Assembly Members Gatto, Levine, and Wilk introduced a bipartisan State Assembly Constitutional Amendment (ACA) 11 on March 9, 2016 to reform the California Public Utilities Commission (CPUC). What does this proposed constitutional amendment mean for California and for the CPUC?
Pursuant to Article XVIII Section 1 and Section 3 of the California Constitution, the legislature must pass the ACA by a 2/3 supermajority vote of both houses for the amendment to go before voters in a statewide ballot action. ACAs (and Senate Constitutional Amendments (SCA)) allow the legislature to propose constitutional amendments to voters and differ from normal legislation because ACAs and SCAs do not require the signature of the Governor and, as such, cannot be vetoed.
The authors introduced ACA 11 in response to Governor Brown’s veto of several CPUC reform bills that were the result of fallout from the 2012 San Bruno Gas Explosion, Ex Parte communication violations, the closure of the San Onofre Nuclear Generation facility, and the recent San Aliso Canyon natural gas leak. The vetoed legislation included:
- SB 18 (Hill): Outside Counsel Approval for Criminal Investigations;
- SB 48 (Hill): CPUC Reform;
- SB 660 (Leno): Regulation of Officials and Ex Parte Rules;
- AB 1023 (Rendon): Proceedings on Ex Parte Communications:
- AB 825(Rendon): Understandable Rates and Disclosures of Procurement and Adjudications; and
- SB 512 (Hill): CPUC Reform.
The political environment in which the legislature now focuses on a constitutional amendment to facilitate reform has been influenced by other factors, including criticism of regulatory capture by industry, the idea that the CPUC is stretched too thin or regulates too many industries to be effective, and the CPUC’s changing regulatory authority due to deregulation, federal preemption, and shifts in industry.
How does Article XII currently operate?
ACA 11 calls for the repeal of Article XII of the California Constitution. Article XII creates the CPUC and provides authority to regulate public utilities. Specifically, Article XII Section 3 lists the following regulated subject matters:
Private corporations and persons that own, operate, control, or manage a line, plant, or system for the transportation of people or property, the transmission of telephone and telegraph messages, or the production, generation, transmission, or furnishing of heat, light, water, power, storage, or wharfage directly or indirectly to or for the public, and common carriers, are public utilities subject to control by the Legislature.
What is important is that these public utilities are subject to “control by the Legislature.” Additionally, Article XII grants plenary power – unlimited by other provisions of the constitution but consistent with Article XII- to the Legislature to:
- Confer additional authority and jurisdiction upon the CPUC (Article XII Section 5);
- Establish the manner and scope of review of CPUC action in a court of record (Article XII Section 5);
- Enable the CPUC to fix just compensation for utility property taken by eminent domain (Article XII Section 5); and
- Prescribe that additional classes of private corporations or other persons are public utilities (Article XII Section 3).
Textually, Article XII grants broad authority to the Legislature and narrow authority to the commission itself. The specific constitutional authority granted to the CPUC is listed below:
- Authorizes commission to make its own procedures subject to due process (Article XII Section 2);
- Authorizes any commissioner to hold a hearing or investigation or issue an order subject to commission approval (Article XII Section 2);
- Authorizes ratemaking, rulemaking, examining of records, issuing of subpoenas, administration of oaths, taking testimony, punishing for contempt, and prescribing a uniform system of accounting for public utilities it regulates (Article XII Section 6);
- Authorizes the fixing of rates, setting of rules, prohibition of discrimination, and reparation for unreasonable, excessive, or discriminatory charges for the transportation of passengers and property by transportation companies (Article XII Section 4); and
- The review and decision as to whether a rate increase or incidental charge by a transportation company is justified (Article XII Section 4).
Over the years, the CPUC has used its constitutional authority for rulemaking over public utilities to expand specific programs or regulations. In almost all instances, the legislature passed law codifying these actions and bringing them under legislative oversight and requirements. The legislature has also imposed all statutory safety, rate, reliability (conformed to federal standards), environmental, consumer protection, public health, public access, commissioner requirements and limitations, and judicial review requirements per its authority under Article XII Sections 3 and 5. This has resulted in most of the regulatory expansion of the CPUC. Finally, existing CPUC rules provide for third party access to participate in CPUC adjudications subject to judicial and statutory due process requirement and oversight.
