Opinion
G043087
08-03-2011
DOUGL1AS A. AMES, Petitioner, v. PUBLIC UTILITIES COMMISSION, Respondent; SOUTHERN CALIFORNIA EDISON COMPANY, Real Party in Interest.
Douglas A. Ames, in pro. per., for Petitioner. Frank R. Lindh, Helen W. Yee, Carrie G. Pratt, and Pamela Nataloni for Respondent. Bruce A. Reed for Real Party in Interest.
(CPUC Decision Nos. D.09-08-028 & D.10-05-023)
OPINION
Original proceedings; review of decisions of the Public Utilities Commission of the State of California. Decisions affirmed.
Douglas A. Ames, in pro. per., for Petitioner.
Frank R. Lindh, Helen W. Yee, Carrie G. Pratt, and Pamela Nataloni for Respondent.
Bruce A. Reed for Real Party in Interest.
Petitioner Douglas A. Ames asserts the California Public Utilities Commission (commission or PUC) erred by approving certain revenue allocation and rate design settlement agreements submitted by real party in interest Southern California Edison Company (SCE). According to Ames, the effect of the approved agreements is to unreasonably "flatten" electricity rates for large power customers by reducing the rate differential between peak and non-peak hours. Moreover, Ames claims the decisions do not include any "analysis or justification as to how or why these rates flattened, as required by the statutory mandates." Ames also contends commissioner Michael Peevey should have been disqualified from participation in the pertinent proceedings. We reject each of Ames's assertions of error and therefore affirm commission decisions D.09-08-028 (the initial decision) and D.10-05-023 (denying Ames's request for reconsideration of the initial decision).
FACTS
As a public utility, SCE's electricity rates are regulated by the commission.This case pertains to limited aspects of the rate approval process for SCE's 2009-2012 general rate cycle.
The Public Utilities Commission consists of 5 members appointed by the Governor and approved by the Senate, a majority of the membership concurring, for staggered 6-year terms." (Cal. Const., art. XII, § 1.) "The commission may fix rates, establish rules, examine records, issue subpenas, administer oaths, take testimony, punish for contempt, and prescribe a uniform system of accounts for all public utilities subject to its jurisdiction." (Cal. Const., art. XII, § 6.) "Private corporations and persons that own, operate, control, or manage a line, plant, or system for 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. The Legislature may prescribe that additional classes of private corporations or other persons are public utilities." (Cal. Const., art. XII, § 3.)
Phase 1 of the approval process, which involved SCE's application for its overall "revenue requirement," is not at issue. In phase 1, the commission approved a significant increase in SCE's "revenue requirement" and "rate base" from the prior general rate cycle.
The "revenue requirement" is, generally speaking, the amount of revenue that will allow the utility to pay its costs of doing business, plus a reasonable rate of return. The "rate base" is "[t]he investment amount or property value on which a company, esp. a public utility, is allowed to earn a particular rate of return." (Black's Law Dict. (7th ed. 1999) p. 1268, col. 2.) "In a general rate setting proceeding, the commission determines for a test period the utility expense, the utility rate base, and the rate of return to be allowed. Using those figures, the commission determines the revenue requirement, and then fixes the rates for the consumers to produce sufficient income to meet the revenue requirement." (California Manufacturers Assn. v. Public Utilities Com. (1979) 24 Cal.3d 251, 256-257 (California Manufacturers).)
Phase 2 of the process concerned SCE's applications to establish marginal costs, allocate revenue, and design rates for various categories of customers. "On March 4, 2008, SCE filed [an application] to establish marginal costs, allocate revenues, and design rates for service provided to its customers in connection with its revenue requirements for service for 2009-2012." "Protests to [the phase 2 application] were timely filed" by various consumer, commercial, and government interest groups. Hearings were held and settlement discussions ensued. Ultimately, SCE (along with the various protesting interest groups) submitted six separate settlement agreements to the commission.
Marginal cost" typically refers to "[t]he additional cost incurred in producing one more unit of output." (Black's Law Dict., supra, p. 349, col. 2.) The definition in use by SCE is stated differently, but amounts to the same thing: "'Marginal Cost' means the change in total cost due to a small change in the quantity produced or provided."
The terminology is somewhat awkward. Customers pay utility bills, which results in revenue for SCE. "Revenue allocation," however, is not about allocating the revenue for particular purposes or uses. Instead, by "revenue allocation," SCE and the commission mean dividing the burden of meeting SCE's revenue requirement between different classes of SCE's customers.
