Copyright 2016. No quotation or citation without attribution.
UCSD - GPS CASE 16 - 09

Establishing Stronger Monitoring
Mechanism of the CPUC’s Ex Parte
Contacts

By: Naoki Suefuji

School of Global Policy and Strategy, UC at San Diego
Prepared for Professor Peter Gourevitch
Course on Corporate Social Responsibility
Winter 2016

Establishing Stronger Monitoring Mechanism of the CPUC’s Ex Parte Contacts- A Case Study of Ratesetting Proceeding Over San Onofre Nuclear Station Shutdown -Overview
This paper is a proposal to an NGO, The Utilities Reform Network (TURN), serving
for the interest of ratepayers on their behalf, so that it could establish stronger monitoringmechanism over ex parte contacts1 of the California Public Utility Commission (CPUC) inelectricity rate setting proceedings. In what follows, brief background is introduced at the
beginning and key issues will be subsequently detailed. Those key issues fall in every player
at stake, which cover incomprehensive rulemaking, conflict of interest in appointing
commissioners, and incompetent monitoring system. Thereafter, I will set criteria to examine
which options, in any combination thereof, to take among them. Every possible option will be
unfolded to address these enumerated issues and evaluated. Lastly, the proposal will reach torecommend a set of action plan matching such criteria.

Background
In June 2013, SCE announced plans to prematurely retire San Onofre Nuclear
Generating Station (SONGS, which SCE and SDG&E own 80% and 20%, respectively) due
to a course of troubles with its steam generators (SCE 2013). The CPUC opened aninvestigation over the influence to the electricity rates incurred by SONGS permanent closurein response to the company’s filing, which eventually resulted in a joint settlement among
SCE, SDG&E, TURN, the CPUC, and the Office of Ratepayer Advocates (ORA)2 in March2014 (SDG&E 2014). The settlement determined how to allocate the additional costs of $4.7
billion in total, generated by the premature shutdown, to each stakeholder: $1.4 billion
1

Ex parte contact means one-sided communication between a decision-maker and interested
groups, privately held behind the scene.
2
A division of CPUC, which advocates ratepayers on behalf of the public. Detail will follow
in the next section.

(accounting for approximately 30%) to the shareholders and $3.3 billion (accounting for70%) to the ratepayers (See, Appendix 1&2).
However, soon after the settlement obtained an approval from the CPUC, the San
Diego Union-Tribune, a local newspaper, reported the fact that then-CPUC President Michael
Peevey had a private communication with then-SCE vice president Steven Pickett over theissue concerning San Onofre shutdown at Hotel Bristol in Warsaw, Poland, which called into
question the integrity of the settlement process (McDonald 2015). In California, the Public
Utilities Code and the CPUC rules set certain restrictions on such behind-the-scene
communication over pending ratesetting cases, requiring advance notices to other parties andfiling reports that cover what the interested group addressed in the meeting, among others(Behles and Weissman 2015). Nevertheless, SCE did not file a necessary report of themeeting in a timely manner (SCE 2015).
After the scandal had revealed, the ORA withdrew their support for the settlement,
arguing that the transparency of the settlement process was deteriorated and they could havereached more advantageous settlement for ratepayers unless such one-sided private
communication did not occur (McDonald 2015). The article also reported that the ORA
requested to the commission to order the utilities to return $648 million, as a floor, to betterbalance the tainted settlement. Moreover, the state and federal attorneys opened criminal
investigation after this case. Amid such charges against utilities, several comments also
indicated that TURN, which participated the settlement on behalf of ratepayers, wasdisqualified to participate ratesetting process hereafter since it did not timely respond to such
ex parte contact, while knowing the fact that it happened (McDonald 2015).
The California State Assembly started vigorous discussion toward CPUC reform. In
October 2015, while Assembly passed six bills concerning the CPUC reforms that include
stronger regulations over ex parte contacts, Gov. Brown vetoed them stating the reasons asfollows: “[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 purposesand can be effectively implemented” (KQED 2015). Assembly again passed bills for CPUC
reform unanimously in January 2016, and is waiting for the governor’s signature (McDonald2016).
As illustrated above, ex parte contact over ratesetting proceedings like this case is sucha serious problem that allows interested groups to manipulate and deteriorate the supposedly
fair and transparent process before the CPUC, which could possibly result in disproportionate
allocation of electricity costs over extensive ratepayers. Nevertheless, all the stakeholders
responsible for the process failed to play expected roles and to comply with the rules: theCPUC had lax rules and even failed to follow it by initiating such private communication
with a utility executive behind the scene, the ORA failed to detect such a contact whileclosely working with the CPUC, SCE failed to timely file the report allegedly by executive’s
self-judging, and TURN, in charge of monitoring on behalf of ratepayers, missed an
opportunity to properly respond. Furthermore, even Assembly lawmakers sponsoring the
package of the CPUC reform bills are struggling with the governor’s resistance.
Over such deadlock, what this paper is aiming at is how to effectively manage thegrass-roots activities to charge interested players with social responsibility and help
re-establishing transparent ratesetting process within the limitation of NGO’s resources andcapability.

