Summary
In The Utility Reform Network v. Public Utilities Commission (Mar. 16, 2012, A132439) (nonpub. opn.) (TURN I), we annulled Decision 10-12-050 and Decision 11-05-049.
Summary of this case from Util. Reform Network v. Pub. Utilities Comm'nOpinion
A132439
03-16-2012
THE UTILITY REFORM NETWORK, Petitioner, v. PUBLIC UTILITIES COMMISSION, Respondent; PACIFIC GAS AND ELECTRIC COMPANY et al., Real Parties in Interest.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.
Cal. P.U.C. Dec. Nos.: D.10-12-050 & D.11-05-049
The Public Utilities Commission (Commission) initially denied the application of Pacific Gas and Electric Company (PG&E) seeking approval of an agreement for the construction of a new power generating facility, the Contra Costa Generating Station, which PG&E would then purchase and operate. PG&E subsequently filed a petition for modification of the Commission's decision, requesting approval of the same project, but with a later in-service date. The Commission denied the modification petition but, on its own motion, deemed the petition an application for approval and granted it. The Utility Reform Network (TURN) seeks writ relief from the Commission's decision approving the project, contending it failed to proceed in the manner required by law. (See Pub. Util. Code, § 1757, subd. (a)(2)). We agree and conclude, accordingly, that the Commission's decision must be set aside.
TURN is a nonprofit corporation that represents the interests of residential and small business customers of investor-owned utilities like PG&E.
All statutory references are to the Public Utilities Code unless otherwise stated.
I. BACKGROUND
In 2002, investor-owned utilities (IOU's) were reauthorized to procure energy resources on behalf of their customers. (§ 454.5, added by Stats. 2002, ch. 850, § 3, p. 5368; Opinion Adopting Pacific Gas and Electric Company's, Southern California Edison Company's, and San Diego Gas & Electric Company's Long-Term Procurement Plans (2007) ___ Cal.P.U.C.3d ___ [Cal. P.U.C. Dec. No. 07-12-052, p. 14] (hereafter, D.07-12-052).) Section 454.5 "requires the Commission to review and approve IOU procurement plans, establish policies and cost-recovery mechanisms for energy procurement, ensure that utilities maintain an adequate reserve requirement, implement a long-term resource planning process, and implement [a renewable portfolio standard] program." (D.07-12-052, p. 14.) Long-term procurement plan proceedings "operate on a two-year cycle, with IOUs responsible for submitting procurement plans that project their need over a 10-year horizon." (Id. at p. 9.) The Commission's primary concern is procuring preferred resources in a particular loading order that emphasizes energy efficiency, demand response, and renewables. (Id. at pp. 4-5.) Plans are evaluated in terms of their impact on reliability and the environment and ratepayer costs. (Id. at p. 5.)
Commission decisions are identified according to the date of issuance. Thus, D.07-12-052 was issued in December 2007. Copies of Commission filings may be found on the Commission's Web site: <http://www.cpuc.ca.gov/PUC/documents>
In December 2007, the Commission adopted a long-term procurement plan for PG&E for 2007 to 2016, authorizing it to "procure 800-1,200 MW [megawatts] of new resources . . . by 2015" (need determination), and to issue a long-term request for offers to obtain agreements for this new capacity. (D.07-12-052, pp. 2, 300.)
II. PROCEDURAL HISTORY
PG&E's Application (A.09-09-021)
In September 2009, PG&E filed an application for Commission approval of four agreements from its 2008 request for offers, including the one at issue here between PG&E and the Contra Costa Generating Station, LLC (the LLC). This agreement provides for the construction of a new, natural gas-fired combined cycle facility in Oakley (the Oakley Project) that would produce 586 MW at peak conditions, beginning June 4, 2014. Under the terms of the agreement, PG&E would purchase and operate the completed facility. Seeking to recover the costs of the Oakley Project under ratemaking principles, PG&E requested authorization for an initial annual revenue requirement of $223.9 million in nonfuel costs alone, to be passed on to ratepayers. PG&E requested approval "within eight months, or by May 30, 2010" in order "to avoid delaying the online date of certain of the proposed facilities."
Several intervenors filed protests urging reconsideration of the need determination in D.07-12-052 based on sharply reduced electric demands during the two-year economic downturn since the December 2007 procurement plan was approved. TURN filed a protest proposing alternative ratemaking mechanisms. TURN said it supported PG&E's selection of projects under D.07-12-052, but "would tend to agree that PG&E's true needs are now less than those adopted in [that decision]."
In a scoping memo, the assigned commissioner identified the issues to be considered in the proceeding, categorized it as ratesetting, and found evidentiary hearings were necessary. (See § 1701.1, subd. (b); Commission Rules of Practice and Procedure, rule 7.3.) The scoping memo declined to reconsider D.07-12-052's need determination but allowed the parties to use the California Energy Commission's most recent energy demand forecast data, and other relevant information, to establish the new capacity PG&E was authorized to procure within that range.
Unless otherwise indicated, all further rule references are to the Commission's Rules of Practice and Procedure, which are set forth in California Code of Regulations, title 20, chapter 1. We refer to particular sections of these regulations by rule number.
The parties later agreed that evidentiary hearings would not be necessary, opting to rely on written testimony.
The Commission's Denial of Approval for the Oakley Project (D.10-07-045)
In its July 2010 decision, the Commission authorized PG&E to procure 950 to 1000 MW of new resources within the range of need determined in D.07-12-052. The Commission approved three of the agreements but rejected the Oakley Project (586 MW), finding it "is not needed at this time." The Commission stated, however: "[W]e understand that developing and building a power plant in California is a long process, fraught with pitfalls. Given this risk and [our belief that] this plant has numerous beneficial attributes, PG&E may resubmit the Oakley Project, via application, for Commission consideration" (italics added) under the following conditions: (1) other approved projects fail, and the total capacity of approved projects does not exceed 1128 MW; (2) PG&E retires another once-through cooling plant of comparable size three years early; or (3) the California Independent System Operator renewable integration study shows significant reliability risks from a 33 percent renewable portfolio standard. To minimize delays, the Commission made these conditions contingent on a showing the necessary permits had been obtained, and said these conditions were consistent with its environmental and procurement objectives and its goal of maintaining high reliability.
