Is the Public Utility Reform Act of 2016 a Corporate Trojan Horse?

by Roger Herried

Californians could soon experience a retake of the disastrous 2001 Energy Crisis if the public doesn’t get involved in making major changes to the Public Utility Reform Act of 2016 that will be taken up by the State Senate later this June.  This time the implications could go far beyond the state’s electricity infrastructure if the plan to breakup the California Public Utilities Commission (CPUC) goes ahead!  Mike Gatto’s (Assembly 43rd District L.A.) ACA 11 recently passed the assembly on a 69-11 vote that would break up the California Public Utilities Commission (CPUC).  If the bill passes the Senate, it would mean that the public could vote this coming November to break up the CPUC as well as removing the protected constitutional status that it gained back in 1878.

Due to recent scandals that have shook the CPUC, such a move to restructure the massive agency that spends $1.4 billion annually to protect consumers appears to be appropriate.  For anyone who has been following what was initially dubbed Peaveygate – when the former President of the CPUC was caught cutting deals for the state’s major IOU (Investor Owned Utility) electric giants – Pacific Gas & Electric Co. (PG&E) and  Southern California Edison (SCE). The Act’s passage would give the state legislature the power to rip apart the CPUC, even redefining what it could do not just for the state’s powerful electric companies but for many other utilities like phone, natural gas and transit services across California.

Summary of the San Bruno Natural Gas Line Scandal

The San Bruno gas line disaster in 2010, where 8 people were killed, including the CPUC’s department head – Jacqueline Greig who had been actively pushing to deny a $3.6 billion rate increase for PG&E.  The response, which was managed by CPUC President Michael Peevy enraged the city of San Bruno. Her death and that of her daughters at the epicenter of the explosion set off a conspiracy subculture resulting in a story by the Examiner.  Victims and residents impacted by the loss of their homes filed over 70 lawsuits against PG&E,  as further investigations exposed the fact that the company had diverted over $100 million of its safety funds into executive compensation bonuses.  Nearly four years after the explosion, internal documents uncovered Peevy’s close relationship with the company to avoid major fines – even suggest an appropriate amount it should be fined. The scandal would eventually force PG&E to be fined $1.6 billion for the explosion.  PG&E has since launched one of the most extensive public relations campaigns ever seen in the Bay Area with its good neighbor ads seen regularly on every TV channel.  In many of these ads the company appears to promote solar energy development, yet the company actively attempted to kill the state’s Net Metering program that pays solar panel owners for their excess electricity.

Then the state was hit with the massive Porter Ranch Natural Gas Leak that resulted in demands for new CPUC investigations.  This was followed by Governor Brown establishing a new Safety Division within the CPUC.

Summary of the San Onofre Steam Generator Scandal

By 2014, the San Bruno story had been relegated to the back pages until another controversy blew the lid off the CPUC – The San Onofre Steam Generator scandal that led to the June 2013 closure of the 2nd to last nuclear facility in California.

Back in 2005, the CPUC gave the Southern California Edison Company (SCE) permission to spend nearly $700 million for new Steam Generators at San Onofre in a bid to extend the operational lifespan of the twin nuclear-powered units located near active earthquake faults and barely 50 miles from downtown Los Angeles.  In a bid to increase the operating capacity of the units, SCE cut a secret deal with Mitsubishi Heavy Industries for the design of the new generators.  The tactic failed. Both steam generators began to leak shortly after their installation (timeline of Steam Generator Failure) in early 2012 soon after they were installed. The half billion dollar disaster and scandals forced SCE to permanently close San Onofre in June 2013.
Rather than follow proper procedures when a major power source fails, the CPUC’s president Michael Peevy, who also happened to be the president of SCE in the 1990’s when the CPUC forced the closure of San Onofre unit 1, refused to start timely hearings into the matter, resulting in major financial benefits to the company.  When he finally did agree to hearings, he cherry picked a former aid as the Administrative Law Judge (ALJ) to oversee the case.  Half way through the hearings, the major parties magically decided – against concerns of many intervenors – to settle the case, leaving ratepayers holding $3.3 billion of the estimated $4.7 billion closure costs.  (See litigation history of scandal)
But during discovery, documents started to pour out of the CPUC documenting wrongdoing that would reach its peak in early 2015 when the secret illegal settlement meetings held in Poland between Peavy and SCE were leaked.  Criminal investigations were begun forcing Peavy to resign from the CPUC.

Summary of State Lawmaker's Response to the CPUC Scandal

With the threat of an ouster over the explosive e-mail scandal at the CPUC, Peevy announced his resignation on October 9th 2014. It wasn’t long before criminal charges against him were announced. Growing anger at the CPUC including major investigative work done in Southern California included a detailed rundown by the L.A. Times on the CPUC’s recent problems. While the InlandPolitics.com opened up an extensive news feed monitoring the CPUC as well as this author.  Brown’s replacement for Peevy has also run into serious criticism for being too friendly with those he is supposed to regulate.  An example of this cozy relationship was experienced by the author and Silvia Seigel, the founder of TURN, who watched in horror as PG&E’s just retired VP walked by us after his deposition in 1988 with the then CPUC’s president talking about plans for a private barbecue party.