Key Issues
In California, the electricity market is designed as a combination of regulated andderegulated layers, where the power utilities sell electricity to end-users at the regulatory rate
approved by the CPUC at the retail level, whereas utilities purchase electricity at thederegulated wholesale market (Cook 2013). A large majority of consumers in California
receive electricity from one of the three major investor owned utilities: Pacific Gas & Electric(PG&E), SCE, and SDG&E. The CPUC has authority to conduct a rate case in response to autility’s filing, and approve a utility to pass the costs of providing electricity plus a fair rate of
return on investments on ratepayers. The regulations relevant to this procedure, Public
Utilities Code Section 451 and 454 (a) read as follows:
451. All charges demanded or received by any public utility […] for any product orcommodity furnished or to be furnished or any service rendered or to berendered shall be just and reasonable.
454. (a) […]a public utility shall not change any rate […], except upon a showing
before the commission and a finding by the commission that the new rate isjustified. […]To ensure a rate case is thoroughly and impartially investigated, the ratesetting
process is designed as an adjudicatory hearing before administrative laws judges (ALJs)
who the CPUC assigns to a case.
However, in this scandal, ratepayers are skeptical about the settlement of whichframework was decided under the influence of the ex parte contact between the CPUC
President and the SCE executive. No matter how the consequent rate is just andreasonable, what is critical here is such deception could manipulate and distort theprocess and deteriorate the integrity. This problem would be broken down to thefollowing four issues.
(1) Opaque and incomprehensive regulations
According to Behles and Weissman, regulations on ex parte contacts are aimed atpreventing an interested party from obtaining an unfair advantage in a contested case (2015).
They also point out that ex parte contacts generally tend to be disproportionately weighed in
the decision-making process since the decision maker does not have access to rebuttal, which
is usually expected in a fair adversarial hearing. Ex parte contact restrictions are implemented
over judicial and adjudicatory process in multiple states and federal level in varied fields.

In California, the CPUC is subject to Public Utilities Code and rules it endorsed theCode on this issue. According to these regulations, the CPUC’s activity is divided into three
types of proceedings: adjudicatory, quasi-legislative, and ratesetting that is at stake in thiscase. Each proceeding follows different regulations at varied level of strictness. The Codeand CPUC Rules technically allow limited ex parte contacts under a certain set of conditions:interested group engages in such a contact is required to notice the other party that it would
have such private communication with the CPUC in advance, and disclose what it claimed.
Besides, the CPUC needs to provide the other party with substantially the same opportunityof private communication to rebut. This case violated such regulations in respect of SCE, aninterested group, having failed to file a timely report.
However, Strumwasser&Woocher LLP, a law firm hired by the commission to conduct
independent investigation, reported that the existing regulations are rather lax compared torespondent rules in other states and opaque in interpreting. To address such problems, it
developed a set of proposals based on the result of the investigation as follows.
Firstly, it recommended that the commission prohibit ex parte contacts in principle.
According to the investigation, a pernicious case was found, in which a commissioner
implied to favor a utility by assigning a tractable ALJ to a case, soliciting donation to aparticular project (e.g. UCLA Institute where then-Commissioner President Peevey was anadvisor). Besides, the research findings showed that a utility usually files an overwhelming
number of reports for ex parte contacts in each case than those of either the ORA or NGOs,
while legitimate as long as timely reported according to the current rules. Those facts suggestthat such privately held communication could become the main forum to form
commissioner’s opinion, which looks unfair for the other party not to be entitled to rebut.
Secondly, the outside investigator proposed that the commission and its aides bear the
obligation to file a report and disclose when they are involved in permissible ex partecommunication, which only an interested group is now imposed such obligation thus far.
Third, the law firm suggested that the commission should avoid industry-sponsored rips andconferences. This is because the case in interest was committed under such a circumstancewhen the former CPUC president Peevey and the SCE executive were together at conferencein Warsaw, Poland. The report showed concerns about trips and conferences could provide
them with a breeding ground for private communication escaping away from prying eyes. To
address these issues above, Public Utility Code and the commission’s rules should be revised
through legislative approach.
(2) Conflict of interest of the CPUC commissioners
The CPUC is an executive branch of the California State Government, which regulates
privately owned utilities such as electric, natural gas, telecommunications, and water etc.
According to the commission’s mission, it serves public interest by protecting consumers andensuring the provision of safe, reliable utility service and infrastructure at reasonable rates,with a commitment to environmental enhancement and a healthy California economy (2016).
Its mission includes setting electricity retail rates and inspecting and auditing power plants
and utility infrastructure.
The Governor appoints five commissioners, who are subject to confirmation by
Assembly Senate. The Governor also designates the Commission President among them.
Each commissioner has long experience in the regulated industries, including utility
executive, legal practitioner serving for NGO of the field, and academic. The following list
enumerates then and former Commission President Michael R. Peevey, who did not seek toget reappointed after the case had revealed, as well as incumbent commissioners. As shown
below, Mr. Peevey worked for SCE as the President from 1984 to 1995, which makes it
apparent there were conflict of interests in San Onofre ratesetting proceeding.
CPUC Commissioners as of March 2016

