BILL ANALYSIS � 1
SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE
ALEX PADILLA, CHAIR
SB 611 - Hill Hearing Date: April 30, 2013
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As Amended: April 15, 2013 FISCAL B
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DESCRIPTION
The California Constitution establishes the California Public
Utilities Commission (CPUC) with five members appointed by the
Governor and approved by the Senate for staggered six-year terms
and grants the CPUC authority to regulate public utilities
subject to control by the Legislature. (Cal. Const. Article II,
Section 1)
Current law requires the Governor to designate one of the
commissioners as president who is authorized to direct and
prescribe duties of an attorney (general counsel), executive
director, and other staff and preside at CPUC meetings. (Public
Utilities Code 305)
This bill reduces the president's duties to presiding at CPUC
meetings.
Current law authorizes the CPUC to appoint a general counsel to
represent the CPUC in all actions, to commence, prosecute or
intervene in proceedings as directed by the president, and to
advise the commission and each commissioner on all matters.
(Public Utilities Code 307)
This bill prohibits any CPUC employee or officer that is
assigned to prosecution of an adjudication case from
participating in, or advising the commission on, the decision of
that case and makes the general counsel subject to laws and
rules of professional conduct applicable to attorneys licensed
to practice law in California.
Current law establishes within the CPUC a Division of Ratepayer
Advocates (DRA) to advocate on behalf of utility customers, with
a director appointed by the Governor, a lead attorney designated
by the director, and funding, attorneys and other staff provided
by the CPUC. (Public Utilities Code 309.5)
This bill changes DRA to the Office of Ratepayer Advocates (ORA)
within the commission, provides ORA more autonomy in its budget
and staff, including attorneys, and authorizes ORA to seek
rehearing and judicial review of CPUC decisions the same as
other parties to a CPUC proceeding.
Current law requires the CPUC to annually submit to the
Legislature financial reports, including any ratepayer costs, on
specified nonprofit entities that were established as a result
of CPUC decisions for various public benefit purposes. (Public
Utilities Code 326.5)
This bill prohibits the CPUC from establishing a "nonstate
entity," defined to be any for profit or nonprofit company,
corporation, partnership, or other entity or group of entities.
Current law prohibits a public official or a body on which the
official is a member from entering into a contract with an
entity in which the official has a financial interest and deems
such contract invalid. (Government Code 1090)
This bill prohibits the CPUC from entering into a contract with
a nonstate entity in which a commissioner is an owner, director,
or officer and invalidates prior contracts with that entity if a
commissioner ever becomes an owner, director or officer.
The California Constitution provides that the Legislature may
remove a commissioner for "incompetence, neglect of duty, or
corruption," with two-thirds vote of each house concurring.
(Cal. Const. Article XII, Section 1)
This bill provides that a commissioner "is negligent of his or
her duty" and may be removed pursuant to this constitutional
provision if he or she acts as an owner, director, or officer of
a nonstate entity established prior to January 1, 2014, by CPUC
action in which the commissioner participated.
Current law specifies various responsibilities of the CPUC's
consumer protection and safety division. (e.g. Public Utilities
Code 309.7)
This bill changes these references to the safety and enforcement
division.
Current law requires the CPUC to provide the Legislature and the
Governor an annual workplan, accounting of its transactions, and
a report on the number of cases where resolution took longer
than expected in scoping memos, and requires the CPUC president
to annually report to the policy committees of the Legislature.
(Public Utilities Code 321.6)
This bill would require the report to include information on the
disposition of applications for rehearing.
This bill changes various statutory references to commission
"regulations" to commission "rules."
BACKGROUND
CPUC Independent but Accountable to Legislature - The basic
structure of the CPUC was established in the early 1900s by
adding Article XII to the state constitution, which was one of
Governor Hiram Johnson's reform efforts to curb undue influence
of railroads in politics and government. Article XII grants the
CPUC authority to regulate public utilities "subject to control
of the Legislature" and grants the Legislature "plenary power"
to confer authority and jurisdiction upon the CPUC, with the
intent that the CPUC be accountable to the Legislature.