The Commission began with a range of 928 to 1328 MW, which reflects the termination of two projects from PG&E's 2004 request for offers (+312 MW), and its procurement of other new generation (-184 MW), a net increase of 128 MW. The Commission's authorization within this range reflects its finding that the D.07-12-052 need determination was based on data that overstated PG&E's need, but that more aging units were expected to retire than assumed and conventional generation resources were needed to integrate renewable energy coming online in the next few years.
One of the approved projects represents 719 MW of new capacity (Marsh Landing), while the others relate to existing facilities. The Commission found these projects "best reflect [its] environmental priorities . . . and the current need determination . . . ."
The Commission approved a partial settlement agreement between the parties addressing the recovery of costs in the event of project approval.
PG&E's Petition for Modification
Less than a month later, on August 23, 2010, PG&E filed a petition for modification of D.10-07-045, contending "changed circumstances" supported approval of the Oakley Project. (See Rule § 16.4(b).) Noting commissioners had expressed support and suggested the project may have been approved with a later commercial availability date, PG&E said it had renegotiated the agreement to extend that date from June 1, 2014, to June 1, 2016. PG&E included a declaration to this effect and proposed modifications that would allow it to procure 1305 MW of new generation, eliminate the conditions for resubmission, and authorize costs recovery under the partial settlement.
TURN filed a "response in vehement opposition," spurred by what it viewed as PG&E's attempt to circumvent the Commission's procedure for resubmission. TURN contended PG&E was required to file an application supported by evidence showing need for the project and compliance with the conditions imposed by D.10-07-045.
PG&E contended these conditions did not apply because it was seeking modification based on a later in-service date. It said the date change did not require reconsideration of the need determination and there was a need for new resources in 2016 and beyond, in any case. PG&E opposed deciding approval of the revised project in the 2010 procurement proceeding, which was behind schedule and not expected to conclude until 2011 or 2012. PG&E said a two to three-year delay "will effectively terminate project development . . . ." The Recommended Decisions
The Proposed Decision
The administrative law judge's (ALJ's) "Proposed Decision" denied PG&E's petition for modification, concluding, inter alia, that the requested amendment "moved the project beyond the authorization period established in D.07-12-052 and outside the scope of [the] proceeding." The ALJ concluded that the modification petition necessarily required a determination of PG&E's need for new capacity in 2016, an issue that was not identified in the scoping memo and not addressed in the record. The ALJ noted that PG&E had sought approval of a total of 1556 MW of new capacity through 2016, including Marsh Landing (719 MW), the Oakley Project (586 MW), and two agreements that were conditionally approved based on the denial of the Oakley Project (251 MW).
TURN has not included the Proposed Decision in the record, which both parties reference in their pleadings and which was a part of the record before the Commission. It is available on the Commission's Web site, and a proper subject of judicial notice. (Evid. Code, §§ 459, 452, subd. (c); Fowler v. Howell (1996) 42 Cal.App.4th 1746, 1750 [records and files of a state administrative board are proper subjects of judicial notice].)
The Alternate
Commissioner Bohn prepared an alternate proposed decision (Alternate) that would grant the petition for modification, stating: "The turbulent economy in which we are currently situated has threatened or doomed the viability of many large capital projects that have been in the planning process for years. Power plant projects are no exception. It is very unusual for this Commission to be presented with a viable project, which could come online, with the same commercial terms, two years later than originally planned during project development. This unique opportunity necessitates that the Commission reexamine the record of this proceeding to weigh the costs and benefits of brin[g]ing this project on-line in 2016, two years later than previously proposed."
The Alternate acknowledges that the Commission "must consider the need for generation in 2016" but finds the revised project would address a need commencing in 2016 that exceeded the Oakley Project's 586 MW.
The Alternate concludes consideration of procurement opportunities into 2016 is within the scope of the proceeding because the "10-year planning period includes the year 2016 . . . ."
In addition, the Alternate identifies regulatory lag as "another change in fact" that supports project approval. The Alternate notes that in the 2008-2018 long-term procurement proceeding, the Commission focused on policy development and integration of renewables and did not approve new procurement plans; it was reasonably likely that projects approved in the 2010 long-term procurement cycle might be delayed well beyond 2018 because it was behind schedule; and the five-year gap between need determinations created a substantial risk for a capacity shortfall. The Alternate finds the Oakley Project "is uniquely situated to be in place to fill this critical gap," and that "[c]urrently, there is no [other] resource . . . that has been considered, vetted, and is at such an advanced stage in the permitting process that could be available on time . . . . [¶] . . . [¶] . . . It would not be prudent . . . to turn a blind eye at an excellent opportunity to hedge the risk of capacity shortfall . . . ."
"To further protect ratepayers," the Alternate conditioned approval on "[n]o ratepayer funds [being] expended on this contract prior to 2016."
Service and Comment
On November 2, 2010, the Commission served the parties electronically with the Proposed Decision and Alternate and allowed 20 days for comment. (§ 1701.3, subd. (a); Rules 14.2, 14.3) TURN filed comments challenging the Alternate's determination of need in 2016.
The Revised Alternate
On December 9, 2010, the Commission posted on its Web site the "Alternate Proposed Decision of Commissioner Bohn" (Revised Alternate), which denies the petition for modification but deems it an application and grants it. The Revised Alternate, which the Commission later adopted, acknowledges that the project's in-service date change arguably supports such a petition but concludes it was an improper vehicle to seek project approval in this case because "the Commission specifically instructed PG&E that, if the Oakley Project came back before us, it should return as an application." The Commission "sua sponte considered PG&E's filing as an application" due to "the opportunities and benefits associated with the project."
