3. Legal and Factual Issues Regarding Outside Counsel Rates
3.1. Legal Standard for Setting Hourly Rates
The Public Utilities Code comprehensively governs the Commission's intervenor compensation program, including who is eligible for awards, what activity is compensable, and how an award is calculated. See generally Pub. Util. Code §§ 1801-1812. (All subsequent statutory citations are to the Public Utilities Code.) In brief, an intervenor that the Commission has determined (1) to be eligible, and (2) to have substantially contributed to a Commission decision, is entitled to an award of compensation to the extent of the intervenor's reasonably incurred costs and fees related to its substantial contribution. (Id.)
A key component in determining the reasonableness of an intervenor's request for fees is the hourly rate at which those fees were calculated. Section 1806 guides our review of fees and, by necessary implication, the hourly rates on which they are based. This statute requires us to "take into consideration the market rates paid to persons of comparable training and experience who offer similar services. The compensation award may not, in any case, exceed the comparable rate for services paid by the commission or the public utility, whichever is greater, to persons of comparable training and experience who are offering similar services." (Id., emphasis added.)
3.2. TURN's Showing and the Commission's Initial Response
In recent years, the Commission has created, and adjusted annually, hourly rate schedules that it applies in calculating awards to intervenors.4 The work for which TURN is seeking compensation was performed over several years by several individuals, so TURN requests a range of rates to incorporate annual adjustments and differences in experience among the individuals, as well as differences in services performed.
We largely granted the rates TURN requested for its in-house staff. It is our use of the same rates for TURN's outside counsel that TURN challenged.
Specifically, TURN argues that in setting rates for its outside counsel, we should have relied on the rates charged to outside counsel's fee-paying clients, and on the rates requested by one of the utilities' law firms from a federal bankruptcy court. Such reliance, according to TURN, supports a range of $459 to $550 per hour for senior outside counsel, $333 to $375 per hour for mid-level counsel, and $225 to $295 per hour for junior associates. Instead, using the same rates authorized for TURN's in-house staff at corresponding experience levels, we approved ranges of $350 to $470 per hour (senior), $190 to $200 per hour (mid-level), and $170 to $190 per hour (junior associate).
Our rejection of TURN's argument in D.05-04-049 and D.07-03-017 expressly discussed the first element of the hourly rate standard under Section 1806, namely, the training and experience of the representatives whose work is under consideration. For example, we noted that we had previously found the training and experience of TURN's senior in-house attorney were comparable to the training and experience of TURN's senior outside counsel. (D.05-04-049, at 20-21, citing D.02-06-070.) We had made the same finding regarding the corresponding mid-level attorneys. (Id.)
Our discussion of the second element of the hourly rate standard, namely the services provided by the representatives whose work is under consideration, was less clear. We merely noted that in D.02-06-070, we had "declined to set task-by-task compensation rates." (D.05-04-049, at 20.) Thus, D.05-04-049 appears not to squarely address the issues of (1) whether representations in appellate litigation before a court and in administrative litigation before this Commission involve fundamentally different services, and, if so, (2) whether those differences command different "market rates" within the meaning of Section 1806.
3.3. Direction from the Court of Appeal
On appeal from D.05-04-049, as modified by D.07-03-017, the court expressly found that advocates performing "federal trial and appellate litigation" provide different services from those provided by advocates performing administrative litigation before this Commission.5 The court then added:
Certainly the PUC has, as it states, "wide discretion in determining what the market rate should be based on the evidence in the record." But it cannot ignore the unrebutted evidence in the record, and set a market rate that does not account for the difference in services offered by outside counsel experienced in federal trial and appellate litigation and those offered by practitioners before the PUC.6
We have no quarrel with the court's finding that judicial litigation requires different advocacy services compared to administrative litigation.7 Given this finding, we had to determine on remand whether the record to that point contained sufficient information for us to adopt market rates for the judicial appellate litigation services provided by TURN's outside counsel.
