BILL ANALYSIS                                                                                                                                                                                                    






                                                                      SB 48


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          Date of Hearing:  June 29, 2015


                    ASSEMBLY COMMITTEE ON UTILITIES AND COMMERCE


                                Anthony Rendon, Chair


          SB  
          48 (Hill) - As Amended May 6, 2015


          SENATE VOTE:  39-0


          SUBJECT:  Public Utilities Commission.


          SUMMARY: 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).  Specifically, this bill:  


          1)Declares the intent of the Bagley-Keene Open Meeting Act is  
            that actions of state agencies be taken openly and that their  
            deliberations be conducted openly,



          2)Repeals certain powers granted to the president of the CPUC,  
            including the ability to direct the executive director, the  
            general counsel, and other CPUC staff,














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          3)Requires the CPUC to hold no less than six sessions per year  
            in the City of Sacramento, 



          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 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,














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          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,



          10)Provides that actions to enforce the CPUC's process for  
            handling and determining disclosable public records requests  
            can be taken to the superior court,



          11)Requires the CPUC to publish and maintain public versions of  
            all prepared written testimony in the docket card,





          12)Requires the CPUC to post information online about ways the  
            public can access the CPUC's ratemaking process, and on the  
            operation and role of the public advisor, and
           


          13)Requires the CPUC to annually publish and update a  
            description of outreach activities to solicit input from  
            customers from diverse regions of the state, report the  
            effectiveness of this process, and post the report in an  
            accessible area of its website.  



          EXISTING LAW:   


          a)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.   











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            (Article XII of the California Constitution; Public Utilities  
            Code Section 301 et seq.)



          b)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 Section 305)



          c)Requires the CPUC to hold at least one hearing per calendar  
            month in the City and County of San Francisco.  (Public  
            Utilities Code Section 306) 



          d)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 Section 307)



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



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



          g)Specifies CPUC as the first venue for rehearing a decision and  











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            that if rejected by the CPUC allows the California Supreme  
            Court to hear appeals of CPUC decisions.  (Public Utilities  
            Code Section 1701.6)



          h)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  
            Section 11120)


          FISCAL EFFECT:  Unknown. 


          According to the Senate Appropriations Committee: 





          a)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. 



          b)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.



          c)Unknown possible legal costs to the Public Utilities  
            Reimbursement Account (special) to respond to claims under the  











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            Bagley-Keene Open Meeting Act.



          d)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.



          COMMENTS:  


           1)Author's Statement:   "Recent scandals at the California Public  
            Utilities Commission (CPUC) have highlighted the need for more  
            visibility in the interactions between Commissioners and  
            regulated utilities, and a series of embarrassing audits of  
            the CPUC's mismanagement of public funds poor safety oversight  
            point toward poor management of the organization." 



            SB 48 would reform the CPUC's governance structure, more  
            clearly outlining the roles and responsibilities of the  
            Commissioners and staff, and require the CPUC to reach out to  
            communities affected by CPUC decisions instead of only  
            regulated utilities."





           2)Background History and Structure of CPUC:   The CPUC was  
            established by a constitutional amendment which was part of a  
            sweep of progressive reforms starting in the early 1900s. The  
            Governor at the time, Hiram Johnson, was pushing to limit the  
            influence that the railroad industry had on politics, leading  
            to the establishment of the Railroad Commission, which later  











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            became today's CPUC.  To separate the influence of the  
            railroads from Commission that regulated them, the agency was  
            located in San Francisco.  Article XII of the California  
            Constitution grants the CPUC authority to regulate public  
            utilities, "subject to the 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 is governed by five full-time commissioners appointed  
            by the Governor and confirmed by the Senate.  Commissioners  
            are appointed for staggered six-year terms to limit the  
            potential that a single Governor appoints a majority of  
            commissioners within a four-year gubernatorial term.  To  
            additionally balance the power of the Governor, the  
            Legislature, not the Executive branch, has the power to remove  
            the commissioners.  The CPUC establishes its own procedures  
            and review of CPUC decisions has historically been limited to  
            courts of appeal and the Supreme Court, not to trial courts. 





            The CPUC is 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 4  
            personal advisors to each commissioner, 5 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.















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            The CPUC is subject to the Bagley-Keene Open Meeting Act,  
            which requires state entities take "action" only at a public  
            meeting following public posting of an agenda describing the  
            item for proposed action.  Any private gathering 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. 





           3)Ex Parte Communication Rules:   "Ex-parte" communication is any  
            substantive communication outside of the public record that  
            occurs between any decision-maker and a party with an interest  
            in a CPUC proceeding.  California law recognizes that ex parte  
            communications can conflict with the need for transparency and  
            public decision-making at the CPUC, and directs the CPUC to  
            adopt regulations and reporting requirements for this type of  
            secluded communication.  The regulations are to require the  
            interested party report the communication within three working  
            days of the communication to parties participating in the  
            proceeding on the topic that was discussed in the  
            communication.  This law does not apply to the CPUC itself, so  
            the burden of reporting is solely on the interested party.  