Ames, appearing in the commission proceedings under the fictitious business name Transphase Company, objected to two of the six settlement agreements: the revenue allocation settlement agreement and the medium and large power rate group rate design settlement agreement. The commission approved each of the six settlement agreements, with some modifications. We shall focus our statement of the facts on relevant aspects of the two settlement agreements at issue and the portions of the commission's decisions that pertain to those settlement agreements.
As explained in greater detail in our concurrently filed companion case, Ames v. Public Utilities Commission (July 6, 2011, G043088) [nonpub. opn.], Ames (dba Transphase) sells thermal energy storage systems to electricity consumers. Thermal energy storage is one form of permanent load shifting, which refers to the shifting of energy usage from one time period to another on a recurring basis. Permanent load shifting often involves storing energy produced during off-peak hours and then using the stored energy during periods when peak energy use is typically high. As such, Ames's personal interest in electricity rates is obvious: the greater the differential between on-peak and off-peak electricity rates, the greater the incentive for electricity consumers to implement permanent load shifting technology.
Revenue Allocation Settlement Agreement
The following parties entered into the revenue allocation settlement agreement: SCE; The Utility Reform Network (a non-profit consumer advocacy group); The Division of Ratepayer Advocates (a division of the commission charged with representing the interests of utility customers); California Farm Bureau Federation; Agricultural Energy Consumers Association (representing over 80 percent of California commercial agriculture interests); Federal Executive Agencies (represents federal government agencies); California Manufacturers and Technology Association; California Large Energy Consumers Association; Energy Users Forum; Indicated Commercial Parties; California City-County Street Light Association; The Solar Alliance; The Building Owners and Managers Associations of Greater Los Angeles, Orange County, San Francisco, and California; and The Energy Producers and Users Coalition. Clearly, these organizations represent a wide spectrum of interests including industries, governments, and individuals.
After its initial identification of settling parties and recitals, the settlement agreement plunges into dense, technical language. For instance, the settlement agreement leads off with a discussion of marginal energy costs, which are "based on a forecast gas price of $7.00 per million BTUs averaged over 36 months from January 2009 through December 2011. The hourly marginal energy costs derived from this gas price forecast using SCE's methodology set forth in Exhibit SCE-02 (updated) are averaged by [time of use] periods. Generation marginal capacity cost shall be based on the deferral value of a gas-fired combustion turbine (CT), with the installation cost annualized using SCE's Real Economic Carrying Charge (RECC) methodology, less the estimated value of energy rents obtained by CT energy sales, which yields a generation marginal capacity cost of $114.10 per kW per year."
BTUs are British Thermal Units; kW are kilowatts.
Next, a chart illustrates the different marginal costs for generation of energy. Basically, it costs more (at the margin) to produce energy during "on-peak" hours than during "mid-peak" or "off-peak" hours during the summer and winter. The settlement also identifies the marginal customer cost chart. This chart assigns different monthly costs to different categories of customers (such as domestic, street lighting, and various categories of commercial, agricultural, and industrial consumers divided in part by their respective energy requirements).
The remainder of the substantive portions of the agreement discusses revenue allocation information. As explained in the commission's decision, "[t]he primary areas of dispute with respect to revenue allocation concerned whether there should be a cap or limit on the amount of SCE's revenue requirement that was allocated to any rate group and the allocation of certain revenue requirements among the rate groups. The [revenue allocation] settlement agreement caps revenue to each rate group so that no rate group shall receive an increase of more than 2.75% above the system average percentage change . . . , based on SCE's adjusted consolidated revenue requirement." The revenue allocation change is expressed not in total dollar figures (allocated to groups), but instead as increased average rates in cents per kilowatt hour.
The commission concluded as to the revenue allocation settlement agreement: "The record of this proceeding, consisting of prepared testimony, evidence presented in the course of hearings, and opening and closing briefs, supports a finding that the [revenue allocation] settlement agreement fairly resolves identified issues and is reasonable. The Settling Parties recognized that, based on the revenue requirement proposed in SCE's [general rate case] Phase 1 application, all rate groups on average would receive substantial revenue increases when rates in this proceeding are implemented, as compared to the rates in effect as of December 2008. The [revenue allocation] settlement agreement avoids further litigation and mitigates potential adverse impacts on any particular rate group and moves towards cost based rates. This move is consistent with the goal of the State's Energy Action Plan (EAP) to 'create more transparency in consumer electricity rates,' and to 'adopt rates based on clear cost-causation principles.'" (Fn. omitted.)