The Revised Alternate indicates the project "represents a significant new opportunity that merits the Commission's consideration at this time" and emphasizes the project's "operational attributes," finding it:
• "is highly viable if the Commission acts today" and financing may no longer be available if the project is not approved in 2010;
• is highly efficient with a very low heat rate that would allow California to meet stringent greenhouse gas reduction goals and retire resources with high heat rates; would allow for renewable integration due to its uncommon combination of low heat rate and load following capabilities;
• would reduce the risk of insufficient supply of generating resources due to lack of available financing for capital projects and regulatory lag; and
• is worth the risk of short-term overprocurement to ensure its availability in the long-term, since generation investment is not well-suited to small incremental assets, and California would need such projects at some point.
Stating the initial denial "was in no way based on [the project's] attributes," the Revised Alternate finds the project uniquely viable since the permit process was "nearly completed." The Revised Alternate concludes: "[I]t is prudent to allow PG&E to procure [this] new capacity . . . even though this would cause PG&E to exceed the highest range of need established . . . in D.07-12-052," noting the Commission had approved other projects exceeding need projections in the short-term. The Revised Alternate emphasizes, however, that it did not change PG&E's immediate need for new capacity.
The Revised Alternate "anticipated that the opportunity to bring this project to fruition will be lost, due to financing concerns, if [it] is not approved in 2010," stating: "[I]t is reasonable to act now so that Oakley will be operational by 2016." PG&E was not to take ownership before January 2016, unless its shareholders absorbed the revenue requirements from the date of purchase.
Service and Comment
The Revised Alternate was not served on the parties. It states that the Alternate was revised to reflect the parties' comments, "and while not required, is being reissued for additional comment" by December 14, 2010.
TURN "happened to notice . . . the Revised Alternate had been posted on the [Commission] website" and filed comments, contending the Commission: (1) decided an issue outside the scope of the proceeding, namely, whether D.07-12-052's need determination for 2015 should be extended to include need in 2016 and beyond; (2) abused its discretion in deeming the petition an application without treating it as such under its rules; and (3) relied on facts not supported by the record.
At its regular meeting on December 16, 2010, the Commission adopted the Revised Alternate without changes (D.10-12-050).
TURN's Application for Rehearing
TURN filed an application for rehearing, reasserting the arguments in its comments on the Revised Alternate and contending, in addition, that the Commission had violated section 311, subdivision (e) by failing to serve the Revised Alternate on the parties and to reschedule decision on the petition at least 30 days after service.
In May 2011, the Commission denied rehearing, but modified D.10-12-050: deleting statements indicating that approval would cause PG&E to exceed the range of need established in D.07-12-052, and replacing a finding regarding a gap in need determinations with a finding it had approved projects in the past before issuance of a need determination in a long-term procurement plan proceeding. (D. 11-05-049, as modified by D.11-06-003.)
The modification also changed the risk of capacity shortfall in "2016 and beyond" to "2016," and changed language indicating the permitting process was "nearly completed" to state that it had been "commenced."
This timely petition for writ of review followed. We received answers from the Commission and from PG&E/the LLC jointly (collectively, respondents), as well as amicus curiae briefs from the City of Oakley, California Unions for Reliable Energy and the Coalition of California Utility Employees. After considering these materials, we granted the writ petition and gave notice of our intent to decide the matter on the record provided unless a party promptly filed an objection or a request for oral argument. Having received no such objection or request, we deem the matter submitted.
PG&E and the LLC (collectively, PG&E) also filed a request for judicial notice. This request is granted as it relates to Exhibits A through F, which represent prior Commission decisions interpreting Rule 14.1(d) and are relevant to the court's analysis. The request is denied, however, as it relates to Exhibit G, a May 18, 2011 California Energy Commission order that was not before the Commission at the time of the decision at issue.
III. DISCUSSION
A. Applicable Legal Principles
The court reviews the Commission's decisions to determine whether: (1) it acted without, or in excess of, its powers or jurisdiction; (2) it failed to proceed in the manner required by law; (3) its decision is not supported by the findings; (4) its findings are not supported by substantial evidence in light of the whole record; (5) its decision was procured by fraud or was an abuse of discretion; or (6) its decision violates the petitioner's constitutional rights. (§ 1757, subd. (a).) "There is a strong presumption of validity of the [C]ommission's decisions[.]" (Greyhound Lines, Inc. v. Public Utilities Com. (1968) 68 Cal.2d 406, 410-411, citations omitted; accord, City and County of San Francisco v. Public Utilities Com. (1985) 39 Cal.3d 523, 530.)
TURN relies on Southern California Edison Co. v. Public Utilities Com. (2006) 140 Cal.App.4th 1085, 1092 (Edison), in contending the Commission did not proceed in the manner required by law. (§ 1757, subd. (a)(2).) In Edison, the court concluded the Commission had failed to proceed in the manner required by law when it violated its own rules. In that case, the Commission instituted a rulemaking proceeding regarding bid shopping and reverse auctions. (Edison, at pp. 1091-1092.) Months after issuance of the scoping memo and the deadline for reply comments, the Southern California District Council of Laborers filed opening comments, with 400 pages of materials, proposing that the Commission require payment of prevailing wages or project labor agreements in certain contracts. (Id. at pp. 1092-1093, 1105-1106.) The parties objected that the new proposals were beyond the issues identified in the scoping memo, but the ALJ amended the scope of the proceeding to include the new proposals and allowed three additional business days to respond on the merits. (Id. at p. 11 06.) The Commission's decision included a provision compelling utilities to require the payment of prevailing wages on certain projects. (Id. at p. 1094.)