             Though the CPUC is not required to report ex parte  
            communication, the CPUC has still adopted related regulations.  
             The regulations prohibit ex parte communications in  
            adjudicatory proceedings, and allow them without restriction  
            in quasi-legislative proceedings.  The regulations also  
            explicitly prohibit ex parte communications regarding the  
            assignment of ALJs to cases.  














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          4)San Bruno Explosion and Criminal Investigation Opened:  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, thirty-eight houses were destroyed, and  
            many more were damaged.  The National Transportation Safety  
            Board (NTSB) and an independent review panel appointed by the  
            CPUC opened investigations and found that PG&E had been  
            mismanaging their pipeline for decades. PG&E had failed to  
            adequately test the strength and durability of the pipeline,  
            and essentially valued profit over the safety of their  
            infrastructure.  PG&E was able to do this because of the  
            CPUC's complete lack of oversight, exploiting a very lax  
            system of regulation and review.  
             


            Following the investigation, the Safety and Enforcement  
            Division (SED) of the CPUC formally recommended that the CPUC  
            levy fines of $2.25 billion against PG&E, and that the full  
            amount be used to enhance safety practices and oversight.   
            PG&E protested this recommendation, arguing that they neither  
            could have nor should have known about the pipeline's safety  
            issues.  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 propose a  
            final decision on the matter, which the CPUC would later vote  
            to adopt, modify, or reject. 





           5)Emails Reveal Relationship between CPUC and PG&E:   Beginning  
            in the summer and fall of 2014, PG&E began releasing emails  
            between utility executives and CPUC officials.  PG&E released  
            over 65,000 emails from a five-year period, revealing  











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            discussions on subjects the CPUC was deliberating within a  
            number of proceedings, many of which arguably violated "CPUC's  
            rules governing ex parte communications."  Many of the emails  
            exposed regular, private, familiar communications between PG&E  
            and certain CPUC commissioners, including former CPUC  
            President Michael Peevey, current Commissioner Mike Florio,  
            and other senior CPUC officials.  



             The release of these emails sparked the California State  
            Attorney General and United States Department of Justice to  
            open investigations into communications between the CPUC and  
            the entities it regulates.  PG&E fired three senior  
            executives, a senior CPUC official resigned, CPUC President  
            Michal Peevey and Executive Director Paul Clanon retired.  


           


           6)Audits demonstrate CPUC's internal deficiencies:   The CPUC has  
            recently undergone a number of audits related to its budget,  
            transportation program, natural gas pipeline safety program,  
            among other internal functions.  The findings of these audits  
            have raised questions about the CPUC's ability to manage even  
            some of its core functions.  An audit by the State Auditor in  
            March of 2014 found that "the commission lacks adequate  
            process for sufficient oversight of utility balancing accounts  
            to protect ratepayers from unfair rate increases."




















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            A recent report<1> commissioned by the CPUC found that ex  
            parte communications are "frequent, pervasive, and at least  
            sometimes outcome-determinative in CPUC ratesetting cases.  In  
            general, these practices have the unavoidable effect of moving  
            actual governmental decision-making out of the public eye.   
            And we found that these practices are fundamentally unfair to  
            the parties, who are not adequately informed by opposing  
            parties' disclosures of what was said ex parte and are  
            sometimes prevented from having ex parte meetings of their own  
            by their adversaries scheduling their meetings at the  
            last-minute. "



            The same report goes on to say:  "The evidence also supports  
            the claim that present ex parte practices systematically favor  
            the interests of utilities and other well-funded parties."



           7)Addressing the problem:  accountability, CPUC, and the  
            Legislature:   Legislation proposed over the years aimed at  
            improving accountability at the CPUC.  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 the CPUC's  
            decisions. 



            --------------------------
          <1>


           Report to the California Public Utilities Commission Regarding  
          Ex Parte Communications and Related Practices, , M. Strumwasser  
          and B. Grossman Palmer, Strumwasser and Woocher LLP, June 11,  
          2015











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            In 1999, the State passed SB 33 (Peace, Chapter 509, Statutes  
            of 1999) which attempted to address a perceived lack of  
            accountability among commissioners and centralized power by  
            increasing the president's authority.  Prior to SB 33, the  
            president was elected by commissioners, and commissioners also  
            appointed the attorney and executive director who served at  
            the direction of the CPUC.  SB 33 reorganized the leadership,  
            putting the executive director and general counsel directly  
            under the control of the president.  The bill additionally  
            authorized the governor to appoint the president of the CPUC,  
            further decreasing the ability of the CPUC to hold the  
            president and the position accountable.  





            A number of bills have since attempted to limit the power of  
            the CPUC president, but none of those bills were chaptered.   
            Most recently, SB 611 (Hill) in 2013 proposed several reforms  
            of the CPUC presidency, yet was amended and chaptered with  
            unrelated language. 


