This California Agency Already Regulates PG&E, Uber, AT&T, Trains, Buses — And Now Wildfire Safety. Is That Too Much?

When Gov. Gavin Newsom signed California’s new wildfire liability law last month, he added another major task to an agency brimming with responsibilities, authority — and problems.

This sprawling, powerful yet obscure beast known as the California Public Utilities Commissionalready regulates hundreds of individual businesses and utilities across the energy, water, transportation and telecommunications industries. That includes investor-owned utilities like Pacific Gas & Electric, Southern California Edison, and Sempra Energy’s San Diego Gas & Electric.

Now, it’s being charged with inspecting an estimated 4 million electric poles and 200,000 miles of wire, certifying them as safe, and deciding whether billions of dollars in future wildfire damages can be shifted from utilities’ shareholders to ratepayers.

In a 2013 report, the commission said Californians spend “more than $50 billion annually for services” from the industries it regulates.

“It’s really almost like a third branch of the Legislature,” said former Asm. Mike Gatto, a Los Angeles Democrat, whose 2016 effort to break the CPUC up failed.

Gatto described the CPUC as “an entity that has jurisdiction over so many different aspects of the average daily life of every Californian. Yet it’s populated by five appointed officials who most Californians could not name if their life depended on it.”

The San Francisco-based CPUC is led by five commissioners who are appointed by the governor, are confirmed by the Senate, and serve fixed six-year terms — governors can’t fire them — to insulate against political pressure.

The commission has drawn scrutiny and criticism for its oversight of utility safety — especially after the 2010 San Bruno gas explosion and devastating wildfires in recent years that were caused by PG&E equipment.

Dian Grueneich, a former commissioner who was appointed in 2005 by Republican Gov. Arnold Schwarzenegger and who currently serves as a scholar at the Precourt Institute for Energy at Stanford, laughed when asked what the state agency she used to help lead does well.

“I think that its policy makers are well-meaning. They take their job seriously,” she said, praising the commission’s transparent decision making process. “What it struggles with is just the magnitude of issues.”

But a prominent ratepayer advocacy group argues the CPUC could effectively handle its oversight responsibilities if it were better funded.

“It is the most experienced agency when it comes to regulating utilities and telephone service,” said Mark Toney, who heads The Utility Reform Network, or TURN. “Without the PUC, customers would be at the mercy” of monopolies that could set their own rates and service levels.

PG&E’s safety record, and the CPUC’s sheer scope of responsibilities, are prompting questions over whether it can adequately launch the new utility safety inspections called for by California’s new law, at least until another state agency takes over in mid-2021. There are also concerns over whether all of the CPUC’s duties still belong under one roof.

“The PUC has too much on its plate,” Gatto said. “Whether you call it splitting them up or whether you say we’re going to peel off some of their duties, that would probably result in more focused, more accountable, more accessible regulators.”

From Horse And Buggy To Uber And Lyft (But Not Taxis)

But the CPUC regulates far more than electric and gas utilities — so much, in fact, that compiling a comprehensive list proved to be a surprisingly difficult task.

Here’s a sampling of the commission’s other oversight responsibilities:

  • investor-owned water and sewage utilities
  • telecommunications giants, including AT&T, Comcast, Verizon, Cox and Sprint
  • ride-hailing companies like Uber and Lyft
  • railroad companies such as Union Pacific and BNSF
  • passenger, commuter and light rail systems from Amtrak, Bay Area Rapid Transit and the L.A. Metro to the San Diego Trolley and Sacramento Regional Transit
  • limos, airport shuttles, bus companies like Greyhound and Megabus, and ferry service in the San Francisco Bay and to Catalina Island

And it’s even involved in California’s war against climate change: The commission’s oversight of investor-owned utilities includes ratepayer-funded energy efficiency programs.

It used to regulate even more: residential moving companies, flight schools, whale watching boats, even — believe it or not — hot air balloons. (Once upon a time, the commission was responsible for horse and buggy service.) But a 2017 law shifted those oversight responsibilities to other state agencies last summer.

A screenshot from Decisions of the Railroad Commission of the State of California, Volume 17 shows that the CPUC was once responsible for horse and buggy service.Google Books

 

To make matters even more complex, not all regulatory areas are created equal.

A good rule of thumb is that the CPUC oversees safety for the utilities and modes of transportation that fall under its responsibility, and sets rates for privately owned utilities with monopolies over their service areas. It also grants licenses to businesses in the industries it oversees.

