BILL ANALYSIS Ó
SENATE COMMITTEE ON ENERGY, UTILITIES AND COMMUNICATIONS
Senator Ben Hueso, Chair
2015 - 2016 Regular
Bill No: SB 660 Hearing Date: 4/27/2015
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|Author: |Hueso |
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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: proceedings: ex parte
communications
DIGEST: This bill proposes reforms to the laws and rules
related to ex parte communications at the CPUC, including
amending rules related to ratesetting and quasi-legislative
proceedings and establishing penalties.
ANALYSIS:
Existing law:
1)Establishes the California Public Utilities Commission (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. 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 authorized to direct and prescribe duties of
an attorney (general counsel), executive director, and other
staff and preside at CPUC meetings. (Public Utilities Code
§305)
SB 660 (Hueso) Page 2 of ?
3)Directs the CPUC to adopt by regulation rules to define
decisionmakers and persons of interests for purposes of
applying ex parte communication rules. (Public Utilities Code
§1701.1)
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 et seq.)
5)Prohibits ex parte communication in adjudication cases.
(Public Utilities Code §1701.2)
6)Prohibits ex parte communication in ratesetting cases, but
permits oral ex parte communication if (1) all-parties are
invited with no less than three day notice (2) written ex
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. (Public
Utilities Code §1701.3)
7)Provides that ex parte communication in quasi-legislative
cases is permitted without restriction. (Public Utilities Code
§1701.4)
This bill:
1)Requires the CPUC to adopt by rule a definition of
decisionmakers that includes commissioners, the personal staff
advisors to the commissioners and an administrative law judge
(ALJ) assigned to the proceeding.
2)Requires that a decisionmaker who receives a prohibited ex
parte communication is required to report and file a notice
within three working days.
3)Requires ex parte communication in quasi-legislative
proceedings are reported within three working days.
4)Clarifies the statute to prohibit ex parte communication in
ratesetting proceedings.
5)Prohibits interested parties from oral or written ex parte
communications related to procedural issues, except with the
presiding ALJ.
SB 660 (Hueso) Page 3 of ?
6)Makes a violation of the ex parte communications rules
punishable by an unspecified fine or by imprisonment, or both.
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 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
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.
Emails Demonstrate "Culture of Conversation" - During the summer
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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 Investigation 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 commissioners 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).
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
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. The regulations
are to require the interested party to report the communication
within three working days of the communication and include:
The date, time, and location of the communication, and
whether it was oral, written, or a combination.
SB 660 (Hueso) Page 5 of ?
The identity of the recipient and the person initiating
the communication, as well as the identity of any persons
present during the communication.
A description of the party's, but not the
decisionmaker's, communication and its content.
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 expressly prohibits ex
parte communication related to ratesetting cases. However,
despite the prohibition, statue provides circumstances in
which ex parte communication is permitted and procedures
for reporting and managing such communication.
The CPUC has adopted regulations regarding ex parte
communications. The regulations define ex parte communication
as oral or written communication that: (1) concerns any
substantive issue in a formal proceeding, (2) takes place
between an interested person and a decisionmaker, and (3) does
not occur in a public hearing, workshop, or other public forum
noticed by ruling or order in the proceeding, or on the record
of the proceeding. The regulations define "decisionmaker" as
any commissioner, the chief administrative law judge, any
assistant chief administrative law judge, the assigned
administrative law judge, or the law and motion administrative
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law judge. The ex parte regulations applicable to
decisionmakers are also applicable to commissioners "personal
advisors," with certain exceptions regarding ratesetting
proceedings.
The CPUC's ex parte regulations generally conform to statutory
requirements and prohibitions. The regulations prohibit ex
parte communications in adjudicatory proceedings and allow them
without restriction in quasi-legislative proceedings. Notably,
the regulations explicitly prohibit ex parte communications
regarding assignment of ALJs. Regarding ratesetting
proceedings, however, the regulations depart from statute in
that they make no mention of a general prohibition on ex parte
communications in ratesetting proceedings. Rather, the
regulations describe, in detail, circumstances in which ex parte
communications are authorized and the reporting requirements for
such communication.
Comments
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 presenters
at the March 11th oversight hearing of this committee, when
discussing ex parte communications, noted that rules governing
ex parte communications in ratesetting proceedings may be the
most permissive as compared to other agencies, such as the
Federal Regulatory Energy Commission (FERC) and other state's
ratesetting agencies. Much of what the CPUC does is ratesetting
cases, including general rate cases, power plant contracts,
proposed service changes, public purpose programs and others.
Yet, ratesetting cases are where the law is less clear, both
stating that ex parte communication is prohibited, while
allowing for a number of exceptions. Many of the presenters at
the March 11th hearing advocated for doing away with ex parte
communication because of the lack of fairness, the unlevel
playing field, the time and resources that are required of
commissioners and others. 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.
Does the Harm Outweigh the Good? - A one-on-one meeting between
a commissioner and an interested party can provide the benefit
of better understanding the concerns and interests of the party.
The extensive workload of commissioners makes it difficult to
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stay abreast of each of the proceedings and ex parte
communications may provide the benefit. However, the harm of
such meetings which are subject to little scrutiny or minimal
rebuttal may be more than any benefit they may provide.
Furthermore, the commissioners have other tools available to
them to meet with parties, including all-party meetings which
provide for opportunities for stakeholders to engage and make
their case. In many cases, restating what was submitted in
written documents.
The current language in the bill merits further clarification
regarding under what circumstances a decisionmaker must report
ex parte communication.
The author and committee may wish to amend the bill to clarify
under what circumstances a decisionmaker must report ex parte
communication.
Each of the three bills addressing reform of the CPUC has
varying definitions for who would be considered a decisionmaker.
The author and committee may wish to amend the bill to
incorporate all definitions of decisionmaker included in the
other bills: executive director, general counsel, and directors
of divisions.
Public Utilities Code §309.1 has been used in the past to
reference each commissioner's personal staff advisors. However,
based on current practice, the referenced section, noting one
advisor per commissioner, is not consistent with the current
practice of four personal staff advisors to each commissioner
and five to the president.
The author and committee may wish to amend the bill to clarify
which of the commissioners' advisors are referenced.
The author and committee may wish to amend the bill to require
the CPUC to establish rules regarding how a prohibitive ex parte
communication should be handled and to strike out the language
in the bill referencing a decision maker "making" a prohibitive
ex parte communication.
In addition to the above referenced amendments, the author and
committee may wish to amend the bill to add sections of SB 215
(Leno) related to: the powers of the president (in alignment
with SB 48 (Hill)); expanding the definition of "interested
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person" to include representative of the financial industry;
reporting by the decisionmaker of ex parte communication;
requiring the CPUC to establish rules regarding disqualification
of commissioners from a proceeding; and the prohibition of ex
parte communication related to non-procedural matters in
adjudication cases.
Prior/Related Legislation
SB 48 (Hill) proposes a suite of reforms of the CPUC, including
modifying the role of the president, ex parte communication
rules, meeting location requirements, and other reforms.
SB 215 (Leno) proposes 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.
FISCAL EFFECT: Appropriation: No Fiscal
Com.: Yes Local: Yes
SUPPORT:
California Bus Association
Sierra Club California
The Utility Reform Network
OPPOSITION:
None received
ARGUMENTS IN SUPPORT: The author states that decisionmaking
based upon 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
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 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.
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