BILL ANALYSIS Ó
SENATE COMMITTEE ON ENERGY, UTILITIES AND COMMUNICATIONS
Senator Ben Hueso, Chair
2015 - 2016 Regular
Bill No: SB 48 Hearing Date: 4/27/2015
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|Author: |Hill |
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|Version: |4/14/2015 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
DIGEST: This bill proposes a suite of reforms of the
governance and operations of the California Public Utilities
Commission (CPUC), including modifying the powers of the
president, requiring sessions in Sacramento, and applying the
Code of Ethics from the Administrative Procedures Act (APA) to
administrative law judges (ALJs).
ANALYSIS:
Existing law:
1) Establishes the CPUC with five members appointed by the
Governor and confirmed by the Senate and empowers it 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 granted with certain
authority not provided to the other four commissioners.
These powers include the ability to direct the executive
director, the general counsel and staff, as well as, preside
over all commission meetings, and other powers. (Public
Utilities Code §305)
SB 48 (Hill) Page 2 of ?
3) Requires the CPUC to hold at least one hearing per
calendar month in the City and County of San Francisco.
(Public Utilities Code §306)
4) Requires the president of the commission to annually
appear before the appropriate legislative policy committees.
(Public Utilities Code §321.6)
5) Exempts the CPUC from the California Administrative
Procedures Act. (Public Utilities Code §1701)
6) Provides that the California Supreme Court and the court
of appeal of the commission shall be the venues to address
appeals of CPUC decisions. (Public Utilities Code §1701.6)
7) 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 commission and each commissioner on all
matters. (Public Utilities Code §307)
This bill:
1) Repeals certain powers granted to the president of the
CPUC, including the ability to direct the executive
director, the attorney and other CPUC staff.
2) Requires the CPUC to hold no less than six sessions per
year in the City of Sacramento.
3) Finds it is the intent of the legislature that the CPUC
should be subject to the judicial review provisions of the
Bagley-Keene Open Meeting Act.
4) Requires the CPUC to develop performance criteria for the
CPUC and the executive director, and to conduct an annual
evaluation of the director.
5) Directs the CPUC to adopt procedures on the
disqualification of commissioners due to bias or prejudice.
6) Directs the CPUC to modify their annual workplan report, a
document that is published and provided to the Legislature,
to include performance criteria for the CPUC and executive
director. As part of the effort, the CPUC shall create a
SB 48 (Hill) Page 3 of ?
report regarding the cases before the agency, including
timeliness in resolving the cases, approvals for rehearings,
number of scoping memos issued in each proceeding, number of
orders issued and other items.
7) Requires the president of the CPUC to report on the
timeliness in resolving cases during the annual appearance
before the appropriate legislative policy committees.
8) Requires the ALJs to adhere to ethics provisions of the
APA.
9) Expands the list of persons with an interest to include
representatives from the financial industry for purposes of
ex parte communication.
10) Requires the CPUC to specify the procedural matters that
are appropriate subjects for ex parte communications for
persons of interest.
11) Requires the CPUC to adopt by regulation a definition of
decisionmakers to include commissioners, the executive
director, and the attorney of the CPUC.
12) Requires participating parties and decisionmakers to
report ex parte communications.
13) Establishes certain restrictions for ex parte
communications in quasi-legislative proceedings that are
currently applied to rate-setting proceedings, including:
requiring all-party noticed meetings, granting all parties
individual meetings and equal period of time if an
individual meeting is granted to a party, and requires
written ex parte communications to be submitted into the
record.
14) Requires the CPUC to seek the views of those who are
likely affected and demonstrate their efforts in the text of
the order.
15) Provides that actions to enforce the requirements of the
Bagley-Keene Open Meeting Act or the California Public
Records Act can be taken to the superior court.
Background
SB 48 (Hill) Page 4 of ?
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 a 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
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
SB 48 (Hill) Page 5 of ?
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 ratemaking 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 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 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).
Recently appointed Interim Executive Director Timothy Sullivan,
who described the emails as "shocking to the organization," is
considering personnel action against CPUC employees. Newly
appointed CPUC President Michael Picker acknowledged the
communications have damaged the public's trust in the regulatory
agency and that changes are needed.
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 commission
lacks adequate processes for sufficient oversight of utility
balancing accounts to protect ratepayers from unfair rate
SB 48 (Hill) Page 6 of ?
increases." The NTSB San Bruno investigation report and
subsequent audits found that CPUC's oversight of natural gas
pipeline safety efforts by the utilities 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
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. The
CPUC has been given broad latitude to set its own procedures,
and any review of CPUC decisions has historically been limited
to courts of appeal and the Supreme Court, not trial courts.
Reporting to the Legislature - Current law requires the CPUC to
publish an annual workplan by February 1and for the president of
the CPUC to appear annually before the relevant legislative
policy committees. SB 48 proposes several amendments to ensure
the CPUC's annual report more accurately reflects the agency's
progress related to timeliness of proceedings and the need to
ensure the work of the agency is evaluated based on establishing
annual goals and performance criteria.
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 48 (Hill) Page 7 of ?
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
commission. 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.
Public Meeting Required - The CPUC is subject to the
Bagley-Keene Open Meeting Act, which requires a state body to
take "action" (collective decision or an actual vote) only at a
public meeting following the public posting of an agenda
describing the item for proposed action at least 10 days prior
to the meeting. Any private congregation of a majority of the
members of a state body at the same time and place to hear,
discuss, or deliberate upon any item that is within its
jurisdiction is unlawful. Violations of the act can result in
members of the state body facing misdemeanor penalties and
action taken rendered invalid, with attorney's fees awarded to
prevailing plaintiffs.
