BILL ANALYSIS Ó
SENATE COMMITTEE ON ENERGY, UTILITIES AND COMMUNICATIONS
Senator Ben Hueso, Chair
2015 - 2016 Regular
Bill No: ACA 11 Hearing Date: 6/27/2016
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|Author: |Gatto |
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|Version: |5/27/2016 As Amended |
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|Urgency: | |Fiscal: |Yes |
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|Consultant:|Nidia Bautista |
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SUBJECT: Public Utilities Commission
DIGEST: This measure authorizes the Legislature to reallocate
or reassign all or a portion of the functions of the California
Public Utilities Commission (CPUC) to other state agencies,
departments, boards, or other entities, consistent with
specified purposes and repeals the provisions of the California
Constitution pertaining to the CPUC effective January 1, 2019.
ANALYSIS:
Existing law:
1) Establishes the CPUC with jurisdiction over all public
utilities and grants the CPUC certain general powers over all
public utilities, subject to control by the Legislature.
(California Constitution, Article 12)
a) Establishes the CPUC consists of five members
appointed by the Governor and approved by the Senate, a
majority of the membership concurring, for staggered
six-year terms. A vacancy is filled for the remainder
of the term. The Legislature may remove a member for
incompetence, neglect of duty, or corruption, two thirds
of the membership of each house concurring.
b) Provides that subject to statute and due process,
the CPUC may establish its own procedures. Any
commissioner as designated by the CPUC may hold a
hearing or investigation or issue an order subject to
CPUC approval.
ACA 11 (Gatto) PageB of?
c) Establishes that private corporations and persons
that own, operate, control, or manage a line, plant, or
system for the transportation of people or property, the
transmission of telephone and telegraph messages, or the
production, generation, transmission, or furnishing of
heat, light water, power, storage, or wharfage directly
or indirectly to or for the public, and common carriers,
are public utilities subject to control by the
Legislature.
d) Authorizes the Legislature to prescribe additional
classes of private corporations or other persons are
public utilities.
e) Authorizes the CPUC to fix rates and establish
rules for the transportation of passengers and property
by transportation companies, prohibit discrimination,
and award reparation for the exaction of unreasonable,
excessive, or discriminatory charges.
f) Prohibits a transportation company from raising a
rate or incidental charge except after a showing to and
a decision by the CPUC that the increase is justified,
and this decision shall not be subject to judicial
review except as to whether confiscation of property
will result.
g) Provides that the Legislature has plenary power,
unlimited by the other provisions of this constitution
but consistent with this article, to confer additional
authority and jurisdiction upon the CPUC, to establish
the manner and scope of review of CPUC action in a court
of record, and to enable it to fix just compensation for
utility property taken by eminent domain.
h) Authorizes the CPUC to fix rates, establish rules,
examine records, issue subpoenas, administer oaths, take
testimony, punish for contempt, and prescribe a uniform
system of accounts for all public utilities subject to
its jurisdiction.
i) Prohibits a transportation company from granting
free passes or discounts to anyone holding an office in
the state.
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j) Prohibits a CPUC commissioner from holding an
official relation to nor have a financial interest in a
person or corporation subject to regulation by the CPUC.
aa) Prohibits a city or county from regulating matters
over which the legislature grants regulatory power to
the CPUC.
2) Authorizes the legislature to propose an amendment or
revision of the California Constitution by rollcall vote
entered into the journal, two-thirds of the membership of
each house concurring. (California Constitution, Article 18,
§1)
3) Requires that a proposed amendment or revision of the
Constitution to be submitted to the electors and if approved
by a majority of votes takes effect the day after the
election, unless the measure provides otherwise. (California
Constitution, Article 18, §4)
This bill:
1)Authorizes the Legislature with the power and authority to
reallocate or reassign all or a portion of the functions of
the CPUC to other state agencies, departments, boards, or
other entities the legislature may create.
2)Requires the Legislature to reallocate or reassign functions.
Background
CPUC history. The history of the CPUC dates back to the late
19th century, when in 1875 statutes were adopted to establish an
Act to provide for the appointment of Commissioners of
Transportation to fix the maximum charges for freights and
fares, and to prevent extortion and discrimination on
railroads.<1> In subsequent years, several statutes and or
constitutional amendments were adopted that would rename, tweak
or expand the commission, resulting in the Railroad Commission
in 1911, which was subsequently repealed in its entirety by
passage of the Public Utilities Act in extraordinary session of
---------------------------
<1> West's Annotated California Codes. Public Utilities: Section
1 to 699. 2004, p. 13.
