Michael Peevey.
Michael Peevey.

Capitol Alert

The go-to source for news on California policy and politics

Capitol Alert

Probe of back-channel dealing continues at California PUC

By David Siders

dsiders@sacbee.com

March 29, 2015 04:57 PM

UPDATED March 30, 2015 06:25 PM

Michael Peevey’s announcement last fall that he would not seek reappointment to the California Public Utilities Commission appeared to offer closure to years of controversy surrounding his tenure.

The commission, which regulates California’s massive energy and telecommunications industries, had been shaken by revelations of back-channel communications with Pacific Gas and Electric Co. following a fatal gas line explosion in San Bruno in 2010.

On the same day critics assembled in San Francisco to call for his ouster, Peevey relented. In a prepared statement, he said, “Twelve years as president is enough.”

Then, at his final meeting in December, Peevey closed with a laugh.

Never miss a local story.

Sign up today for a free 30 day free trial of unlimited digital access.

“Don’t shoot,” the commission president said. “I surrender!”

In the months since Peevey left the PUC, however, the scandal that ushered him out of office continues to erupt.

Investigators executed a search warrant at Peevey’s house in January. Lawmakers this month convened oversight hearings on private communications and safety measures at the PUC.

Last Wednesday, Michael Picker, the new president of the commission, acknowledged that before the explosion that killed eight people in San Bruno, PG&E diverted money approved for pipeline safety to executive compensation.

“I think there’s a very clear case that in some places, the utility did divert dollars that we approved for safety purposes toward executive compensation,” Picker told state senators at an oversight hearing.

Since last summer, the PUC has released tens of thousands of emails documenting close ties between regulators and utility officials, and law enforcement officials are searching for more.

Federal and state authorities opened separate investigations regarding rate-setting procedures and the San Bruno gas-line explosion last year. They have requested about 1.6 million documents, and the PUC has received more than 200 other public records requests, Picker said.

Ed Howard, an expert in regulatory and administrative law at the University of San Diego’s Center for Public Interest Law, said, “I would be shocked if what we’ve learned so far even gets beyond the tip of the iceberg.”

Asked about the scope of the investigation, Picker said, “I have no idea where it goes.” He said he avoids details of the investigation so that he does not inadvertently disclose information to anyone law enforcement officials might be targeting.

Public outrage over PG&E and the PUC flared last summer, with the release of an initial cache of emails at the prodding of the city of San Bruno. The correspondence showed Peevey giving public relations advice to PG&E. It revealed that his then-chief of staff, Carol Brown, tutored a utility executive in how to answer questions from an administrative law judge in the San Bruno proceedings.

Brown suggested to the executive, Laura Doll, that she write a “sweet note” to the judge. Doll was grateful. In one email to Brown, Doll responded, “Love you.”

Emails released later that year showed PUC and PG&E executives apparently coordinating the selection of a judge in a rate-setting case, and Peevey pressuring PG&E for political contributions to favored causes.

In one email, Brian Cherry, a former PG&E executive, said Peevey wanted the utility to spend at least $1 million opposing a ballot measure seeking to undo provisions of Assembly Bill 32, California’s greenhouse gas reduction law. As the president of the state’s chief regulatory agency, Peevey wielded immense power over utilities such as PG&E.

Howard, who testified at an oversight hearing in Sacramento this month, said, “My jaw hit the floor” when he learned about the judge selection process and how casually PG&E and state regulators interacted. He said the emails depicted a “thoroughly dysfunctional, lawless and renegade culture” at the PUC.

In January, the state Department of Justice seized day planners, computers and a thumb drive from the home of Peevey and his wife, Democratic state Sen. Carol Liu.

The Department of Justice said in its search warrant that it was investigating a felony. But no charges have been filed against Peevey.

First appointed to the PUC by then-Gov. Gray Davis in 2002, the former president of Southern California Edison Co. has long-standing ties to Democratic Party politics in California, including Gov. Jerry Brown.

Peevey is widely credited with advancing California’s renewable energy policies at the PUC, and Brown has held fast in his support of the former commissioner.

Two days after investigators searched Peevey’s house, Brown said at a news conference that Peevey was “a real champion in advancing the state’s environmental goals.” The next month, Brown administration officials joined prominent Democrats, including former Assembly Speaker Willie Brown, at a tribute dinner for Peevey in San Francisco.

The event was advertised as honoring Peevey’s “lifetime of service to the people of California,” with proceeds benefiting the Goldman School of Public Policy at UC Berkeley.

Goldman School administrators initially defended the event, but the school’s dean reversed course amid public criticism.

In a letter to faculty, staff and students, Henry Brady said the school was “merely to be the beneficiaries of excess funds generated by the event,” a fact he said was “largely lost in the ensuing coverage.”

In declining to accept the money, Brady said he regretted that an “effort to provide resources for the Goldman School was undercut by these events and misunderstandings.”

Peevey, meanwhile, resigned from Goldman’s advisory board.

According to Brady, Peevey wrote to him, “This sorry episode has led me to question my value to the School going forward.”

Neither Peevey nor Liu responded to requests for comment. Liu was absent from the Senate and excused for “personal business” in the days immediately after the search of her home, as well as for five days in February, according to Senate records.

Like her husband, she has demonstrated a willingness to engage in his defense.

Last year, Liu lobbied her colleagues on the Senate floor against a bill, eventually approved, expanding a restriction on PUC members sitting on boards of nonprofit organizations created by the commission.

Liu called the measure “a jab at my husband, period.”

The bill’s author, Sen. Jerry Hill, a Democrat who represents San Bruno, returned with other lawmakers this year to introduce legislation seeking, among other measures, to impose greater restrictions on private, or “ex parte,” communications between regulators and utilities.

“The initial scandals have now turned into the layers of an onion being peeled back,” said Sen. Mike McGuire, a Healdsburg Democrat who has used his seat on the Senate Energy, Utilities and Communications Committee to rail against what he said is a lack of public involvement in PUC proceedings.

McGuire, who sits directly in front of Liu in the Senate chamber, added, “Whether it’s the issue of ex parte communication, the lack of public involvement or individual scandals, this is now a focus of the state Legislature.”

Picker, a former renewable energy adviser to Brown, said he agrees with many of the lawmakers’ concerns, including about the closeness of regulators and utility officials.

PUC officials are screening emails now for ethical breaches and inappropriate communications. A broader culture change at the PUC, Picker said, could take three years.

Like Brown, Picker praised his predecessor for his environmental work, calling him “a very complicated person who got things done.”

“The way he dealt with a very complicated agency is he just cut through the bureaucracy,” he said. “Sometimes when you do that, it leads to problems.”

At a legislative hearing on the PUC this month, Assemblyman Anthony Rendon, D-Lakewood, thanked Picker for attending, noting it had been three years since Peevey appeared before the panel.

He applauded Picker’s “contrasting and refreshing commitment to transparency.” But he said, “At the same time, we recognize the daunting challenges that you face in this effort.”

“On a nearly daily basis,” Rendon told Picker, “we hear about new allegations of backroom deals and policy procedures and organizational culture at the PUC that continues to undermine the public’s confidence and trust in the commission.”

Seated before the lawmakers, Picker said, “I wish I could say that this was going to be a simple process to modernize the CPUC and to make it a truly available as well as transparent and accessible and fair organization.”

But he added, “I think that we have a long ways to go.”

This post was updated at 2:15 p.m. March 30, 2015 to correctly attribute a quote from a March 25 legislative hearing to PUC president Michael Picker.

Call David Siders, Bee Capitol Bureau, (916) 321-1215. Follow him on Twitter @davidsiders.