The CPUC has historically been afforded much independence.
Commissioners are appointed for staggered six-year terms to
limit the potential for a single Governor to appoint a majority
of commissioners within a four-year term. The Legislature, not
the Governor, may remove a commissioner. The CPUC has been
given broad latitude to set its own procedures, and any review
of CPUC decisions has historically been limited to review only
by courts of appeal and the Supreme Court, not trial courts.
Current Commissioners - The current Governor has appointed four
of the five current commissioners, a majority, as follows:
Michael R. Peevey, President, originally appointed by
Governor Davis in March 2002, appointed President by
Governor Davis in December 2002, reappointed by Governor
Schwarzenegger in December 2008, retained as President by
Governor Brown, term expires in December 2014.
Michael Florio, appointed by Governor Brown in January
2011.
Catherine J.K. Sandoval, appointed by Governor Brown in
January 2011.
Commissioner Mark J. Ferron, appointed by Governor Brown
in March 2011.
Carla J. Peterman, appointed by Governor Brown in
December 2012.
CPUC Safety and Budget Problems - The CPUC has been under
intense scrutiny the past year in connection with its oversight
of utility infrastructure safety and, more recently, its
internal budget operations. On the evening of September 9, 2010
a 30-inch natural gas transmission line ruptured in a
residential neighborhood in the City of San Bruno. The rupture
caused an explosion and fire which took the lives of eight
people and injured dozens more; destroyed 37 homes and damaged
70. Gas service was also disrupted for 300 customers. The
National Transportation Safety Board (NTSB), which has primary
jurisdiction for investigating pipeline failures, issued its
Pipeline Accident Report on the San Bruno tragedy in August 2011
and concluded that, in addition to numerous PG&E violations, the
CPUC's failure to detect the inadequacies of PG&E's pipeline
integrity management program contributed to the accident. The
CPUC initiated three separate proceedings to consider the
alleged violations arising from the San Bruno tragedy.
Evidentiary hearings were suspended in October 2012 but later
resumed.
On January 10, 2013, the Department of Finance (DOF) Office of
State Audits and Evaluations (OSAE) released its performance
audit of the CPUC budget process. The audit identified
significant weaknesses with CPUC's budget operations that
negatively affect the commission's ability to prepare and
present reliable and accurate budget information.
Specifically, the audit found that:
The organizational structure of CPUC does not facilitate
cohesive budgeting practices;
The CPUC's budget forecasting methodologies produced
results that differed significantly from actual results,
with most of these differences unexplainable;
Cases of fiscal mismanagement in which accounting
records for certain funds were misrepresented and
incorrect. For example, OSAE identified records that did
not include certain fund transactions that ranged from
roughly $40,000 to $275 million; and
The CPUC's reconciliations of certain funds-where there
were differences between DOF and State Controller's Office
records-were inaccurate, requiring adjustments in the
hundreds of millions of dollars.
According to the audit, CPUC must implement and strengthen the
fiscal controls over its budgeting practices and procedures in
order to produce reliable and accurate budgetary information for
the Governor, the Legislature, DOF, and other stakeholders.
In the Fall of 2012, the CPUC engaged an independent consulting
firm to facilitate its "Safety Culture Change" project. This
project began with an initial discovery phase, which consisted
of a document review, interviews and focus groups. The purpose
of this phase was to uncover the existing culture, identify
culture changes needed, and to develop a draft problem statement
that would allow the CPUC to plan its culture change strategy.
A consultant's summary of focus groups and interviews with
employees was reported to the commission and included a few of
the prevailing perceptions of the employees at the CPUC:
"For the past ten years we have been mostly focused on
climate change policies. Everything else takes a back seat.
We have not been focused on creating the safety
infrastructure."
"There has been a lot of lip service to safety. I have
not seen enough action yet to back up the talk."
"When Commissioners vote, they don't support safety, so
there's no incentive for the utilities to be safer. If they
knew they were 100 percent liable for safety problems,
they'd take it more seriously. If the commission lets them
put the burden on ratepayers, rather than shareholders,
there is no incentive for the utilities to change."
