BILL ANALYSIS Ó ----------------------------------------------------------------- |SENATE RULES COMMITTEE | SB 660| |Office of Senate Floor Analyses | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ----------------------------------------------------------------- THIRD READING Bill No: SB 660 Author: Leno (D) and Hueso (D) Amended: 5/6/15 Vote: 21 SENATE ENERGY, U. & C. COMMITTEE: 7-2, 4/27/15 AYES: Hueso, Cannella, Hertzberg, Hill, Leyva, McGuire, Wolk NOES: Fuller, Morrell NO VOTE RECORDED: Lara, Pavley SENATE APPROPRIATIONS COMMITTEE: 5-2, 5/28/15 AYES: Lara, Beall, Hill, Leyva, Mendoza NOES: Bates, Nielsen SUBJECT: Public Utilities Commission SOURCE: Author DIGEST: This bill proposes a suite of reforms of the governance, rules and procedures of the California Public Utilities Commission (CPUC), including: the laws and rules related to ex parte communications; modifying the powers of the president; 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. SB 660 Page 2 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) 3)Authorizes the CPUC to appoint a general counsel to represent the CPUC in all actions, to commence, prosecute or intervene in proceedings as directed by the president, and to advise the CPUC and each commissioner on all matters. (Public Utilities Code §307) 4)Requires the CPUC to adopt procedures on the disqualification of administrative law judges (ALJs) due to bias or prejudice. (Public Utilities Code §309.6) 5)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.) 6)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) 7)Prohibits ex parte communication in adjudication cases. (Public Utilities Code §1701.2) 8)Prohibits ex parte communication in ratesetting cases, but permits oral ex parte communication if (a) all-parties are invited with no less than three day notice (b) written ex communication provided copies are transmitted to all parties, and (c) when an ex parte meeting is granted to a party, all other parties are also granted individual ex parte. (Public Utilities Code §1701.3) SB 660 Page 3 9)Provides that ex parte communication in quasi-legislative cases is permitted without restriction. (Public Utilities Code §1701.4) 10)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, including the CPUC, from meeting without proper notice, public access, and transparency. (Government Code §11120) This bill: 1)Modifies the role and powers of the president of the CPUC, including repealing the authority of the president to solely direct the executive director, the attorney, and other CPUC staff. 2)Authorizes the CPUC to delegate specific management and internal oversight functions to committees comprised of two commissioners. 3)Requires the CPUC to vote in an open meeting on the assignment or reassignment of any proceeding. 4)Requires the CPUC to adopt procedures for disqualification of commissioners due to bias or prejudice similar to those of ALJs and specifies criteria for such action, including private communications with a party in ratesetting and adjudicatory proceedings. 5)Requires the CPUC to specify procedural matters that do not constitute an ex parte communication in its rules and practice and procedures. 6)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. 7)Requires the CPUC to adopt by rule a definition of decisionmakers, for the purposes of ex parte communications, SB 660 Page 4 that includes: commissioners, the attorney for the CPUC, the executive director, the personal staff advisors to the commissioners, the ALJ assigned to the proceeding, and the directors of the CPUC divisions. 8)Requires a decisionmaker who receives an ex parte communication from an interested party to report the communication. 9)Requires the CPUC to establish rules for handling prohibited ex parte communications. 10)Requires a decisionmaker who receives a prohibited ex parte communication to report and file a notice. 11)Prohibits ex parte communication from being part of the record of any proceeding and prohibit its consideration in the CPUC's resolution of contested issues. 12)Prohibits, in adjudication proceedings, any oral or written communication between a party or person of interest and a decision maker concerning procedural matters, except the assigned ALJ. 13)Eliminates, in ratesetting cases, the ability to have individual ex parte meetings and prohibits communications regarding procedural matters with a decisionmaker, except the assigned ALJ, or where written copies are distributed to all parties or conducted in a meeting open and noticed to all parties. 14)Requires, in quasi-legislative proceedings, that ex parte communication are reported within three working days. 15)Clarifies the statute to prohibit ex parte communication in ratesetting proceedings. 16)Prohibits interested parties from oral or written ex parte communications related to procedural issues, except with the presiding ALJ. 17)Makes a violation of the ex parte communications rules SB 660 Page 5 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 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 SB 660 Page 6 decision. On April 9, 2015, the CPUC approved a decision of $1.6 billion against PG&E for the San Bruno explosion, specifically a $300 million fine to the General Fund, $850 million assessed on shareholders for gas pipeline safety improvements, $400 million disallowance/bill credit, and an estimated $50 million for additional remedies for pipeline safety. 