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
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          |Author:    |Leno and Hueso                                       |
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          |Version:   |1/4/2016    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 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  







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            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  








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            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  








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          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  








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          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  








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          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.








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          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  








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          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."
          


          

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