SOUTHERN CALIFORNIA EDISON CO., Plaintiff and Respondent, v. MICHAEL R. PEEVEY, as Commission President, etc., et al., Defendants and Respondents; THE UTILITY REFORM NETWORK, Intervener and Appellant.
No. S110662
Supreme Court of California
Aug. 21, 2003.
31 Cal. 4th 781
Robert E. Finkelstein; Strumwasser & Woocher, Michael J. Strumwasser, Fredric D. Woocher, Johanna R. Shargel and Lea Rappaport Geller for Intervener and Appellant.
Sutherland Asbill & Brennan, Steuart H. Thomsen, James M. Cain, Keith R. McCrea, James M. Bushee and Alisa N. Stein for the California Manufacturers & Technology Association as Amicus Curiae on behalf of Intervener and Appellant.
Harvey Rosenfield and Pamela Pressley for the Foundation for Taxpayer and Consumer Rights as Amicus Curiae on behalf of Intervener and Appellant.
Stephen Pickett, Barbara Reeves, Kris G. Vyas; Munger, Tolles & Olson, Ronald L. Olson, John W. Spiegel, Henry Weissmann and Kelly M. Klaus for Plaintiff and Respondent.
Gary M. Cohen, Mary F. McKenzie, Harvey Y. Morris and Carrie G. Pratt for Defendants and Respondents.
Barry P. Goode for Governor Gray Davis as Amicus Curiae on behalf of Defendants and Respondents.
Smiland & Khachigian, William M. Smiland, Kenneth L. Khachigian, Christopher G. Foster; Adams, Broadwell, Joseph & Cardozo and Marc D. Joseph for California Chamber of Commerce, California Small Business Roundtable, California Business Roundtable, Consumers First, Consumers Coalition of California, Los Angeles County Federation of Labor, AFL-CIO and the Coalition of California Utility Employees as Amici Curiae on behalf of Plaintiff and Respondent and Defendants and Respondents.
OPINION
WERDEGAR, J.—Southern California Edison Company (SCE) sued the Commissioners of the California Public Utilities Commission (PUC) in the United States District Court for the Central District of California, claiming PUC‘s regulation of electricity rates violated federal law in several respects. The parties later reached an agreement settling the action, which became the basis for a stipulated judgment proposed to the district court. The Utility Reform Network (TURN), which had intervened in the action, opposed the stipulated judgment, claiming, among other things, that PUC‘s agreement to
On appeal, the United States Court of Appeals for the Ninth Circuit discerned “a serious question” whether the agreement violated California law in several respects, both substantive and procedural. (Southern California Edison Co. v. Lynch (9th Cir. 2002) 307 F.3d 794, 809.) Because “as a matter of federal law, state officials cannot enter into a federally sanctioned consent decree beyond their authority under state law,” the federal court of appeals believed the resolution of state law issues was essential to determining the validity of the stipulated judgment. (Id. at p. 812.) The court of appeals therefore certified to this court (
- Did the Commissioners of the California Public Utilities Commission have the authority to propose the stipulated judgment in light of the provisions of Assembly Bill No. 1890 (1995-1996 Reg. Sess.) codified in
Public Utilities Code sections 330-398.5 (Stats. 1996, ch. 854)? - Did the procedures employed in entering the stipulated judgment violate the Bagley-Keene Open Meeting Act (
Gov. Code, §§ 11120-11132.5 )? - Does the stipulated judgment violate
section 454 of the Public Utilities Code by altering utility rates without a public hearing and issuance of findings?
Having analyzed these questions, we conclude the settlement did not violate California law in any of these three respects.
BACKGROUND
The essential background of this case lies in California‘s attempt, beginning in 1996, to move the system for provision of electrical power from a regulated to a competitive market, the crisis caused in mid-2000 to early 2001 by soaring prices for electricity on the wholesale market, and the urgency legislation enacted in January 2001 in response to that crisis.
