Dismembering the CPUC, What the Heck is Happening in California?

In a series of events that has played out under my radar (am I the only one?), lawmakers in the Golden State are moving to dismember the California’s Public Utility Commission (CPUC) – the agency that regulates privately owned electric and natural gas utilities (as well as telecom, water, passenger transit and rail).

California House lawmakers have passed a constitutional amendment (ACA 11) to reallocate or reassign all or parts of CPUC’s functions to other state agencies.  The amendment would need Senate passage to be placed on the November 2016 Ballot for simple majority public vote.

CPUC’s status as a constitutionally authorized agency is unique, providing CPUC with extremely broad authority to enact and enforce policies and programs if deemed cognate and germane. The ability of CPUC to regulate a wide range of diverse industries has been called into question after concerns about inadequacy of pipeline safety oversight, failure to ensure utility maintenance performance, the allocation of significant San Onofre nuclear plant closure costs to ratepayers, and public lack of confidence in CPUC’s response to the Aliso Canyon gas leak.

In 2015, California lawmakers unanimously pushed forward six bills aimed at CPUC reforms, for example, to limit back-channel communications, appoint an inspector general to oversee the CPUC, and increase public transparency and accountability.  However, Governor Brown vetoed these bills, apparently due to concerns about the technical feasibility of implementation.

While some question the ability of the constitutional amendment to achieve meaningful CPUC reform, passage via ballot measure would circumvent the Governor’s role in the decision. 

Here is a little more history on the CPUC’s checkered past…

In September 2014, California’s Attorney General Kamala Harris opened an investigation into the CPUC related to rate-setting procedure, and the Pacific Gas and Electric Co.’s (PG&E) 2010 natural gas pipeline explosion in San Bruno.

Retired CPUC president, Michael Peevey, was the source the initial controversy due to his back-channel communications and coordination with the very businesses he was charged with regulating, known as “ex-parte” activities.

2015 report (commissioned by the CPUC) reviewed the agency’s ex-parte practices and issued damning conclusions, including for example, 1) ex-parte communications are frequent, pervasive and sometimes outcome-determinative in rate-setting cases, 2) ex-parte communication have fundamentally undermined record-based decision making and unfairly impacted certain stakeholders, and 3) there is an absence of a culture of compliance from CPUC leaders.

Peevey is being investigated for his ex-parte interventions into the process of assigning certain costs of the now shuttered San Onofre nuclear power plant to ratepayers. Peevey is also accused of similar ex parte interventions with PG&E, for example providing public relations advice and coaching on how to respond to administrative law judge questions related to the San Bruno explosion.  Hordes of CPUC emails uncovered in the investigation also link Peevey to requests to PG&E for political contributions, campaign spending to defeat an energy-related ballot measure, and coordination to select an administrative law judge in a rate case.

Apparently, the email discovery into Peevey prompted a look into the entire agency, with the AG’s broader agency-wide investigation still pending after almost two years. Some suggest the delay in the investigation and issuance of charges is related to Attorney General Harris’ political pursuits as the front runner to fill Barbara Boxer’s opening Senate seat.

San Diego’s consumer advocate, Michael Aguirre, has launched a series of lawsuits against the CPUC and believes the AG’s office is conflicted (e.g. due to her representing the Governor’s Office), arguing the criminal investigations into the CPUC should be taken over by the U.S. Department of Justice.

CPUC has requested $12.3 million in taxpayer funds for legal defense in the criminal and civil investigations.

Alleged government collusion with businesses, high-profile energy disasters, ongoing criminal investigations, wild-west-like ex-parte practices, investigation outcomes tied to U.S. Senate race, huge costs to the public, Gubernatorial veto of unanimous legislative reform efforts, and a legislative end-run around the governor.

Not even Hollywood could have drafted a more dramatic script.

Christina Simeone

Kleinman Center Senior Fellow
Christina Simeone is a senior fellow at the Kleinman Center for Energy Policy and a doctoral student in advanced energy systems at the Colorado School of Mines and the National Renewable Energy Laboratory, a joint program.