Nonprofits Resulting from CPUC Decisions - In a variety of
contexts over the years, CPUC decisions have ordered funding for
nonprofit organizations that serve public benefits related to
entities it regulates. For example, the Pacific Forest and
Watershed Lands Stewardship Council was formed as a result of a
December 2003 decision that ordered PG&E to provide $100 million
over 10 years to be recovered in retail rates. In a bankruptcy
settlement in 2003, PG&E was ordered to pay $30 million in
shareholder funds over five years to a nonprofit the California
Clean Energy Fund (CalCEF) to support clean technology
development. In 2005, as a condition of approval of mergers of
SBC and AT&T and Verizon and MCI, AT&T and Verizon were required
to contribute a total of $60 million in shareholder funds over
five years to a nonprofit the California Emerging Technology
Fund (CETF) to promote broadband deployment and adoption to
close the digital divide. The 2008 Budget Act enacted Section
326.5 of the Public Utilities Code, which requires the CPUC to
annually submit to the Legislature financial reports, including
any ratepayer costs, on these nonprofit entities that were
established as a result of CPUC decisions.
Changing Role of President - Legislation proposed over the
years, and some enacted, has been aimed at improving CPUC
accountability. Concurrent with 1996 electric restructuring, a
series of procedural reforms were enacted to improve the
accountability of individual commissioners to spend more time in
hearings and to take ownership of draft decisions.
SB 33 (Peace, 1999) attempted to address a perceived lack of
accountability by commissioners by centralizing more authority
with the president. Prior to that time, the CPUC president was
elected by commissioners. The commissioners also appointed the
general counsel and executive director, who performed at the
direction of the commission. SB 33 put the executive director
and general counsel directly under the control of the president
and authorized the Governor to appoint the president.
Since then, a series of bills have sought to limit the power of
the CPUC president. AB 1157 (Ruskin, 2007) provided that
commissioners elect a president rather than the Governor appoint
one. AB 1973 (Ruskin, 2008) and AB 1315 (Ruskin, 2009) required
Senate confirmation of a Governor-appointed president, and had
the executive director and attorney take direction from the
commission rather than the president. SB 1403 (Yee, 2012) also
put the executive director and attorney under the direction of
the commission and required that assignment of proceedings be by
a majority vote of the full commission. None of these bills
were chaptered.
Public Meeting Required - The CPUC is subject to the
Bagley-Keene Open Meeting Act, which requires a state body to
take "action" (collective decision or an actual vote) only at a
public meeting following the public posting of an agenda
describing the item for proposed action at least 10 days prior
to the meeting. Any private congregation of a majority of the
members of a state body at the same time and place to hear,
discuss, or deliberate upon any item that is within its
jurisdiction is unlawful. Violations of the act can result in
members of the state body facing misdemeanor penalties and
action taken rendered invalid, with attorney's fees awarded to
prevailing plaintiffs.
Division of Ratepayer Advocates - The DRA is an independent
division within the CPUC that advocates solely on behalf of
residential and small commercial utility ratepayers. First
established in 1984, DRA was later codified in SB 960 (Leonard,
1996), which also required that its director be appointed by the
Governor subject to Senate confirmation. The statutory goal of
DRA is "to obtain the lowest possible rate for service
consistent with reliable and safe service levels." DRA
advocates for consumers in industry-wide proceedings, individual
rate cases, and before the Legislature.
DRA has been without an official director for nearly three
years. Dana Appling was DRA director from Aug 2004 through July
2010, and Joe Como has served as acting director since August
2010.
DRA's staff consists of 137 technical, policy, and financial
analysts with professional backgrounds as engineers, auditors,
and economists with expertise in regulatory issues related to
electricity, natural gas, telecommunications, and water
industries in California. DRA has a separate budget account
controlled by the director but subject to final approval of the
commission. DRA has a lead attorney appointed by the director,
with other staff attorneys assigned by the CPUC's general
counsel from the CPUC's Legal Division. Currently, attorneys
are assigned on a case-by-case basis, although prior practice
included Legal Division attorneys assigned to DRA on long-term
basis.