- Michael Picker (12/2014 -Commission President): Senior Advisor for Renewable Energy in
the Office of the Governor (2009-2014), a principal at Lincoln Crow Strategic
Communications (2000-2009), Deputy Treasurer in the Office of the
California State Treasurer (1998-1999), Chief of Staff to Sacramento Mayor
Joe Serna Jr. (1992-1999), Deputy Assistant for toxic substance control in the
Office of the Governor (1981-1982), a member of the Sacramento Municipal
Utility District Board of Directors (2012-2014).
- Mike Florio (01/2011-): a senior attorney at The Utility Reform Network (1978-2011), a
member of California Conference of Public Utility Counsel, a member of theboardofgovernorsoftheCalifornia
Independent
SystemOperator (1997-2005).
- Catherine J.K. Sandoval (01/2011-): Co-Vice-Chair of the National Association ofRegulatory Utility Commissioners (NARUC) Telecommunications Committee,
on the NARUC Federalism and Telecommunications Committee, and on the
NARUC Utility Market Access Committee. Policy Chair of the Federal
Communications Commission (FCC) Federal-State Joint Conference on
Advanced Telecommunications Services. California Emerging Technology
Fund Board of Expert Advisors (2007-).
- Carla J. Peterman (12/2012-): Board member of the National Association of Regulatory
Utility Commissioners (NARUC) and as a Steering Committee member of the
California Plug-in Electric Vehicle Collaborative. Lead Commissioner of the
California Energy Commission. Environmental business analyst at community
redevelopment non-profit Isles Inc.
- Liane M. Randolph (01/2015-): Deputy Secretary and General Counsel at the California
Natural Resources Agency (2011-). An attorney at the law firm of Pillsbury
Winthrop Shaw Pittman. Chair of the California Fair Political Practices
Commission (FPPC) (2003-2007). City Attorney for the Cities of San Leandro
and Suisun City on a contract basis.
Then and Former Commission President- Michael R. Peevey (2002-2014): President of NewEnergy Inc. (1995-2000), President of
Edison International and Southern California Edison Company, and asenior executive there (1984-1995). Board member of numerous corporations
and non-profit organizations.
(http://www.cpuc.ca.gov/commissioners/)

The reason why the CPUC consists of such controversial selection of members is
because its service such as ratesetting requires profound expertise about extremelycomplicated regulations and unique industry practices. Although appointment of

commissioners from the short list in the regulated industries would help improving
information asymmetry between the regulators and licensees who have primary informationcollected from their fields, it is true that commissioners who have long experience in theindustry feel sort of sympathy to the regulated community, according to the regulatory
capture theory. Actually, this is a typical circumstance for regulatory capture.
According to Public Utilities Code and Conflict of Interest Rules, when the governor
appoints a commissioner, an appointee is required to file a certain form that reports financial
relationship with particular individuals and companies. This is a mechanism designed to
avoid distortions in decision-making process and deterioration of public interests due to
conflict of financial interest.
Public Utilities Code303. (a) A public utilities commissioner may not hold an official relation to, nor have afinancial interest in, a person or corporation subject to regulation by thecommission. If any commissioner acquires a financial interest in a corporation or
person subject to regulation by the commission other than voluntarily, his or her
office shall become vacant unless within a reasonable time he or she divests himself
or herself of the interest.
(b) The commission shall adopt an updated Conflict of Interest Code and Statement of
Incompatible Activities, by February 28, 1998, in a manner consistent withapplicable law.
However, there is a reason that Mr. Peevey was allowed to serve for the commission
for 12-year long even though the close tie to SCE was publicly known before his appointment.
Allegedly, according to Derbeken and Baker, the appointment of Mr. Peevey was a result ofCalifornia electricity crisis happened in 2000 and 2001. His predecessor, Loretta Lynch, afavorite of consumer advocates, in charge of the Commission President during the crisis,failed to solve the flawed market, though she even considered to takeover generators toresolve the troubled situation, which was totally considered a layman’s idea. As a reaction tosuch devastation brought by mismanagement, the governor came an opportunity to appoint an
insider, the former SCE President Peevey, who had already supported drafting a financial

