Peevey was at his North Coast vacation home and could not be reached for comment. The governor's office issued only a terse announcement of the appointments and said that Davis would not be available to explain the changes.
Lynch issued a statement, saying, "I am proud of my record ... in defending consumers and the public interest. It is the governor's prerogative to choose the president of the PUC. But I will continue to fight for consumers ... as a commissioner."
In a telephone interview, Kennedy praised Lynch for doing "a great job under very trying circumstances."
Kennedy, 42, said she will listen to the views of Davis, the Legislature, consumer groups, the industry and others, "but ultimately I am the commissioner and have to be responsible for my vote.... There is a misperception that the governor weighs in on every issue and tries to pull strings behind the scene."
She said her primary goals as a commissioner will be to "protect consumers as the investor-owned utilities return to the power-buying business [this year] and restoring confidence in the energy markets."
The threat of removal was long dangling over Lynch, who said she prided herself on maintaining the independence of her office.
She is a Yale-educated lawyer who worked on Davis' 1998 campaign for governor and served as the head of his Office of Research and Planning before he named her to the PUC in 1999.
But, as the state's chief utility regulator, she took a number of steps that upstaged Davis or aroused his ire. He was caught by surprise when the Lynch-led commission adopted a record electricity rate increase in 2001. He was openly frustrated that the PUC took months to adopt measures necessary to prepare for the state's energy bond sale. And although the governor could not broker a deal, Lynch reached a secret $3.3-billion settlement of a lawsuit by Southern California Edison.
Lynch's most faithful ally on the commission, Carl Wood, called Lynch a "historic president who guided the commission through the worst crisis, provided leadership and protected consumers." He said she had the courage to champion a rate increase that kept the lights on in California and helped avert the financial collapse of the utilities.
The utilities, however, have criticized the Lynch-led PUC for responding too slowly to the energy crisis and failing to allow the companies to recoup their cost of acquiring electricity. When the major utilities were unable to buy power, the state Department of Water Resources got into the power-buying business.
Pacific Gas & Electric Co. officials, who blame Lynch and the PUC for driving their company into bankruptcy, declined to comment on the changes.
Southern California Edison President Robert Foster said in a statement: "We have had a good working relationship with both Ms. Kennedy and Mr. Peevey and look forward to working with them to rebuild California's [energy] infrastructure."
Peevey, of La Canada Flintridge, is an economist and entrepreneur who made millions of dollars during the state's failed deregulation effort.
He left Edison in 1993, then did consulting work for about 18 months before starting an energy service company, which was sold in 1999 for about $100 million.
At the PUC, Peevey and Commissioner Jeff Brown often voted the same way, while Lynch and Wood voted the other. The exchanges between Lynch and Peevey sometimes became prickly.
No one knows how the addition of Kennedy will change the dynamics as the PUC handles issues ranging from the solvency of the major utilities to the regulation of the telecommunications industry.
Kennedy's career has revolved around the Democratic Party. She was executive director of the state party from 1991 to 1994, then served as communications director for U.S. Sen. Dianne Feinstein of San Francisco from 1995 to 1998 before taking her post with Davis in 1999.
She said she knows Lynch from working on Democratic campaigns and Peevey from working as Davis' point person for energy conservation and power plant construction.
A resident of Fairfax in Marin County, Kennedy is a political ally of Senate President Pro Tem John Burton, who is an ally of Lynch and a key figure when it comes to Senate confirmation of PUC commissioners.