Assembly Bill No. 1890 (1995-1996 Reg. Sess.) (hereafter Assembly Bill 1890), which became law in 1996 (Stats. 1996, ch. 854), was intended to provide the legislative foundation for “California‘s transition to a more competitive electricity market structure.” (Assem. Bill 1890, § 1, subd. (a).) The new market structure included the creation of the California Power
Because this competition among producers was expected to bring down wholesale prices, the utilities believed that some of their generating assets, which they had built or improved with PUC approval, would become “uneconomic,” in that the costs of generation (and of certain long-term contracts between the utilities and other generators) would be higher than prevailing wholesale rates would support. The costs associated with these potentially uneconomic assets are also known as “stranded costs” or “transition costs.” The Legislature, in Assembly Bill 1890, intended to allow for “[a]ccelerated, equitable, nonbypassable recovery of transition costs” (Stats. 1996, ch. 854, § 1, subd. (b)(1)) and thereby to “provide the investors in these electrical corporations with a fair opportunity to fully recover the costs associated with commission approved generation-related assets and obligations” (
Under
PUC implemented this cost-recovery scheme in part by creating, for each electric utility, a transition cost balancing account (sometimes herein referred to as a TCBA), in which the PUC-identified stranded costs were tracked. Transition costs were not to be forecast, but rather entered in the transition cost balancing account as the PUC determined them. Costs associated with utility-retained generating assets were to be determined by comparing the book value of the assets with their market valuations, a process to be completed by the end of 2001. These uneconomic generating costs were to be netted against the benefits of any economic generating assets (those having higher market than book value). The difference between rate revenue and the utility‘s other (nongeneration-related) costs was designated the utility‘s “headroom” and was to be credited against the stranded costs in the transition cost balancing account. The portion of each rate serving as headroom was designated the competition transition charge. (In re Pacific Gas & Electric Co. (1997) 76 Cal.P.U.C.2d 627, 646-653, 740-744.)
In the first few years of the transition period, the utilities recovered much of their stranded costs. SDG&E was found to have recovered all its transition costs, ending the rate freeze for that utility under
In November 2000, as the wholesale price and supply problems continued, SCE brought its federal action against PUC, the subsequent settlement of which is the subject of this decision. In essence, SCE claimed the rate freeze imposed by Assembly Bill 1890 was now depriving SCE of its right, under federal law, to recover the costs of purchasing electricity for its customers. More particularly, SCE claimed the freeze rates had become unconstitutionally confiscatory and violated the federal “filed rate” rule, which assertedly allows a utility to recover in state-regulated retail rates the costs of purchases made under federally approved tariffs.
The Legislature also took action in January 2001, in an extraordinary session called to address the power crisis. In that session‘s Assembly Bill No. 1 (Stats. 2001, 1st Ex. Sess., ch. 4; hereafter Assembly Bill 1X), the Legislature authorized the state Department of Water Resources to begin buying power for customers of SCE and PG&E. (Id., § 4, adding
In October 2001, SCE and PUC reached a settlement of SCE‘s federal rate action. In the settlement‘s recitals, the parties agreed that during the period of very high wholesale power prices, SCE accumulated procurement-related liabilities and indebtedness of about $6.355 billion, creating severe liquidity and credit problems for the company. Conditions in 2001, including the four cent surcharge, had allowed SCE to collect retail revenues in excess of current costs. The settlement was intended to use the opportunity thus provided to restore SCE‘s creditworthiness and avoid further instability and uncertainty for the company and consumers. (Settlement, Recitals D-F.)
PUC‘s principal substantive concession in the settlement was its agreement to permit SCE to recover its past procurement-related costs by maintaining the existing rates until the end of 2003, if necessary. The parties agreed to establish a procurement-related obligations account (sometimes herein referred to as the PROACT), the initial balance of which was SCE‘s procurement-related liabilities less its cash on hand. (The parties estimated the initial balance at about $3.3 billion.) (Settlement, § 2.1(a).) SCE agreed to apply all its surplus (its revenue in excess of defined recoverable costs), with some exceptions, to the account, gradually reducing its balance. (Settlement, § 2.1(b).) The PUC agreed to maintain the rates in effect on the settlement date (with some adjustments) during the “rate repayment period,” which was defined to end when the PROACT was paid down to zero or on December 31, 2003, whichever came first. (Settlement, §§ 1.1(p), 1.1(w), 2.2(a).) A potentially longer “recovery period” was defined as ending when the account was completely paid down or on December 31, 2005, whichever came first. (Settlement, § 1.1(q).) The parties agreed that, if necessary, any obligations left in the PROACT at the end of the rate repayment period (i.e., at the end of 2003) would “be amortized in retail rates ratably during all or a portion of the remainder of the Recovery Period.” (Settlement, § 2.2(b).)2
Over TURN‘s objection, the federal district court entered a stipulated judgment incorporating the terms of the settlement agreement, finding the agreement “adequate and fair.” On TURN‘s appeal, the court of appeals resolved the federal law issues in favor of SCE and PUC (Southern California Edison Co. v. Lynch, supra, 307 F.3d at pp. 802-809), but found
Question 1: Did the Commissioners of the California Public Utilities Commission have the authority to propose the stipulated judgment in light of the provisions of Assembly Bill No. 1890 (1995-1996 Reg. Sess.) codified in
Public Utilities Code sections 330-398.5 (Stats. 1996, ch. 854)?Answer: Yes.