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1911. The Public Utilities Act has formed the primary basis for
the legal code that governs the CPUC.
A product of the Progressive Era. The CPUC was established by
constitutional amendment as part of the sweep of progressive
reforms in the early 1900s. Then-Governor Hiram Johnson pushed
for reforms of the Railroad Commission, which became today's
CPUC, as a largely independent agency that would guard against
the corrupting influence of railroads. In demonstration of its
independence, the CPUC was located in San Francisco, a distance
from the state capitol in Sacramento. Article XII of the
California Constitution 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. In 1946, the CPUC was provided
its current name with the passage of Proposition 17.
Quasi-independent, but still 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 gubernatorial 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 courts of appeal and the Supreme Court, not trial courts.
CPUC mission. The mission of the CPUC is to serve "the public
interest by protecting consumers and ensuring the provision of
safe, reliable utility service and infrastructure at reasonable
rates, with a commitment to environmental enhancement and a
healthy California economy. We regulate utility services,
stimulate innovation, and promote competitive markets, where
possible, in the communications, energy, transportation, and
water industries." In recent years, public and legislative
confidence in the CPUC has been affected in light of some
serious life-threatening incidents, questionable ethical
behavior by some at the agency, and a number of state audits
that have found some areas of the agency lacking.
Fatal explosion in San Bruno. On September 9, 2010, a natural
gas pipeline owned by Pacific Gas and Electric Company (PG&E)
exploded in a residential neighborhood in the City of San Bruno.
Eight people died, dozens were injured, 38 houses were
ACA 11 (Gatto) PageE of?
destroyed and many more were damaged. The investigations by the
National Transportation Safety Board (NTSB) and an independent
review panel appointed by the CPUC found that PG&E mismanaged
their pipeline over decades, failed to adequately test the
strength of the pipeline and, more generally, valued profits
over safety. These same investigations also noted the CPUC's
inadequate oversight of the PG&E.
Power outages. In December 2011, nearly 500,000 Californians
experienced widespread power outages of up to six days in the
Los Angeles region due to windstorms. According to the author,
the Assembly Utilities and Commerce Committee's investigation
revealed that the CPUC allowed Southern California Edison (SCE)
to keep unspent maintenance funds and that the CPUC does not
check to make sure that the maintenance work was performed.
Leaking nuclear generator. In January 2012, a leak of
contaminated steam was detected at one of the two new
replacement generators at the San Onofre Nuclear Generation
Station (SONGS). In June 2013, SCE decided to permanently shut
down SONGS as a result of design flaws affecting both
generators. SCE is seeking damages from the manufacturer,
Mitsubishi. In a meeting held in Warsaw, Poland in March 2012
between then-CPUC President Peevey and an SCE executive outlined
a settlement framework. In November 2014, the CPUC allocated
three quarters of the cost of the SONGS generators to be paid by
ratepayers "without review of the expenses for the steam
generator replacement projects" and consistent with the notes
from the Warsaw meeting.
Emails demonstrate "culture of conversation." During the summer
and fall of 2014, PG&E, bowing to legal pressure from the City
of San Bruno, began to release a growing number of emails
between the utility and CPUC officials. PG&E released 65,000
emails from over a five-year period many of which PG&E says it
believes "violated CPUC rules governing ex parte
communications." The initial release of emails revealed efforts
by PG&E executives to influence the CPUC's assignment of ALJ to
a ratemaking proceeding. Many of the other emails exposed
regular, private, familiar communications between PG&E and
certain CPUC commissioners, including former CPUC President
Michael Peevey and current Commissioner Mike Florio, as well as
senior CPUC officials.
