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Audit questions CPUC's ability to be impartial regulator

The CaliforniaPublic Utilities Commission's policies are not strict enough to ensure thecommission maintains its independence from the companies it regulates, a stateaudit found.

State standards makeit difficult to require a commissioner to be recused from a case, even whenoutside parties can point to reasons that the commissioner might be biased,according to the California State Auditor. California requires evidence thatclearly and convincingly shows the commissioner has an unalterable position onthe matter at hand.

"The CPUCstandard is a more difficult standard for parties to challenge than thestandards used by other states' public utilities commissions, and it does notdemonstrate a commitment by the CPUC to avoid apparent bias," according tothe audit.

This commissionerstandard is more stringent than the one applied to administrative law judges,who often make the recommendations that commissioners ultimately vote on,according to the audit, which was requested by the state's Joint LegislativeAudit Committee.

The auditorrecommended that the state legislature direct the CPUC to set a standard thatrequires commissioners to recuse themselves if someone who is aware of thefacts may reasonably question whether a commissioner is able toact impartially.

Questions aboutcommissioner bias have arisen for a host of reasons in recent years, includingCPUC participation in company-paid for international travel. Sevencommissioners participated in 19 international trips over 2010-2015, at cost ofover $150,000, paid for by nonprofits. One of the nonprofits that contributedmaterially to the travel was the California Foundation on the Environment andthe Economy, which has several board members who work for entities with afinancial interest in the outcomes of CPUC proceedings.

"Although somegifts are allowed legally, such gifts as travel that come from entities withclose ties to those with a financial stake in the outcomes of CPUC proceedingscreate the appearance of inappropriate relationships between the CPUC and thoseit regulates," the audit report noted, recommending the commission adoptpolicies prohibiting these types of exchanges.

There have also beenmultiple revelations of illicit ex parte communications between the CPUC andregulated utilities. Ex parteexchanges that took place in 2013 continue to have ramifications,and earlier this year the CPUC decided to re-examine an approved settlementover the costs of closing the San Onofre Nuclear Generating Station.

The CPUC disclosurerules do not actually require commission decision-makers to take responsibilityfor comprehensively disclosing their ex parte communications, though, the auditnoted.

"If the CPUChad disclosure requirements similar to those of other agencies … the CPUC'sdecision-making process would be more transparent and its decision makers wouldbe more accountable," the audit report said.

The CPUC alsoappeared to mishandle awarding contracts to companies that supplied theutilities and the commission itself, the audit found.

The CPUC can requireutilities to take on sole-source contracts, which are often ratepayer funded,but the commission is supposed to justify why a single company is the best oronly choice for the job, absent competitive solicitation. The audit found theCPUC has not always provided justifications.

At a minimum, thelack of explanation compromises public perception of the CPUC's independenceand integrity, and the practice may in some cases reflect unethical contractdecisions, the audit said. The report pointed to an instance in which thecompany that got the CPUC-required contract was the entity that proposed theneed for the contract in the first place.

In that instance,the auditor cited one commissioner's concern that the CPUC "considersitself above the rules it imposes on others" by directing contracts thatway.

"To ensure thatthe choice of a vendor is sufficiently justified and that the vendor representsthe best value, the CPUC should explain in its final decision how the vendorwas the most qualified in all cases when the CPUC does not competitively selectthe vendor it directs utilities to contract with," the audit reportrecommended.

The CPUC agreed withmost of the recommendations the auditor made, according to the report, with theexception of requiring parties to disclose their interest in CPUC proceedings.The commission contended that this requirement would be redundant.