The California Public Utilities Commission (CPUC) has not adequately guarded against the appearance of improper relationships, State Auditor Elaine Howle concluded in a report released Thursday, recommending that CPUC members stop accepting gifts from utilities and parties with financial interest in commission proceedings.
The CPUC is under criminal investigation for its role in a $4.7 billion settlement that resulted in state ratepayers shouldering $3.3 billion of the cost to prematurely shutter the San Onofre Nuclear Generating Station (SONGS). Majority owner Southern California Edison (SCE) and minority owner San Diego Gas and Electric were on the hook for the rest.
The settlement was reached in 2014, a year after ex parte conversations about the deal between then-CPUC President Michael Peevey and then-SCE executive Stephen Pickett in Warsaw, Poland. CPUC has since reopened the record of the SONGS settlement to determine if it is still fair in light of the discovery.
The audit, which the State Legislature’s Joint Legislative Audit Committee requested, describes CPUC missteps in securing a $25 million research contract between SCE, SDG&E, and the University of California as part of the multibillion-dollar settlement agreement. Private communications between CPUC commissioners and external parties were not reported because it’s not required by the commission, according to the report.
“The former president of the CPUC engaged in private discussions that were not disclosed in a timely manner and that have cast doubt on a key CPUC decision,” the report states. “These occurrences demonstrate a need for changes in the way such conversations are disclosed to the public.”
The audit, which scrutinized CPUC activities from 2010-15, describes “gifts of international travel” from nonprofit organizations. Specifically, seven commissioners accepted 19 international trips, including travel to Poland. The trips represented a total value of $150,000, according to the report.
International travel is not uncommon for CPUC commissioners, the report states. However, the California Foundation on the Environment and the Economy, which paid for six of the 19 trips, including Poland, “has a significant number of board members who are employees of entities that had a financial interest in CPUC proceedings, including some individuals who represent energy utilities the CPUC regulates.”
“Although some gifts are allowed legally, such gifts as travel that come from entities with close ties to those with a financial stake in the outcomes of CPUC proceedings create the appearance of inappropriate relationships between the CPUC and those it regulates,” the report states.
The auditor recommended that the CPUC adopt a policy to prohibit commissioners from accepting such gifts in the future, while also recommending that the legislature amend state law to adopt rules for ex parte communication disclosure.
“This report concludes that to increase the transparency and accountability of its contracting directives, the CPUC must change the rules that govern the circumstances in which commissioners can participate in its proceedings and the entities and individuals who must report private communications about those proceedings,” Howle wrote in Thursday’s letter to Gov. Jerry Brown and legislators.
“We have made much progress in bringing our practices into conformity with state procedures, requirements, and norms in the past year,” CPUC spokesman Christopher Chow stated by email Friday. “We take the audit report of our practices covering 2010-2015 very seriously and we have a plan in place to comply with the recommendations.”
The audit also draws attention to a $152 million research and development agreement between SCE, SDG&E, and Pacific Gas and Electric Co., and the Department of Energy’s Lawrence Livermore National Laboratory. The three utilities filed a joint application for the research grant. The contract, funded by customers of the three utilities, particularly focused on facility cybersecurity.
In March 2012, consumer advocacy group The Utility Reform Network (TURN) requested that the CPUC prohibit Peevey from participating in the decision about that application, arguing that he could not act impartially as he had discussed the contract with external parties before the application was submitted, according to the report. CPUC dismissed TURN’s request and ultimately approved the contract “despite evidence suggesting that he had discussed the contract with the utilities before they submitted it for approval,” the report states.
The auditor suggested the State Legislature amend state law and direct the CPUC to adopt a standard requiring commissioners to recuse themselves from proceedings “if a person who is aware of the facts may reasonably question whether a commissioner is able to act impartially.” The CPUC, for its part, should explain in its contract awards why a vendor is most qualified when issuing noncompetitive contracts.
“This report concludes that to increase the transparency and accountability of its contracting directives, the CPUC must change the rules that govern the circumstances in which commissioners can participate in its proceedings and the entities and individuals who must report private communications about those proceedings,” Howle wrote in the letter.