According to DRA's 2012 annual report: "DRA participated in 176
CPUC proceedings and filed more than 600 pleadings to aid the
CPUC in developing the record from which Commissioners
formulated their final decisions. DRA lobbied decision-makers on
behalf of ratepayers nearly 250 times in 2012 to ensure that the
consumer perspective was heard. DRA's $27,535,000 budget
represents a small fraction of ratepayer's investment compared
with the nearly $4 billion in savings DRA's work was
instrumental in achieving for Californians in the form of lower
utility rates and avoided rate increases. For every dollar
customers spent on DRA in 2012, they saved approximately $153
across their utility bills. Additionally, DRA influenced the
outcome of numerous CPUC policies, decisions, and California
legislation that will impact ratepayers."
The DOF audit released in December identified CPUC noncompliance
with statutory requirements specific to DRA's budget. The DOF
report stated that, "with minimal input from DRA, the CPUC
Budget Office prepares and communicates the budget to DRA and
Finance. However, this process has lacked transparency and CPUC
has not been able to explain or support to DRA's satisfaction
how the various budgeted cost categories were determined. As a
result, DRA is not able to adequately explain or defend its own
budget."<1>
COMMENTS
1. Author's Purpose . According to the author: "The CPUC
has run amok, diverting the attention of top staff away
from the CPUC's core responsibilities of ensuring safe
delivery of energy and managing the public's money. The
Department of Finance has found that the CPUC poorly
managed its internal accounts, and the Legislative Analyst
has questioned its ability to oversee the proper management
of customer money in utility hands. Finally-and most
importantly to the author-the 2010 explosion in San Bruno
has shown the CPUC to have utterly failed to ensure the
safety of utility infrastructure. Instead, the CPUC has
focused in the last several years on discretionary
--------------------------
<1> "California Public Utilities Commission Budget Process
Performance Audit." Office of State Audits and Evaluations,
Department of Finance, December 2012, p. 13.
http://www.dof.ca.gov/osae/audit_reports/documents/FinalReport-Ca
liforniaPublicUtilitiesCommissionPerformanceAuditWEB.pdf
activities and commissioner pet projects, including
multiple activities that Legislative Counsel has determined
to be illegal or unconstitutional. This bill takes small
but necessary steps to rehabilitate the CPUC."
The author also states that a major impetus for this bill
is objection to the general counsel's actions in October
2012 to suspend evidentiary hearings and cross-examination
of PG&E regarding the utility's potential violations
relating to the San Bruno explosion in order to facilitate
a settlement of the proceeding. The suspension was later
lifted and the hearings scheduled.
2. In Search of Institutional Reform or New Leadership ? In
public statements and information provided to the
committee, the author indicates that this bill stems, in
large part, from his dissatisfaction with activities of the
current president. The section of the bill identifying
conduct that makes a commissioner subject to removal from
office, according to the author's office, "only applies to
one person." If enacted, this bill would take effect on
January 1, 2014. The current president's term expires in
December 2014. The challenge for the Legislature is to
consider whether each reform proposed in this bill is
beneficial to the institution for the long-term regardless
of who the president and commissioners are.
3. Diminishing the Power of the President . This bill
provides for the full commission, rather than just the
president, to direct the general counsel, executive
director and other staff in the performance of their duties
and would reduce the president's authority to presiding at
commission meetings. This would scale back the current
authority of the president to what it was for decades prior
to enactment of SB 33 in 1999. It would potentially
enhance the role of the other four commissioners, both in
directing routine day-to-day operations and more
significant matters such as dismissing complaints or
applications and intervening in legal actions. Increased
participation by all commissioners also invokes the
Bagley-Keene Act, which requires state bodies to take
action only in a public meeting after the matter for action
is on a meeting agenda made public at least 10 days before
the meeting. Thus, to the extent commission direction of
the attorney and executive director constitutes an "action"
of the commission, the public meeting and agenda
requirements would apply.
