BILL ANALYSIS Ó ----------------------------------------------------------------- |SENATE RULES COMMITTEE | SB 48| |Office of Senate Floor Analyses | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ----------------------------------------------------------------- THIRD READING Bill No: SB 48 Author: Hill (D) Amended: 5/6/15 Vote: 21 SENATE ENERGY, U. & C. COMMITTEE: 9-0, 4/27/15 AYES: Hueso, Fuller, Cannella, Hertzberg, Hill, Leyva, McGuire, Morrell, Wolk NO VOTE RECORDED: Lara, Pavley SENATE APPROPRIATIONS COMMITTEE: 7-0, 5/28/15 AYES: Lara, Bates, Beall, Hill, Leyva, Mendoza, Nielsen SUBJECT: Public Utilities Commission SOURCE: Author DIGEST: This bill proposes a suite of reforms of the governance and operations of the California Public Utilities Commission (CPUC), including, among others, modifying the powers of the president, requiring sessions in Sacramento, 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 SB 48 Page 2 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 CPUC meetings, and other powers. (Public Utilities Code §305) 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) 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 CPUC and each commissioner on all matters. (Public Utilities Code §307) 5) Requires the president of the CPUC to annually appear before the appropriate legislative policy committees. (Public Utilities Code §321.6) 6) Exempts the CPUC from the APA. (Public Utilities Code §1701) 7) Provides that the California Supreme Court and the court of appeal of the CPUC shall be the venues to address appeals of CPUC decisions. (Public Utilities Code §1701.6) 8) Establishes rules for state agencies to ensure meetings are open, public and available to all, as noted in the Bagley-Keene Open Meeting Act. Restricts a majority of members of a state governing body from meeting without proper notice, public access, and transparency. (Government Code §11120) This bill: 1) Repeals certain powers granted to the president of the CPUC, including the ability to direct the executive SB 48 Page 3 director, the general counsel, 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, including those noted in Government Code §11130 et seq, which provide for the ability of the Attorney General and other parties to take legal action against a governing body who violates the Bagley-Keene Open Meeting Act. 4) Directs the CPUC to modify their annual workplan report, a document that is published and provided to the Legislature by February 1st, to include performance criteria for both the CPUC and executive director, and annually evaluate the executive director based on the performance criteria. 5) Requires the CPUC to 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. 6) Requires the president of the CPUC to report on the timeliness in resolving cases during the annual appearance before the appropriate legislative policy committees. 7) Requires the ALJs to adhere to ethics provisions of the APA for adjudicated proceedings. 8) Requires the CPUC to seek the views of those who are likely affected by a decision or proceeding, except adjudicated proceedings, and requires the CPUC to demonstrate their efforts to engage these residents within the text of the order. 9) 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 Page 4 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 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. On April 9, 2015, the CPUC approved a decision of $1.6 billion against PG&E for the San Bruno explosion, specifically a $300 million fine to the General Fund, $850 million assessed on shareholders for gas pipeline safety improvements, $400 million SB 48 Page 5 disallowance/bill credit, and an estimated $50 million for additional remedies for pipeline safety. 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 stemming from the San Bruno explosion. 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 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 two years 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. 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. SB 48 Page 6 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 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 1st and 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 SB 48 Page 7 ensure the work of the agency is evaluated based on establishing annual goals and performance criteria. This bill also requires an annual performance evaluation of the executive director by the CPUC based on the established workplan. 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 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 CPUC. 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 Meetings 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. Code of ethics. Most state agencies follow the APA rules and SB 48 Page 8 requirements 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 CPUC to align with other state agencies. Appeals. A party wishing to appeal a decision of the CPUC can appeal to the CPUC's own court or the California Supreme Court. This unique limitation to CPUC processes means most decisions of the agency stand as it is unlikely the Supreme Court will wish to hear many of these cases. 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. Affected stakeholders. SB 48 proposes a requirement on the CPUC to affirmatively seek out the views and input of those impacted 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 can be off-putting to the average resident who wants to participate. However, the CPUC should be encouraged to make every feasible effort to connect with those most affected by their decisions, whether it is a community affected by increased water rates or low-income residents who can benefit from public purpose programs. Prior/Related Legislation SB 215 (Leno, 2015) proposed 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. Many of the provisions of this bill were amended into SB 660. The bill is currently in the Senate Energy, Utilities and Communications Committee. SB 660 (Leno and Hueso, 2015) proposes reforms of the ex parte communications laws related to ratesetting and quasi-legislative proceedings, aligns the language related to the powers of the president so that both SB 660 and SB 48 have the exact same language, addresses the process for disqualifying a commissioner from a proceeding, and other reforms of the CPUC. The bill passed the Senate Appropriations Committee on a vote of 5-2. SB 48 Page 9 SB 611 (Hill, as amended April 13, 2013) proposed some of the same changes suggested in SB 48, including repealing some of the powers of the president. The bill was successfully voted out of Senate Committee on Energy, Utilities and Communications. It was subsequently amended numerous times, and ultimately chaptered into law with unrelated language regarding modified limousines. FISCAL EFFECT: Appropriation: No Fiscal Com.:YesLocal: No According to the Senate Appropriations Committee: Ongoing annual costs in the tens of thousands of dollars and possibly into the low thousands to the Public Utilities Reimbursement Account (special) to have at least six meetings in Sacramento instead of San Francisco. One-time costs of $160,000 annually for two years followed by estimated annual costs of $360,000 to the Public Utilities Reimbursement Account (special) to seek views of interested persons. Unknown possible legal costs to the Public Utilities Reimbursement Account (special) to respond to claims under the Bagley-Keene Open Meeting Act. Minor and absorbable costs to the Public Utilities Reimbursement Account (special) for additional meetings in order for the CPUC to direct the executive director, attorney, and staff. SUPPORT: (Verified5/29/15) California Newspaper Publishers Association Communications Workers of America, District 9 AFL-CIO Sierra Club California The Utility Reform Network OPPOSITION: (Verified5/29/15) Six individualsSB 48 Page 10 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. 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. ARGUMENTS IN OPPOSITION:The opponents expressed concerns that the current powers of the president should be preserved. They argue that not having a strong president will result in the ALJ having dominance in decision-making. Prepared by:Nidia Bautista / E., U., & C. / (916) 651-4107 5/31/15 11:40:28 **** END ****