rescue plan of PG&E utilizing his expertise in the industry (2014). He answered to theinterview by the Chronicle as follows (2011):“Good regulation is not just beating someone over the head [.] I’m quite willing to
use the stick, but I also use the carrot. Ultimately, you have to have thecooperation of the utilities in order to meet the energy goals the state sets.”
One of the remaining issues is that the Code narrowly focuses on the disclosure of only
financial ties with regulated industries but for personnel or institutional relationships.
Furthermore, the Code does not basically prohibit from appointing such figures tied closely
to the industry as long as financial relationships are disclosed, like Peevey was successfully
appointed to the Commission President regardless of his apparent conflict of interest.
(3) Lack of governance over incompliance to ex parte contact rules in SCE
SCE filed a report of the ex parte communication almost two years later from themeeting, just after the San Diego Union-Tribune revealed it as a scandal (McDonald 2015).
SCE at first excused that then-vice president Pickett who had the meeting with Peevey
self-judged the meeting was not subject to the regulation based on his general understandingof the CPUC ex parte contact rules, since Peevey allegedly initiated one-sided conversation(SCE 2015). Thereafter, Pickett consulted with the corporate counsel on this case, but SCE
did not file an ex parte report at that time (SCE 2015).
In that regard, SCE appeared to have had inconsistent internal governance over thisissue. After the case, in February 2015, SCE implemented stricter rules on private
communication with decision-makers than that of the CPUC, and noticed to its employees(SCE 2015). In particular, according to the SCE’s internal note, it developed a double-checksystem that requires employees consult with the corporate general counsel in advance when
they need communication to the CPUC out of the formal forum over a pending ratesetting
proceeding. Besides, SCE disseminated that violation would result in serious disciplinary
actions up to termination of employment. It might be the maximum of what SCE could do forcounter measures, however, we should keep watching if it works considering the fact that
SCE failed to follow the rule even though Pickett consulted to the corporate counsel last time.
(4) Defects in monitoring system by third parties
Repeatedly, the problem of ex parte contacts is the distortion of impartial quasi-judicial
process, in which people expect transparent adverse hearing without asymmetry back-channel
communication. By nature, without following restrictions of such private communication, theother party in the proceeding cannot tell even the existence of such ex parte contacts between
the decision-maker and the counter party and on what basis the decision-maker reached theconclusion. Actually, this case happened to start revealing by notes from the Warsaw
discussion, seized during a search of Peevey’s house for another investigation concerning the
San Bruno PG&E gas pipeline explosion in 2010 (McDonald 2015). Otherwise, the backdoor
communication, while violation of the rules, did not have chance to attract such a huge publicattention.
Although the legislative approach to revise the regulations stronger is necessary, thefurther critical part is who and how could effectively carry out such rules in a practicalmanner, learning lessons from the experiences which the ORA and TURN failed to monitor
the wrong conducts.
(a) Malfunction of the ORA
The Office of Ratepayers Advocates (ORA) is one of the divisions of the CPUC, ofwhich mission is defined in statues that it obtains the lowest possible rate for service
consistent with reliable and safe service levels, as well as advocates for customer andenvironmental protection. The incumbent senior staffers of the ORA are five experienced
governmental officials, of which majority worked with CPUC for long years.
ORA members as of March 2016
- Elizabeth Echols (02/2016-Appointed, needs to be confirmed by Assembly Senate):Director of ORA. Ran as a 2014 Democratic candidate for District 15 of
the California State Assembly and lost. directed the Small Business
Administration for the Western region, appointed by President Barack
Obama (2010-2013). Also directed the U.S. Green Building Council, was amember of the Obama-Biden transition team and was a director of policy at