But there are always exceptions and carve-outs. For example, taxis remain under local regulation even though the CPUC regulates Uber and Lyft. And public utilities like the Los Angeles Department of Water and Power and the Sacramento Municipal Utility District are not regulated by the commission, although they sometimes rely on it for best practices on safety matters.

Since its inception as the California Railroad Commission — established through a constitutional amendment in 1911 to reclaim some authority over an industry that critics argued was charging too much and leaving too many regions unserved — the CPUC’s name and its regulatory responsibilities have evolved. Electric, gas, telephone and water utilities joined railroads under the CPUC’s umbrella. However, it’s also lost authority along the way.

Perhaps the best example: It only has very superficial oversight over telecom giants — although, to be fair, the erstwhile phone and cable company monopolies over local service areas have largely been replaced by competition. For instance, AT&T now offers cable and satellite TV, Comcast offers digital phone service, and they all offer broadband Internet.

But while the commission’s specific oversight of various industries has changed over time, it rarely sees an industry removed from its purview altogether. Instead, it remains entangled in industries old and new, as our climate changes and our technologies evolve.

‘It Died Without So Much As Getting A Hearing’

Calls to break up the commission have intensified in recent years, particularly after accusations of coziness with PG&E following the San Bruno gas explosion and amid safety concerns over wildfires caused by electrical equipment.

“A growing concern about the CPUC, including by the [commission’s] current president, is whether the agency is spread too thin and handling too many varied areas,” reads a legislative staff analysis of the 2017 bill that transferred oversight for a few minor transportation programs to other state agencies.

“The notion that one agency would handle issues related to railroads, passenger charters, common carriers of passengers, TNCs (such as Lyft and Uber), not to mention electric and water utilities and phone service does raise concerns,” the analysis adds.

The year before, then-Gov. Jerry Brown had announced a deal with Gatto and two other legislative Democrats to split up the commission.

“I think it’s very clear that if the PUC is regulating things like Uber and Lyft — which these are, after all, cars,” Gatto said, “that is really best done by this other state department called the DMV, which has a long history of regulating automobiles.” He suggested the DMV could also regulate limos and other vehicles currently under the commission’s jurisdiction.

He also said the California Energy Commission could oversee electric utilities, the Department of Consumer Affairs could pick up consumer complaints regarding cable and telecommunications companies, and other state departments could handle railroad crossing inspections — although that last change would require a constitutional amendment.

“Really, that’s the odd thing about the PUC,” Gatto said. “Everything that it does is essentially duplicative.”

Under the 2016 agreement, the CPUC’s transportation responsibilities would have shifted to the state’s Transportation Agency, which includes the Department of Motor Vehicles and California Highway Patrol. And the state would have studied how to “provide the appropriate regulatory oversight of telecommunications services,” according to Gatto’s legislative language that contained the deal.

But for reasons that even now aren’t fully clear, the bill did not survive the Legislature’s final night of session that year.

“It died without so much as getting a hearing,” Gatto said. “The way that my reform effort concluded was very frustrating.”

‘There Are A Lot Of People Who Like The Status Quo’

Even outgoing CPUC President Michael Picker, who was appointed by Brown in 2014 and plans to retire after his Newsom-appointed successor takes over late next week, is open to the commission giving up some of its authority.

“Sounds great to me,” he quipped in a recent CapRadio interview when asked if the DMV should take over the regulation of companies like Uber and Lyft.

When asked why that hasn’t happened yet, Picker replied that “there are a lot of people who like the status quo.”

“I think the industries that we regulate have a love-hate relationship with the PUC. They love the fact that we pre-empt local control,” he added. “The economics of it, on one level, argue that they continue to stay here.”

Picker also pointed out that the commission can be a convenient scapegoat — not just for utilities and corporations, but also for politicians.

“You can always point fingers at somebody else and say, ‘Well, they adopted those rates, not me,’” he said.

Picker’s biggest fish to fry, however, is the legal structure through which the CPUC conducts its business — one he says is “modeled on the court system of the 1880s” when the California Railroad Commission’s predecessor, the Board of Railroad Commissioners, was created.

Picker says the question for the CPUC’s future structure isn’t how many different industries it regulates, “but do we all apply the same kind of really rigid and historic and kind-of-very-difficult-to-understand process to some of these other more innovative technologies and new opportunities [that] are more competitive? If in fact we’re going to continue to do that, then maybe some of these should be dealt with elsewhere.”

Grueneich, the former commissioner who’s now an energy scholar at Stanford, also questions the CPUC’s current structure.