The State Assembly’s Committee on Utilities and Commerce would launch a number of investigative hearings on the CPUC starting in 2015.  The legislature would passed six bills in 2015 calling for modest CPUC reforms, but Governor Jerry Brown vetoed all of them.   The former San Diego city attorney then won a legal decision that Jerry Brown’s emails between him and the CPUC’s Commissioners be released, but Brown used a higher court to quash the lower court’s decision.  In the meantime California Attorney General Harris’ investigation of criminal behavior languished because of her run for higher office. Federal criminal investigations have not gone anywhere either.

The scandals continued to grow as the CPUC hired high priced outside legal services to protect itself, besides failing to answer questions raised by legislative investigators relating to the ten’s of thousands of emails documenting the fact that the CPUC has been captured by the very utilities it has been charged with regulating.  E-mails from CPUC hearings even exposed a serious scandal at Diablo Canyon where the Nuclear Regulatory Commission was caught coaching PG&E on how to overcome major seismic concerns by the agency’s own chief inspector.

Summary of the Public Utility Reform Act of 2016

Mike Gatto (D – L.A.) chairman of the Assembly Utilities and Commerce Committee overseeing the CPUC submitted the legislative bill ACA (Assembly Constitutional Amendment) 11 during the current legislative session what will be known as the Public Utility Reform Act of 2016 if it passes out of the legislature. It passed the Assembly on June 2nd and will have its first hearing in the Senate on June 21st.  The measure will do the following:

“The measure would direct the Legislature to adopt appropriate structures to provide greater accountability for the public utilities of the state and provide the necessary guidance to the commission to focus its regulatory efforts on safety, reliability, and ratesetting and to implement statutorily authorized programs for reducing emissions of greenhouse gases.”

And it would do so by:

…”authoriz(ing) the Legislature to reallocate or reassign all or a portion of the functions of the (CPUC) commission to other state agencies, departments, boards, or other entities, consistent with specified purposes.”

The details of a planned amendment to the California State Constitution will require a 2/3rds vote of the public to pass and does not require Governor Brown’s signature to get on the ballot if passed by the senate.

On its face, this bill appears to have honest intentions – to reorganize the CPUC. But if passed this new law would allow the state legislature a blank check to restructure the state’s largest regulatory agency that would open the floodgates to corporate lobbying that could dramatically weaken consumer protections for this agency that has more rules and regulations than the rest of the state government (Index of CPUC’s extensive rules and codes governing California Corporations). There will be immense political and economic pressure brought to bear on the legislature to act against the best interests of consumers that could very well result in deregulation of entire segments of the state’s companies.
It wasn’t long before major conservative institutions like the American Enterprise Institute called for the deregulation of the CPUC.  The focus of the AEI’s oped was the deregulation of the CPUC but also included support for AT&T’s legislative proposal calling for the closure of the state’s copper based phone service that would have dramatic impacts on the 8 million Californians who still rely on the old phone services.  The AT&T legislation, AB 2395 was finally defeated on May 27th as the result of an organized campaign led by numerous consumer groups, the CPUC and every Communication Worker’s of America local union in the state that sent nearly 100 people to Sacramento to oppose the legislation that would have ended all copper-line phone services in the state by 2020. Due to the deregulation of Cell phone services only the city of Los Angeles has started the process of hardening cell tower services against seismic dangers that could exacerbate a major seismic event here like the earthquake that struck the Chinese province of Sichuan that damaged over 2,000 cell towers resulting in poor to missing communication for weeks after that 7.9 quake that eventually killed 88,000 people in
 2008. LA Times

Another op-ed by Forbes Magazine in May started the drumbeat for deregulating the CPUC, also with a focus on deregulating the state’s copper phone services but also bringing up the growing scandal over Uber that has shaken up cab companies in major urban areas.  There can be no doubt the CPUC is having trouble.

But there can also be no doubt that turning over the massive undertaking of restructuring the CPUC to a state legislature that has also been shaken with its own scandals, not to mention what is most likely the largest feeding frenzy of lobbyists the state has ever seen would be ill-advised if there aren’t major public guidelines set in place as to how such a major restructuring should be undertaken.  For anyone familiar with the recent TPP trade agreements, we can be assured that far too many back table deals will be moving forward in terms of how to regulate not just the electric companies but also all the other major areas the CPUC currently manages – all in the name of fairness to the corporate bottom line.

Additional Notes

There isn’t a single soul who has taken on a major corporation using the CPUC intervenor process that doesn’t clearly understand just how unfair the system is to this day.  The CPUC’s own division that is setup to protect consumers from gouging is underfunded, under staffed and in many cases manipulated by the political arm of the agency.  Just as all professional sports franchises are locked down as to how much money can be spent to make competition fair, a similar lid on expenses should be placed on corporate funds that is balanced dollar for dollar with public resources.