The commission decision discussed Transphase's objections to the revenue allocation settlement agreement: "Among other things, Transphase maintains that there is no evidence to support a flat and non-time differentiated Department of Water Resources (DWR) power charge nor the methodology for the blending of utility related generation (URG) and the DWR power charge to achieve the on-peak and off-peak ratio. These arguments are without merit. This proceeding does not establish the DWR power charge. Rather, the DWR power charge is determined when the Commission adopts DWR's revenue requirement and allocates this revenue requirement among the three utilities and this allocation is a flat cents/kWh rate."
The commission cited testimony by SCE witness Russ Garwacki and exhibits introduced by SCE as supporting "the blended rates proposed in the settlement agreement." Garwacki stated in his testimony: "Transphase misunderstands SCE's basic rate designs. While it is true that DWR energy charges are billed on an equal cents per kWh basis (i.e. a 'flat' rate), SCE establishes its URG rates residually such that the total [time of use] energy rates . . . reflect marginal cost differences between energy supplied during different [time of use] periods. The weighted average of the URG and DWR energy rates reflect the appropriate marginal cost-based differences. The net impact of this adjustment on URG energy rates is that they are set artificially high in the on-peak period and artificially low in the off-peak period to offset the flat DWR energy charges."
The commission continued: "Transphase also asserts that the marginal energy costs contained in the [revenue allocation] settlement agreement are not supported in the record since SCE failed to include the necessary data inputs or computer models in the evidentiary record. Transphase maintains that by failing to do so, SCE has violated Pub. Util. Code § 1822 and Commission Rule 10.3. While [these rules] require that computer models and databases be made available to parties, they do not require that these models and databases be made part of the record." Regardless, the commission observed that evidence in the record allowed it to weigh the reasonableness of marginal energy costs.
In sum, the commission concluded: "We also find the [revenue allocation] settlement agreement is consistent with law. The process for conducting this settlement was in accordance with Article 12 of the Rules of Practice and Procedure. Further, as discussed above, Transphase has failed to demonstrate that the settlement agreement is contrary to the Public Utilities Code, prior Commission decisions or other applicable laws. [¶] Finally, the settlement agreement represents a reasonable compromise of Settling Parties' respective litigation positions and is in the public interest. The settlement is in the public interest because it avoids the cost of further litigation, and conserves scarce resources of parties and the Commission. Further, the agreed-upon revenue allocation moves revenue responsibility closer to the cost of service while moderating adverse bill impacts on customers."
Medium and Large Power Rate Group Rate Design Settlement
The following parties entered into the medium and large power rate group rate design settlement agreement: SCE; Federal Executive Agencies; California Manufacturers and Technology Association; California Large Energy Consumers Association; Energy Users Forum; the Solar Alliance; the Building Owners and Managers Associations of Greater Los Angeles, Orange County, San Francisco, and California; Debenham Energy; and the Energy Producers and Users Coalition.
It is difficult to summarize the agreement, as its contents are technical and reference detailed spreadsheets in the appendix illustrating the rates established for each of the pricing program options available for different classes of customers. The rate design settlement agreement does not start from scratch. It takes as given the existence of numerous customer categories (based on energy usage), and several pricing group options available for each category of customer. The settlement agreement lists several common pricing principles, such as that current rate structure shall be generally maintained subject to specific changes mentioned in the agreement. The settlement agreement also coordinates the ratemaking process with other programs, such as non-generation related energy charges, demand charges, voltage discounts, critical pricing periods, and demand response credits.
The commission responded to Transphase's objections to the settlement agreement: "Transphase's challenges focus primarily on the proposed energy and demand charges in Schedule TOU-8 and an alleged declining differential between on- peak and off-peak rates. We do not find any of these arguments to be persuasive or grounds to reject the settlement agreement. The proposed TOU-8 rates fairly represent a compromise of the Settling Parties' litigation positions. Moreover, Transphase urges the Commission to adopt the 'rate design in effect as of February, 2006, along with a further modification to establish a time-differentiated [Department of Water Resources] energy rate' but fails to explain why that rate design is reasonable and should be adopted." (Fn. omitted.)
