BILL ANALYSIS                                                                                                                                                                                                    






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          |SENATE RULES COMMITTEE            |                         SB 48|
          |Office of Senate Floor Analyses   |                              |
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                                   THIRD READING 


          Bill No:  SB 48
          Author:   Hill (D)
          Amended:  5/6/15  
          Vote:     21  

           SENATE ENERGY, U. & C. COMMITTEE:  9-0, 4/27/15
           AYES:  Hueso, Fuller, Cannella, Hertzberg, Hill, Leyva,  
            McGuire, Morrell, Wolk
           NO VOTE RECORDED:  Lara, Pavley

           SENATE APPROPRIATIONS COMMITTEE:  7-0, 5/28/15
           AYES:  Lara, Bates, Beall, Hill, Leyva, Mendoza, Nielsen

           SUBJECT:   Public Utilities Commission


          SOURCE:    Author

          DIGEST:  This bill proposes a suite of reforms of the governance  
          and operations of the California Public Utilities Commission  
          (CPUC), including, among others, modifying the powers of the  
          president, requiring sessions in Sacramento, 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  








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              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 CPUC meetings, and other powers.  (Public Utilities  
              Code 305)

            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)  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)

            5)  Requires the president of the CPUC to annually appear  
              before the appropriate legislative policy committees.   
              (Public Utilities Code 321.6)

            6)  Exempts the CPUC from the APA. (Public Utilities Code  
              1701)

            7)  Provides that the California Supreme Court and the court  
              of appeal of the CPUC shall be the venues to address appeals  
              of CPUC decisions.  (Public Utilities Code 1701.6)

            8)  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 from meeting without  
              proper notice, public access, and transparency. (Government  
              Code 11120)

          This bill:

            1)  Repeals certain powers granted to the president of the  
              CPUC, including the ability to direct the executive  







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              director, the general counsel, 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, including those noted in  
              Government Code 11130 et seq, which provide for the ability  
              of the Attorney General and other parties to take legal  
              action against a governing body who violates the  
              Bagley-Keene Open Meeting Act.

            4)  Directs the CPUC to modify their annual workplan report, a  
              document that is published and provided to the Legislature  
              by February 1st, to include performance criteria for both  
              the CPUC and executive director, and annually evaluate the  
              executive director based on the performance criteria.   

            5)  Requires the CPUC to create a 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.

            6)  Requires the president of the CPUC to report on the  
              timeliness in resolving cases during the annual appearance  
              before the appropriate legislative policy committees. 

            7)  Requires the ALJs to adhere to ethics provisions of the  
              APA for adjudicated proceedings. 

            8)  Requires the CPUC to seek the views of those who are  
              likely affected by a decision or proceeding, except  
              adjudicated proceedings, and requires the CPUC to  
              demonstrate their efforts to engage these residents within  
              the text of the order.

            9)  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








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          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 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. 

          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  







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          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 ratemaking 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  
          the shutdown plans for San Onofre Nuclear Generating Station. 

          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.







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          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 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 1st and 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  







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          ensure the work of the agency is evaluated based on establishing  
          annual goals and performance criteria. This bill also requires  
          an annual performance evaluation of the executive director by  
          the CPUC based on the established workplan.

          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 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. 

          Public meeting required.  The CPUC is subject to the  
          Bagley-Keene Open Meetings 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.

          Code of ethics.  Most state agencies follow the APA rules and  







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          requirements 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 CPUC to align with other state agencies.  

          Appeals.  A party wishing to appeal a decision of the CPUC can  
          appeal to the CPUC's own court or the California Supreme Court.   
          This unique limitation to CPUC processes means most decisions of  
          the agency stand as it is unlikely the Supreme Court will wish  
          to hear many of these cases. 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. 

          Affected 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 can  
          be off-putting to the average resident who wants to participate.  
           However, the CPUC should be encouraged to make every feasible  
          effort to connect with those most affected by their decisions,  
          whether it is a community affected by increased water rates or  
          low-income residents who can benefit from public purpose  
          programs. 

          Prior/Related Legislation
          
          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.

          SB 660 (Leno and Hueso, 2015) proposes reforms of the ex parte  
          communications laws related to ratesetting and quasi-legislative  
          proceedings, aligns the language related to the powers of the  
          president so that both SB 660 and SB 48 have the exact same  
          language, addresses the process for disqualifying a commissioner  
          from a proceeding, and other reforms of the CPUC. The bill  
          passed the Senate Appropriations Committee on a vote of 5-2.







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          SB 611 (Hill, as amended April 13, 2013) proposed some of the  
          same changes suggested in SB 48, including repealing some of the  
          powers of the president.  The bill was successfully voted out of  
          Senate Committee on Energy, Utilities and Communications.  It  
          was subsequently amended numerous times, and ultimately  
          chaptered into law with unrelated language regarding modified  
          limousines. 

          FISCAL EFFECT:   Appropriation:    No          Fiscal  
          Com.:YesLocal:   No            

          According to the Senate Appropriations Committee: 

           Ongoing annual costs in the tens of thousands of dollars and  
            possibly into the low thousands to the Public Utilities  
            Reimbursement Account (special) to have at least six meetings  
            in Sacramento instead of San Francisco. 

           One-time costs of $160,000 annually for two years followed by  
            estimated annual costs of $360,000 to the Public Utilities  
            Reimbursement Account (special) to seek views of interested  
            persons.

           Unknown possible legal costs to the Public Utilities  
            Reimbursement Account (special) to respond to claims under the  
            Bagley-Keene Open Meeting Act.

           Minor and absorbable costs to the Public Utilities  
            Reimbursement Account (special) for additional meetings in  
            order for the CPUC to direct the executive director, attorney,  
            and staff.

          SUPPORT:   (Verified5/29/15)

          California Newspaper Publishers Association
          Communications Workers of America, District 9 AFL-CIO
          Sierra Club California
          The Utility Reform Network

          OPPOSITION:   (Verified5/29/15)

          Six individuals  
           







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          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  
          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:The opponents expressed concerns that  
          the current powers of the president should be preserved.  They  
          argue that not having a strong president will result in the ALJ  
          having dominance in decision-making.  



          Prepared by:Nidia Bautista / E., U., & C. / (916) 651-4107
          5/31/15 11:40:28


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