Since the CPUC can and does make precedent-setting decisions that can affect the entire nation’s regulatory infrastructure, there are law firms and major industrial associations that routinely monitor the CPUC caseload.  These entities can and do actively help with filings by local IOU’s that already have some of the most powerful law operations in the country when it comes to protecting their own interests.  A good example was the $100 million legal fees PG&E spent  that were used to protect its interests when it went bankrup after 2001. But it is all but clear that the CPUC has become a David vs. Goliath legal battle, with the public clearly getting the raw deal, when any of the regular cases come before the quasi legal Administrative Law Judges who hold hearings within the CPUC process that are then turned over to the political appointees to vote on once the case has been heard.

The historic fact that going back to 1878, the original constitutional action setting up the agency included a mechanism banning all lobbying by the corporations impacted set the ground work for what would become decades of legal warfare that led to the initial expansion of the agency’s powers in 1911.  Sadly,  that progressive reform period was also a Trojan Horse where politically naive state representatives weren’t aware of the agenda that was launched by the National Civic Foundation back in 1907 when it created the cookie cutter legislative package that swept every state but Nebraska, establishing what we know today as the CPUC.  That legislative model took what used to be the legal prerogative of local governments and placed it in the hands of a single statewide commission for all perceived natural monopolies, such as water, phone lines, gas, public transit and electricity and did so at a time when there was a growing nationwide campaign that called the public takeover of the mostly corrupt private companies that charged more and were known to be the root cause of local government corruption nationwide.  This legislation would give the private companies a veneer legitimacy, but would also setup the national expansion of wall street super corporations that would then only have to deal with one regional agency, allowing them to create their giant legal apparatus only focusing on a state regulatory process rather than having to bribe local government boards.

The 1911 NCF legislation set in motion the massive expansion of corporate monopolies that were only checked as a result of President Roosevelt’s national reforms in the 1930’s that have  been attacked or replaced since the 1980’s, bills like Glass Steagal or the 1935 Public Utilities Holding Company Act that was repealed in 2005. Both these bills were originally passed as the result of public outrage caused by major collapses of electric companies during the depression. The late 60s was the era when consumer protection was at its peak. Today, we have watched as legal battles in the U.S. Supreme Court have all but stripped consumers of most protections they once held.  One of the most important of such decisions was the 1986  CPUC ruling that the intervenor/consumer protection group called TURN would be allowed to place short commentary pieces in PG&E’s electric bill that always had its own pro-utility newsletter sent to customers. The Court’s ruling destroyed the nationwide consumer activist movement on the basis of its judgment that the TURN comments would impact PG&E’s right to free speech.  The ruling has since been used by large corporations to mean one dollar one vote in all public forums.  

We have watched for nearly 30 years as energy companies – the dinosaurs that led to the lost of over $17 billion in a single year due to the deregulation of electricity – could very well face broad new challenges that could further cause even bigger issues as state, federal and international programs unfold – any of which could be tossed at the whim of  corporate forces that actively deny such things as Climate Issues, or worse, see the growing development of micro-grids as dangerous. Changes such as new solar technologies could dramatically displace the current way in which we produce energy.
Will the vision to protect the public be up to it, or will huge lobby forces far away for most of us in Sacramento result in major deregulatory forces wining out to the detriment of the public?  

Public Utility Reform Act of 2016 Action Plan

The Public Utility Reform Act of 2016 that passed the Assembly by a wide margin on June 2nd will go to the Senate on June 21st. where it will be submitted to a similar hearing process and possible passage by the end of the summer. As it stands, the bill appears to have good intentions but could unleash a wave of lobbying by corporations like nothing we’ve ever seen before if the public votes to pass this amendment to the state constitution.  It is therefore urgent the bill be refined on what it should or shouldn’t be able to do.

As pointed out in the above notes, the creation of the CPUC has led to a sea change over the last century on how the public receives utility services. In 1911, both Los Angeles and San Francisco had passed city charters calling for public ownership of these services – thus the national legislative package that was rushed through to counter the public ownership movement that was growing dramatically across the United States.  For example the U.S. government broke up the Standard Oil Trust at this time, which today would be smaller in size than PG&E is today.

In essence the Public Utility Reform Act of 2016 will have a larger impact on California than the Wilson administration’s disastrous push to deregulate the state’s electricity that went from 1996-2001 that resulted in at least $17 billion in lost rate payer revenues, besides the one time $28 billion give away to PG&E, SCE and the other smaller private electric companies that all disappeared during the crisis.

Suggestions to the senate on changes to the CPUC should focus on the most controversial parts of the agency:

• The political Appointment process of Commissioners and their role in influencing the agency’s actions
• The CPUC’s consumer protection model.  (Division of Ratepayer Advocates) & Intervenors
• The quasi-legal court model overseen by Administrative Law Judges and the lack of outside oversight
• The governor of California’s behind the scenes power over Commissioners and funding of the agency

Whether or not the legislature and its politicized position is ideal to investigate the kinds of changes that would actually enhance consumer protections should also be debated.  If California is to really be a leader in the future as a role model for its actions on issues Climate Change – other energy policies or other issues the CPUC currently oversees, its critical that our Senators hear that they are on the hot seat and need to address this issue in far more detail before letting it go before the public.

Stay Tuned for more Things you can do!