In annulling the Commission's decision, the Edison court noted that the Commission adopted its rules pursuant to its rulemaking authority (Cal. Const., art. XII, § 2; § 701), and these rules have "the force and effect of law. [Citations.]" (Edison, supra, 140 Cal.App.4th at p. 1092, fn. 3.) The court concluded: "[T]he prevailing wage proposal was beyond the scope of the issues identified in the scoping memo, the [Commission] violated its own rules by considering the new issue, and three business days was insufficient time for the parties to respond to the new proposals. We therefore conclude that the [Commission] failed to proceed in the manner required by law [citation] and that the failure was prejudicial." (Id. at p. 1106.)
TURN contends that, in this case, the Commission failed to follow its rules by: (1) considering issues outside the scope of the proceeding; and (2) deciding sua sponte to deem the petition an application and grant it without providing the procedural rights set forth in its rules. TURN also contends the Commission violated section 311, subdivision (e) (hereafter, section 311(e)), by failing to serve the Revised Alternate and allow sufficient time for comment. As discussed below, we agree that the Commission committed prejudicial error by failing to comply with its own rules. B. The Commission's Failure to Follow Its Rules of Practice and Procedure
1. The Scope of the Proceeding
TURN takes issue with "the manner in which the [Commission] added the need for capacity in 2016 as a new issue . . . ." TURN argues that the Commission's basis for approval—that the revised project would help mitigate the risk of a capacity shortfall in 2016—is not within the issues identified in the scoping memo for A.09-09-021, which "very clearly limited the scope [of the proceeding] to the need for new capacity through 2015" and did not suggest that the Commission might consider PG&E's authorized need beyond 2015.
The governing statutes and the Commission's rules provide that in each proceeding in which it is determined a hearing is needed, the assigned commissioner must issue a scoping memo that identifies the issues to be decided. (§ 1701.1, subd (b) ["that describes the issues to be considered . . ."]; Rule 7.3(a) ["which shall determine the . . . issues to be addressed"]; Rule 1.3(f) [defining "scoping memo" as "an order or ruling describing the issues to be considered in a proceeding . . ."].)
When there is no need for a hearing, the assigned commissioner has discretion not to issue a scoping memo in application proceedings if no protest is filed, and in proceedings initiated by the Commission if no request for hearing is filed. (Rule 7.3(b).)
In this case, the scoping memo in A.09-09-021 indicated, in pertinent part: "The following issues are within the scope of this proceeding [¶] . . . [¶] (b) How much of the 800-1,200 megawatts which D.07-12-052 authorized should PG&E be allowed to procure in this proceeding? What criteria should be used to determine when, if ever, it would be appropriate for PG&E to procure any remaining megawatts? [¶] (c) Which of the [agreements] proposed by PG&E are reasonable and in the best interest of PG&E's customers and thus, should be approved . . . ." These issues include the original project with an in-service date of June 2014, and PG&E's procurement authority "by 2015" under D.07-12-052, but do not extend to PG&E's authorized procurement or need after that date, including whether a regulatory lag would create risk of capacity shortfall in 2016.
Respondents argue, nonetheless, that PG&E's petition for modification "involves the exact same power plant, with the same physical capacity and the same operational characteristics, in the same geographic location and the same point of interconnection with the electrical grid. Literally only one fact has changed, and that is the commencement date for PG&E's acquisition of the plant—from 2014 to 2016." They contend the scope of the substantive matter at issue did not change: "whether PG&E's purchase of the Oakley [P]roject should be approved." We disagree. The substantive issue presented by the petition was not whether the Oakley Project should be approved, but whether that project should be approved with a different in-service date. Although "only one fact changed," it is not the change in this fact that altered the scope of the proceeding, but the issues raised by that fact. The revised project's in-service date was outside the period covered by the need determination in D.07-12-052 and necessarily raised a question as to the need for the project in 2016, an issue not encompassed within the scoping memo in A.09-09-021.
The Commission noted that it did not consider approval for the purpose of the need D.07-12-052 authorized PG&E to procure by 2015. Indeed, in denying rehearing, the Commission deleted language indicating approval would cause PG&E to exceed the range of need established in D.07-12-052. The Commission did not specifically determine PG&E's need for new generation in 2016, relying instead the revised project's ability to serve as "a hedge against risks caused by regulatory lag." TURN appears to treat the risk of a capacity shortfall as part of the issue of "the need for capacity in 2016." The scoping memo did not include either issue.
Respondents contend, however, that "PG&E's request for approval in the petition for modification defined the scope of the proceeding." It is not altogether clear what they mean by this unsupported assertion. To the extent they argue that the petition created a new proceeding with a new scope, their analysis is inconsistent with the nature of a petition for modification, which "asks the Commission to make changes to an issued decision." (Rule 16.4(a).) Rule 16.4 contemplates "[a]llegations of new or changed facts," but not a change in the issues to be decided. Moreover, if a petition for modification "defined" the scope of a proceeding, a party could expand a proceeding's scope by simply filing such a petition.
Other factual changes would not present issues outside the scope of the proceeding—for example, a reduction in the megawatts of the Oakley project or other approved new capacity, bringing Oakley within PG&E's authorized range of need.
In deeming PG&E's petition for modification a new application, however, the Commission instituted a new proceeding with its own scope. (§ 1701.1, subd. (b); Rule 7.3(a).) Technically, therefore, the Commission did not exceed the scope of A.09-09-021. Still, it effectively expanded the scope of A.09-09-021 by labeling the petition an application without actually treating it as such under its rules. The record does not indicate that the petition was assigned a new application number, and the Commission treated it as if it were based on the record of A.09-09-021. In addition, the Commission failed to afford the parties the procedural rights its rules provide for application proceedings by allowing the parties to file protests (Rule 2.6) and issuing a new scoping memo formally establishing the issues to be considered (§ 1701.1, subd. (b); Rule 7.3). In addition, as discussed below, the Commission did not afford the parties an opportunity to conduct discovery and did not decide the need for an evidentiary hearing on the new issues presented by the "application." (§ 1701.1, subd. (a); Rule 7.1(a).)