Criminal investigations opened. Since PG&E's initial release of
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the emails, both the state Attorney General and the United
States Department of Justice have opened investigations into
communications between the CPUC and regulated entities. As of
this analysis, the investigations remain opened. PG&E has fired
three senior executives. A senior CPUC official has resigned,
while other top CPUC officials - including longtime CPUC
President Michael Peevey and Executive Director Paul Clannon -
have retired under pressure. Attorneys in CPUC's legal division
requested CPUC commissioner's direct staff on how to properly
cooperate with ongoing law enforcement investigations and to
ensure CPUC staff preserves evidence relative to the
investigations. Investigators working with the Attorney
General's Office have raided the CPUC offices and the homes of
former CPUC Commissioner President Peevey and PG&E former-Vice
President Brian Cherry. In early February, only after a
newspaper published details of the search warrant, SCE disclosed
a meeting that occurred a year prior in Warsaw, Poland between
then-CPUC President Peevey and a utility executive in which they
discussed how to resolve the shutdown plans for SONGS. CPUC
President Michael Picker acknowledged the communications have
damaged the public's trust in the regulatory agency and that
changes are needed.
Audits reveal CPUC's efforts are lacking. In recent years, the
CPUC has undergone a number of audits related to its budget,
transportation program, natural gas pipeline safety program and
others. The findings of these audits have raised concerns about
the ability of the CPUC to manage even some of its core
functions. A March 2014 audit by the State Auditor found that
"the commission lacks adequate processes for sufficient
oversight of utility balancing accounts to protect ratepayers
from unfair rate increases." The NTSB San Bruno investigation
report and subsequent audits found that CPUC's oversight of
natural gas pipeline safety efforts by the utilities needs
improvements.
Aliso Canyon. The recent natural gas storage well leak in Aliso
Canyon, which displaced thousands of residents in Porter Ranch
and surrounding communities and resulted in over 87,000 metric
tons of methane being pumped into the air, has reinvigorated
these concerns. The investigation into the Aliso Canyon gas
storage well leak is still ongoing, but according to the author,
the CPUC's response to the crisis has frustrated many in the
community. While CPUC has general oversight of the gas utility,
the primary responsibility for overseeing the integrity of
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storage wells lies with the Department of Conservation's
Division of Oil, Gas, and Geothermal Resources (DOGGR) - not the
CPUC.
CPUC in 2016. The CPUC is governed by five full-time
commissioners, appointed by the governor and confirmed by the
Senate, and staffed by approximately 1,000 individuals who,
together, regulate privately owned electric, natural gas,
telecommunications, water, railroad, rail transit, and passenger
transportation companies. CPUC staff includes four personal
advisors to each commissioner, except five to the president, as
well as the 42 judges of the Administrative Law Division -
attorneys, engineers and accountants who prepare the docket for
all CPUC official filings, including maintenance of the official
record of proceedings. Most staff is located in the CPUC's San
Francisco headquarters, with other staff in offices in
Sacramento and Los Angeles. The CPUC is a regulatory agency
with a large and complex portfolio of responsibilities that
includes regulation of privately owned electric, natural gas,
telecommunications, water, railroad, rail transit, and passenger
transportation companies.
Need for reform. In response to the increased scrutiny, the
CPUC has made a number of personnel changes, including the
resignation of former CPUC president, the former executive
director, replaced other management and staff positions. The
CPUC has also initiated internal reforms to better address
safety, including requiring safety to be assessed in all
proceedings. The agency has also recently proposed a Division
of Safety Analysis to further bolster safety issues in
ratemaking proceedings. The agency has also been undergoing a
strategic planning process to better focus its efforts.
Assuming the current budget is approved, the CPUC will also be
hiring about a quarter of its workforce in the coming year -
nearly 250 staff positions in areas of information technology,
safety, energy analysts, and others. The CPUC has also been
working to implement the many audits and third-party expert
recommendations from improving the oversight of natural gas
pipelines, to improving overall management processes, to
establishing procedures for reviewing balancing accounts and
several others. However, as evidenced by the various active
legislative bills, including SB 215 (Leno-Hueso) and SB 512
(Hill) the desire for additional reforms, although, potentially
much more surgical than what is proposed by this measure.