According to the CPUC, this change would create operational
delays, increase costs, and "directly interfere with the
CPUC's ability to perform its duties in a timely manner or
act in response to immediate demands." A structure that
slows down decision-making could be especially problematic
at this time when the CPUC faces intense pressure for a
culture change and redirection of focus on public safety.
The Utility Reform Network (TURN), on the other hand,
states that this change of the president's powers would
result in a more robust debate of issues and equalize the
influence of all commissioners in setting the agency's
priorities and its allocation of resources. Centralized
power in the president creates the risk that other
commissioners will be inhibited in their decision-making
for fear of being marginalized by the president by limiting
their access to CPUC legal, analytic, and other resources,
states TURN.
4. Enhancing the Power of DRA . This bill enhances the
independence and authority of DRA in three significant ways
- allows DRA to submit its own budget directly to DOF
rather than through the CPUC, allows DRA to employ its own
staff including attorneys, and authorizes DRA to seek
judicial review of CPUC decisions. DRA states that these
changes will "better situate DRA to more effectively and
efficiently utilize its resources to advocate for
affordable, safe and reliable IOU services." TURN states
that these changes will empower DRA to advocate for
ratepayers "without fear of reprisal by a commission that
currently has ultimate power to determine its budget and
personnel."
DRA's status as a division of the CPUC has been a barrier
to appealing CPUC decisions in a court of law because that
would essentially be suing itself. This bill puts DRA on
the same footing as other parties to CPUC proceedings,
thereby putting more teeth in its advocacy by having the
threat to appeal. TURN states that this helps address "the
tremendous disparity of resources between the regulated
entities and the parties representing consumers and other
public interest concerns." It is possible this change
could raise questions about the need for ratepayer-funded
intervenor compensation for groups like TURN if DRA also
has use of ratepayer funds to represent ratepayers all the
way through appeal. However, according to TURN, these
groups' collective resources typically are only a fraction
of that devoted to a case by regulated entities.
Despite this bill's express grant of authority to the newly
named ORA to seek judicial review of CPUC decisions, it
retains the reference to the Office as "within the
commission." This creates ambiguity as to whether ORA is
sufficiently independent to have standing to seek judicial
review.
5. Prohibiting Nonstate Entities . The author seeks to stop
the CPUC from establishing nonprofit entities because, even
if they deliver public benefits, the CPUC "can accomplish
its mission either through convincing settling entities to
contribute to state programs or by contracting with
existing non-profits." CPUC decisions that establish
nonstate entities move funds outside state oversight and
circumvent government contract requirements, the author
states. The author particularly objects to two nonprofits
that were created as a result of CPUC decisions in which
the current president was the assigned commissioner and
that have governing boards of which the current president
subsequently became chair - CalCEF and CETF. The author
does not assert an improper financial interest, but
describes the current president's activities as "unseemly"
and "inviting the appearance of bias." The author states
that the bill's provisions on nonstate entities "is to
induce the commissioner to choose between his overlapping
public and private interests."
These provisions raise several issues the committee may
wish to consider. First, "nonstate entity" is defined so
broadly that the bill may prohibit more than intended,
including, for example, a separate affiliate in a merger
proceeding or a program administrator in the
billion-dollar-per-year energy efficiency portfolios. Also,
the CPUC did not necessarily "establish" the nonprofits to
which the author objects but, rather, ordered regulated
entities to fund them. Significantly, the bill makes no
distinction between a nonstate entity for which the CPUC
has ordered ongoing funding from ratepayer surcharges
versus one-time shareholder contributions. For example,
CalCEF and CETF both received sharedholder funding as a
result of a CPUC decision, which is not funding that
otherwise would have been available in the state budget for
award of a state contract for the same public benefit
purpose.
Second, the bill prohibits the CPUC from entering into a
contract with an entity where a sitting commissioner is an
owner, director, or officer, even in the absence of any
financial interest. This makes CPUC commissioners subject
to more stringent requirements than any other state
officials. Why are existing conflict of interest laws
insufficient for CPUC commissioners?