The Commission later argued that none of the parties had requested a new scoping memo, but it is unclear when they could have done so, as the same decision that notified the parties of the new proceeding decided it. In any event, TURN's comments on the Revised Alternate include an objection to the Commission's failure to establish the scope of the new application.
2. Considering the Petition an Application Without Treating It as Such
TURN challenges the Commission's authority to consider PG&E's petition for modification as an application, contending nothing in the Commission's rules "contemplates such a maneuver . . . ." The Commission's rules do not expressly allow it to treat one pleading as another, but TURN provides no analysis or authority allowing the Commission to act only as its rules specifically permit. TURN contends, however, that the Commission's power "is bounded, at a minimum, by the requirement that [it] actually treat [the petition] as an application, rather than merely applying the 'application' label to the request moments before approving it."
a. The Process Required by the Commission's Rules
TURN maintains that the Commission was "obliged under its Rules to afford . . . parties the procedural rights attendant to an application," including an opportunity to file a protest, conduct discovery, and request an evidentiary hearing. Respondents do not dispute that such procedures are generally afforded in application proceedings. (See § 1701.1, subd. (a) & Rule 7.1 [Commission shall categorize each proceeding and determine whether an evidentiary hearing is required, "consistent with due process, public policy, and statutory requirements"]; Rule 2.6(a), (b) [providing generally that "a protest . . . must be filed" within 30 days of the notice of filing of the application, stating its factual or legal grounds, and the facts the protestant would present at an evidentiary hearing if one is requested]; Rule 10.1 [allowing discovery between the parties].) As the Commission treated the petition as a new application in which new issues were decided, we agree that the Commission's rules for applications must apply to the new proceeding. We conclude, accordingly, that the parties were entitled under the Commission's rules to file a protest, conduct discovery on the new issues, and to have an assigned commissioner determine the need for an evidentiary hearing.
Respondents contend the Commission reasonably concluded there was no need for an evidentiary hearing on the new application since the parties had waived an evidentiary hearing in A.09-09-021 and did not request an evidentiary hearing in their response to the petition for modification. These are post hoc justifications that lack merit. The parties' prior waiver does not reasonably support the conclusion that an evidentiary hearing was unnecessary on the new "application." They did not waive the right to present evidence in A.09-09-021; they simply agreed to submit on written testimony. We also do not agree that the parties' failure to request an evidentiary hearing on a petition for modification reasonably indicates that they would not seek such a hearing in a new application proceeding. Indeed, as TURN noted in its comments on the Revised Alternate, the parties were never informed the petition would be treated as an application, "so they had no opportunity to request an evidentiary hearing."
To the extent an evidentiary hearing is available on a petition for modification, the applicable procedures do not appear to require the parties to request one. (See Rule 16.4 [requires a petitioner to support allegations of new/changed facts with a declaration or affidavit and allows opposing parties to file "[r]esponses to the petition," but does not provide a right to an evidentiary hearing]; § 1708 [Commission may modify its decisions "with opportunity to be heard as provided in the case of complaints"]; § 1704 ["[C]ommission shall fix the time when and place where a hearing will be had upon the complaint . . ."].)
b. The Commission's Authority to Depart from Its Rules
Respondents contend that the process the Commission used in approving the project is within its broad constitutional and statutory authority to regulate utilities and establish the rules governing its proceedings. Although we acknowledge the breadth of the Commission's authority and the deference to which its decisions are generally entitled, we conclude that it failed to act within the bounds of its authority here.
The Commission "is not an ordinary administrative agency, but a constitutional body with broad legislative and judicial powers," including the power to establish the rules governing its proceedings. (Wise v. Pacific Gas & Electric Co. (1999) 77 Cal.App.4th 287, 300; Consumers Lobby Against Monopolies v. Public Utilities Com. (1979) 25 Cal.3d 891, 905 (CLAM); see Cal. Const., art. XII, §§ 2 [may establish its own procedures, "[s]ubject to statute and due process"], 4, 6; § 1701, subd. (a) [all "proceedings shall be governed . . . by rules of practice and procedure adopted by the [C]ommission"].) It also has "expansive authority" under section 701 to " 'do all things, whether specifically designated in [the Public Utilities Act] or addition thereto, which are necessary and convenient' " in the exercise of such power and jurisdiction. (CLAM, at p. 905, italics omitted.) As long as the powers it exercises are " 'cognate and germane to the regulation of public utilities[,]" its authority is liberally construed. (Id. at pp. 905-906, citations omitted.)
The Commission's judgment regarding the appropriate procedural mechanism is entitled to deference. In Pacific Bell v. Public Utilities Com. (2000) 79 Cal.App.4th 269 (Pacific Bell), this court held: "We will not disturb the [Commission's] selection between the procedures absent a manifest abuse of discretion or an unreasonable interpretation of the statutes governing its procedures. [Citation.]" (Id. at pp. 282-283 [whether utility may proceed by advice letter or must file application for tariff change is "peculiarly within the [Commission's] expertise and judgment . . . , not this court's"]; Yamaha Corp. of America v. State Bd. of Equalization (1998) 19 Cal.4th 1, 7-8 [deference when agency possesses relevant expertise or technical knowledge].)
In Pacific Bell, supra, 79 Cal.App.4th at 282-283, the court relied on Wood v. Public Utilities Commission (1971) 4 Cal.3d 288, 292-293, which observed that the applicable statute did not specify the appropriate procedure and left this determination to the Commission under section 701. TURN does not discuss the statutes governing the approval proceedings here.
The Commission's authority is not unlimited, however: it may not " 'disregard . . . express legislative directions to it, or restrictions upon its power found in other provisions of the act or elsewhere in general law.' " (PG&E Corp. v. Public Utilities Com. (2004) 118 Cal.App.4th 1174, 1199.) And, contrary to respondents' assertions, the Public Utilities Code and other express statutory provisions do not represent the only limits upon the Commission's authority. Significantly, the Commission is bound by its own rules. As the court recognized in Edison, the Commission's failure to follow these rules in adopting a particular decision constitutes a failure to proceed as required by law, and, if prejudicial, invalidates that decision. (§ 1757, subd. (a)(2); see Edison, supra, 140 Cal.App.4th at pp. 1104, 1106.)