Google. (KQED 2016)- Linda Serizawa (05/2012-): Deputy Director over ORA Energy matters. Served CPUC
(1989-) as a financial auditor and shortly thereafter, became a regulatory
analyst. A Commissioner’s Chief of Staff (1999- 2002). Director of the
CPUC’s Consumer Service and Information Division (2002-2008). Joined
ORA as a Program Manager for its newly established Electricity Pricing andCustomer Programs Branch (2008-2012).
- Matthew Marcus (06/2011-): ORA’s Deputy Director for Water, Communications andGovernmental Affairs. ORA’s Legislative Director for 5 years. Served for the
CPUC’s Office of Governmental Affairs for 4 years. Before that, he worked
for a member of Congress for 3 years and two separate lobbying firms thatspecialized in representing clients before Congress.
- Cheryl Cox (2005-): DRA’s Policy Advisor. Served for the CPUC, first working forCommissioner Loretta Lynch as her deputy chief of staff and a policy advisor
on energy and telecommunications issues (2001-2005). Before that, she
worked in the high tech industry as a director of marketing communications
for a dot com start-up and a project manager in corporate branding for hightech media giant Ziff-Davis.
- Mary McKenzie (11/2014-): ORA’s Interim Chief Counsel. Served for CPUC for 30 years.
(http://www.ora.ca.gov/About_ORA.aspx)
The ORA withdrew its support for the settlement after the ex parte contact revealed.
However, setting aside if the ORA timely knew the Warsaw meeting in specific or not, it isunlikely that the ORA staffers were not aware that permissible ex parte contacts werepervasive in the CPUC over pending proceedings, since they long worked together as adivision of it and shared the same office. Besides, as stipulated in Public Utilities Code
Article 309.5 (See, Appendix 3), the ORA was established within the CPUC as a division,
while technically claiming its independence, and has been subject to the influence of thecommission and the governor. The organizational chart issued by the state government
illustrates the relationship as if the ORA were independent from the commission’s chain ofcommand (See, Appendix 4), however, it is misleading and inconsistent with the articles ofthe Code. In this regard, the ORA is put in structural conflict of interest, which deteriorates
its competence to monitor the CPUC’s questioned conducts in advance to protect ratepayersinterests.
Looking at particular cases, KQED news reported that the ORA program manager,
Michael Campbell, had frequently exchanged emails with PG&E executives, which included
inappropriate personal information of the ORA staffers (2015). The official said, answeringto the interview by KQED, it is devastating to have utilities staffs know their personal lives
especially in confronting utilities on adversarial position through proceedings. Moreover, it
should be noted that the ORA director has been kept long vacant since Gov. Brown, having
authority to fulfill the seat, neglected to appoint it for five years3. In addition, the ORA does
not have its own chief counsel for now, which forces the ORA to ask the CPUC attorney towork with, who might have mismatched interest with the ORA missions (KQED 2015).
(b) Malfunction of TURN
TURN is a non-government organization acting in California, which seeks to watch
utilities to be accountable by demanding fair rates, clean energy and consumer protections
through legal advocacy at CPUC, state and federal policy development, and community
organizing throughout California. However, information disclosed on TURN’s website andannual reports are limited and seemingly not sufficient to evaluate its competence to serve forpublic interest. For example, it has not yet revised annual reports since last renewal in 2012,
which put questions on their governance. According to its website, the board seems tomaintain balanced members with a variety of backgrounds though including a former CPUC
commissioner and experienced practitioners in the regulated fields. Besides, the financial
disclosure is at poor status just showing simple composition of its assets four years ago(TURN 2016). As to the case of San Onofre ratesetting proceeding, TURN’s attorney lagged
In February 2016, Gov. Brown finally appointed Elizabeth Echols to the ORA
director, waiting for the Assembly Senate confirmation.
3