"We find that with [a modification allowing participation in critical peak pricing programs], the [medium and large power group] settlement agreement should be approved. Based on the evidentiary record of this proceeding, principally prepared testimonies, we find that the [medium and large power group] settlement agreement fairly resolves identified issues and, as modified, is reasonable." "We also find the [medium and large power group] settlement agreement is consistent with the law. . . . Finally, we reject Transphase's contention that the proposed settlement agreement is contrary to California's energy policy objectives or discourages permanent load shifting (PLS). The settlement agreement adopts a default [time of use] schedule with [critical peak pricing] overlay for the customers with demands greater than 500 kW (Schedule TOU-8). This rate schedule is consistent with California's overall goals to encourage customers to reduce peak energy consumption by setting different rates during pre-defined time periods. The settlement agreement also adopts an alternative tariff specifically for customers with demands greater than 500 kW who employ cold ironing and PLS technologies (Schedule TOU-8, Option A). We believe this schedule provides adequate incentive for the installation of PLS technology."
Specific Findings by Commission
In its decision, the commission also made a series of separately numbered findings of fact. We list several such findings that pertain to the issues raised by Ames: "The settlement agreements were entered into by parties representing all impacted customer groups." "The settlement agreements were reached after significant give and take between the parties." "The revenue allocation, residential and small commercial rate design, and medium and large power rate group rate design settlement agreements are contested." "SCE's methodology for blending of the [Department of Water Resources] power charge and utility retained generation is supported by the evidentiary record." "The revenue allocation settlement agreement is consistent with the State's [energy action plan]." "Tiered distribution charges will provide signals to encourage conservation to all customers." "The rate designs of the individual utilities should be consistent with the Commission's overall goals and policies."
The commission also made additional separately numbered findings, which it deemed findings of law: "The revenue allocation settlement agreement is reasonable in light of the record, consistent with law, and in the public interest." "The proposed generation rates in the revenue allocation settlement agreement are reasonable in light of the evidentiary record." "The medium and large power rate group rate design settlement agreement should be modified to ensure consistency with the policies for eligibility to participate in multiple demand response programs ultimately adopted in [a separate commission decision]. The settlement agreement should be approved, as modified." "The evidentiary record in this proceeding supports adoption of the revenue allocation settlement agreement."
None of the findings examined the actual rates in detail (e.g., by setting out the numbers and explaining why they are reasonable). By its own admission, the commission's findings amount to a high-level review of the evidence. In Decision D.09-08-028 (the denial of Ames's motion for reconsideration), the commission stated: "Transphase views the findings and conclusions as being too few and nebulous, suggesting that rate design decisions must contain individual findings and conclusions for each rate design issue or methodology in the proceeding. [¶] The law does not require our decisions to contain such extraordinary detail. Even Transphase notes this proceeding involved hundreds of separate rate schedules, options, adjustments, and terms and conditions, which spanned six settlements. [Citation.] It would be unreasonably burdensome, if not impossible to enumerate separate findings and conclusions for each individual aspect."
Ames's Objections to PUC Approval of Settlements
In his petition, Ames raises a series of objections to the commission's approval of the settlement agreements. Generally, Ames alleges SCE failed to adequately justify the rates applied to large customers, and the commission failed to exercise the appropriate level of scrutiny to the settlement agreements and to make specific findings of fact supporting the rates authorized in the settlement agreements. Ames accuses the commission of rubber-stamping opaque, technical submissions by SCE.
More specifically, Ames takes issue with the commission's failure to come to terms with an alleged decline in rate differentials (between peak and non-peak times of use). Ames contends: "SCE's on-peak energy rates have plunged over the last few years, going from a rate of 16.4 cents per kilowatt-hour (kWh) in February 2006 to . . . 9.3 cents in the Settlement Agreement. Thus, SCE's generation on-peak energy rate, which SCE terms its Utility-Related Generation (URG) rate, has dropped by over 43 percent from February, 2006 . . . ." "At the same time that the on-peak rates have plunged, the off-peak rates have inexplicably skyrocketed. The utility generation off-peak rate was 1.47 cents in February 2006, . . . with a significant rise to 5.6 cents as part of the rate design settlement agreement. . . . [T]he utility generation off-peak energy rate exploded higher by over 280 percent." Thus, even by Ames calculations, there is still a significant differential between on-peak and off-peak rates, but according to Ames the gap has narrowed.
Ames also highlights several other alleged problems contributing to the "flattening" of rates: (1) the reduction of an "on-peak demand charge"; (2) the approval of flat, non-differentiated energy charges for energy obtained from the Department of Water Resources; (3) an inconsistency between the rates set and state and federal energy policy; and (4) a general failure of SCE to submit valid evidentiary support using appropriate methodologies.
