BILL ANALYSIS Ó SENATE COMMITTEE ON ENERGY, UTILITIES AND COMMUNICATIONS Senator Ben Hueso, Chair 2015 - 2016 Regular Bill No: SB 48 Hearing Date: 4/21/2015 ----------------------------------------------------------------- |Author: |Hill | |-----------+-----------------------------------------------------| |Version: |4/14/2014 As Amended | ----------------------------------------------------------------- ------------------------------------------------------------------ |Urgency: |No |Fiscal: |Yes | ------------------------------------------------------------------ ----------------------------------------------------------------- |Consultant:|Nidia Bautista | | | | ----------------------------------------------------------------- SUBJECT: Public Utilities Commission DIGEST: This bill proposes a suite of reforms of the governance and operations of the California Public Utilities Commission (CPUC), including modifying the powers of the president, requiring sessions in Sacramento, and applying the Code of Ethics from the Administrative Procedures Act (APA) to administrative law judges (ALJs). ANALYSIS: Existing law: 1. Establishes the CPUC with five members appointed by the Governor and confirmed by the Senate and empowers it to regulate privately-owned public utilities in California. Specifies that the Legislature may prescribe that additional classes of private corporations or other persons are public utilities. (Article XII of the California Constitution; Public Utilities Code §301 et seq.) 2. Requires the Governor to designate one of the commissioners as president who is granted with certain authority not provided to the other four commissioners. These powers include the ability to direct the executive director, the general counsel and staff, as well as, preside over all commission meetings, and other powers. (Public Utilities Code §305) SB 48 (Hill) Page 2 of ? 3. Requires the CPUC to hold at least one hearing per calendar month in the City and County of San Francisco. (Public Utilities Code §306) 4. Requires the president of the commission to annually appear before the appropriate legislative policy committees. (Public Utilities Code §321.6) 5. Exempts the CPUC from the California Administrative Procedures Act. (Public Utilities Code §1701) 6. Provides that the California Supreme Court and the court of appeal of the commission shall be the venues to address appeals of CPUC decisions. (Public Utilities Code §1701.6) 7. 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: 1. Repeals certain powers granted to the president of the CPUC, including the ability to direct the executive director, the attorney and other CPUC staff. 2. Requires the CPUC to hold no less than six sessions per year in the City of Sacramento. 3. Finds it is the intent of the legislature that the CPUC should be subject to the judicial review provisions of the Bagley-Keene Open Meeting Act. 4. Requires the CPUC to develop performance criteria for the CPUC and the executive director, and to conduct an annual evaluation of the director. 5. Directs the CPUC to adopt procedures on the disqualification of commissioners due to bias or prejudice. 6. Directs the CPUC to modify their annual workplan report, a document that is published and provided to the Legislature, to include performance criteria for the CPUC SB 48 (Hill) Page 3 of ? and executive director. As part of the effort, the CPUC shall create a report regarding the cases before the agency, including timeliness in resolving the cases, approvals for rehearings, number of scoping memos issued in each proceeding, number of orders issued and other items. 7. Requires the president of the CPUC to report on the timeliness in resolving cases during the annual appearance before the appropriate legislative policy committees. 8. Requires the ALJs to adhere to ethics provisions of the APA. 9. Expands the list of persons with an interest to include representatives from the financial industry for purposes of ex parte communication. 10. Requires the CPUC to specify the procedural matters that are appropriate subjects for ex parte communications for persons of interest. 11. Requires the CPUC to adopt by regulation a definition of decisionmakers to include commissioners, the executive director, and the attorney of the CPUC. 12. Requires participating parties and decisionmakers to report ex parte communications. 13. Establishes certain restrictions for ex parte communications in quasi-legislative proceedings that are currently applied to rate-setting proceedings, including: requiring all-party noticed meetings, granting all parties individual meetings and equal period of time if an individual meeting is granted to a party, and requires written ex parte communications to be submitted into the record. 14. Requires the CPUC to seek the views of those who are likely affected and demonstrate their efforts in the text of the order. 15. Provides that actions to enforce the requirements of the Bagley-Keene Open Meeting Act or the California Public Records Act can be taken to the superior court. Background SB 48 (Hill) Page 4 of ? CPUC in 2015 . 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. 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 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. Following the investigation, in May of 2013, the Safety and Enforcement Division (SED) of the CPUC formally recommended the CPUC to levy fines of $2.25 billion against PG&E, the full amount of which to be used to enhance safety. PG&E protested, contending they neither could have nor should have known the gas pipeline was installed incorrectly and that SED based the amount of the recommended penalty on "the deeply flawed analysis of one consultant." The CPUC referred the SED's proposed penalty against PG&E to the Administrative Law Division for assignment to an ALJ. The ALJ was to review the recommendation and, eventually, propose a final decision on the matter, including how any fines would be allocated among PG&E's shareholders and ratepayers. Eventually, the five commissioners of the CPUC would vote on whether to adopt, modify, or reject the ALJ's proposed decision. 