BILL ANALYSIS                                                                                                                                                                                                    





          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  








          SB 48 (Hill)                                        Page 9 of ?
          
          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.
                                      -- END --