PUC‘s authority derives not only from statute but from the California Constitution, which creates the agency and expressly gives it the power to fix rates for public utilities. (
TURN contends, first, that PUC‘s agreement to the settlement violated a legislative directive in
With more force, TURN contends the settlement allowed SCE to recover in the postfreeze period, in violation of
We first consider whether, the effect of Assembly Bill 6X aside, the costs slated for recovery by the settlement agreement are uneconomic generating-asset costs (i.e., stranded or transition costs) restricted by
PUC nevertheless maintains that the costs to be recovered in retail sales under the settlement are not procurement costs but rather SCE‘s “generation-related costs . . . which were previously called stranded costs.” PUC bases
Although PUC‘s position is consistent with its earlier determination (in proceedings unrelated to this case) that costs are fungible for purposes of Assembly Bill 1890‘s restrictions on cost recovery,4 we do not fully accept for present purposes PUC‘s equation of SCE‘s procurement liabilities accumulated during the wholesale rate crisis with its unrecovered transition costs. As discussed below, SCE‘s true unrecovered transition costs appear indeterminable in light of PUC‘s failure, following the changes wrought by Assembly Bill 6X, to complete the planned transition by assigning market values to SCE‘s generating assets, a step that would have reduced the transition cost balancing account balance by an unknown but potentially significant amount. But whatever the amount of SCE‘s unrecovered transition costs, there is no reason to assume it was exactly equivalent to the amount of the utility‘s unrecovered procurement costs. Even assuming that when the March 2001 accounting change was made, some amount of transition costs should have remained in SCE‘s transition cost balancing account, neither PUC nor TURN endeavors to explain why that amount would necessarily have been equal to the amount of SCE‘s procurement costs (about $6.355 billion, according to the settlement) and hence, why the settlement recovery figure of $3.3 billion, calculated from SCE‘s outstanding procurement liabilities, should be deemed to represent instead the exact amount of transition costs unrecovered at the time of the settlement. While the March 2001 accounting change may have been properly used to determine that the Assembly Bill 1890 rate freeze had not then ended (see fn. 3, ante), it should not bind us to a counterfactual characterization of all the procurement costs at issue here.
TURN concedes that Assembly Bill 6X returned to cost-of-service regulation those generating assets SCE still owned when the law was enacted.5 The January 2001 measure, TURN further concedes, meant that PUC would be able to ensure, by rate regulation, that SCE “would be given an opportunity, in the future, to earn a return on [its] investment in those plants” and that, consequently, “[t]he remaining book-value of utility-retained generation is not any part of the unrecovered stranded costs.” But TURN argues Assembly Bill 6X did not affect
We are not persuaded the settlement violates
The process of selling, appraising, or otherwise placing a market value on the utilities’ generation assets, to be completed by December 31, 2001 (
Finally, we note that the Legislature, in
Whether we regard the costs to be recovered under the PUC-SCE settlement as procurement costs or as generation-related costs, therefore, they were not uneconomic costs restricted in recovery by
Question 2: Did the procedures employed in entering the stipulated judgment violate the Bagley-Keene Open Meeting Act (
Gov. Code, §§ 11120-11132.5 )?Answer: No.
