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
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          |Author:    |Leno                                                 |
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          |Version:   |4/15/2015    As Amended                              |
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          |Urgency:   |No                     |Fiscal:      |Yes             |
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          |Consultant:|Nidia Bautista                                       |
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          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). 








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          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  







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          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 --