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 ratesetting proceeding stemming from the San Bruno explosion. 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 two years prior in Warsaw, Poland between then-CPUC President Peevey and a utility executive in which they discussed how to resolve SB 660 Page 7 the shutdown plans for San Onofre Nuclear Generating Station. 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. 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. SB 660 Page 8 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 ALJ, any assistant chief ALJ, the assigned ALJ, or the law and motion ALJ. 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. Changing role of president. Legislation proposed over the years, and some enacted, has been aimed at improving CPUC accountability. Concurrent with the 1996 electric restructuring, a series of procedural reforms were enacted to improve the accountability of individual commissioners by requiring each commissioner to spend more time in hearings and to take "ownership" of draft decisions. SB 660 Page 9 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 CPUC. 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. 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 CPUC 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 SB 660 Page 10 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. 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." 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 experts who presented at the March 11th oversight hearing of the Senate Energy, Utilities and Communication Committee 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 and other states' ratesetting agencies. Much of what the CPUC does are ratesetting cases, including general rate cases, power plant contracts, proposed service changes, public purpose programs and others. Yet, the law is less clear in ratesetting proceedings, 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, 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 SB 660 Page 11 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 stay abreast of each of the proceedings and ex parte communications may provide a benefit to quickly get up to speed. 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 front of the commissioner. 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 the exception of maintaining the provisions in SB 33 which require the Governor to appoint the president. There are many models of governance across state agencies. Some agencies have presidents or chairs of boards with many more powers than their colleagues on the board or CPUC, while others share authority jointly via a majority vote. 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 a president overseeing the CPUC and a president injecting oneself in the operations of the CPUC 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 as overseeing the CPUC versus that of the staff in managing and operationalizing decisions. Disqualification of commissioners. While the law provides that the CPUC establish regulations regarding the disqualification of ALJs 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 SB 660 Page 12 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. Related Legislation SB 48 (Hill, 2015) proposes a suite of reforms of the CPUC, including modifying the role of the president, meeting location requirements, and other reforms. The language related to removing the powers of the president were amended in Senate Energy, Utilities and Communications Committee to be identical in SB 48 and SB 660. The bill passed the Senate Appropriations Committee on a vote of 7-0. SB 215 (Leno, 2015) proposed 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. Many of the provisions of this bill were amended into SB 660. The bill is currently in the Senate Energy, Utilities and Communications Committee. FISCAL EFFECT: Appropriation: No Fiscal Com.: Yes Local: Yes According to the Senate Appropriations Committee: Cost pressures of $190,000 annually to the Public Utilities Reimbursement Account (special) for additional staff to support the activities of committees. One-time costs of $160,000 annually for two years to the Public Utilities Reimbursement Account (special) for a proceeding to determine rules for ALJ or commissioner SB 660 Page 13 disqualification from a case. One-time costs of $160,000 annually for two years and followed by on-going costs of $235,000 annually to the Public Utilities Reimbursement Account (special) for the creation and implementation of new ex parte rules. SUPPORT: (Verified5/29/15) California Bus Association California Environmental Justice Alliance Center for Accessible Technology Consumer Federation of California Privacy Rights Clearinghouse San Diego Area Congregations for Change Sierra Club California The Greenlining Institute The Utility Reform Network OPPOSITION: (Verified5/29/15) None received ARGUMENTS IN SUPPORT: The authors state 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. Furthermore, the authors state that the there is an insufficient role for CPUC commissioners other than the president to direct management of the CPUC and an unreasonable process with unduly restrictive standards for determining whether a commissioner should be disqualified due to prejudice. SB 660 Page 14 Prepared by:Nidia Bautista / E., U., & C. / (916) 651-4107 5/31/15 9:01:49 **** END ****