SCE Testimony Countering Ames
The record in this proceeding is voluminous. We note here only a few additional excerpts from the record that pertain to Ames's contentions. In rebuttal testimony pertaining to time of use (TOU) rates for large power customers, SCE witness Garwacki explained: "SCE customers with demands in excess of 500 kW must take service on SCE's large power tariffs, in the three TOU-8 rate groups, which are differentiated by their service voltage levels. Within TOU-8, SCE proposed a default rate which includes a critical peak pricing (CPP) overlay, a TOU-8 Option A, and a TOU-8 Option B. Option A is available only to customers who employ new or existing renewable distributed generation technologies, cold ironing, or permanent load shifting (PLS) technologies. Option A does not have a generation demand charge; instead, the generation capacity is included in the on-peak energy rates, thereby increasing the on-peak to off-peak rate differential relative to the default TOU-8 rate structure. The increased rate differential was created specifically to provide a rate incentive for PLS and cold ironing customers." (Fns. omitted.)
"Contrary to Transphase's statements, the summer on-peak to off-peak energy price differentials have increased during the period from 2006 to the proposed levels in this proceeding from 39.9% to 48.9% . . . . Furthermore, the summer on-peak capacity cost allocation increased by 32% as a result of reflecting higher capacity costs in the summer on-peak period today relative to the 2003 [general rate case.]" Thus, according to Garwacki, rates have not "flattened" from 2006 to 2009.
In a response to a discovery request, SCE seemingly acknowledged some "flattening" of rates from 2003 to 2009. The discovery response accounted for the "flattening" of rates that did occur as follows: "From 2003 to 2009 [general rate case], the relative reduction in the on-peak generation demand charge is due to the revised relative loss of load expectation (LOLE) study performed in 2006. The 2003 case used a study from SCE's 1995 [general rate case] which had a summer on-peak allocated LOLE of 83%. In 2006, the Commission adopted rates based on an updated study which placed the summer on-peak LOLE at 70% . . . . SCE's 2009 [general rate case] proposal used the same study as that used for the 2006 [general rate case]. In terms of actual dollars due to rising capacity costs, the summer on-peak capacity value settled on in the 2003 [general rate case] was $66.56/kW-year while SCE's proposed value in this proceeding . . . is 20% higher at $79.98/kW-year."
Garwacki explains in other testimony that Ames's desire to return to "pre-2006 [general rate case] revenue allocations and rate designs" is inappropriate for additional reasons. In 2001, the commission "established higher than cost-based rates for SCE's large power customers to mitigate residential bill impacts. In the 2003 and 2006 [general rate cases], SCE worked with parties . . . to move the inter-class revenue allocation to one that more closely correlated with cost of service studies. The net result has been a decrease in the relative rate levels for TOU-8 customers. Transphase denounces this return to cost-based revenue allocation as a 'massive revenue reallocation' yet provides no analytical basis for its claims. While the disproportionately high TOU-8 rates from the post-[California energy]-crisis years may improve Transphase's business case, these rates are not cost based."
Rejection of Disqualification Motion
Ames moved to disqualify Commissioner Michael Peevey, citing two reasons for the motion. First, Peevey was a senior executive at SCE from 1984 to 1995, and that history necessarily suggests Peevey has both financial and emotional ties to SCE. Second, Peevey allegedly prejudged the dispute at issue in a March 4, 2009 ruling in which he stated: "While I applaud SCE's movement to provide dynamic pricing tariff options for these customer groups, I feel that, consistent with the Commission's previously stated objectives, dynamic pricing options should be made available to all customers. Therefore, I believe that a plan should be established to ensure that SCE has dynamic pricing proposals for all customer classes when it files its 2012 General Rate Case Phase 2 Application."
The commission denied Ames's disqualification motion. "Peevey left . . . SCE approximately 15 years ago. Moreover, Public Utilities Commissioners are subject to Pub. Util. Code § 303 which prohibits Public Utility Commissioners from holding 'an official relation to' or having a 'financial interest in, a person or corporation subject to regulation by the commission.'" Peevey's lack of financial interest in SCE was demonstrated by his Form 700 Statements of Economic Interest, which were disclosed to Ames. As to Peevey's statement applauding dynamic pricing, the commission found: "Peevey's statement . . . makes no mention whatsoever about what the rate-differential between off-peak and on-peak rates should be. At most, it signifies a commitment to having [time of use] rates available to additional classes of customers following the next [general rate case]. Therefore, Transphase has made no showing of any prejudgment or bias whatsoever with regard to its position in this case."