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 SB 48 (Hill) Page 5 of ? 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 Investigation Opened . Since PG&E's initial release of 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. 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, Southern California Edison 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 San Onofre Nuclear Generating Station (SONGS). Recently appointed Interim Executive Director Timothy Sullivan, who described the emails as "shocking to the organization," is considering personnel action against CPUC employees. Newly appointed 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 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 SB 48 (Hill) Page 6 of ? subsequent audits found that CPUC's oversight of natural gas pipeline safety efforts by the utilities needs improvements. The CPUC Quasi-independent, but Still Accountable to the Legislature . 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. 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. Reporting to the Legislature . Current law requires the CPUC to publish an annual workplan by February 1and for the president of the CPUC to appear annually before the relevant legislative policy committees. SB 48 proposes several amendments to ensure the CPUC's annual report more accurately reflects the agency's progress related to timeliness of proceedings and the need to ensure the work of the agency is evaluated based on establishing annual goals and performance criteria. Changing Role of President . Legislation proposed over the years, and some enacted, has been aimed at improving CPUC accountability. Concurrent with the 1996 electric restructuring, a series of procedural reforms were enacted to improve the accountability of individual commissioners by requiring each commissioner to spend more time in hearings and to take "ownership" of draft decisions. SB 33 (Peace, Chapter 509, Statutes of 1999) attempted to SB 48 (Hill) Page 7 of ? 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, prior to SB 33, also appointed the attorney 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, but none of those bills were chaptered. The most recent effort was a bill introduced in 2013, SB 611 (Hill) which proposed several reforms of the CPUC, including limiting the role of the president. The bill was subsequently amended and chaptered with unrelated language. 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. Disqualification of Commissioners . The law directs the CPUC to establish rules to address incidents when an ALJ may be disqualified from a proceeding. However, no similar mention is made of addressing concerns of bias by commissioners. In recent times, motions to recuse a commissioner from a proceeding due to a party's claim that there is undue bias have been denied. After the release of the PG&E emails, the City of San Bruno motioned for a recusal of then President Peevey. That motion was denied. The ALJ as the time stated that "No specific rule sets forth a procedure for addressing motions to seek the recusal of a Commissioner for cause." Ex Parte Communication Rules . Substantive communication outside of the public record that occurs between a decisionmaker and a party with an interest in a CPUC proceeding are known as "ex parte" communications. Statute recognizes that ex parte communications can conflict with the need for public decisionmaking at the CPUC. SB 48 (Hill) Page 8 of ? Current law directs the CPUC to adopt regulations requiring the reporting of ex parte communications. The regulations are to require CPUC's ex parte rules to require the interested party to report the communication within three working days of the communication and include: The date, time, and location of the communication, and whether it was oral, written, or a combination. The identity of the recipient and the person initiating the communication, as well as the identity of any persons present during the communication. A description of the party's, but not the decisionmaker's, communication and its content. Statute does not require a CPUC decisionmaker to report ex parte communication with an interested party. Statute directs CPUC to identify each of its proceedings according to one of three categories - adjudicatory, quasi-legislative, and ratesetting - and provides ex parte rules applicable to each type of proceeding. The types of proceedings and the statutory ex parte rules applicable to each are: Adjudication cases - enforcement cases and complaints, except those challenging the reasonableness of rates or charges. Statute expressly prohibits ex parte communication related to an adjudicatory proceeding. Quasi-legislative cases - those that establish policy, including, but not limited to, rulemakings and investigations which may establish rules affecting an entire industry. Statute expressly allows for ex parte communication without restriction in these types of proceedings. Ratesetting cases - cases in which rates are established for a specific company. Statute expressly prohibits ex parte communication related to ratesetting cases. However, despite the prohibition, statue provides circumstances in which ex parte communication is permitted and procedures for reporting and managing such communication. The CPUC has adopted regulations regarding ex parte communications. The regulations define ex parte communication as oral or written communication that: (1) concerns any SB 48 (Hill) Page 9 of ? substantive issue in a formal proceeding, (2) takes place between an interested person and a decisionmaker, and (3) does not occur in a public hearing, workshop, or other public forum noticed by ruling or order in the proceeding, or on the record of the proceeding. The regulations define "decisionmaker" as any commissioner, the chief administrative law judge, any assistant chief administrative law judge, the assigned administrative law judge, or the law and motion