3.4. Need for Additional Information
In fact, the record to that point contained very little information relevant to one of the key elements of the legal standard for fee awards, namely, "the comparable market rate for services paid by... the public utility... to persons of comparable training and experience who are offering similar services." Section 1806. This limited information falls far short of the kind of "market rates" survey the statute seems to contemplate. After reviewing this information, the assigned Administrative Law Judge (ALJ) noted the following concerns:
(1) The information in the record to date on rates paid for outside counsel services by utilities is limited to a single utility, Pacific Gas and Electric Company (PG&E), which happens not to be the utility (Southern California Edison Company (SCE)) involved in the judicial appellate litigation underlying TURN's fee request.
(2) The outside counsel hourly rates incurred by PG&E relate to representation in bankruptcy court, which is a highly specialized forum. Those hourly rates may, or may not, be fairly indicative of the hourly rates that utilities incur for outside counsel in the broader market of judicial litigation generally.
The ALJ's Proposed Decision published on February 24, 2009, would have addressed these concerns by requiring a multi-year survey of outside counsel hourly rates incurred by the State's largest utilities, two of them providers of telecommunications services.
In comments on the Proposed Decision, TURN objected to the survey as unduly burdensome and excessive in light of the limited usefulness expected of the results.8 TURN also filed a settlement on May 15, 2009. The settling parties, besides TURN, were SCE, PG&E, and San Diego Gas & Electric Company (SDG&E). Under the settlement, the Commission would award TURN $51,613, to be paid by SCE, as additional outside counsel fees. The additional fees clearly derive from the hourly rates requested by TURN, but TURN would "waive any claim to interest" on that award.9
The settlement recites that it "is intended to avoid further proceedings and thereby avoid costs to the respondents designated by the February 24, 2009 Proposed Decision, which are likely to exceed the amount in dispute, and a process that will produce data that has no apparent prospect for application to intervenor compensation requests in future proceedings." (Paragraph 5 of the settlement agreement.) Also, Paragraph 14 of the settlement agreement provides, consistent with Rule 12.5, that the settlement agreement would not be precedential in any other proceeding before the Commission. (This rule and all rules cited later are part of the Commission's Rules of Practice and Procedure.)
In light of the settlement, the ALJ withdrew the Proposed Decision but ruled that certain additional information was still needed. Specifically, the ALJ required each of the three settling utilities to file a statement on whether the range of hourly rates for outside counsel incurred by TURN in judicial appellate litigation exceeds rates incurred by the utility in similar litigation.
The ALJ explained that in considering the reasonableness and lawfulness of the proposed settlement, the Commission must determine whether these rates are consistent with the "market rates" contemplated by Section 1806. After noting that the record at that point on rates paid by utilities for outside counsel was limited to a single utility (PG&E) and a single judicial forum (bankruptcy court), the ALJ stated, in essence, that the record should be supplemented before the Commission could conclude the settlement was reasonable in light of the whole record, consistent with law, and in the public interest. (See Rule 12.1(d).)
3.5. Statements Supporting the Settlement
Instead of the comprehensive survey that would have been required under the Proposed Decision, the ruling required limited additional information from only the three settling utilities. The crux of the additional information was simply a statement of whether the range of hourly rates for outside counsel incurred by TURN in judicial appellate litigation in this matter exceeds the outside counsel rates incurred by the utility. To ensure reasonable comparability, the ruling directed the utilities to consider only those rates incurred during roughly the same calendar years and in similar litigation. The utilities were not required to disclose the names and rates of particular counsel, but they were required to identify one or more examples of the litigation on which their respective statements were based.
Pursuant to the ruling, PG&E, SCE, and SDG&E filed their respective statements on or before July 17, 2009. Each utility states (and provides an example of comparable litigation) that the range of outside counsel rates incurred by TURN does not exceed corresponding rates incurred by the utility.
3.6. Resolution of Issues Regarding Outside Counsel Rates
Based on the record of the proceeding, as augmented by representations in the settlement and the utilities' supporting statements, we approve the settlement, albeit with some misgivings. On balance, the three main reasons supporting approval are more compelling, as we explain below.