DISCUSSION
Any party aggrieved by a PUC decision "may petition for a writ of review in the court of appeal . . . for the purpose of having the lawfulness of the original order or decision or of the order or decision on rehearing inquired into and determined." (Pub. Util. Code, § 1756, subd. (a).) "Because review by extraordinary writ is the only means of judicial review, a court ordinarily has no discretion to deny a timely-filed petition for writ of review if it appears that the petition may be meritorious." (Southern California Edison Co. v. Public Utilities Com. (2006) 140 Cal.App.4th 1085, 1096.) In accordance with the applicable standard, this court issued a writ of review to assess the merits of Ames's contentions. (See PG&E Corp. v. Public Utilities Com. (2004) 118 Cal.App.4th 1174, 1193; Pacific Bell v. Public Utilities Com. (2000) 79 Cal.App.4th 269, 276-280.)
A profound understanding of technical issues is a necessary prerequisite to fully comprehending the rate structures and other policies implemented through the commission decisions and the approved settlement agreements. Thankfully, it is not this court's role to second-guess policies approved by the commission. "[R]atemaking procedures involve many variables and broad policy determinations . . . ." (California Manufacturers, supra, 24 Cal.3d at p. 257.) "There is a strong presumption of validity of the commission's decisions [citations], and the commission's interpretation of the Public Utilities Code should not be disturbed unless it fails to bear a reasonable relation to statutory purposes and language [citations]." (Greyhound Lines, Inc. v. Public Utilities Com. (1968) 68 Cal.2d 406, 410-411.)
Our role in reviewing commission decisions is circumscribed. (City and County of San Francisco v. Public Utilities Com. (1985) 39 Cal.3d 523, 530.) "No new or additional evidence shall be introduced upon review by the court. In a complaint or enforcement proceeding, or in a ratemaking or licensing decision of specific application that is addressed to particular parties, the review by the court shall not extend further than to determine, on the basis of the entire record which shall be certified by the commission, whether any of the following occurred: [¶] (1) The commission acted without, or in excess of, its powers or jurisdiction. [¶] (2) The commission has not proceeded in the manner required by law. [¶] (3) The decision of the commission is not supported by the findings. [¶] (4) The findings in the decision of the commission are not supported by substantial evidence in light of the whole record. [¶] (5) The order or decision of the commission was procured by fraud or was an abuse of discretion. [¶] (6) The order or decision of the commission violates any right of the petitioner under the Constitution of the United States or the California Constitution." (§ 1757, subd. (a).)
Level of Scrutiny Applied to the Settlement Agreements by Commission
Ames first claims the commission did not apply section 454 and therefore did not meet its obligation to find the changes in rates were justified.
Section 454 provides in relevant part: "Except as provided in Section 455, no public utility shall change any rate or so alter any classification, contract, practice, or rule as to result in any new rate, except upon a showing before the commission and a finding by the commission that the new rate is justified." (§ 454, subd. (a).) "The commission may adopt rules it considers reasonable and proper for each class of public utility providing for the nature of the showing required to be made in support of proposed rate changes, the form and manner of the presentation of the showing, with or without a hearing, and the procedure to be followed in the consideration thereof." (Id., subd. (b).)
The Public Utilities Code also provides: "All charges demanded or received by any public utility . . . for any product or commodity furnished . . . shall be just and reasonable. Every unjust or unreasonable charge demanded or received for such product or commodity or service is unlawful. [¶] . . . [¶] All rules made by a public utility affecting or pertaining to its charges or service to the public shall be just and reasonable." (§ 451.) Further, "[n]o public utility shall, as to rates, charges, service, facilities, or in any other respect, make or grant any preference or advantage to any corporation or person or subject any corporation or person to any prejudice or disadvantage." (§ 453, subd. (a).) "No public utility shall establish or maintain any unreasonable difference as to rates, charges, service, facilities, or in any other respect, either as between localities or as between classes of service." (§ 453, subd. (c).)
Our Supreme Court has explained: "Statutorily, PUC is authorized to supervise and regulate public utilities and to 'do all things . . . which are necessary and convenient in the exercise of such power and jurisdiction' [citation]; this includes the authority to determine and fix 'just, reasonable [and] sufficient rates' [citation] to be charged by the utilities. Adverting to these provisions, we have described PUC as '"a state agency of constitutional origin with far-reaching duties, functions and powers"' whose '"power to fix rates [and] establish rules"' has been '"liberally construed."' [Citations.] If PUC lacked substantive authority to propose and enter into the rate settlement agreement at issue here, it was not for lack of inherent authority, but because the rate agreement was barred by some specific statutory limit on PUC's power to set rates." (Southern California Edison Co. v. Peevey (2003) 31 Cal.4th 781, 792.)
