BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | SB 660|
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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.
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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)
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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,
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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
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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
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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
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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.
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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.
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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
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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
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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
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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
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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.
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Prepared by:Nidia Bautista / E., U., & C. / (916) 651-4107
5/31/15 9:01:49
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