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Spread too thin? A valid concern about the CPUC has been raised
several times, including by the current president: is the CPUC
spread too thin and handling too many varied areas? The notion
that one agency would handle issues related to railroads,
transportation, electric and water utilities and phone service
does raise concerns. Interestingly, the plethora of issues is
not unique to the CPUC and similar to some other states' public
utilities commissions. Perhaps the biggest exception is the
inclusion of transportation network companies (TNCs) under a
statewide public utilities commission which does seem to be
unique to California. It would be critically important to
better understand the existing efforts/authority of the CPUC
prior to any efforts to reorganize. Of particular importance is
better understanding the many areas where the CPUC shares
responsibility with other state or federal agencies and the
specific role of the CPUC. For example, the CPUC administers a
federal rail safety program to enforce federal rules, as the
state is largely preempted to adopt rules related to railroad
activity. This program involves deploying staff to audit and
inspect specified rail tracks and crossings. The CPUC is also
responsible for handling the federal natural gas pipeline safety
rules promulgated from the federal Pipeline and Hazardous
Materials Safety Administration (PHMSA) whereby CPUC staff audit
investor-owned gas utilities' books and records to ensure the
utility is complying with the pipeline requirements. As
discussed above, while the CPUC has oversight of utilities,
DOGGR has primary responsibility for the safety of natural gas
storage wells - such as Aliso Canyon. Another example is the
role of the CPUC in rate-setting versus the role of the
California Energy Commission (CEC) in adopting statewide energy
policy. This measure recognizes that such exploration requires
time, as evidenced by the two year interim between when the
CPUC's existing authorities would be reshaped by a future
legislative body.
Is this the right solution? This measure seeks to remove the
constitutional powers of the CPUC as the solution to address the
series of life-threatening and ethical scandals that have
plagued the agency of late. However, not knowing what the
future agency(ies) would look like and do, makes it difficult to
determine with any confidence that this is the right solution.
It cuts both ways. Some of the existing constitutional powers
of the CPUC, including the ability to set rates and others,
provide some level of helpful independence from the political
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influence that is often peddled by well-resourced interests.
The issue is whether the existing processes and procedures
appropriately protect ratepayers, and Californian's generally,
from relationships between the regulated and the regulated that
could inappropriately undermine public safety and consumer
protections.
Cart before the horse? This measure would provide a future
legislature the opportunity to adopt a reorganization of the
CPUC, but strip the constitutional powers of the agency this
fall. While this "choose your own adventure" approach is an
opportunity, it's one that may engender more confidence from the
public if the new organization was articulated in a
complimentary statute. The idea of combining a constitutional
amendment with complimentary statutory measure(s) has been the
case in previous experiences with constitutional amendments of
the CPUC, including the most recent - Proposition 12 (ACA 36) in
1974 whose companion legislation was AB 4024.
Another approach. Existing statutory authority in Government
Code §§12080-12081 provides the Governor the power to reorganize
the executive branch by using the executive reorganization
process. Such efforts begin with a Governor's submittal of a
reorganization plan to the Legislative Counsel for drafting into
bill language, and to the Little Hoover Commission, which
examines the plan and reports its recommendations. Thirty days
after submission to the Little Hoover Commission, the Governor
may submit the plan to the Legislature. While it's unclear if
the CPUC, as a quasi-independent agency, would be eligible for
such a process, a similar approach would be beneficial to
provide more clarity as to the new agency(s) that would assume
the powers and responsibilities of the CPUC.
Prior/Related Legislation
ACA 36 (Proposition 12) Measure that shortened, eliminated
obsolete provisions, and simplified Article XII of the State
Constitution relating to the CPUC.
AB 4024 (Chapter 489, Statutes of 1974) established in statute
some of the previous provisions included in the constitutional
powers of the CPUC which would be repealed by ACA 36.
AB 825 (Rendon, 2015) proposed a suite of reforms of the CPUC
largely directed at increased transparency of the activities of
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the agency, including requiring the California State Auditor's
Office to appoint an Inspector General within its office for the
CPUC, expanding the roles and responsibilities of the CPUC
public advisor, specifying additional requirements of
commissioners, and increased transparency of electric utilities'
procurement, among others. The bill was vetoed by the Governor.
AB 895 (Rendon, 2015) would have required proceeds of any claims
arising out of the 2000 to 2002 energy crisis to be monetary and
deposited into the Ratepayer Relief Fund to be appropriated for
the benefit of ratepayers, and provides that actions to enforce
the CPUC's process for handling and determining disclosable
public records, as well as actions to enforce Bagley-Keene Open
Meetings Act requirements, may be taken to the superior court.
The bill was vetoed by the Governor.