The Bagley-Keene Open Meeting Act (the Bagley-Keene Act) applies to most state boards and commissions, including PUC. (See
The October 2001 settlement, which the subsequent stipulated judgment implemented, was signed by the five PUC commissioners and was both a collective decision of the commissioners and a collective commitment or promise to take further actions. It was thus an “action taken” by PUC and subject, under the above provisions, to the Bagley-Keene Act. The parties, moreover, agree this action was taken in a meeting, to wit, the closed or executive session of the regularly scheduled PUC meeting of October 2, 2001. The published agenda for the October 2 meeting listed, in the closed session section, this item: “FEX-2: Conference with Legal Counsel—Existing Litigation. Case name unspecified. (Disclosure of case name would jeopardize existing settlement negotiations.) (
PUC contends taking this action in closed session did not violate the Bagley-Keene Act, but, rather, was permitted under an exception to the law‘s open-meeting requirement,
Settlement discussions with counsel are obviously an aspect of litigation particularly vulnerable to prejudice through public exposure and are thus one of the areas
The same parallel may be drawn between the corresponding provisions of the Bagley-Keene Act.
Interpreting the Brown Act counsel provision, the Attorney General also reasoned that consultation with counsel in the course of litigation often focuses on possible action—e.g., whether to file a suit or countersuit, what claims and defenses to plead, what parties to join. Conferring with counsel on these matters necessarily includes deciding on a course of action and instructing or authorizing counsel to pursue it. The same applies to settlement discussions. “Unless a local agency is to be a ‘second class citizen’ with its opponents ‘filling the ringside seats’ (Sacramento Newspaper Guild v. Sacramento County Bd. of Suprs., supra, 263 Cal.App.2d at p. 56), it must be able to confer with its attorney and then decide in private such matters as the upper and lower limits with respect to settlement, whether to accept a settlement or make a counter offer, or even whether to settle at all. These are matters which will depend upon the strength and weakness of the individual case as developed from conferring with counsel. A local agency of necessity must be able to decide and instruct its counsel with respect to these matters in private.” (75 Ops.Cal.Atty.Gen., supra, at pp. 19-20.)
This reasoning is equally applicable to state bodies governed by the Bagley-Keene Act. In providing (in
In this case, of course, PUC went beyond instructing counsel in the closed meeting of October 2, 2001; it actually concluded the settlement, unanimously voting to accept the proposed agreement with SCE, and reconvened in public session only to announce the action taken. Theoretically, the PUC commissioners could instead have deliberated in private on this step, then reconvened in public session (at the same or a later meeting) to actually vote. But such a procedure could serve the purposes of the Bagley-Keene Act only if the body announced, before the public session, the identity of the litigation proposed for settlement, for only then could the public possibly be informed of, and comment on, the substance of the proposed action. (See
The question, then, is whether the Bagley-Keene Act requires a state body, after deliberating on a proposed settlement in closed session pursuant to
Under the quoted provision, a body may decline to identify the litigation under discussion in closed session if the body states that to identify it would jeopardize the conclusion of an advantageous settlement. Were the body required, after its closed-session deliberations but before actually concluding the settlement, to announce publicly the proposed settlement and the name of the litigation, the protective purpose of
In this case PUC strictly followed the procedure mandated in
TURN contends that even if
We agree, however, with PUC and SCE that by agreeing to the settlement PUC did not “change[]” the “rates” (
According to TURN, the settlement agreement changed rates by making regulatory concessions to SCE that (TURN asserts) will lead to future rates higher than would otherwise obtain.
In this case, for example, TURN asserts the settlement agreement deprived customers of refunds they would otherwise have been entitled to receive for overcollection of the four cent surcharge, that is, for any collections of the surcharge not needed for current power purchases, as was the originally stated purpose of the surcharge. But TURN cannot show PUC would, absent the settlement, have ordered refund of surcharge revenues used to pay procurement debts incurred during the crisis. While the March 2001 PUC decision allowing the surcharge stated that the surcharge‘s purpose was to pay for ongoing power purchases and that surcharge revenues were “subject to refund if, at a later date, we determine that the utilities failed to use the funds to pay for future power purchases,” that decision explicitly did “not address recovery of past power purchase costs and other costs claimed by the utilities.” (Application of Southern California Edison Co., supra, Cal.P.U.C. Dec. No. 01-03-082, pp. 2, 60.) Later, the PUC explicitly permitted use of the
TURN also cites legislative history documents indicating that the 1975 amendment adding the language in
Question 3: Does the stipulated judgment violate section 454 of the Public Utilities Code by altering utility rates without a public hearing and issuance of findings?
