BILL ANALYSIS Ó SENATE COMMITTEE ON ENERGY, UTILITIES AND COMMUNICATIONS Senator Ben Hueso, Chair 2015 - 2016 Regular Bill No: SB 215 Hearing Date: 4/21/2015 ----------------------------------------------------------------- |Author: |Leno | |-----------+-----------------------------------------------------| |Version: |4/15/2015 As Amended | ----------------------------------------------------------------- ------------------------------------------------------------------ |Urgency: |No |Fiscal: |Yes | ------------------------------------------------------------------ ----------------------------------------------------------------- |Consultant:|Nidia Bautista | | | | ----------------------------------------------------------------- SUBJECT: Public Utilities Commission DIGEST: This bill proposes a suite of reforms related to the governance and operations of the California Public Utilities Commission (CPUC), specifically modifying powers of the president of the commission, directing the agency to establish rules for disqualification of commissioners in proceedings, expanding the definition of decisionmakers, and other reforms. 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. SB 215 (Leno) Page 2 of ? (Public Utilities Code §305) 3. 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) 4. Requires the CPUC to determine the nature of a proceeding, specifically whether it is quasi-legislative, ratesetting, or adjudicatory and establishes definitions and rules related to each. (Public Utilities Code §1701.1) 5. Directs the CPUC to adopt by regulation rules to define decisionmakers and persons for purposes of applying ex parte communication rules. (Public Utilities Code §1701.1) This bill: 1. Modifies the role and powers of the president of the CPUC, including repealing the authority of the president to direct the executive director, the attorney and other CPUC staff. 2. Establishes that committees of two or more commissioners shall meet regularly with staff for purposes of management and internal oversight functions and exempts these meetings from the requirements of the Bagley-Keene Open Meeting Act. 3. Requires the CPUC to adopt procedures for disqualification of commissioners due to bias or prejudice similar to those of other state agencies and based on specified criteria for ratesetting and adjudicatory proceedings. 4. Requires rules governing ex parte communication for those with financial interest to include persons involved in issuing a credit ratings or advising entities or persons who may invest in the shares or operations of a party to a proceeding. 5. Expands the definition of decisionmaker for the purposes of ex parte communications rules to include the agency general counsel, the executive director, the director of Energy Division, the director of the Communications SB 215 (Leno) Page 3 of ? Division, the director of the Water Division and the director of the Safety and Enforcement Division. 6. Requires those defined as decisionmakers to report communications between themselves and a person with an interest who is not a party to the proceeding. 7. Prohibits any ex parte communication from being included in the record of a proceeding or from being relied upon for contested issues. 8. Prohibits communications with decisionmakers on procedural issues, except with the assigned administrative law judge. Background 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 SB 215 (Leno) Page 4 of ? 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 administrative law judge (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 communications." The initial release of emails revealed efforts by PG&E executives to influence the CPUC's assignment of ALJ to a San Bruno-related 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 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). SB 215 (Leno) Page 5 of ? 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 subsequent audits found that CPUC's oversight of the utilities' natural gas pipeline safety efforts 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 CPUC courts of appeal and the Supreme Court, not trial courts. Changing Role of President . Legislation proposed over the years, and some enacted, has been aimed at improving CPUC accountability. Concurrent with the 1996 electric SB 215 (Leno) Page 6 of ? restructuring, a series of procedural reforms were enacted to improve the accountability of individual commissioners by requiring commissioners 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 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. 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, any 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 at the time stated that "No specific rule sets forth a procedure for addressing motions to seek the recusal of a Commissioner for cause." Open and Public Meetings . The Bagley-Keene Open Meeting Act governs state bodies to ensure meetings are open and available to all interested persons to participate, including provisions for proper notice, etc. A 2006 Appellate Court decision (Wolfe v. City of Fremont) held that a member of a governing body who went to a majority of members of the governing body did not violate the serial meetings provisions, unless the communication resulted in a decision of the board. By default this decision was widely seen as allowing previously prohibited serial meetings from occurring. In response, the state passed legislation in 2009, AB 1494 (Eng, Chapter 150, Statutes of 2009), to close this perceived loophole. The CPUC has SB 215 (Leno) Page 7 of ? implemented those changes in the Bagley-Keene law by restricting communication between a majority of commissioners and their personal advisors. Comments Powers of the President. This bill proposes to remove many of the changes instituted under SB 33 which sought to centralize the power of the CPUC president, with a significant exception for maintaining the provisions requiring the governor to appoint the president. There are many models of governance across state agencies with some agencies. Some agencies have presidents or chairs of boards with many more powers than their colleagues on the board or commission, while others share authority fairly evenly. Under the SB 33 changes, the CPUC structure became more similar to that