What changes would occur under ACA 11?
ACA 11 would add Section 10 to Article XII of the California Constitution granting the legislature authority to reallocate all or portions of the functions of the CPUC to other state agencies, departments, boards, or other entities it may create. Essentially, the amendment would grant the specific constitutional authority of the CPUC to the legislature itself making the CPUC, or its future incarnation(s), a legislative animal with no independent constitutional authority. ACA 11 states that the reallocation or reassignment shall be in “furtherance of consumer protection, public health, environmental protection, increased transparency, public access, and preserving the ability of third parties to advocate for and intervene on behalf of those that need their advocacy.” Finally, ACA 11 would require the legislature to adopt appropriate structures to provide “greater accountability for public utilities” and focus regulatory efforts on safety, reliability, and ratesetting and to implement statutorily authorized programs for reducing emissions of GHGs.” ACA 11 would repeal Article XII on January 1, 2019 and add a new Article XII Section 1 that maintains the constitutional authorization for all valid legislation enacted at the time of the repeal of Article XII. This ensures that existing legislation, regulations, and programs remain authorized.
Beyond the grant of authority to change which public utilities are overseen by the CPUC, ACA 11 appears to do little in light of the existing “unlimited” plenary grant of legislative authority over the CPUC and existing law. Because of Administrative Procedure Act requirements, over 100 years of case law regarding regulatory actions, and constitutional due process requirements, any structure the legislature creates will look almost exactly like existing structures with the added opportunity for lobbyist of regulated entities to advocate for beneficial language or carve outs in the legislature. This constitutional grant of authority also would not supersede the governor’s veto authority over enrolled bills under Article IV Section 10 nor would it change the legislative oversight created by the annual budget process.
Importantly, ACA 11 would remove the express constitutional grant of authority to determine judicial review of CPUC decisions and orders and California Energy Commission (CEC) power plant siting decisions under Article XII Section 5. Article XII Section 5 grants the legislature authority to limit which court may review CPUC orders or decisions and what evidence may be reviewed. Civil Code Section 1756 et seq. limits judicial review to appellate courts and the California Supreme Court as well as limits review to evidence in the administrative record. While ACA 11 would grant that existing laws are not invalidated by the repeal of Article XII, the lack of express authority to limit judicial review of CPUC orders and decisions puts at risk Civil Code Section 1759 et seq. judicial review limitations. Public Resources Code Section 25531 limit on judicial review of CEC thermal power plant site certification to the California Supreme Court also is at risk. The court case upholding Section 25531, County of Sonoma v. State Energy Resource Conversation et. Com. (1985) 40 Cal 3d. 361, depends on both the broad legislative authority over the CPUC matters conferred by Article XII – including judicial review of CPUC decisions under Article XII Section 5 – and the close relationship between the CPUC and the California Energy Commission relevant thermal power plant site and related equipment decisions. The present language of ACA 11 fails to account for current statutory dependence on Article XII, long established judicial precedent, and the close relationship between energy regulators such as the CEC and CPUC. This in turn may invite legal challenge to these types of statutes.
ACA 11 grants legislative authority to change how public utilities are regulated. The current language of ACA 11 lacks specificity to evaluate how this will be carried out but could invite a more complicated regulatory system subject to the legislative battles of relevant special interest. Additionally, Article IV Section 10 still requires all statutes to be submitted to the governor, meaning that the veto power that ACA 11 is designed to overcome will play the same role in deciding, or frustrating, CPUC reform.
An alternative way to simplify, and therefore focus regulation, is to deregulate the retail energy market. Deregulation would make the CPUC a market regulator that can focus primarily on carrying out the existing legislative mandates that are listed as objectives of ACA 11. Given the outcome of California’s energy market restructuring of the late 1990’s, it is not likely that we will see any effort in this direction anytime soon.