Answer: No.
As discussed in relation to the second certified question, PUC agreed, in the settlement, to maintain SCE‘s approved rates for a specified period, rather than to change them; nor did the other regulatory actions promised in the agreement change rates. TURN suggests that by allowing the current rates, including the surcharge, to be used for past procurement debts, the settlement established a “new rate” within the meaning of
For these reasons, we conclude PUC‘s agreement to the settlement did not violate
CONCLUSION
In response to the court of appeals’ certified questions, we conclude that PUC‘s agreement to the settlement and stipulated judgment did not violate the provisions of Assembly Bill 1890 and that the procedures employed in entering the stipulated judgment did not violate either the Bagley-Keene Act or
BAXTER, J., Concurring and Dissenting.—I accept the majority‘s conclusion that the terms of the settlement between the Public Utilities Commission (PUC or Commission) and Southern California Edison Company (SCE), which became the basis for a stipulated judgment in federal district court, did not exceed the Commission‘s authority under Assembly Bill No. 1890 (1995-1996 Reg. Sess.) (Assembly Bill No. 1890), as codified in
First, the PUC contravened the Bagley-Keene Open Meeting Act (Act or Bagley-Keene Act;
Second, the PUC acted illegally under the
The Bagley-Keene Act was adopted to require state agencies to exercise their essential regulatory authority through public deliberations and decisions, subject to direct scrutiny and comment from the citizens whose daily lives these decisions affect. Because the PUC‘s power over utility rates is especially crucial, the Legislature added specific provisions, in both the Bagley-Keene Act and the
The majority‘s holding that the PUC could bypass these protections if it did so to settle litigation opens the door to a widespread danger of secret “government by lawsuit,” in which state agencies conduct their most important regulatory business in private, through the device of settling litigation between themselves and the entities they regulate. By the same device, the
* Presiding Justice of the Court of Appeal, Sixth Appellate District, assigned by the Chief Justice pursuant to article VI, section 6 of the California Constitution.
I address the two critical statutes in turn.
A. Bagley-Keene Act.
The majority correctly note the general outlines of the Bagley-Keene Act, adopted in 1967 (Stats. 1967, ch. 1656, § 122, p. 4026) and often amended thereafter. The Act states “[i]t is the public policy of this state that . . . the proceedings of [covered state] agencies be conducted openly,” and declares the intent of the statute to be “that actions of state agencies be taken openly and that their deliberation be conducted openly.” (
Accordingly, the Act mandates that, except as otherwise specifically provided, a covered “state body” (
A “meeting” includes “any congregation of a majority of the members of a state body at the same time and place to hear, discuss, or deliberate upon any item that is within the subject matter jurisdiction of the state body to which it pertains.” (
As the majority indicate, all agree that the PUC‘s decision to approve the SCE settlement was an “action taken” at a “meeting” that did not conform to the open and public requirements of the Bagley-Keene Act. The PUC‘s published agenda for the regularly scheduled commissioners’ meeting of October 2, 2001, listed “Conference with Legal Counsel—Existing . . . Litigation. Case name unspecified” as a matter to be discussed in closed session. As suggested by the official minutes of the October 2 meeting, the commissioners unanimously approved the “SCE [s]ettlement” during the closed discussion, then reconvened in public session to announce their action.
To validate the “action taken” at this closed meeting, the PUC, SCE, and the majority invoke an exception to the open-meeting requirements, set forth in
The majority concede that “[o]n its face, subdivision (e)(1) permits a [state] body only to ‘confer with’ and ‘receive advice from’ its attorney regarding litigation.” (Maj. opn., ante, at p. 798, italics added.) Indeed,
Moreover,
The legislative history of
The Legislature later codified this principle in the Bagley-Keene Act by adding former subdivision (q) to
In 1987, however, the Legislature tightened and refined the Act‘s provision for private conferences with counsel concerning pending litigation. (Stats. 1987, ch. 1320, § 2, p. 4762.) At that time, former subdivision (q) of
The 1987 amendment also included the extensive discussion, now contained in
The source of the 1987 legislation was Senate Bill No. 200 (1987-1988 Reg. Sess.) (Senate Bill No. 200). The bill was described as “codif[ying] the exclusive use of the attorney-client privilege for the purpose of conducting closed sessions,” and as allowing “[c]losed sessions . . . to seek the advice of legal counsel with regard to ‘pending litigation’ if discussion with legal counsel in open session would ‘prejudice the position’ of the public entity.” (Assem. Subcom. on Admin. of Justice, Analysis of Sen. Bill No. 200 (1987-1988 Reg. Sess.) as amended May 4, 1987, p. 1, italics added.)