Third, the provision that makes acting as an owner,
director or officer of a nonstate entity conduct sufficient
to remove a commissioner from office raises concerns. The
Constitution makes "neglect of duty" a basis for removal
from office, and this bill deems the connection to a
nonstate entity as being "negligent" of duty. But, even
assuming this is a drafting error, the language could
potentially be interpreted to make a commissioner subject
to removal the moment this bill is effective for conduct
prior to its effective date, raising due process concerns.
In any event, this provision appears to be
precedent-setting in that the committee could not identify
any existing statute that specifies particular conduct as
automatically constituting one of the grounds for
commissioner removal from office under the Constitution.
6. Separation of Advisory and Prosecutorial Duties . This
bill prohibits any CPUC employee who is involved in the
prosecution of an adjudication case from participating in
the decision of that case or advising a commissioner on how
it should be decided. The state Administrative Procedures
Act requires a state agency's adjudicative function to be
separated from the investigative, prosecutorial, and
advocacy functions (Sections 11425.10 and 11425.30 of the
Government Code). But the CPUC has long been exempt from
the APA. In fact, current law provides that the General
Counsel's duties include prosecuting proceedings and
advising the commission and each commissioner on all
matters (PU Code Section 307).
Current law establishing DRA, however, requires the
commission to develop a code of conduct and procedures to
ensure employees do not both advocate and advise
decisionmakers in the same case (PU Code 309.5(d)). The
CPUC provided the committee a copy of a 1997 memorandum on
"Conflict of Roles: Guidelines & Procedures" that requires
separation of functions for CPUC staff, but the memo
emphasizes that these are only guidelines and gives the
executive director and general counsel some authority to
waive the guidelines. The CPUC nonetheless states that it
complies with the California Supreme Court's 2009 decision
in Morongo Band of Mission Indians v. State Water Resources
Control Board, which requires separation of advocacy and
advisory functions in state agency enforcement proceedings.
This bill prohibits any employee who prosecutes a case, or
"supervises" the prosecution of a case from advising the
commission on that case. Assuming the general counsel
supervises all attorneys in the Legal Division, including
those assigned to prosecute cases, this provision
potentially conflicts with the general counsel's statutory
duty to advise each commissioner on any matter.
7. CPUC General Counsel Subject to State Bar . This bill
provides that the CPUC's general counsel shall be subject
to the State Bar Act and the Rules of Professional Conduct
of the State Bar of California, which apply to any attorney
licensed to practice law in California. This provision is
redundant with current law that specifies that the general
counsel be "an attorney at law of this state."
8. Report on Applications for Rehearing . Current law
requires the CPUC to act within 60 days on an application
for rehearing of a CPUC decision, which is a prerequisite
to seeking judicial review. Parties complain that the CPUC
rarely meets this timeframe and that extended delay
effectively denies parties the right to seek judicial
review. SB 1414 (Kehoe, 2010) sought to correct this
problem by deeming an application as deemed denied after a
certain date, but it was vetoed. This bill seeks to
increase legislative oversight of the problem by adding to
an existing CPUC report a requirement to report on
disposition of applications for rehearing.
9. Changes in Name Only ? Sections 5, 8, and 15 of this
bill change statutory references to the CPUC division
responsible for "consumer protection and safety" to "safety
and enforcement." The author states that this is to
conform to the CPUC's action in January 2013 to rename the
division. The CPUC, however, raises a question about the
potential impact on its jurisdiction of removing the
statutory reference to "consumer protection."
Sections 9, 10, and 11 change references to commission
"regulations" to "rules," which the author states is a
clarification to conform to the constitutional provision
authorizing the CPUC to establish "rules" for public
utilities within its jurisdiction.
POSITIONS
Sponsor:
Author
Support:
Division of Ratepayer Advocates
The Utility Reform Network
Oppose:
California Public Utilities Commission
Jacqueline Kinney
SB 611 Analysis
Hearing Date: April 30, 2013