behind and failed to properly respond to the scandal, acknowledging the existence of ex partecontact in Warsaw. TURN’s conduct is open to criticism that it is disqualified to monitor the
CPUC and utilities on behalf of ratepayers.
5. Criteria
Before unfolding options, this section provides you with several criteria that should beapplied to help you examine which options, in any combination, to take. There are four
criteria this paper would suggest as follows.
(1) Effectiveness: an option should effectively address the problem at critical checkpoint.
(2) Feasibility: an option should meet the limitation of resources including human andfinancial, and clears cost benefit analysis.
(3) Timeliness: an option should contribute to solve the problem in a timely manner, before
substantial damages become serious.
(4) Sustainability: an option should be sustainable as long as the problem remains.
6. Potential Options
In this case, every stakeholder failed to play expected role following the regulations,
including the CPUC, the ORA, SCE, and TURN, which means the reform package should
address all the aspects comprehensively. This section introduces and evaluates possible
options in terms of legislative, lawsuit, shareholder, media, and ratepayers approaches.

Legislative Approach
One of the major problems of the private discussion in Warsaw is the lax and opaqueregulations stipulated by Public Utilities Code and the CPUC rules. The most fundamental
and direct action to address such issue is the legislative approach. Thus far, Assembly again
passed a package of the CPUC reform bills in this February, waiting for Gov. Brown’s
signature. At this moment, it is too late for us to input our opinions on behalf of ratepayers toenhance the package more effectively serving for ratepayers’ interests.
However, Gov. Brown has a history that he vetoed the reform bills last time, arguingthat those legislations are contradictory and unworkable. In case that the governor maintains
reluctant to the CPUC reform and is likely to veto the package again, we could play an
aggressive role in mobilizing public opinions against such governor’s negative attitudes.
The goal of our action here is not to allow the governor to underestimate ratepayers
voice for the reform by mobilizing critical mass opinion. What is happening now in
California is silent majority of which constituents feel uncomfortable with such backdoor
negotiation but has little incentive to act at their own costs. This is a typical collective action
problem letting people be free riders. Utilities impose electricity costs widely and shallowly
on broad ratepayers basis, in which price hike to each individual is gradual and invisible inthe short run, insufficient to boost them into action. In such circumstance, people rationallychoose to do nothing when they believe the costs of action are exceeding the benefits.
However, we can reach to such discontent people by decreasing hurdle to express theiropinion in public. For instance, providing opinion leaders whom they can just follow, brief
opinion forms that they can easily fulfill their thoughts, and multiple-choice survey
questionnaires, among others, could help us involve them. Although the consequence of thisscandal is not intuitive for ratepayers in terms of how much money they are directly losing,
the problem is further deeply rooted since it is distorting the ratesetting process. Considering
a great number of ratepayers who potentially have influence of this scandal, successful
mobilization of mass ratepayers backed by potential recall threat could pressure the governor
to move forward to the commission reform, while he has no expectation for reelection due tohis fourth term.
In addition, with preparing for the new rules, you should pursue an opportunity to show
your devoted contribution to the reform and establish solid trust with ratepayers, to recoverTURN’s disqualified reputation because of the negligence over the ex parte contact in
Warsaw. For that purpose, you should get prepared to adapt to the new ex partecommunication rules by adjusting the internal disciplines. Furthermore, you should resume
PR campaign to make the new rules and the commissioners’ images pervasive, evoking
public attention to let private contacts open in public like a goldfish in a bowl.

Lawsuit Approach
In lawsuit approach, there seems little you could do in addition to what is now going on,
since state and federal attorneys already opened criminal investigations against the CPUC,
and the shareholders of SCE filed a class action against the company claiming damages
caused by SCE’s misstatement over the ex parte contact scandal. These lawsuits are effective
in respect that helps the parties concerned understand the significant damages once such
violation reveals, which would restrain themselves from excessive or impermissible usage ofex parte contacts.
From the standpoint of disperse ratepayers, whether you could prove damage andcausation is a key if you successfully file a class action against SCE. However, it is extremely
difficult, at least in the short run, to demonstrate the damage, hypothetically calculated as adifference between the rates agreed on the previous settlement and that without, if any, theinfluence of the ex parte contact in Warsaw. Whether the ex parte communication in Warsaw
had any influence to developing the framework of the settlement is still under investigation in
the criminal procedure.
Instead, in order to obtain more advantageous terms for ratepayers utilizing the scandal
as leverage, it would be rather feasible for us to negotiate with and gain concessions from
SCE through the reopened investigation before the CPUC, under the limitation of transaction
costs. Thereafter, if we cannot achieve the expected level in that process, there still remains

an option to file a lawsuit when criminal procedure proves our argument plausible.

Shareholder Approach
The parent company of SCE, Edison International, is a publicly traded company listing
its stocks on NYSE, of which shareholders are highly dispersed. Hence, it would not be
feasible to pressure SCE to substantially boost internal reforms of the governance over exparte contacts with the regulators, even though you could find shareholders in yourconstituents of ratepayers. Besides, the majority of the SCE board members are seemingly
outside/independent directors. In that sense, SCE’s corporate governance is alreadytransparent enough in general, which leaves little room for improvement from shareholders
point of view. Above all, as mentioned before, SCE has already introduced stricter internal
rules to restrain employees from ex parte contacts with the CPUC unless they obtain
authorization from the corporate counsel. How effectively the revised rules actually function
is a daily operational matter, which falls not in the shareholders monitoring but within the
management’s discretion.

Media ApproachThis scandal has won broad news coverage by each stage such as the disciplinary
actions taken by the parties concerned, legislative actions in the Assembly, and Gov. Brown’sveto, among others, since San Diego Union-Tribune firstly scooped the seized note that
implied ex parte contact in Warsaw. Such exposure to the media has driven public awarenessof challenges concerning ex parte contacts in the CPUC as well as the background of the case.
It is true that increased public attention to the case brought by mass media boosted Assembly
members to aggressively support the reform package in a timely manner.
Turning eyes to the future, it is important for us to maintain media’ attention tocontinuous monitoring over the utility ratesetting not to allow setback of the reforms, if
implemented, over time. In particular, you should establish an alternative mechanism,
replacing disqualified TURN, which keep engaging opinion leaders in this issue andabsorbing grass root opinions from dispersed ratepayers, which would help feeding news andopinions to the media.

