Critics Say Gov. Brown Isn't Delivering on Reform at Troubled CPUC

Last December, Gov. Jerry Brown appointed a longtime adviser, Michael Picker, to head the California Public Utilities Commission.

The CPUC oversees privately owned electric, gas and transportation companies and has been under fire for a series of scandals and missteps since 2010. That’s when a gas pipeline owned by PG&E exploded in a San Bruno neighborhood, killing eight people, injuring dozens and laying bare the regulatory agency's failure to adequately police utilities. Among those failures: cozy relationships between CPUC officials and the companies they oversee.

Picker’s appointment was seen as an attempt to move the CPUC in a new direction. But a year later, after Brown vetoed a package of reform bills, there are questions about how committed the governor is to change.

Those questions, CPUC critics say, have become more urgent following the release of emails indicating the governor's office has been closely involved in discussions with the agency over how to handle controversial situations, including San Bruno and the shutdown of a Southern California nuclear power plant.

Lawmakers Initially Impressed with New CPUC President

Just a few months ago, many CPUC critics were feeling good about where things were headed. Legislation to limit private conversations between utilities and regulators and to expand transparency and public access to the CPUC's deliberations was sailing through the Legislature. When Michael Picker appeared before lawmakers at an August confirmation hearing, he highlighted changes he said would improve how the agency functions.

“This job continues to be the most frustrating and the most difficult of my career,” Picker told the Senate Rules Committee, stressing the work he had done to make the CPUC more open and accountable to both the staff and public since his appointment to lead the agency last December.

Lawmakers appeared impressed and sent his confirmation to the full Senate, which approved the appointment by a 31-8 vote.

But just two months later, Sacramento sources say, Picker worked behind the scenes to persuade the governor to veto bills that supporters say would have ensured the CPUC is truly changing its ways and could help head off tragedies like San Bruno.

In his veto messages, Brown wrote that he supported the general goals of the reform bill but found some of their specifics unworkable. The governor promised to work with lawmakers to revisit the legislation next year -- and the lawmakers who wrote the bills said they are taking the Brown at his word.

Sen. Jerry Hill, a Democrat who represents San Bruno and has sponsored more than a dozen bills in recent years to reform the CPUC, said Brown’s chief of staff, Nancy McFadden, called him to let him know the governor was vetoing two of his bills.

“And she wanted to personally convey the message that he agreed with a lot of the reforms, that he was open to and actually instructed his staff to work with legislators and me this next year to craft some reforms that he could accept and that the PUC could work with as we move forward,” Hill said.

Hill is optimistic the Legislature can work with Brown and the CPUC in 2016 to “open up the CPUC to more transparency and greater accountability.”

That’s not good enough for Jamie Court, executive director of Consumer Watchdog. He says the commission shouldn’t be involved in writing its own reforms and adds that if the agency was really committed to changing its practices, it could have done so without legislation.

“Jerry Brown really wants to take the public out of the Public Utilities Commission, so he vetoed bills this year that would have gone a long way to cleaning up the act of the PUC,” Court said. “His message in the veto message is more secrecy, and I have absolutely no faith that the members of the PUC, [who] would like nothing more than to operate behind closed doors, would be able to write a law that makes the PUC more open and transparent so we don't see these types of abuses occurring.”

When asked about the vetoes and about Picker's performance as president so far, the governor’s press office  declined comment and referred back to Brown's veto messages and a news release announcing Picker’s appointment.

CPUC's San Bruno and San Onofre Scandals

Several of the bills the governor vetoed were aimed at tackling issues raised in the aftermath of the San Bruno disaster or that resulted from the controversy over the shutdown of Southern California's San Onofre nuclear power plant.

Many of the problems were revealed in tens of thousands of emails released by a court during litigation between the city of San Bruno and PG&E. The emails detail close relationships between PG&E executives and top regulators, including former CPUC President Michael Peevey. Peevey and PG&E’s vice president of regulatory affairs, Brian Cherry, swapped stories about favorite pinot noirs and international vacation spots, and made deals related to PG&E business that the commission was considering.

