BILL ANALYSIS Ó SENATE COMMITTEE ON ENERGY, UTILITIES AND COMMUNICATIONS Senator Ben Hueso, Chair 2015 - 2016 Regular Bill No: SB 215 Hearing Date: 1/13/2016 ----------------------------------------------------------------- |Author: |Leno and Hueso | |-----------+-----------------------------------------------------| |Version: |1/4/2016 As Amended | ----------------------------------------------------------------- ------------------------------------------------------------------ |Urgency: |No |Fiscal: |Yes | ------------------------------------------------------------------ ----------------------------------------------------------------- |Consultant:|Nidia Bautista | | | | ----------------------------------------------------------------- SUBJECT: Public Utilities Commission DIGEST: This bill proposes a suite of reforms of the rules, operation 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. ANALYSIS: Existing law: 1)Establishes the CPUC with five members appointed by the Governor and confirmed by the Senate and empowers the CPUC to regulate privately owned public utilities in California. (Article XII of the California Constitution; Public Utilities Code §301 et seq.) 2)Requires the CPUC to adopt procedures on the disqualification of administrative law judge (ALJ) due to bias or prejudice. (Public Utilities Code §309.6) 3)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 et seq) 4)Directs the CPUC to adopt rules, by regulation, to define decisionmakers and persons of interest for purposes of applying ex parte communication rules. (Public Utilities Code §1701.1) 5)Provides that a proceeding is subject to request for rehearing within 10 days of the date of a decision and if not appealed, shall not be subject to judicial review. (Public Utilities SB 215 (Leno) Page 2 of ? Code §1701.1) 6)Prohibits ex parte communication in adjudication cases. (Public Utilities Code §1701.2) 7)Prohibits ex parte communication in ratesetting cases, but permits oral ex parte communication if (1) all parties are invited with no less than three days notice (2) written ex parte communication, provided copies are transmitted to all parties, and (3) when an ex parte meeting is granted to a party, all other parties are also granted individual ex parte communication. (Public Utilities Code §1701.4) 8)Provides that ex parte communication in quasi-legislative cases is permitted without restriction. (Public Utilities Code §1701.4) This bill: 1)Reforms and expands rules regarding ex parte communications in proceedings, including prohibiting these communications in ratesetting proceedings and allowing these communications in quasi-legislative proceedings with disclosure requirements established by the CPUC. 2)Requires the CPUC to adopt procedures on the disqualification of commissioners due to bias or prejudice similar to those for ALJs and specifies criteria for such action in ratesetting and adjudicatory proceedings. 3)Requires the CPUC to define decisionmaker for the purposes of ex parte communication rules to include commissioners, the attorney for the CPUC, the executive director, personal staff of a commissioner who are acting in a policy or legal advisory capacity, the chief ALJ, and the ALJ assigned to the proceeding. 4)Requires the CPUC to establish rules regarding the types of issues considered procedural matters and specifies that communication between an interested person and decision maker regarding which commissioner or ALJ may be assigned to a matter is not considered a procedural matter. 5)Requires the CPUC to establish rules for reporting ex parte communication that has been prohibited in adjudication and ratesetting proceedings, including at conferences. 6)Provides that the opportunity to request a rehearing of a decision is expanded to include any subsequent ruling that expands the scope of the proceeding. 7)Requires an ALJ to preside or assist in presiding on any evidentiary or adjudication hearings that may be required as SB 215 (Leno) Page 3 of ? part of a proceeding. 8)Requires the CPUC to render its decisions based on the evidence of the record and prohibits ex parte communication from being part of the record of the proceedings. 9)Provides that the CPUC commissioners may meet in a closed session to discuss administrative matters so long as no collective consensus is reached or vote taken on any matter requiring a vote of the commissioners and requires the CPUC to adopt rules to define administrative matters. 10)Defines "all party conference" as a public hearing held on the record before a quorum of commissioners at which parties to a proceeding shall have the right to participate and communicate their views regarding any factual, legal or policy issue in the proceeding. Requires the CPUC to adopt rules for implementing all-party conferences that ensure the broadest participation by parties to a proceeding. 11)Deletes the provision for ratesetting and quasi-legislative proceedings that limits an order to extend a deadline for resolving the proceeding to no more than 60 days. 12)Requires the CPUC to establish and maintain a communications log summarizing all ex parte communications. 13)Provides for penalties for violations of ex parte communication rules, including allowing the CPUC to impose a civil penalty where financial benefits exceed the maximum of the $50,000 limit per violation. 14)Authorizes the Attorney General to bring an enforcement action in the Superior Court for the City and County of San Francisco against a decisionmaker or employee of the CPUC who violates the ex parte communication rules. Background 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. 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. Emails demonstrate "Culture of Conversation." During the summer and fall of 2014, Pacific Gas and Electric Company (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 SB 215 (Leno) Page 4 of ? officials. PG&E released 65,000 emails from over a five-year period that 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 the administrative law judge to the San Bruno 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 Michael 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. 