Boycott/Nonpayment Approach
In California, there is no substantial alternative power utility at retail level except for
SCE and SDG&E due to the regulated regional monopoly. Besides, electricity is daily
necessity. Therefore, it is difficult to demonstrate ratepayers’ anger to SCE through boycott.
Instead of that, it might be an alternative option to engage ratepayers in not paying thedifference between the rates actually implemented based on the previous settlement and thatwithout, if any, the influence of the ex parte contact in Warsaw. To avoid legal charge for the
nonpayment, you could educate participating ratepayers to escrow the difference to be
disbursed on condition that SCE agrees to hold arm’s length negotiation before the CPUC.
This nonpayment protest is modeled after the ratepayers action in Japan, in which electricity
users complaint of TEPCO’s absurd raised bills, after the Fukushima Nuclear Power Plants
Accidents in 2011.
However, when and whom to fight is important in deploying the nonpayment protest,of which target is SCE. Now that SCE announced the internal reforms to overcome thescandal, it is time to watch whether it works. On the other hand, the CPUC is still remaining
troubled and what you should aim at in action is rather the CPUC than SCE at this moment. If
you fail to set your sights on the correct target, here the CPUC and reluctant Gov. Brown
blocking the reforms, you would never meet with general approbation and supports but bedeemed miserliness just taking advantage of the scandal.

Recommendation
Applying those criteria illustrated before, the options you should take are as follows.
TURN would be capable of deploying such actions since those are just adjustments ofmessage TURN has transmitted on existing channels before, although its resources are notclear enough for detail assessment from the published information. Last but not least, TURN
should recognize the necessity of reforming itself to recover the trust from ratepayers.
Actions Plan:l

Mobilize ratepayers to pressure Gov. Brown to sign the CPUC reform bills.
Ø

Utilize opinion leaders, brief opinion forms, and multiple-choice questionnaires.

lPrepare to adjust the NGO’s internal discipline to follow the new rules.

lResume PR campaign to make the new rules and the commissioners images pervasive.

l

Stay away from a lawsuit claiming ratepayers’ damage for now.

lFile a petition to reopen the investigation and pursue concessions from SCE.

lContinue engaging opinion leaders and absorb grass root opinions from ratepayers.

lKeep feeding news and opinions to the mass media.

Appendix 1: Chronology of The Case (http://www.ora.ca.gov/general.aspx?id=2632)
1/9/2012 Unit 2 shut down for scheduled maintenance
1/31/2012 Unit 3 shut down for a steam generator tube leak
8/13/2012 ORA’s letter to CPUC commissioners:
Urging them to remove SONGS from rate base until it comes back online.
8/13/2012 Joint stakeholder letter to CPUC commissioners:
Urging them to open an investigation into the SONGS outage.
10/25/2012 CPUC opened an investigation
4/3/2014 ORA, SCE, SDG&E, and TURN, filed a settlement agreement with CPUC
5/1/2014 ORA’s Joint Testimony responding to questions in the CPUC's Ruling
11/19/2014 CPUC adopted the final decision approving parties' Amended and RestatedSettlement Agreement
2/9/2015 SCE filed a two year overdue Late Ex Parte Notice with CPUC
4/10/2015 The notes of the Warsaw, Poland meeting (memorialized on hotel stationery
and commonly referred to as the Hotel Bristol Notes) became publicly available
4/14/2015 CPUC ruling directing SCE to provide additional information in light of its
Late Ex Parte Notice. (6/26/2015 CPUC issued a subsequent ruling)
8/5/2015 CPUC ruling ordering SCE to show why it should not be fined $34 million forviolations

Appendix 2: Overview of Proposed Settlement by ORA
Office of Ratepayer Advocates(http://www.ora.ca.gov/general.aspx?id=2632)
The Settlement does not determine SONGS’ decommissioning costs, which will be addressed inanother CPUC
proceeding.
SeeCodethe full(stipulations
March 27, 2014
proposed
Settlement,
as well as a detailed
Appendix
3: Public
Utilities
relevant
to the
ORA delegation)
Summary of the proposed Settlement.