The men are now under criminal investigation by federal and state authorities. Search warrants for Peevey’s and Cherry’s homes showed investigators were looking for evidence of illegal ex parte communications, bribery, obstruction of justice and favors or preferential treatment about matters before the commission.

That case led to other problems for Peevey and the CPUC: While agents from the state attorney general’s office were searching his home, they found a napkin with notes from a private meeting at a Warsaw hotel between Peevey and and an executive for Southern California Edison. The notes contained the outline of a settlement related to the shutdown and decommissioning of San Onofre.

The plant, jointly owned by Edison and San Diego Gas and Electric, sprung a radioactive leak in 2012, less than a year after a $700 million upgrade, a cost mostly borne by ratepayers. The plant had to be closed -- and it was up to the CPUC to decide who should pay for the shutdown.

The final deal, negotiated in part by Peevey and approved by the full commission, saddled ratepayers with a $3.3 billion bill. That settlement is now under fire because of questions over whether it was influenced by the secret Warsaw meeting, which under state law should have been disclosed at the time by the utility company.

Peevey decided late last year not to seek reappointment as CPUC president, as criticism of the agency and his leadership mounted and as Sen. Hill prepared to introduce a resolution to remove him.

As the storm grew, TURN spokeswoman Mindy Spatt notes, Brown “never stopped supporting Michael Peevey publicly.”

“Michael Peevey didn't resign from the commission, neither was he pushed out,” she said. “He simply didn’t try to get reappointed -- and to be clear, in the time I have been here at TURN, 17 years, we have never seen the kind of public outcry we saw about Peevey. We had tens of thousands of consumers send Gov. Brown letters, asking for his resignation in the wake of San Bruno, and the governor really did nothing, and did nothing to address the scandal that enveloped President Peevey.”

Hill says he wasn’t surprised that Brown stood by the former commission president for so long.

“He did stand behind Mr. Peevey a lot longer than necessary or appropriate ... but I think the governor is loyal, and in politics, loyalty is important,” he said. “I don't think the governor would have reappointed Mr. Peevey at all.”

Hill adds that he believes Peevey should face criminal prosecution for his conduct at the agency.

Office of Ratepayer Advocates Left Without a Leader

Even as questions continue to emerge about the CPUC’s record, Brown has neglected the branch of the commission that’s dedicated to protecting consumers, the Office of Ratepayer Advocates, which has been without a permanent director for more than five years.

Interim Director Joe Como is retiring next week. The governor’s office told KQED the administration will be looking for a qualified candidate, but did not answer questions about why the ORA has been without a permanent director for so long.

Como said he’s been hamstrung in the role for years because, as interim chief, he didn’t have all the powers a permanent appointee would have.

“Nobody can fill the director’s position except the governor,” Como said. “It’s better in terms of lending credibility to the job to have an appointed director. And it gives the feeling that the governor has confidence in the person.”

Consumer advocates say the Office of Ratepayer Advocates needs a leader.

“We feel it is an act of neglect for Gov. Brown to fail to appoint a permanent executive director to ORA. It’s extremely important for him to appoint a very strong, dedicated consumer advocate to that position to exercise the kind of leadership they need,” Toney said.

It’s crucial, Toney says, because the ORA is the only state agency solely dedicated to looking out for utility customers.

In California, utility bills are determined through a process that's akin to a court case. Companies make their arguments for higher rates to an administrative law judge. And while unions, consumer groups and others can intervene with their own lawyers, in 1984 the Legislature decided utility customers needed their voice heard in such proceedings and created the CPUC branch known today as the Office of Ratepayer Advocates.

When utilities want to increase rates, ORA analysts look at whether the proposal is fair -- weighing factors that include executive pay and bonuses, spending on safety, medical costs and pensions. They often present their findings as expert witnesses.