administrative law judge. The ex parte regulations applicable to decisionmakers are also applicable to commissioners "personal advisors," with certain exceptions regarding ratesetting proceedings. The CPUC's ex parte regulations generally conform to statutory requirements and prohibitions. The regulations prohibit ex parte communications in adjudicatory proceedings and allow them without restriction in quasi-legislative proceedings. Notably, the regulations explicitly prohibit ex parte communications regarding assignment of ALJs. Regarding ratesetting proceedings, however, the regulations depart from statute in that they make no mention of a general prohibition on ex parte communications in ratesetting proceedings. Rather, the regulations describe, in detail, circumstances in which ex parte communications are authorized and the reporting requirements for such communication. Code of Ethics . Most state agencies follow the APA for rulemakings and enforcement proceedings. However, as a quasi-independent agency, the CPUC is exempt from the APA and instead follows its own rules and procedures. SB 48 proposes to apply the APA Code of Ethics to adjudication proceedings of the commission to align with most other state agencies. Appeals . Appeals for decisions for most matters at the CPUC are addressed by the CPUC or by the California Supreme Court. This unique limitation to CPUC processes means most decisions of the agency stand. This is because most cases are not likely to be heard by the Supreme Court and it can require a fair amount of resources to pay for the necessary legal representation. SB 48 proposes to allow any action related to the Bagley-Keene Open Meetings Act or the California Public Records Act to be petitioned at a superior court, where there is greater opportunity to have a case heard. Impacted Stakeholders . SB 48 proposes a requirement on the CPUC to affirmatively seek out the views and input of those impacted SB 48 (Hill) Page 10 of ? most by a proposed proceeding or investigation. One of the many criticisms of the CPUC is the challenges of identifying who may be interested and facilitating their participation as a party in a proceeding. CPUC processes are legalistic and archaic and may not be of interest to some. However, the CPUC should be encouraged to make every feasible effort to connect with those most impacted by their decisions, whether it is a community impacted by water rates or low-income residents who aren't aware of changes to public purpose programs. Comments/Amendments SB 48 proposes numerous reforms of CPUC governance and operations to ensure the agency is more accountable to the public. With two related bills pending in committee, the Chair is working with the authors to ensure the bill proposals do not conflict with one another. In order to preserve most of the elements of the SB 48, while eliminating any potential conflicts with the other vehicles, the author and committee may wish to amend SB 48 as noted below: Delete most of the proposal related to ex parte communication restrictions, including the proposed restrictions on quasi-legislative proceedings, (proposed in SB 48 Section 9 and 10). Delete the language related to disqualification of commissioners (proposed amends PUC §309.6). Move language related to annual performance review to a separate section (proposed amends PUC §308 (d)). Delete the language related to applying ex parte communication to a representative of the financial industry. (proposed amends Section 9. PUC §1701.1 (d)(1)). Move language related to requiring the commission to specify those procedural matters for the purposes of ex parte communication, proposed section 9. PUC §1701.1 (d)(1). Delete the language related to ex parte communication, including language defining a decisionmaker as the attorney of the agency and language regarding requiring the proposed reporting requirements, penalties, etc. (proposed amends PUC §1701.1 (c)). Move language related to requiring the commission to specify those procedural matter for the purposes of ex parte communication, proposed PUC §1701.1 (d)(1). Delete proposed amendments in Section 10, which relate to restricting ex parte communication in quasi-legislative SB 48 (Hill) Page 11 of ? proceedings. (proposed PUC §1701.4). Prior/Related Legislation SB 215 (Leno) proposes a suite of reforms of the CPUC related to governance and operations, including disqualification of commissioners to proceedings, modifying the role of the president, and other reforms. SB 660 (Hueso) proposes reforms of the ex parte communications laws related to ratesetting and quasi-legislative proceedings. SB 611 (Hill, as amended April 13, 2013) proposed some of the same changes suggested in this bill, including repealing some of the powers of the president. The bill was successfully voted out of Senate EU&C Committee. It was subsequently amended numerous times, and ultimately chaptered into law with unrelated language regarding modified limousines. FISCAL EFFECT: Appropriation: No Fiscal Com.: Yes Local: Yes SUPPORT: California Newspaper Publishers Association Communications Workers of America, District 9 AFL-CIO Sierra Club California CONCERN: California Cable & Telecommunications Association OPPOSITION: None received ARGUMENTS IN SUPPORT: The author argues that the current governance structure, whereby the president of the CPUC is able to direct the CPUC staff, is not working. The author cites a string of incidents, including some involving management of ratepayer money, management staff leadership failures, and recent scandals, as evidence that the current system is broken. The author also argues that the CPUC has a large workload that necessitates a president that will share responsibilities with other commissioners to ensure the effectiveness of the agency. SB 48 (Hill) Page 12 of ? Furthermore, the author commends the leadership of the CPUC for taking some positive steps in recent months. However, he cautions these changes should not be temporary; therefore, permanent changes are needed of the agency. -- END --