Urging passage of Senate Bill No. 200 in the Assembly, the California Attorney General explained the concerns that had prompted the proposed legislation (which made conforming amendments to both the Brown and Bagley-Keene Acts): “Briefly, the problem is this: Several years ago the courts ruled that, absent specific legislation to the contrary, the Brown Act will not be construed to limit the availability of the traditional attorney-client privilege to local governmental bodies. [Citations.] This leaves . . . public agencies with broad freedom to go into executive session for confidential attorney-client discussion of virtually any issue which may involve ‘pending litigation’ or the ‘avoidance of litigation.’ [¶] [Senate Bill No.] 200 will eliminate this loophole by placing clear and reasonable limitations upon when governmental agencies may hold closed meetings to discuss legal issues. It protects the legitimate need of public officials to obtain confidential legal advice on issues which may end up in litigation but does not sacrifice the public‘s right to open meetings. In short, the bill strikes an appropriate balance between two important but often conflicting principles of public policy.” (Atty. Gen. John K. Van de Kamp, letter to Assembly Member Lloyd G. Connelly, re Sen. Bill No. 200 (1987-1988 Reg. Sess.) July 10, 1987, italics added.)
The 1987 amendments, and the accompanying analyses and comments, do not directly address whether, during a closed lawyer-client litigation conference, a state body may make its final decision on how to resolve the pending proceeding. However, the amendments do confirm these general principles: First,
The majority‘s expansive interpretation of the privilege contravenes these tenets. The majority imply, on the basis of obsolete authority, that the public and private attorney-client privileges are coextensive. (Maj. opn., ante, at p. 798, citing Sacramento Newspaper Guild, supra, 263 Cal.App.2d 41, 55.) More importantly, the majority‘s construction far exceeds a public agency‘s need for attorney-client confidentiality, while unduly restricting the right of the people to public decisionmaking by state agencies.
As major support for their conclusion that the closed-session provision extends beyond the limited privilege to confer with counsel, and encompasses a final decision by the state body to accept a proposed settlement, the majority cite another provision of the Bagley-Keene Act,
Focusing on the single word “conclude” in
Certainly a state body may frankly discuss with its counsel, in private, the progress of ongoing settlement negotiations, including a candid assessment of the agency‘s negotiating strategy, the “strength and weakness” of the agency‘s position, and the “gains and risks, hopes and fears” a settlement entails, without affording its opponents “ringside seats” at these preliminary discussions. (Sacramento Newspaper Guild, supra, 263 Cal.App.2d 41, 56.) No doubt the agency may privately instruct its counsel, negotiating on its behalf, concerning terms it is inclined to accept.1 Moreover, it may well be that in subsequent public consideration of the matter, the state body need not fully disclose the litigation-related concerns that it discussed privately with its counsel under cover of the attorney-agency privilege, even if this means the public is less than fully informed about all the reasons the agency is tentatively prepared to accept a resolution on particular terms.
But none of this implies that a final regulatory decision, framed as the settlement of a pending lawsuit, itself can be undertaken without any public scrutiny or input, as occurred here.
To this extent, I am not persuaded by the California Attorney General‘s construction of
For this conclusion, the Attorney General first cited language in the Brown Act‘s “personnel” exception, now contained in
The Attorney General also reasoned that a public agency‘s right to confer with counsel in secret about confidential litigation and settlement strategy necessarily implies the further right to decide, in confidence, what course to take. Otherwise, the Attorney General cautioned, an agency‘s litigation adversaries would have ” ‘ringside seats’ ” for its decisions, and public litigants would be ” ‘second-class citizen[s],’ ” at a disadvantage compared to their private counterparts. (75 Ops.Cal.Atty.Gen., supra, at p. 19, quoting Sacramento Newspaper Guild, supra, 263 Cal.App.2d 41, 56.)