Respondents contend the Commission's departure from its rules was permissible here. Although this assertion stems in part from an overly expansive view of the Commission's authority, respondents also rely on Rule 1.2, which provides: "These rules shall be liberally construed to secure just, speedy, and inexpensive determination of the issues presented. In special cases and for good cause shown, the Commission may permit deviations from the rules." They maintain the Commission had good cause to treat the petition for modification as an "application" but do not specifically argue there was good cause to deny the parties the process the Commission's rules require for application proceedings. PG&E contends, however, that the Commission's failure to approve the project in 2010 would have effectively terminated the project, citing its comments below: "[The LLC] and PG&E cannot wait for 2-3 years to move forward with the Oakley Project while the 2010 [long-term procurement plan proceeding] proceeds. This type of regulatory delay will effectively terminate project development and result in the loss of an environmentally-beneficial, cost effective new generation resource." In addition, PG&E cites to the LLC's reply comments on the ALJ's Proposed Decision, which indicate: "If affirmed by the Commission without modification as proposed herein, the [Proposed Decision] will, in all likelihood, result in the end of the Oakley Project." These statements do not constitute substantial evidence of good cause for the Commission to forego the process specified in its rules. First, they appear in the self-serving comments of PG&E and the LLC, not the written testimony or a declaration, and are akin to arguments asserted in a brief. Second, PG&E's comments address a delay of two or three years, not a brief delay to permit discovery and evidence on new issues presented by a change in the in-service date. Finally, these statements are conclusory and are not supported by any facts demonstrating that the project would, in fact, fail if the Commission did not proceed immediately.
Respondents also rely on section 1701, subdivision (a), which states: "No informality in any . . . proceeding . . . shall invalidate any order, decision or rule made, approved, or confirmed by the commission." Edison and section 1757, subdivision (a)(2) do not permit a construction of this provision that precludes reversal based on procedural error. (See also Cal. Law Revision Com. com., 57A West's Ann. Pub. Util. Code (2010 ed.) foll. § 1701. p. 135 ["[n]othing in Section 1701 excuses compliance with procedural protections required by due process of law"].) In contending the Commission "may tailor [its own procedural] rules to the facts of a given proceeding," PG&E also relies on older cases that conflict with Edison to the extent they do not recognize that the Commission's violation of its own rules may constitute reversible error. (See, e.g., Ghriest v. Railroad Commission (1915) 170 Cal. 63, 64-65; Cal. etc. Transport Co. v. Railroad Com. (1947) 30 Cal.2d 184, 188; City of Los Angeles v. Public Utilities Com. (1975) 15 Cal.3d 680.) These decisions apply an earlier version of section 1757, under which Commission decisions were not reviewed for failure to proceed in the manner required by law. Later legislation expanded judicial review of Commission decisions. (Cal. State Auditor, Public Utilities Commission: Since the Judicial Review Act of 1998, the Number of Petitions Seeking Judicial Review of Commission Decisions Has Increased (July 2005) p. 1; see 1998 Stats., ch. 886, § 1, p. 5795.)
In its remaining arguments, PG&E bases its assertion of good cause on the project's benefits and the risk of a capacity shortfall, which relate to project approval but do not bear on the need to dispense with further proceedings.
The Commission bases its good cause argument on "its concern for a 'substantial risk for capacity shortfalls' if the Oakley [P]roject failed due to a lapse of time," and its finding that it " 'must act now to guarantee [the project's] construction' " since the " 'merits of the operational characteristics, viability and the costs and benefits of the Oakley Project [had] already been thoroughly litigated.' " These contentions also fail in the absence of evidence that immediate approval was required.
The Commission also maintains it may "deviate from its procedural rules 'to secure just, speedy, and inexpensive determination of the issues presented,' " but appears to misconstrue the language of Rule 1.2, which provides for liberal construction of its rules under such circumstances, not total disregard of their procedural requirements for the sake of expediency.
The Commission offers similar arguments in responding to TURN's substantial evidence challenge to Finding of Fact No. 3: "Oakley is a highly viable project if the Commission acts today. Financing for this project may no longer be available if the project is not approved in 2010." In addition, the Commission relies on the following language in D.07-12-052: "[T]he time required to develop and carry out competitive long-term [requests for offers], then finance, permit and construct new generation resources—including a cushion to account for unanticipated delays—requires that these procurement decisions be made up to seven years in advance of when the resources are needed. Otherwise, we are forced to perform 'just-in-time' procurement that threatens reliability, drives up the costs of delivering power, and typically does not result in additional preferred/renewable resources. Given this up to seven-year lag from authorization to in-service date and the one-year schedule slip in this decision, the need determinations made in this decision are based on the IOUs' summer 2015 residual net short." (D.07-12-052, p. 21.) The Commission explained below that it had concluded "there would be a seven-year lag from authorization to the in-service date of power plants." But D.07-12-052 refers to a period of "up to" seven years, and this period does not run from project authorization, but from the need determination, which typically precedes a request for offers and the application process for project approval. TURN correctly notes: "The undisputed record evidence indicates that the Oakley Project was expected to be in service within four years of approval." At the time of project approval, the June 2016 in-service date was five and a half years away.
TURN asserts this argument as an independent basis for reversal. We address it instead in considering good cause for deviating from the rules, as Finding of Fact No. 3 is only necessary to the Commission's decision as it relates to that question.