of the California Energy Commission. However, as the release of emails have demonstrated, the lines between overseeing the agency and a president injecting oneself in the operations of agency have become rather blurred in recent years. For an agency with such a large workload on a wide range of topics, it is imperative that the five-member governing board of the CPUC share responsibilities among each other in a matter that empowers each, but also provides for clarity as to their role vs. that of the staff. Like a Salmon, Swimming Upstream. The vast majority of the proposed reforms of the CPUC in this bill, and related bills in committee, are seeking to clarify and strengthen rules governing the agency's operations. However, one proposed amendment in SB 215 seeks to make amendments of the Bagley Keene Open Meetings Act requirements as it relates to CPUC commissioners meeting in subcommittees to address management and operational issues. Specifically, SB 215 will permit a majority of commissioners to serve together on subcommittees of the commission and be exempt from the requirements of the Open Meeting Act. AB 1494 prohibits meetings of a majority of a governing body without proper public notice, prepared agendas, acceptance of public testimony and requires the meetings in public unless specifically authorized by the Act to meet in closed session. Some current and former commissioners have noted that since the application of the changes from AB 1494, CPUC commissioners have been further isolated from one another, making it more difficult to effectively oversee the operations of the agency. Disqualification of Commissioners . While the law provides that the CPUC establish regulations regarding the disqualification of SB 215 (Leno) Page 8 of ? administrative law judges due to bias or prejudice for a proceeding, there is no such requirements in the statute related to presiding commissioners. Instead, the CPUC has a practice, based on past decisions, of allowing a commissioner to vote on the decision whether to they should be recused from the proceeding. The Utility Reform Network (TURN) has experienced some situations in which its efforts to disqualify a commissioner for a proceeding where TURN believes there is bias or prejudice have been thwarted. They suggest that the practice at the CPUC whereby there must be "clear and convincing" evidence that the commissioner has an "unalterable closed mind on the matters critical to the disposition of the proceeding" is much too high of a threshold. SB 215 proposes to direct the CPUC to establish rules related to the disqualification of commissioners. These rules are to include prohibiting a commissioner or ALJ from ruling on a motion regarding their own bias and utilizing specific criteria, including private communications to influence the request for relief sought by a party and actions taken during the proceeding. The bill explicitly prohibits past work experience to be sufficient basis for demonstrating bias. The author and committee may wish to consider amendments that will further refine the proposed criteria, including language that requires the following to be inserted: "at a minimum" after "based on" and before "any of the following" in Section 5, line 23. Procedural Matters . SB 215 directs parties to address procedural issues with the ALJ exclusively in order to avoid opportunities where ex parte communication might occur by a party contacting a decisionmaker regarding procedural issue. In an effort to eliminate any conflicts with related legislation in committee, the author and committee may wish to amend SB 215 by: Delete language in Section 6 (B) regarding the definition of decisionmakers and decisionmakers responsibility to report communications with a person with an interest. Prior/Related Legislation SB 48 (Hill) proposes a suite of reforms of the CPUC, including modifying the role of the president, ex parte communication SB 215 (Leno) Page 9 of ? rules, meeting location requirements, and other reforms. SB 660 (Hueso) proposes reforms of the CPUC ex parte communications laws related to ratesetting and quasi-legislative proceedings. AB 1494 (Eng, Chapter 150, Statutes of 2009) amends to the Bagley-Keene Open Meeting Act to prohibit a majority of the members of a state body from using a series of communications of any kind to discuss or deliberate on an item of business before the body. FISCAL EFFECT: Appropriation: No Fiscal Com.: Yes Local: Yes SUPPORT: California Environmental Justice Alliance Center for Accessible Technology Communications Workers of America, District 9 AFL-CIO Consumer Federation of California Mussey Grade Road Alliance Privacy Rights Clearinghouse San Diego Area Congregations for Change Sierra Club California The Greenlining Institute The Utility Reform Network (Sponsor) CONCERN: California Cable & Telecommunications Association OPPOSITION: African Methodist Episcopal Churches (5,000) Asian Journal COR Community Development Corporation Chinese American Institute for Empowerment Christ Our Redeemer AME Church Ecumenical Center for Black Church Studies Jesse Miranda Center for Hispanic Leadership Los Angeles Latino Chamber of Commerce National Asian American Coalition National Diversity Coalition SB 215 (Leno) Page 10 of ? OASIS Center International Orange County Interdenominational West Bay Pilipino Multi-Service Center ARGUMENTS IN SUPPORT: The author argues this bill will provide needed reforms of operations of the CPUC, which recent events and controversies indicate are needed. Furthermore, the author states that the there is an insufficient role for CPUC commissioners other than the president to direct management of the commission and an unreasonable process with unduly restrictive standards for determining whether a commissioner should be disqualified due to prejudice. ARGUMENTS IN OPPOSITION: A coalition of organizations has expressed opposition to the proposed limitations on the power of the president. They argue that a strong president is necessary to ensure the agency staff are not dominating the process at the CPUC. The same organizations raise concerns about the need for additional reforms to help the average person or small organization better engage at the CPUC where the processes can be very legalistic and alienating. -- END --