JUICE: Opening Eyes Wide Closed

By Published On: October 9, 2014

When regulators and the regulated flout rules it’s presumably with a wink and a nod. And, the seeming casualness with which California Public Utilities Commission rules were ignored in communications between Pacific Gas & Electric and commissioners and top agency staff reflects a much larger reality. In California and across the country, it’s on display at city halls and in state and federal capitols: money buys access. It’s also not too difficult for the billions of dollars spent on lobbying across the nation to stay within ever-widened legal parameters—think Citizens United v. Federal Election Commission. That U.S. Supreme Court case considered corporations to be persons with protected free speech rights—removing restrictions on wealthy corporations’ political spending. This is why I wasn’t shocked by the scandal-du-jour over the behind the scenes dealings between a few Pacific Gas & Electric and California Public Utilities officials involving what is interpreted as a quid pro quo in 2010 and later judge shopping by the utility. Electricity and natural gas are critical services with huge amounts of ratepayer and other money in play. It is not surprising that stakeholders and sometimes commissioners push the limits given the high stakes. Yet, that doesn’t mean rule violations should be condoned. It harms the reputation and morale of commission and utility staff. Judge shopping at the commission is illegal. So is communicating with commissioners and top staff members about rate setting proceedings without timely disclosure of those exchanges. Current follows commission dockets involving PG&E and other utility general rate cases, rates of return, energy efficiency, and other matters dealing with millions or billions of ratepayer dollars. The utilities usually get most of what they want within legal and regulatory parameters—but sometimes not. In the current controversy, center stage is the PG&E/commission exposé. According to an internal utility email PG&E released, Mike Peevey, commission president, supposedly agreed during a 2010 dinner with two PG&E officials to treat the utility favorably in pending cases if it contributed to Peevey’s pet causes. The cases concerned: • Construction of the Oakley power plant; • An energy efficiency program bonus; and • The utility’s general rate case. At the dinner, according to former PG&E regulatory relations vice president Brian Cherry, Peevey suggested PG&E spend at least $1 million to fight a ballot measure seeking to gut the state’s climate protection law, plus support the commission’s 100th Anniversary celebration to the tune of $100,000. Peevey announced Oct. 9 that he’s not seeking reappointment when his term expires at the end of this year. The alleged quid pro quo deal Peevey made with PG&E regulatory officials over two bottles of pinot appears to have been to the utility’s advantage in the energy efficiency bonus, as well as the rate proceeding. There is no claim or evidence of the president enriching himself. This, however, does not excuse Peevey. He’s known at times to run rough shod over rules to advance proceedings and state policies. Yet, the lack of personal financial gain seems to discredit any corruption or conflict-of-interest claims against him. Also getting lots of press is PG&E’s recently revealed ex parte communications in January of this year with Peevey’s staff and commissioner Mike Florio to get an administrative law judge of the utility’s choice on a gas rate case. (The U.S Attorney’s office announced this week that it’s launched an investigation into the improper ex parte exchanges revealed by PG&E.) In the recent case of improper communications, PG&E’s point person violated commission rules by pushing to get Peevey’s chief of staff to have the utility’s preferred judge assigned to the 2015-17 gas transmission and storage rate setting case. Initially, judge Doug Long was given the case but Cherry pushed for judge John Wong. In a separate exchange, commissioner Mike Florio told Cherry he was “horrified” by the choice and asked Cherry to keep him posted and said he’d do “what I can on this end.” I was told the judge selection surprised others as well, so much so that the initial buzz was that the order assigning Long instead of Wong was a typo. Typo or not, it violated the Commission Rules and Procedure forbidding judge shopping and keeping ex parte communications secret. Commission procedure states: “Ex parte communications regarding the assignment of a proceeding to a particular Administrative Law Judge, or reassignment of a proceeding to another Administrative Law Judge, are prohibited. For purposes of this rule, ‘ex parte communications’ include communications between an Administrative Law Judge and other decision makers about a motion for reassignment of a proceeding assigned to that Administrative Law Judge.” Commission rules also require same day notification of the communications between regulators and the regulated in rate setting cases, including the gas transmission and storage case. It took PG&E eight months to inform the commission of the “secret” meetings. On Oct. 7, PG&E had to argue why it shouldn’t be punished for the rule violation, to which it readily admitted. At the hearing on this order to show cause, the only definitive ruling Yacknin made was to prohibit PG&E from attempting to try to change the judge on the case via what is known as a “peremptory challenge.” All stakeholders in a proceeding get one shot at formally asking to have an assigned judge removed because of claims they will not get a fair hearing. However, if a party is not successful in getting a regulatory judge yanked, they worry they’ll start with a strike against them. Thus, peremptory challenges are not widely used. Perhaps because of this, it appears that PG&E went through back channels to get a new judge. Yacknin’s prohibition on PG&E using a peremptory challenge this week is a tiny piece of the bigger issue of how to thwart allegedly banned communications skewing an uneven regulatory field. More rules aren’t the answer as urged by San Bruno and consumer advocates. There already are rules in place. The problem is they weren’t followed. Since money is the name of the game in and outside the commission, a stiff penalty on PG&E for the rule violations would be the most effective stick. In addition, the Legislature should get in the act with more oversight. One way to find out about the extent of backdoor communications that violate ex parte communication rules would be for lawmakers to assign the state auditor to investigate whether utilities and other stakeholders at the commission, as well as high-level commission staff and commissioners, comply with those rules. We don’t know if the current scandal marks an isolated situation or is the tip of an iceberg. Without an independent look, we’ll never know. You can bet a commission audit would at least shine light on future closed door meetings and unreported communications and prevent that wink and nod.

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