The Commission inferred that the project would take five years to build, relying on a note in the prepared testimony that the guaranteed commercial date of June 2014 could be delayed day to day if approval was not obtained by May 2010, eight months from PG&E's September 2009 application. TURN correctly identifies a flaw in the Commission's calculations: May 2010 is four years before June 2014, not five, and, even if the five-year figure were correct, a June 2016 completion date would require approval by June 2011, not December 2010.
3. Resulting Prejudice
TURN maintains the Commission's failure to follow its rules "prejudiced the interests of the parties," contending it was denied the opportunity: (1) to "explor[e] the questions surrounding generation capacity need in 2016 and beyond," which presumably includes the risk of capacity shortfall, and (2) to address "the import" of the delayed guaranteed commercial availability date, which PG&E argued was a " 'significant change.' " TURN does not describe the discovery it would conduct or the information it hopes to obtain regarding the need for new capacity and the "import" of the date change. We find these contentions compelling nonetheless. The earlier proceedings addressed factors relating to project approval with a June 2014 in-service date, but did not address the need for new capacity in 2016 or the risk of capacity shortfall due to regulatory lag. The Commission did not allow further discovery or evidence regarding these issues, including the impact of the date change on factors bearing on project approval. Having remedied the problem of excess need in 2014, the Commission appears to have simply assumed that the date change would not otherwise affect the project.
TURN also contends it would have challenged the petition's failure to meet the conditions for resubmission, but these conditions relate to a change in PG&E's need through 2015, and do not appear to apply given the change in the project completion date. TURN challenged PG&E's noncompliance in its application for rehearing, in any case.
PG&E maintains the parties were not prejudiced because they "litigated the project's benefits and characteristics over a year-long process." Noting the amount of process that is due varies with the circumstances, PG&E argues: "Requiring another round of briefing, testimony, discovery, and potentially a hearing, on a new application . . . would exalt form over substance" and delay determination of the issues, contrary to the directive of Rule 1.2. (Civ. Code, §§ 3528, 3532.) We find no merit in this contention. First, TURN does not assert a due process violation and confines its analysis to the Commission's prejudicial deviation from its rules under Edison. Second, TURN does not seek to relitigate the issues addressed in A.09-09-021. The parties are entitled, at a minimum, to discovery on the new issues presented and to a determination of the need for evidence on these issues, as provided in the Commission's rules. (See Rule 10.1 ["any party may obtain discovery from any other party regarding any matter, not privileged, that is relevant to the subject matter involved in the pending proceeding, if the matter either is itself admissible in evidence or appears reasonably calculated to lead to the discovery of admissible evidence, unless the burden, expense, or intrusiveness of that discovery clearly outweighs the likelihood that the information sought will lead to the discovery of admissible evidence"]; Rule 7.1 [determination of whether an evidentiary hearing is required]; see also § 1701.1, subd. (a) ["[C]ommission, consistent with due process, public policy, and statutory requirements, shall determine whether a proceeding requires a hearing . . ."].) C. The Commission's Alleged Failure to Comply with Section 311(e)
As in Edison, respondents characterize "the assertions of procedural error as due process challenges and [do] not address the argument that the [Commission] prejudicially abused its discretion by failing to comply with its own procedural rules." (Edison, supra, 140 Cal.App.4th at p. 1094.)
This argument was not asserted in the parties' comments on the Revised Alternate, and it was not before the Commission at the time of the December 2010 decision. We consider it, nonetheless, as the parties had only three business to file such comments, and TURN later raised the issue in its application for rehearing.
Finally, TURN contends the Commission violated section 311(e), which requires the Commission to serve the parties "without undue delay" with "[a]ny item appearing on [its] public agenda as an alternate item to a proposed decision" and provides that such an item "shall be subject to public review and comment before it may be voted upon." (See Rule 14.3(a) [allows parties to file comments within 20 days of service].) Section 311(e) also precludes the Commission from rescheduling the alternate item for consideration less than 30 days after service on all parties. TURN contends the Revised Alternate constitutes an "alternate" to the extent it "transformed PG&E's filing into an application and granted the application . . . sua sponte" and made substantive additions to the factual findings. (See § 311(e) [defining "alternate" as "either a substantive revision to a proposed decision that materially changes the resolution of a contested issue[,] or any substantive addition to the findings of fact, conclusions of law, or ordering paragraphs"]; Rule 14.1(d) [defining "alternate" as "a substantive revision by a Commissioner to a recommended decision not proposed by that Commissioner . . . which either: [¶] (1) materially changes the resolution of a contested issue, or [¶] (2) makes any substantive addition to the findings of fact, conclusions of law, or ordering paragraphs . . ."].)
TURN concedes that changing the Alternate's grant of the petition for modification to a denial, by itself, does not create an "alternate" because that issue was asserted in the comments.
We agree with TURN's contention that the Revised Alternate constitutes an "alternate" within the meaning of section 311(e) and Rule 14.1(d). A glance at the redlined copy of the Revised Alternate makes it difficult to argue that it is not a substantive revision. A document comparison indicates 112 insertions and 104 deletions. The revisions change the procedural disposition of the petition for modification, deem the petition an application and grant it, and delete the Alternate's finding of need in 2016. The outcome (project approval) and one of the primary reasons for that outcome—the risk of a capacity shortfall in 2016 due to regulatory lag and the economy—remained the same, but the Revised Alternate substantially changed the procedural mechanism to achieve that outcome. Thus, the Revised Alternate arguably effects a material change in how contested issues were resolved. Contrary to the Commission's assertion, the Revised Alternate also made substantive additions to the findings of fact, replacing Finding of Fact Nos. 2 through 7 and adding another finding.
Respondents contend these changes do not trigger the requirements of section 311(e) because they were "derived from comments" on the Proposed Decision and Alternate. (See Rule 14.1(d), "substantive revision to a proposed decision . . . is not an 'alternate' if the revision does no more than make changes suggested in prior comments on the proposed decision . . . , or in a prior alternate to the proposed decision . . ."].) Respondents are mistaken. Although TURN contended PG&E was required to seek approval of the revised project by filing a new application, neither the comments nor the prior proposed decisions contemplated treating the petition as an application without the procedures that apply in such proceedings. In addition, the record does not show that all of the revised findings were suggested in the comments or in the Alternate.
