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Bombshells Drop in California Regulatory Scandals

Calls for change at the California Public Utilities Commission (CPUC) grew louder at a state Senate hearing Wednesday during which outside experts called for reforms and a consumer attorney exposed alleged ex parte communications violations dating back more than a decade.

A Senate Energy, Utilities and Communications Committee oversight hearing examining the CPUC communications violations and rulemaking processes was punctuated by new revelations of an alleged violation in 2003 involving the recently retired CPUC president and Sempra Energy's San Diego Gas and Electric Co. (SDG&E). That follows growing concerns that began last year with Pacific Gas and Electric Co.'s (PG&E) self-reporting of various communications violations (see Daily GPI, Sept. 16, 2014) as revealed in thousands of emails dating back five years or more.

What was underscored again for an increasingly skeptical legislative audience were the "too cozy" relationships between state regulators and major utilities, such as PG&E and SDG&E. One lawmaker on the Senate panel called it a "culture of coziness."

Matt Freedman, staff attorney for The Utility Reform Network (TURN), and several other witnesses who are experts on state regulatory processes, contended that ex parte rules at the CPUC are riddled with loopholes and basically broken. Freedman, current and former CPUC administrative law judges (ALJ) and a consultant at a public interest law center called for a crackdown on ex parte communications and an expansion of the numbers of positions at the CPUC that should be banned from such communications.

In the crosshairs of the testimony was former CPUC President Michael Peevey, who retired at the end of last year (see Daily GPI, Dec. 19, 2014) after holding the top regulatory position for an unprecedented 12 years. Freedman released a letter from a  former Sempra attorney, Kelly Foley, noting a 2003 conference call between the company and CPUC staff, led by Peevey.

The ex parte communication resulted in what Freedman characterized as a "backroom deal" in which SDG&E agreed to sign a long-term contract for purchased power from Calpine Corp.'s Otay Mesa gas-fired power plant south of San Diego in exchange for CPUC approval of its purchase of its affiliate's Palomar gas-fired plant in North San Diego County. The CPUC eventually approved the purchase by a 3-2 vote. Peevey was among those voting for approval.

An SDG&E spokesperson told NGI Wednesday that the utility "made appropriate filings in compliance with ex parte rules" as part of the regulatory proceedings. TURN opposed the Otay Mesa power contract.

“TURN, along with numerous other stakeholders, were involved in the two weeks of evidentiary hearings,” she said. “The CPUC ultimately accepted the ALJ’s findings that supported the need for both projects, and history has proven that the [Otay Mesa] plant was needed.”

Foley, now the general counsel for California Clean Power, exposed the ex parte and other potential violations involving Peevey and SDG&E in 2003, and recommends banning ex parte communications in rate-setting proceedings. Any commissioner directing a utility into specific contracts should be disqualified from voting on the deal, she said.

Foley said she was making the SDG&E-CPUC incident public 12 years after the fact to "help demonstrate that the more recent revelations pointing to the dire need for CPUC reform are not new, surprising or limited to a few circumstances or specific participants."

Since PG&E's release of more than 65,000 emails, the saga has worsened for the CPUC, with state and federal investigations continuing and the state legislature focused on the culture and operation of the agency, which historically has operated independently because of its basis in the state's 1911 reform-minded constitution (see Daily GPI, Feb. 15).

Freedman urged lawmakers to take action to rein in the CPUC, adding that "the CPUC is very unlikely to reform itself, and real reform will require changes in the law." He urged the state senators to pass a series of upcoming bills that propose to limit the powers of the CPUC.

TURN is backing Sen. Mark Leno's proposal (SB 215), which would create a new rulemaking process and new standards for the recusal of biased commissioners and tight restrictions on ex parte contacts. There are also proposals to curb the powers of the CPUC president.

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