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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