“When you look at all the regular functions that have to happen — just setting rates, making sure you have reliable service; layer on top of that, all the climate issues; and then layer on top of that the massive issues now with the bankruptcy and the wildfire — that’s challenging for any agency,” she said.

Yet Grueneich cautions against moving too quickly or rashly at such a crucial moment.

“I don’t think the right thing to do now is to split up the agency, because it’s in the middle of some very tight deadlines,” she said, noting the commission is examining utilities’ wildfire safety plans as well as starting to inspect electrical equipment.

“If you were to simultaneously start an examination into whether and how it should be split up, that would divert resources that I think are needed this year” to address wildfire safety, Grueneich said.

As for the longer term, “it comes down to, well, who else will be better?” she said, noting she’s lived through several CPUC reorganization proposals in her 40 years of experience working in the energy realm. “And that’s as much true today as it was before.”

Grueneich believes the state does need to regulate these industries to ensure reasonable rates and access for low-income Californians. And she notes that every state has its own PUC, and it’s not unusual for them to regulate a wide variety of utilities and industries.

“I’m not convinced there is another entity that exists that can do this,” she said. “But I still think there are at least around the edges some places where you could try to transfer some responsibilities.”

But Toney, with the ratepayer advocacy group TURN, argues the commission should be fixed rather than ripped apart.

“The problem is not that the CPUC’s mission and charge is too large,” Toney said. “The problem is that the CPUC is not provided the amount of resources and the amount of staffing that it needs to adequately accomplish its job.”

Although any new regulatory staff would be authorized by the governor and Legislature through the state budget process, the cost would be paid for by utility ratepayers — not California taxpayers through the general fund.

Ratepayers also fund organizations like TURN through “intervenor fees” paid by the commission that utilities pass through to their ratepayers. According to a 2013 report from the State Auditor’s office, TURN was awarded more than $12.5 million in intervenor fees from 2008-12 — more than four times as much as the next highest organization.

Toney says TURN would not have a problem if the state shifted the authority to regulate Uber and Lyft to another agency. But he believes the CPUC is the best place to adjudicate utility rates.

“Ratepayers need the CPUC,” he said. “Yes, there are shortcomings. There are problems. It’s an agency that is far from perfect. But the solution is to fix it, because if you don’t fix it and you let it fall apart, then consumers have nothing protecting them.”

‘This Seems Like … An Unmanageable Mess’

As it turns out, the commission’s new wildfire safety responsibilities will only fall under its purview for the next two years. In July 2021, the Wildfire Safety Division will move to the California Natural Resources Agency and be renamed the Office of Energy Infrastructure Safety.

Until then, the CPUC must create a new office from scratch, with roughly $50 million in funding provided by legislation that’s part of the new state budget. That includes $3 million for 19 positions and $25 million for the commission to contract with an outside company to inspect all those electric poles and wires in wildlands where Californians now live.

The CPUC’s press office says it has released a request for proposals for that contract and tentatively plans to award it by the end of the fall — which means inspections would not begin until after this year’s fire season. It says the schedule and frequency of the inspections will be developed by the contractor and commission once the contract is awarded and the new CPUC positions are hired.

Picker told CapRadio that it would require an additional $15-$21 million in ratepayer funds authorized by the governor and Legislature for the commission to hire enough staff to inspect each pole and wire once every five years.

“Fifty percent of all new housing in the state of California built since 2010 is in an area that we now understand is a severe fire hazard,” he said. “Those people all expect to have electricity. So this seems like a little bit of an unmanageable mess.”

Asked why he and his fellow commissioners have not been able to force utilities to keep their equipment safe in exchange for their ability to have a monopoly, Picker bristled.

“So, I should also tell the wind that it shouldn’t be so ferocious? That we shouldn’t have more [fire-burning] fuels? That we shouldn’t allow people to have electricity if they build homes in wildfire hazard areas?” he responded.

The outgoing commission president added that he “frankly would like to do some of those things” but does not have the authority.

Still, he argued, the commission has improved its safety record during his roughly four-and-a-half year tenure.

“I think we can make [more] improvements,” Picker said. “Could we make them faster? Yeah, that’s why I’m frustrated.”

Correction: An earlier version of this story incorrectly described the administration of a new wildfire safety fund under the law signed last month by Gov. Gavin Newsom. The new California Catastrophe Response Council will oversee both the new wildfire fund and the existing California Earthquake Authority, not the CPUC.