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, 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 President Peevey. That motion was denied.
The ALJ as the time stated that "No specific rule sets forth a
procedure for addressing motions to seek the recusal of a
Commissioner for cause."
Ex Parte Communication Rules - 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
SB 48 (Hill) Page 8 of ?
communications can conflict with the need for public
decisionmaking at the CPUC.
Current law directs the CPUC to adopt regulations requiring the
reporting of ex parte communications. The regulations are to
require CPUC's ex parte rules 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.
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
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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
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.
Code of Ethics - Most state agencies follow the APA for
rulemakings and enforcement proceedings. However, as a
quasi-independent agency, the CPUC is exempt from the APA and
instead follows its own rules and procedures. SB 48 proposes to
apply the APA Code of Ethics to adjudication proceedings of the
commission to align with most other state agencies.
Appeals - Appeals for decisions for most matters at the CPUC are
addressed by the CPUC or by the California Supreme Court. This
unique limitation to CPUC processes means most decisions of the
agency stand. This is because most cases are not likely to be
heard by the Supreme Court and it can require a fair amount of
resources to pay for the necessary legal representation. SB 48
proposes to allow any action related to the Bagley-Keene Open
Meetings Act or the California Public Records Act to be
petitioned at a superior court, where there is greater
opportunity to have a case heard.
SB 48 (Hill) Page 10 of ?
Impacted Stakeholders - SB 48 proposes a requirement on the CPUC
to affirmatively seek out the views and input of those impacted
most by a proposed proceeding or investigation. One of the many
criticisms of the CPUC is the challenges of identifying who may
be interested and facilitating their participation as a party in
a proceeding. CPUC processes are legalistic and archaic and may
not be of interest to some. However, the CPUC should be
encouraged to make every feasible effort to connect with those
most impacted by their decisions, whether it is a community
impacted by water rates or low-income residents who aren't aware
of changes to public purpose programs.
Comments/Amendments
SB 48 proposes numerous reforms of CPUC governance and
operations to ensure the agency is more accountable to the
public. With two related bills pending in committee, the Chair
is working with the authors to ensure the bill proposals do not
conflict with one another.
In order to preserve most of the elements of the SB 48, while
eliminating any potential conflicts with SB 660, which is also
up in committee, the author and committee may wish to amend SB
48 as noted below:
Delete most of the proposal related to ex parte
communication restrictions, including the proposed
restrictions on quasi-legislative proceedings, (proposed
in SB 48 Section 9 and 10).
Delete the language related to disqualification of
commissioners (proposed amends PUC §309.6).
Move language related to annual performance review to
a separate section (proposed amends PUC §308 (d)).
Delete the language related to applying ex parte
communication to a representative of the financial
industry. (proposed amends Section 9. PUC §1701.1 (d)(1)).
Move language related to requiring the commission to
specify those procedural matters for the purposes of ex
parte communication, proposed section 9. PUC §1701.1
(d)(1).
Delete the language related to ex parte communication,
including language defining a decisionmaker as the
attorney of the agency and language regarding requiring
the proposed reporting requirements, penalties, etc.
(proposed amends PUC §1701.1 (c)).
Delete proposed amendments in Section 10, which relate
to restricting ex parte communication in quasi-legislative
SB 48 (Hill) Page 11 of ?
proceedings. (proposed PUC §1701.4).
Prior/Related Legislation
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.
SB 660 (Hueso) proposes reforms of the ex parte communications
laws related to ratesetting and quasi-legislative proceedings.
SB 611 (Hill, as amended April 13, 2013) proposed some of the
same changes suggested in this bill, including repealing some of
the powers of the president. The bill was successfully voted out
of Senate EU&C Committee. It was subsequently amended numerous
times, and ultimately chaptered into law with unrelated language
regarding modified limousines.
FISCAL EFFECT: Appropriation: No Fiscal
Com.: Yes Local: Yes
SUPPORT:
California Newspaper Publishers Association
Communications Workers of America, District 9 AFL-CIO
Sierra Club California
The Utility Reform Network
CONCERN:
California Cable & Telecommunications Association
OPPOSITION:
Michael B. Day, et al
ARGUMENTS IN SUPPORT: The author argues that the current
governance structure, whereby the president of the CPUC is able
to direct the CPUC staff, is not working. The author cites a
string of incidents, including some involving management of
ratepayer money, management staff leadership failures, and
SB 48 (Hill) Page 12 of ?
recent scandals, as evidence that the current system is broken.
The author also argues that the CPUC has a large workload that
necessitates a president that will share responsibilities with
other commissioners to ensure the effectiveness of the agency.
Furthermore, the author commends the leadership of the CPUC for
taking some positive steps in recent months. However, he
cautions these changes should not be temporary; therefore,
permanent changes are needed of the agency.
ARGUMENTS IN OPPOSITION: Those in opposition express concerns
that the current powers of the president should be preserved.
They argue that not having a strong president will result in the
Administrative Law Judges having dominance in decision-making.
Additionally, both opposed letters express opposition to
restricting ex parte rules in a manner that would jeopardize the
ability of stakeholders with smaller issues from having the ear
of the commissioners. They worry that proposed restrictions on
ex parte communications could further increase the regulated
utilities dominance.
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