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. San Onofre Nuclear Generating Stations (SONGS). In early February 2015, 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 SONGS. The facility had a failed steam generator that required SONGS to be permanently retired. In November 2014, the CPUC approved a settlement agreement between utilities and ratepayer advocates that split the costs of retiring the facility and the associated replacement power, with ratepayers shouldering $3.3 billion of the $4.7 billion total costs. In light of the information about the meeting in Poland, some of the parties to the settlement agreement have rescinded their support. In early December 2015, the CPUC voted 4-0 to fine Southern California Edison $16.7 million for violations of ex parte communications rules regarding the SONGS closure proceeding. Ex parte communications. 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 SB 215 (Leno) Page 5 of ? communications can conflict with the need for public decision at the CPUC. The current law directs the CPUC to adopt regulations requiring reporting of ex parte communications. 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 lacks clarity as it expressly prohibits ex parte communication related to ratesetting cases, yet, provides circumstances in which ex parte communication is permitted and establishes procedures for reporting and managing such communication. Party of One. The CPUC's laws and rules governing ex parte communication are unique among other state agencies, and also among similar agencies across the nation. Many of the experts who presented at the March 11, 2015 oversight hearing on ex parte communication of the Senate Committee on Energy, Utilities and Communication noted that rules governing ex parte communications in ratesetting proceedings may be the most permissive as compared to other agencies, such as the Federal Energy Regulatory Commission and other states' ratesetting agencies. California law is less clear in ratesetting proceedings, a major function of the CPUC, both stating that ex parte communication is prohibited, while allowing for a number of exceptions. Many of the presenters at the March 11, 2015 hearing advocated for doing away with ex parte communication because of the lack of fairness, the un-level playing field, and SB 215 (Leno) Page 6 of ? the time and resources that are required of commissioners and others. A report released June 2015, authored by Michael Strumwasser and requested by the CPUC, reviewed ex parte communication practices at the CPUC and also recommended prohibiting ex parte communication in ratesetting proceedings and requiring disclosure in quasi-legisative proceedings. However, some interested parties have expressed concerns that doing away with ex parte communications may further challenge interests with a less prominent issue in a ratesetting proceeding to have their concerns heard. 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 - CPUC 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." Prior/Related Legislation AB 825 (Rendon, 2015) proposed a suite of reforms of the CPUC to make the agency more accessible and transparent to the public. The bill was vetoed by the Governor. AB 1023 (Rendon, 2015) proposed to codify the summary log requirements currently required at the CPUC for ratesetting proceedings and extends those requirements to quasi-legislative proceedings. 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 some of the same reforms in SB 661 (Hill, 2015). The bill was vetoed by the Governor. SB 215 (Leno and Hueso, 2016) proposes a suite of reforms of the CPUC related to governance and operations, including disqualification of commissioners to proceedings, reforming the rules governing ex parte communications, and other reforms. The bill is currently being considered in the Senate Committee on Energy, Utilities and Communication. SB 215 (Leno) Page 7 of ? SB 512 (Hill, 2016) proposes a suite of reforms of the operations and governance of the California Public Utilities Commission (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, require specific information on its website, apply the Code of Ethics from the Administrative Procedures Act (APA) to administrative law judges (ALJs), and others. SB 660 (Leno and Hueso, 2015) proposed reforms of the ex parte communications laws related to ratesetting and quasi-legislative proceedings, addresses the process for disqualifying a commissioner from a proceeding, and other reforms of the CPUC. The bill was vetoed by the governor. SB 611 (Hill, as amended April 13, 2013) proposed reforms of the CPUC, 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.: Yes Local: Yes SUPPORT: The Utility Reform Network (Source) Consumer Federation of California Sierra Club California OPPOSITION: None received ARGUMENTS IN SUPPORT: The authors state that decision-making based on the public record is central to the work of the CPUC whose decisions are addressed in proceedings more akin to a judicial process in a courtroom setting and unlike other state agencies or bodies. The recent release of 65,000 emails has SB 215 (Leno) Page 8 of ? demonstrated a cozy relationship between some of the commissioners and staff at the CPUC and the regulated utilities. These exchanges have severely undermined the public's trust in the agency. While in some cases the rules may have been broken, it is also evident that the problems at the CPUC are more systemic than solely a personality or an individual. There is a need to strengthen and clarify rules governing ex parte communication to preserve the public trust and prevent future scandals. SB 215 seeks to remedy three specific problems: "(1) unreasonable process and unduly restrictive standards for determining whether a commissioner should be disqualified due to prejudice, (2) unreasonably permissive rules governing ex parte communications, and (3) commissioners and staff who violate ex parte communication rules are adjudicated by the commission itself rather than by an independent judiciary." -- END --