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Regulatory experts on March 11 called on lawmakers to impose strict limits on ex parte communications between California utility regulators and the utilities they oversee, saying the state Public Utilities Commission is unlike almost every other state commission in the nation in allowing utility lobbyists to exert influence on decision-makers. At a California State Senate Energy and Utilities Committee oversight hearing, experts said private meetings should be banned for all contested proceedings including rate cases because such meetings between utility officials and commissioners, advisory staff and PUC managers undermine due process, transparency and decision-making that is supposed to be based only on evidence and record in the proceedings.
Regulatory experts on March 11 called on lawmakers to impose strict limits on ex parte communications between California utility regulators and the utilities they oversee, saying the state Public Utilities Commission is unlike almost every other state commission in the nation in allowing utility lobbyists to exert influence on decision-makers.
At a California State Senate Energy and Utilities Committee oversight hearing, experts said private meetings should be banned for all contested proceedings including rate cases because such meetings between utility officials and commissioners, advisory staff and PUC managers undermine due process, transparency and decision-making that is supposed to be based only on evidence and record in the proceedings.
The abuse of ex parte communications at the PUC is an "unprecedented example of lawlessness," said Ed Howard, senior counsel with the University of San Diego law school.
The senators agreed that significant concerns were raised, and committee Chairman Ben Hueso said he hoped legislation would lead to better decision-making and better pricing for consumers. Earlier he said, "We will see if lobbying should be banned."
Sen. Jerry Hill, a frequent critic of the PUC and its handling of the case of PG&E Corp. subsidiary Pacific Gas and Electric Co.'s San Bruno natural gas pipeline disaster under former PUC President Michael Peevey, said laws should be strengthened to keep deals from being made behind closed doors between utilities and their regulators to ensure customers are protected.
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Pointing to the scandal over emails, Hill accused Peevey of violating rules designed to ensure parties have equal access in commission proceedings. Hill said there is a contradiction between rules designed to ensure commissioners make decisions based on information developed in PUC cases and scandals over how utilities have gotten around ex parte reporting requirements to exert influence.
Sen. Mike McGuire said it is almost impossible to advocate for ratepayers in the public process. "There really is a culture of coziness at the PUC. It is unfair and almost impossible for the public to participate in a rate setting case," he said.
Although commissioners meet privately with utility lobbyists, the typical ratepayer is blocked by bureaucratic red tape and an almost impenetrable intervenor process in which rate decisions are made at places far removed from the communities they impact, he said. Only parties to the case, for example, are guaranteed equal access to one-on-one meetings.
"If you don't have deep pockets or a team to advocate for what you need, you are almost out of luck. We have become the exception, not the rule, across this nation," McGuire said. "What we've created is an island of individuals who are not accountable to the public. Reforms are long overdue."
PUC Administrative Law Judge David Gamson said the 40 ALJs at the PUC are dedicated to ensuring due process through development records of each proceeding. "ALJs do not engage in these one-sided ex parte contacts," Gamson said.
He outlined the PUC's rules for ex parte contacts that apply to any substantive oral or written communication between a decision-maker and a person before the PUC that is not in a public workshop or official record.
There is an absolute ban on ex parte communications in adjudicatory proceedings, Gamson said. However, such communications are allowed with commissioners and staff in most proceedings, including ratemaking, as long as all parties have a three-day advance notice of single-party meetings and all parties are allowed equal time for their own meetings. Notices do not apply if a commissioner speaks to a party but that party does not respond, he continued. Written communications must be served on all parties on the same day, he said.
Hill said there appears to be a conflict in applying the ex parte ban concerning proceedings that move from a broadly encompassing ratemaking category to adjudicatory status.
Howard said the law allows for a blurring of whether a proceeding is ratemaking or adjudicatory in nature and when the ban on ex parte communications should be imposed. The moment an adversarial process begins, all such communications should be banned, he said.
"To be able to simultaneously have secret conversations when a formal proceeding has begun makes the public comment a charade," he said.
Gamson said the commission is dismayed about the breaking of ex parte rules and has employed a consultant who will soon recommend changes. "We are very dismayed about the cozy relationships and are making efforts to change the culture within," he said.
Deborah Behles, an associate professor of law at Golden State University, said the general purpose of ex parte rules is to prevent parties from gaining an unfair advantage in PUC proceedings where they cannot rebut contested issues.
"It is a mockery of justice to even suggest that judges or other decision-makers may be properly approached on the merits of a case," she said. "Ex parte contacts can essentially nullify the public's participation in hearings if decision-makers make decisions based on ex parte contacts and not the record of proceedings."
Steven Weissman, a University of California, Berkeley, law professor, said 36 of 50 states have bans on ex parte communications and another 12 states prohibit ex parte communications in all but the most basic compliance proceedings.
"The CPUC doesn't discourage ex parte communications but rather encourages them," said Weissman, who worked for decades at the commission.
Any party can send an e-mail, letter or drop off a thick document and any party can call a commissioner to chat or can "bump into" that commissioner, he said. "CPUC practice is inconsistent with the quasi-judicial nature of its proceedings," Weissman said.
That commissioners must meet one-on-one with those they regulate to reach proper decisions is a myth, he said. "Why have a meeting at all if you can't take anything but what is in the evidentiary record? It doesn't make sense," Weissman said.
The time of commissioners and their advisers could best be spent examining the record instead of packing their schedules meeting lobbyists and representatives of those they regulate, he said.
"This agency has extraordinary independence and a lack of checks and balances that would normally apply to voting members of the state Senate," he said. "There is almost no court review of CPUC proceedings."
Weissman also faulted the rules for putting the responsibility of reporting ex parte communications entirely on parties making the contacts and not on the commissioners themselves. To the extent other states allow such contacts, the onus is on the decision-makers, not the regulated parties, to report the communications.
Howard said the law should have teeth so that if rules governing ex parte communications are violated the commissioner should be removed from the case and the individual representing the subject of the communication should be banned from ever being able to practice again before the PUC. This would be equivalent to disbarment, he said.
The Utility Reform Network's staff attorney Matt Freedman told the committee that the Legislature must change state law to ensure that a commissioner cannot engineer secret backroom deals and then vote on whether they are reasonable.
Copyright SNL Financial LC Mar 13, 2015