Although the commission did not specifically cite section 454 or use the word "justified," the commission clearly was aware of and applied the appropriate level of review to the settlement agreements: "The Commission has long favored the settlement of disputes. However, pursuant to Rule 12.1(d) of the Commission's Rules of Practice and Procedure, the Commission will not approve a settlement, whether contested or uncontested, unless it is found to be reasonable in light of the whole record, consistent with law, and in the public interest. Further, where a settlement is contested, it will be subject to more scrutiny than an all-party settlement agreement." "[W]e find that the record supports a finding that the settlement agreements, as modified herein, including those that were contested, are reasonable, consistent with law, and in the public interest." Accordingly, we reject Ames's argument that the commission was not aware of the proper standard of review to apply to the settlement agreements.
Adequacy of Findings to Support Conclusions
Ames also questions whether the commission actually engaged in the process it purported to engage in — an independent review of the settlement agreements with specific findings of fact to support the commission's ultimate decision to approve the agreements. According to Ames, the commission simply acted as a rubber stamp for SCE (and the other interested parties that signed the settlement agreements) by issuing broad, vague findings of fact to support its approval of the settlement agreements.
Commission "decision[s] shall contain, separately stated, findings of fact and conclusions of law by the commission on all issues material to the order or decision." (§ 1705.) "Findings are essential to 'afford a rational basis for judicial review and assist the reviewing court to ascertain the principles relied upon by the commission and to determine whether it acted arbitrarily, as well as assist parties to know why the case was lost and to prepare for rehearing or review, assist others planning activities involving similar questions, and serve to help the commission avoid careless or arbitrary action.'" (California Manufacturers, supra, 24 Cal.3d at pp. 258-259.)
On occasion, our Supreme Court has invalidated commission decisions based on the insufficiency of factual findings or evidence supporting such findings. (See California Manufacturers, supra, 24 Cal.3d at pp. 259-260 [purported justification for rate increase on some categories of customers is "conservation of natural gas resources," but no evidence in record explains why increasing rates on particular customers, and reducing rates for others, results in vindication of expressed policy]; Greyhound Lines, Inc. v. Public Utilities Com. (1967) 65 Cal.2d 811, 812-813 [finding that the "'[t]he public interest requires the establishment'" of peak hour bus service is too general to meet requirements of § 1705]; California Motor Transport Co. v. Public Utilities Com. (1963) 59 Cal.2d 270, 271-275 [single finding of "public convenience and necessity" is too general to support approval of certificate sought by trucking company].)
In this case, the commission, by its own admission, conducted a high-level assessment of the settlement agreements and did not attempt to separately analyze each technical detail. But the commission's findings were not so conclusory and lacking in analysis as to require reversal under the cases cited above.
Moreover, the changes in rates (and related changes affecting rate structures) expressed in the settlement agreements are incremental and technical. The revenue requirement of SCE is not at issue; this issue was settled in phase 1 of the general rate case. The amount of revenue sought from the particular categories of electricity customers is not at issue; Ames challenges the way SCE differentiates rates for peak times and non-peak times, but does not claim the category of medium to large consumers is being overcharged or undercharged as a class. The general policy espoused by SCE and the commission of charging more for on-peak electricity than off-peak electricity is not challenged. Indeed, Ames celebrates this policy.
The crux of Ames's dispute with the commission is that Ames thinks the commission has not selected the optimal differentiation in peak versus non-peak rate structures to encourage the conservation of energy (through permanent load shifting and other strategies). Moreover, Ames contends the commission has failed to defend the selection of rates (and other policies that ultimately affect the difference between peak and non-peak rates) as optimal (by explaining why such differentiation in rate structure would be preferable to any other differentiation in rate structure). The commission instead found the settlement agreements fairly resolved disputes between various interested parties and was reasonable in that it fairly balanced all of the competing policies that must be addressed in setting rates for electricity consumers. We agree with Ames that the commission's written decisions do not attempt to demonstrate that rate structures created by the settlement agreements are "optimal" or demonstrably better than other structures that could also vindicate the same policy goals.