           


          8)Comments on SB 48:   APA Code of Ethics:  Most state agencies  
            follow the Administrative Procedures Act for rulemakings and  
            enforcement proceedings.  However, because the CPUC is exempt  
            from the APA, it follows its own rules and procedures.  SB 48  
            proposes to apply the APA Code of Ethics to adjudication  
            proceedings of the CPUC to align its process with other state  
            agencies.  This will provide ALJs with an established code of  
            ethics to reference and use when engaging with CPUC officials.  
             














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             Appeals:  Appeals of CPUC decisions are addressed by the CPUC  
            itself (the CPUC determines whether to reopen its decision and  
            consider revisions to its decision or reject the appeal).   
            Following a rejection of a request for a rehearing before the  
            CPUC, the petitioner is entitled to seek relief before  
            California Supreme Court.  The Court review is restricted from  
            receiving new evidence and the court is limited in the scope  
            of its determining on whether to reverse a CPUC decision.   
            Most CPUC decisions are upheld.  SB 48 proposes to allow any  
            action related to the Bagley-Keene Open Meetings Act of the  
            California Public Records Act to be petitioned at a superior  
            court, where there is greater opportunity to have a case  
            heard. 


            Impacted Stakeholders:  The CPUC has historically been  
            criticized for excluding and misidentifying interested parties  
            and not facilitating their participation.  SB 48 proposes a  
            requirement that the CPUC actively seek out the input of those  
            impacted most by a proposed proceeding or investigation at the  
            agency.  This provision in SB 48 will encourage the CPUC to  
            engage with communities that their processes and decisions  
            inevitably affect. 


           9)Related Legislation: 
           


            AB 1494 (Eng) revised the "serial meeting" provision of the  
            Bagley-Keene Open Meeting Act to prohibit members of a state  
            body from using intermediaries to discuss business.  The bill  
            was in response to an appellate decision (Wolfe v. City of  
            Fremont (2006) 144 Cal. App. 4th 533) that opined that  
            existing law only prohibited serial meetings if they were to  
            gain concurrence on a voting item.  Chaptered by the Secretary  
            of State - Chapter 150, Statutes of 2009.













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            SB 1234 (Shelley) stated legislative intent to reject a  
            California Supreme Court decision (Regents of University of  
            California v. Superior Court (1999) 20 Cal. 4th 509) in which  
            the Court held that the only remedy under the Bagley-Keene Act  
            for an action taken in violation of that Act is to bring a  
            lawsuit to nullify the action within 30 days.  Chaptered by  
            the Secretary of State - Chapter 393, Statutes of 1999.





            SB 779 (Calderon) called the Calderon-Peace-McBride Judicial  
            Reform Act of 1998, included transparency provisions and  
            expanded judicial review of CPUC decisions by allowing  
            decisions to be reviewed by not only the Supreme Court but  
            also the courts of appeal, and by allowing them to review  
            decisions made in ratesetting and quasi-legislative  
            proceedings.  Chaptered by the Secretary of State - Chapter  
            886, Statutes of 1998.





            SB 33 (Peace) centralized the functioning of the CPUC under  
            its president by putting the CPUC's executive director and  
            general counsel directly under the control of the president.   
            It also made the president more directly accountable to the  
            Governor by allowing the Governor to appoint the president.   
            Chaptered by the Secretary of State - Chapter 509, Statutes of  
            1999. 















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            SB 532 (Kopp) revised procedures for administrative procedures  
            by, among other things, requiring that all state adjudicative  
            proceedings adhere to an "administrative adjudication bill of  
            rights," which would promote greater due process, fairness,  
            accessibility, objectivity, and consistency in adjudicative  
            proceedings.  This bill exempted the CPUC from its  
            requirements.  Chaptered by the Secretary of State - Chapter  
            938, Statutes of 1995.





            SB 960 (Leonard) among other things, prescribed separate  
            procedures for proceedings that the CPUC determines to be  
            quasi-legislative, adjudicative, or ratesetting cases,  
            including ex parte rules.  Chaptered by the Secretary of State  
            - Chapter 856, Statutes of 1996.





            AB 1157 (Ruskin, 2007) provided that the president of the CPUC  
            be elected by the members of the CPUC, rather than be  
            appointed by the Governor.  Held in Assembly Committee on  
            Appropriations. 





            AB 1973 (Ruskin, 2008) required Senate confirmation of the  
            Governor-appointed president of the CPUC, and had the  
                                                  executive director and attorney take direction from the CPUC  
            rather than the president.  Failed in the Assembly, on  
            Concurrence.  












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          10)Support and Opposition:
           


            Supporters argue SB 48 addressees long-needed reforms and will  
            assist the CPUC in carrying out its mission to serve the  
            public interest and hold the CPUC more accountable at a time  
            when it is being scrutinized for its secrecy and coziness with  
            the companies it is supposed to regulate.





            There is no opposition on file.





          REGISTERED SUPPORT / OPPOSITION:




          Support


          California Newspaper Publishers Association


          Communication Workers of America


          The Utility Reform Network











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          Opposition


          None on file. 




          Analysis Prepared by:Allegra Roth / U. & C. / (916)  
          319-2083