TURN reads Rule 14.1(d) to exempt a revision from the definition of "alternate" only if the parties' comments specifically request that the Commission modify the proposed decision in a particular way. In adopting the current version of Rule 14.1(d), however, the Commission does not appear to have intended its use of the word "suggest" to be read so narrowly. (See Opinion Proposing Changes to Original Proposal for New and Amended Rules on Public Review and Comment (1999) Cal. P.U.C. Dec. No. 99-11-052, p. 4; Opinion Adopting New and Amended Rules (2000) Cal. P.U.C. Dec. No. 00-01-053, pp. 10-11.)
The following facts do not appear to have been addressed in the comments or prior proposed decisions: (1) that financing may no longer be available if the project is not approved in 2010 (Finding of Fact No. 3); (2) that the project's low heat rate and load following capabilities are an uncommon combination (Finding of Fact No. 6); and (3) that the Commission approved projects in the past that initially exceeded projections of need (Finding of Fact No. 8).
The Commission did not comply with the requirements of section 311(e), as it did not formally serve the Revised Alternate on the parties and did not reschedule the vote on the project to allow at least 30 days for comment. TURN has not shown, however, that the Commission's failure to comply with section 311(e)'s requirements constitutes prejudicial error. Several parties filed comments on the Revised Alternate, and TURN does not identify any party who was unaware of its posting. There is no dispute that an application was the proper vehicle for reconsidering project approval, and TURN has not identified any prejudice caused by the Commission's reliance on the petition instead of requiring a new application. TURN contends the parties were denied a meaningful opportunity for input on the decision to reclassify the petition and challenges the Commission's decision to dispense with the procedures provided in its rules, but these issues were addressed in the parties' comments. There is no indication TURN would have presented a different argument with 15 more days. Indeed, TURN relied on a virtually identical argument in its rehearing application, filed over a month after the decision. TURN also maintains it was deprived of an opportunity to assert a substantial evidence challenge to the new factual findings. But TURN challenged Finding of Fact No. 3 in its comments and asserted an identical argument on rehearing. TURN did not argue below that Finding of Fact Nos. 6 and 8 lacked an evidentiary basis. D. The Commission's Decision Must Be Set Aside.
The Commission's procedural maneuvering runs afoul of Edison. In Edison, the court held that the Commission is not precluded from expanding the scope of a proceeding in all cases, but reversed a decision based on "the manner that it did so here and the circumstances of this particular proceeding." (Edison, supra, 140 Cal.App.4th at p. 1105.) In this case, the Commission decided issues outside the scope of A.09-09-021 by labeling a petition for modification a new application without treating it as such under its rules, and the record does not demonstrate good cause for the Commission's departure from its rules. In doing so, the Commission effectively expanded the scope of the proceeding in a manner that does not withstand scrutiny under Edison. The parties did not have notice that the Commission was considering instituting a new proceeding until it posted the Revised Alternate on its Web site, less than a week before adopting that decision, and it did not formally establish the scope of the issues to be considered in the new application proceeding until that proceeding was decided. The parties also were denied an opportunity to litigate the new issues presented through discovery and the presentation of evidence. As in Edison, the Commission failed to follow its own rules, and this failure was prejudicial.
Respondents contend Edison is distinguishable because the parties here had ample opportunity in the earlier proceedings to voice concerns regarding the project's operation and benefits, and "all of the facts and arguments pertinent to [project approval], including the new commencement date, were noticed to the parties in A.09-09-021, as of the filing of the petition for modification." We reject these contentions. The petition for modification does not identify the issues on which the Commission's decision turned. In any event, we do not find these distinctions persuasive. The holding in Edison turned on the Commission's failure to comply with its own rules and the resulting prejudice to the parties. Both of these elements are established by the record here.
PG&E did not seek to relitigate the range of need the Commission had authorized it to procure through 2015 and did not purport to base the revised project on a determination of need in 2016; its petition is based solely on the commissioners' comments indicating they would like to consider the project with a later in-service date. The risk of a capacity shortfall in 2016 was not identified as a basis for project approval until the Alternate. Although PG&E mentioned regulatory delays in its reply brief in support of the petition, it did so only in urging the Commission not to wait until the 2010 long-term procurement proceeding to approve the project.
Moreover, although section 311(e) does not provide an independent ground for reversal here, the manner in which the Commission adopted the Revised Alternate provides additional support for our decision. The Revised Alternate substantially revised the Alternate, changed the procedural mechanism of approval in an unforeseeable manner not contemplated by the rules, and included new findings of fact not suggested by the parties' comments. Yet, the Commission did not serve the Revised Alternate on the parties or allow a meaningful opportunity to comment. Instead, it opted simply to post the revision online, allow a comment period of only three business days, and notify the parties of the opportunity for comment on page 13 of the posted revision, leaving them scrambling to respond. This apparent attempt to minimize public input lends further credence to TURN's contention that the Commission had become so enamored of the project, it was willing to dispense with the procedural safeguards established by its rules and the statutes in order "to achieve its preferred outcome."
We conclude, accordingly, that the Commission's decision must be set aside. In so holding, we recognize that the Commission has broad authority, as well as the necessary expertise, to weigh the benefits of the Oakley Project and conclude that it is in the public interest. We also understand that the approval process requires a degree of flexibility, given the myriad of considerations that impact such a determination. In light of these factors, we do not ignore the incentives motivating the Commission's efforts to salvage the Oakley Project with a new in-service date. But we cannot overlook the manner in which the Commission accomplished project approval here.
IV. DISPOSITION
Commission decision D.10-12-050, as modified by D.11-05-049, is annulled.
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Bruiniers, J.
We concur:
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Jones, P. J.
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Simons, J.