AB 1023 (Rendon, 2015) would have required the CPUC to establish
and maintain a weekly communications log summarizing all oral or
written ex parte communications. The bill was vetoed by the
Governor.
SB 18 (Hill, 2015) would have required any contract entered into
by the CPUC for outside legal counsel services to represent it
in a criminal investigation to be submitted to the Joint
Legislative Budget Committee (JLBC) for review, with specified
information, and approved by a vote of the CPUC no sooner than
30 days after the contract has been submitted to the JLBC. The
bill was vetoed by the Governor.
SB 48 (Hill, 2015) proposed a suite of reforms of the governance
and operations of the CPUC, including, among others, requiring
sessions in Sacramento, applying the Code of Ethics from the
Administrative Procedures Act to administrative law judges,
clarifying and augmenting the information the CPUC must provide
the Legislature in its annual report, and others. The bill was
vetoed by the Governor.
SB 215 (Leno-Hueso) proposes a suite of reforms of the rules,
operations and procedures of the California Public Utilities
Commission (CPUC) pertaining to the laws and rules related to ex
parte communications and criteria and process for
disqualification of commissioners to a proceeding. The bill is
scheduled to be heard in the Assembly Committee on Utilities and
Commerce on July 29th.
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SB 512 (Hill, 2016) proposes a suite of reforms of the
operations and governance of the CPUC, including requiring the
CPUC to hold no less than six sessions per year in Sacramento,
expand the information required of the CPUC in its annual report
and workplan to the Legislature and Governor, authorize local
governments, under specified conditions, to be eligible to
participate in the CPUC's intervenor compensation program and
others. The bill is scheduled to be heard in the Assembly
Committee on Utilities and Commerce on July 29th.
SB 660 (Leno-Hueso, 2015) would have proposed a suite of reforms
of the governance, rules, operations and procedures of the CPUC,
including: reform of laws and rules related to ex parte
communications, criteria and process for disqualification of
commissions to a proceeding, and authorizes the Commission to
appoint the chief administrative law judge. The bill was vetoed
by the Governor.
FISCAL EFFECT: Appropriation: No Fiscal
Com.: Yes Local: No
SUPPORT:
San Francisco Taxi Workers Alliance
OPPOSITION:
California Association of Competitive Telecommunications
Companies
Service Employees International Union
ARGUMENTS IN SUPPORT: The author asserts that "the CPUC
status as a Constitutionally-authorized agency is unique and has
enabled the CPUC to pick and choose which policies to enact and
enforce. CPUC's ability to regulate these wide-ranging and
diverse industries - from electric and natural gas companies to
limousines and transportation network companies - has been
called into question. The disasters resulting from our broken
system of regulation over just the past few years are well
documented covering virtually every area under CPUC jurisdiction
- gas line explosion at San Bruno; power outages of up to six
days in Los Angeles region due to windstorms; contaminated steam
leaks at San Onofre Nuclear Power Station (SONGS); the gas well
leak in Aliso Canyon; and just over the last month, double-digit
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deaths on rail tracks in the Bay Area."
In support of ACA 11, the San Francisco Taxi Workers Alliance
states: "the CPUC has proved itself incapable of fairly and
effectively regulating charter-party carriers, including
limousines and TNCs. It allowed TNCs to operate in violation of
law for several years before granting them approval in a highly
flawed and biased process?The CPUC has ignored other major
concerns in its regulation of TNCs, such as service to the
disabled and protection to the environment."
ARGUMENTS IN OPPOSITION: In opposition to ACA 11, the SEIU
Local 1000 states they have a number of major concerns with the
bill, specifically: "1) this bill lacks specifics while asking
for a constitutional change; 2) this bill does not address the
neglected human resources which is at the heart of many of the
problems at the CPUC; 3) this bill does nothing to address
oversight concerns; 4) this bill would potentially cause more
problems than it is trying to fix as it leaves many questions
left unanswered."
CalTel expresses their opposition to this measure because of
"significant concerns that ACA 11 will jeopardize the ability of
the CPUC to protect and promote competition as well as create
significant marketplace uncertainty related to what state
agency, if any, will perform federally delegated
responsibilities in overseeing the wholesale market.
Unfortunately, the passage of ACA 11 will create significant
uncertainty around the continued existence of the CPUC and its
important role with regards to the duties and authority
delegated to it in the Act."
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