For reasons I have already discussed at length, I believe these conclusions are flawed. The words of the pending-litigation and personnel exceptions, respectively, are materially different. The former permits the public entity only to “confer with, or receive advice from, its counsel” in private (
Moreover, as we have seen, the current pending-litigation exception is not intended to afford public agencies litigation privacy entirely equivalent to that enjoyed by private parties. Instead, the statutory exception seeks to balance competing policies by providing a limited, and exclusive, form of attorney-client confidentiality for public agencies, while interfering as little as possible with the fundamental requirement that the collective actions of such agencies be taken in public. Thus, the pending-litigation exception does not imply a
In this age of high-stakes litigation, the majority‘s contrary conclusion opens the door to secret “government by lawsuit,” allowing governmental bodies to exercise significant portions of their regulatory authority in private by the device of settling lawsuits between themselves and the entities they regulate. I cannot accept such a weakening of the clear purposes of the Bagley-Keene Act. I conclude that
But even if
As the majority indicate, the parties to the October 2001 settlement agreed that, because of falling wholesale electricity prices during 2001, SCE‘s existing rates “had allowed SCE to collect retail revenues in excess of current costs.” (Maj. opn., ante, at p. 791.) Among other components, these rates included emergency surcharges, totaling 4 cents per kilowatt-hour, which the PUC had granted to SCE, and to Pacific Gas and Electric Company (PG&E), in early 2001, at a time of very high wholesale power prices. When the PUC granted these surcharges, it had restricted their application to future power purchases, not past liabilities, and had made surcharge revenues refundable to ratepayers to the extent not used for this limited purpose. (Application of Southern California Edison Co. (2001) Cal.P.U.C. Dec. No. 01-01-018, pp. 2-3, 10-17, 24, 2001 Cal.PUC LEXIS 44; Application of Southern California Edison Co. (2001) Cal.P.U.C. Dec. No. 01-03-082, pp. 16-18, 60-61, 2001 Cal.PUC LEXIS 217.)
In the settlement, however, the PUC agreed, as its “principal substantive concession” (maj. opn., ante, at p. 791), to permit SCE to recover certain past costs by (1) applying the overcollections already in SCE‘s coffers—i.e.,
The settlement thus authorized three fundamental “change[s]” in SCE‘s rates. First, it either provided, or extended, a guaranteed duration to the rates in existence at the time of the settlement.2 Second, it cancelled, nunc pro tunc, ratepayers’ rights to refunds of amounts SCE had already collected under the 2001 surcharges, but had not used for ongoing power purchases as the terms of those surcharges originally required. Third, it removed, for the future, the original limitation on SCE‘s use of the surcharges. That allowed SCE to continue to assess the surcharges, and to retain the revenues therefrom, under circumstances not permitted by the original terms and conditions of these special rates.
The majority insist the PUC did not agree in the settlement to ” ‘change[]’ ” SCE‘s rates, but only made a “commitment . . . to maintain the then existing rates for an agreed period.” (Maj. opn., ante, at p. 802.) This pinched and hypertechnical analysis ascribes too narrow a meaning to the broad statutory phrase “rates . . . are changed.” (
The complex and crucial task of ratemaking does not simply set the amount of money a utility may charge for a unit of service at any particular moment. It also necessarily establishes the terms and conditions attached to the authorized charge. When, as here, the PUC agrees to grant or extend a rate freeze, or alters the circumstances under which a rate may be charged or its revenues retained, it “change[s]” the rate.