But Ames has not identified any precedent for overturning a commission decision because of the lack of findings justifying a precise differential between on-peak and off-peak rates (or any of the other technical adjustments to rates and credits that permeate the settlement agreements). The commission is charged with weighing a variety of interests and policies, and approving "just and reasonable" rates, not proving to a mathematical certainty that it has selected the optimal rate structure for each customer group to advance one of many competing policies. The commission adequately performed its task of making factual findings in support of its decision to approve the settlement agreements. The commission also adequately addressed each of the specific objections to the settlement agreements raised by Ames. The commission's findings of fact and conclusions of law are supported by substantial evidence in the record. In sum, the commission demonstrated, in its decisions and in the evidentiary record developed during the proceedings at issue, that it properly performed its constitutionally-appointed task of regulating SCE.
Disqualification of Commissioner Peevey
We also conclude the commission did not err when it refused to disqualify commissioner Peevey from taking part in the decisions under review. "When . . . an administrative agency conducts adjudicative proceedings, the constitutional guarantee of due process of law requires a fair tribunal. [Citation.] A fair tribunal is one in which the judge or other decision maker is free of bias for or against a party. [Citations.] Violation of this due process guarantee can be demonstrated not only by proof of actual bias, but also by showing a situation 'in which experience teaches that the probability of actual bias on the part of the judge or decisionmaker is too high to be constitutionally tolerable.'" (Morongo Band of Mission Indians v. State Water Resources Control Bd. (2009) 45 Cal.4th 731, 737 (Morongo).) "Unless they have a financial interest in the outcome [citation], adjudicators are presumed to be impartial [citation]." (Ibid.)
The parties disagree over whether the burden of persuasion for disqualification motions is "clear and convincing" evidence, as held in Association of National Advertisers, Inc. v. Federal Trade Commission (D.C. Cir. 1979) 627 F.2d 1151, 1170. But in our view, it is irrelevant to the outcome of this case whether a party seeking to disqualify a PUC commissioner must make a showing by a preponderance of the evidence or clear and convincing evidence. Here, there was no "specific evidence demonstrating actual bias or a particular combination of circumstances creating an unacceptable risk of bias." (Morongo, supra, 45 Cal.4th at p. 741.)
The contention that Peevey's past employment with SCE per se disqualifies him from participating in decisions affecting SCE is a nonstarter. It is for the other branches of government (Cal. Const., art. XII, § 1) to select PUC commissioners. We will not opine upon the political question of whether those with industry experience are more or less effective in their role as regulators. While Ames considers it "inconceivable that a judge or other decisionmaker would preside over a case in which that judge was a long-time 'senior executive' of a main party to the action[,]" he does not provide any authority that would support disqualifying such individual from acting as a commissioner for the PUC in the circumstances presented here.
Moreover, there is nothing in the record to suggest Peevey had a financial interest in the outcome of the rate decision. Notwithstanding Ames's speculation, the actual evidence of Peevey's financial disclosures provides no evidence Peevey owns any interest in SCE or otherwise stands to profit from this or any decision affecting SCE.
Finally, Peevey's endorsement of critical peak pricing prior to the announcement of the decisions under review does not provide a basis to disqualify Peevey. The commission is a policymaking body. The commissioners are bound to endorse numerous policy statements, both in formal decisions and in less formal comments. The fact that critical peak pricing was relevant to the ratemaking decision here does not mean that Peevey's favorable outlook toward the policy of critical peak pricing disqualifies him from continuing to serve as commissioner in this case.
DISPOSITION
Commission decisions D.09-08-028 and D.10-05-023 are affirmed. The commission and SCE shall recover costs incurred in this review proceeding.
IKOLA, J. WE CONCUR: RYLAARSDAM, ACTING P. J. BEDSWORTH, J.
CERTIFIED FOR PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
FOURTH APPELLATE DISTRICT
DIVISION THREE
DOUGLAS A. AMES, Petitioner,
v.
PUBLIC UTILITIES COMMISSION, Respondent;
SOUTHERN CALIFORNIA EDISON COMPANY et al. Real Parties in Interest.
G043088
(CPUC Decision Nos. D.09-08-027 & D.10-03-023)
ORDER
Respondent has requested that our opinion, filed July 6, 2011, be certified for publication. It appears that our opinion meets the standards set forth in California rules of Court, rule 8.1105(c). The request is GRANTED.
The opinion is ordered published in the Official Reports.
IKOLA, J. WE CONCUR: RYLAARSDAM, ACTING P. J. BEDSWORTH, J.