309.5.
(a)24,There
withincommission
independent
Officeofparties
Ratepayer
On April
2014,isthe
CPUCtheissueda Ruling, an
requestingthat thesettling
serve Advocates
Testimony into
represent
andbehalfof Ruling.
the interests
ofevidentiary
public utility
customers
response totheadvocate
questionson
posed
in theA CPUC
hearing
was heldand
Maysubscribers
14, 2014
at
the
CPUC
in
San
Francisco.
within the jurisdiction of the commission. The goal of the office shall be to obtain the lowest
possiblerate forserviceconsistentmeetingwith reliableandsafe
service proposal
levels. For
revenue
Settling parties
hosteda community
to present
theirsettlementin Costa
Mesa onallocation
and- non-settlement
rate design matters,
the officetheirshallpersective.
primarily consider the interests ofJune 16, 204parties presented
residential
and small commercial customers.
In response to the CPUC's April Ruling, Edison and SDG&E submitted Testimony on May 1.
(b) The director of the office shall be appointed by […] the Governor, subject to confirmationby
the Senate.
[…]
AMENDEDSETTLEMENT(c) The director shall develop a budget for the office that shall be subject to final approval of
On Department
September 5, of
2014,
the CPUC
issued a Rulingthat
identified budget,changes thethatofficemust bemadeto thetheFinance.
As authorized
in theapproved
shallemployproposedsettlement
beforeCommissioners
could
considerit.
personnel and resources, including attorneys and other legal support staff, at a level sufficienttothat customer
andSettlingsubscriberinterests
are effectively
in allSDG&E
significant
Onensure
September
19, 2014, theParties(ORA, TURN,
Friends of represented
the Earth, Edison,andtheCoalitionofCalifornia
Utility
Employees)
issuedaResponse
informing
the
CPUC
that
they director
acceptproceedings. The office may employ experts necessary to carry out its functions. The
the suggested
fromCommissioner
Floriothe
andofficethe Judges
theleadproposedSONGS
may
appoint amodifications
lead attorney
whoshall represent[…]. toThe
attorneyfor theInvestigation
Settlement
Agreement.
office shall obtain adequate legal personnel for the work to be conducted by the office fromthe commission's attorney appointed pursuant to Section 307. The commission's attorney
shall timely and appropriately fulfill all requests for legal personnel made by the lead
FINAL CPUC DECISION
attorney for the office, provided the office has sufficient moneys and positions in its budgetfor
services
On theNovember
19,requested.
2014, the CPUC adopted the Final Decision approving parties' Amended
Settlement agreement.

(d) Thecommission
shalldevelop"B"
appropriate
procedures
to ensurethat the existenceof theSee
the Decision's
Attachmentof the Amended
and RestatedSettlement
Agreement.
office does not create a conflict of roles for any employee. The procedures shall include, butshall not be limited to, the development of a code of conduct and procedures for ensuring that
advocates
andPosition
their representatives on a particular case or proceeding are not advising
ORA Policy
decisionmakers on the same case or proceeding.
ORA supports the SONGS Settlement because it will refund hundreds of millions of dollars tocustomers, given that they have subsidized the power plant at the cost of tens of millions of dollars(e)The
officethe production
any noinformation
it deems
eachmonth
for may
morecompel
than 2 years,
even thoughorit disclosure
has providedofthem
electric service.
The
necessary
toperform
its
dutiesfrom
anyentityregulatedbythecommission,
providedmagnitude of the Settlement agreement is unprecedented and would result in a significant
rate that
reduction
for Edison
andrequest
SDG&Eforcustomers.
anyobjections
to anyinformation shall be decided in writing by the assigned

commissioner
by hadthe president
commission,
if thereis no assigned
commissioner.
In August 2012,or
ORA
sent a letteroftothe
CPUC
commissioners
requesting
they remove
SONGS from
Edison’s and SDG&E’s rates to protect customers from the mounting costs of the non-operational
plant.

(f) There is hereby created the Public Utilities Commission Ratepayer Advocate Account in
the General Fund. Moneys from the Public Utilities Commission Utilities Reimbursement
Account in the General Fund shall be transferred in the annual Budget Act to the Public
Utilities Commission Ratepayer Advocate Account. The funds in the Public Utilities
Commission Ratepayer Advocate Account shall be a budgetary program fund administeredand utilized exclusively by the office in the performance of its duties as determined by the
director. The director shall annually submit a staffing report containing a comparison of thestaffing levels for each five-year period.
*Paragraph (g) and (h) are omitted by the author.

California Public Utilities Commission

January 1, 2016
Appendix
4. Organizational Chart of the CPUC and the ORA
Governor

Commissioner

Commissioner

Commissioner

President

Commissioner

Chief Internal
Audit

General Counsel

Chief
Administrative Law
Judge

Director
Office of Ratepayer
Advocates
Executive Director

Deputy Executive Director,
PolicyDeputy Executive
Director, Administrative
Services

Consumer Services &Information

Safety & Enforcement

News & Public
Outreach Information

Communications

EnergyWater & Audits

Policy & Planning

Office ofGovernmental
AffairsReferences
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