This rationale misses the point. The settlement‘s effect was to (1) provide, or extend, the guaranteed duration of a rate, (2) allow SCE to retain past and future surcharge revenues that would otherwise have been subject to refund, and (3) there by narrow the opportunity for electricity customers to obtain rebates, or to enjoy lower future rates, based on the conditions that might then prevail. In making these fundamental alterations in the structure of SCE‘s existing rates, the settlement “changed” the rates. And the effect on SCE‘s ratepayers was hardly minimal. The settlement‘s avowed purpose was to enable SCE to secure from its customers billions of dollars in excess of current operational costs that were deemed necessary to restore SCE to financial health.3
The Legislature cannot have meant to allow ratemaking decisions with such significant effect on the public to escape the open-meeting requirement set forth in
The PUC urges that even if its initial acceptance of the settlement in closed session violated the Bagley-Keene Act‘s open-meeting requirement, the Commission “cure[d]” or “correct[ed]” the violation (
By P.U.C. Resolution No. E-3765 (2002), the Commission simply granted, with minor modifications, SCE‘s request to establish the PROACT account called for by the settlement. (Cal. P.U.C. Res. No. E-3765 p. 37.) Indeed, in the resolution, the PUC rebuffed an argument by the California Manufacturers & Technology Association that granting SCE‘s request would impermissibly change certain prior Commission decisions. According to the PUC, “this . . . issue argue[d] the legality of the [s]ettlement, which [was] beyond the scope of” the proceeding then before the Commission. (Id., at p. 35.)
The PUC also points to its Decision No. 02-11-026, 2002 Cal.PUC LEXIS 720, which modified Application of Southern California Edison, supra, Cal.P.U.C. Decision No. 01-03-082. As indicated above, Decision No. 01-03-082, issued in March 2001, had granted both PG&E and SCE a 3-cent surcharge (and had also made “permanent” an additional 1-cent surcharge granted to those utilities in January 2001), but had restricted use of these surcharges to ongoing power procurement and made them otherwise refundable. Decision No. 02-11-026 relaxed this restriction by allowing the 2001 surcharges to be used both for future power purchases and for the more general purpose of “returning each utility to financial health.” (Application of Southern California Edison Co. (2002) Cal.P.U.C. Dec. No. 02-11-026.)
But Decision No. 02-11-026 neither mentioned the SCE settlement nor reflected any effort to reconsider its terms. Moreover, as applied to SCE, repeal of prior restrictions on use of the 4-cent surcharge had already occurred by virtue of the settlement, and was required in any event by the resulting stipulated judgment in the federal action, entered October 5, 2001. Nothing in Decision No. 02-11-026 indicates it was a sincere and effectual attempt by the Commission to reassess the SCE settlement itself in an open and public meeting.4
B. Public Utilities Code section 454.
As indicated above, the Public Utilities Code separately provides, in pertinent part, that “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 [C]ommission and a finding by the [C]ommission that the new rate is justified. . . .” (
As discussed above, the settlement between the PUC and SCE constituted their agreement to a “change” in SCE‘s rates. The settlement either froze rates or extended a freeze already in effect. It eliminated, for both past and future purposes, prior restrictions on SCE‘s use of the 2001 surcharges. It cancelled ratepayers’ rights, both past and future, to refunds of surcharge amounts overcollected by SCE under the terms and conditions originally applicable to these rates. It thus afforded SCE the opportunity to recover from its ratepayers some $6.355 billion in liabilities already accrued by SCE, with approximately $3.3 billion of that amount to appear on their future electricity bills. Insofar as the PUC accepted this “change” without resort to the requirements of
SCE and the PUC argue that even if the settlement did authorize a change in SCE‘s rates,
from an outsider under
Moreover, SCE and the PUC insist, a utility may change its rates only through the formal alteration of its tariff. (See
Neither SCE nor the PUC cites authority holding that the Commission may authorize a utility rate change, by means of a legal settlement, without complying with the basic requirements of
In any event, the technical arguments advanced by SCE and the PUC obscure the fundamental purpose of the scheme for public utility regulation. Such utilities are subject to control by the Legislature (Cal. Const., art. XII, § 3), which has mandated in the Public Utilities Act that their rates be “just and reasonable” (
As TURN suggests, the contention by SCE and the PUC that rates are “change[d],” for purposes of
I recognize that the regulatory process for approving rate changes is not readily compatible with the practicalities of settling lawsuits. My conclusion that
For all these reasons, I would answer “yes” to the Ninth Circuit‘s question whether the settlement and stipulated judgment between SCE and the PUC violated
Appellant‘s petition for a rehearing was denied October 22, 2003. Chin, J., and Brown, J., did not participate therein. Baxter, J., was of the opinion that the petition should be granted.