The agency also checks to make sure that utilities are actually spending the revenue they're awarded in rate cases. In recent years PG&E was caught not using $400 million it was allowed to collect from customers for safety upgrades. Ratepayers are getting a refund for that this winter as part of the penalty levied against the company for the San Bruno disaster.

Currently, the ORA doesn’t have a chief counsel, and it's often forced to use lawyers who work for other branches of the CPUC -- attorneys who may have interests that don't coincide with the ORA's mission. Toney says it’s ridiculous for the agency to be sharing attorneys with the same CPUC branches “they are supposed to be the watchdog of.”

Throughout the agency, about one in seven funded positions are currently vacant. During the last five years the agency took part in 30 percent fewer pleadings and 15 percent fewer proceedings.

Como said that during his tenure he wished the office had “pushed as hard on pipeline safety as we should have.”

“We do not think that the pipeline transmission system in California is safe enough yet,” he said.

Back-Channel Communications

Amid these shortcomings, the ORA has also had its share of problems with back-channel communications between staff and utility executives.

More than 2,000 emails between ORA Program Manager Michael Campbell and PG&E Director of Regulatory Relations Sidney Dietz became public during a lawsuit between the city of San Bruno and the utility. Among frequent emails about their bicycling adventures were long conversations about energy policy, ratemaking and the electrical power grid. A judge ruled that at least one of the conversations was “improper.”

Campbell also forwarded personal information about ORA employees to Dietz, in one case discussing a co-worker's health problems.

Current and former ORA staffers told KQED that having information about their personal lives forwarded to PG&E staff was devastating. The ORA and utilities are frequently on opposite sides of cases, and analysts are cross-examined by utility lawyers.

“It is a state agency, so we don’t have the same level of resources these utilities do, so it does take a lot of courage,” said former ORA analyst Monisha Gangopadhyay. “Being cross-examined by PG&E lawyers, it doesn’t help to know that they know your personal business. Essentially what that manager has done is assassinated your personal character before you even get on the stand.”

Gangopadhyay said that staff were surprised and demoralized when the emails came out.

“They objectify women, show sort of a contempt for the organization’s mission, a lack of professionalism. Generally, the target of the emails are women, admin staff to the commissioners. That was disturbing,” she said.

Campbell declined to comment for this story. PG&E did not respond to KQED inquiries. Como would say only that “appropriate steps have been taken" to address the situation.

“I think it was poor judgment on the part of Mr. Campbell to have forwarded those outside of our office,” Como said.

Can the CPUC Reform Itself?

In many ways, critics say, Gov. Brown and the CPUC continue to resist change -- in both the courtroom and the Capitol.

For example, the CPUC has refused to release emails concerning the role of commission president Picker and Brown in the deal to shut down San Onofre.

The bills vetoed by the governor would have addressed some of the problems raised in the aftermath of San Bruno and San Onofre, lawmakers and consumer advocates say. One would have made it easier for the public to challenge the CPUC in public records disputes, like the San Onofre case.

Another would have overhauled the rules around private conversations between CPUC officials and interested parties like utility officials, outlawing them in some cases and greatly expanding disclosures in others. Those changes were recommended in a report commissioned by the CPUC, which called the current rules “very unusual” and “unfair” and said they “fundamentally undermine record-based decision making." The report recommended eliminating these types of private meetings in some cases and expanding which ones are subject to disclosure in others.

In one veto message, Brown wrote that he supports “the intent of these bills and many of their proposed reforms, however some additional work is needed to ensure that they achieve their intended purposes and can be effectively implemented.”

In another, he wrote that some of the bills were “unworkable” as written.

“Some prudent prioritization is needed,” Brown stated. “I am directing my office to work with the authors on drafting these reforms and to ensure the commission receives the necessary resources to implement them swiftly and effectively.”

Lawmakers and advocates say they are watching closely to see what Brown does in 2016.

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