First, we now have a convincing showing regarding TURN's requested rates for outside counsel in judicial proceedings. Before the filing of the utilities' statements, the record on outside counsel rates consisted of a single data point, derived from a bankruptcy proceeding. In contrast, the utilities' statements now confirm that TURN's requested rates are realistic, based on the utilities' own experience in the more usual type of judicial appellate litigation that sometimes ensues from Commission proceedings.
Second, we agree with the settling parties that a comprehensive market rates survey would be arduous and burdensome. We last performed such a survey several years ago; it was specific to our own proceedings, which of course is where almost all Commission-related intervenor participation occurs. To do a survey limited to the judicial forum would involve much effort solely to address a situation that accounts for a small fraction of hours claimed by intervenors.
Third, we recognize the fundamental principle that litigation must come to an end. The appellate litigation in which TURN participated (against PG&E and SCE, and at least initially in support of the Commission) started in 2000. TURN first requested compensation in 2002, and in 2003 we denied that request as premature. (See Appendix A to today's decision.) We awarded compensation to TURN in 2005 (D.05-04-049), and reconsidering our determination in that decision of the outside counsel rates is the issue we resolve today. In view of the almost nine-year history preceding the settlement, it is surely time to resolve this issue.
Our misgivings cause us to emphasize that this settlement, like all settlements in our proceedings, is non-precedential.
Our primary misgiving is that we do not want our approval of the settlement to signify in any way a retreat from our commitment to setting market-based rates for intervenors' representatives. For the past several years, we have tried to adjust hourly rates periodically, uniformly, and on a broad basis. Today's decision is necessarily ad hoc and based on a small sample. Accordingly, the decision does not create Commission-approved fee ranges for outside counsel in judicial appellate litigation. Absent such fee ranges, the burden must fall on the intervenor to amply support and document its claim for fees in this, hopefully rare, situation.
Our second misgiving concerns the novel use of the settlement process in the context of an intervenor compensation award request. When we award compensation, including the approval of hourly rates supporting the award, we resolve a mix of factual and legal issues. A settlement, particularly if it involves all the parties and if they represent diverse interests, is often persuasive as to factual issues, but it cannot relieve the Commission of the duty to resolve legal issues. Thus, where as here an intervenor and utilities may agree on the reasonableness of a lump-sum award, the Commission still cannot skirt the issue of the hourly rates on which an award must be premised. Under the statute, any award must be based on costs and fees that the Commission finds to be reasonable. Without the utilities' supporting statements required by the ALJ, this award could not stand.
We also observe that a settlement, ideally, should reflect a consensus among all the affected interests. Here, the ratepayer representative signing the settlement is TURN, and TURN obviously has a financial stake in the award that ultimately will be paid by SCE's ratepayers. Given this inherent conflict, we do not give as much weight to this kind of settlement as we generally would do to settlements where the ratepayer interest is clearly reflected.
Despite these misgivings, we find that the proposed settlement satisfies our three criteria for approval of settlements. The award is reasonable in light of the record taken as a whole. Given the utilities' statements, we consider it highly unlikely that a comprehensive market survey would disclose any significant deviation from the hourly rates of TURN's outside counsel. Even that remote possibility is offset by TURN's waiver of interest on the award, pursuant to the settlement.
Because the award is reasonable, the settlement protects the interest of utilities and their ratepayers. Also, the broad public interest is served by resolving this long dispute on reasonable terms.
Paragraph 8 of the settlement agreement provides that SCE will recover the amount of the award in rates, "consistent with the treatment of other intervenor compensation awards." Because we find this award reasonable, we consider that SCE's participation in the settlement should not affect its entitlement, under Section 1807, to recover the amount of the award in rates. We conclude that the settlement is lawful.
As noted earlier, our approval of this settlement is not precedential. However, the question remains about what effect to give the settlement within this proceeding. TURN's February 9, 2009 request for compensation is for work performed by the same outside counsel firm in the same judicial review process but after the period covered by the original award in D.05-04-049. The firm used different personnel, in part, for the work in the later period, and the later request also reflects occasional increases to the firm's hourly rates.
We do not pre-judge the reasonableness of the firm's rates for periods and for personnel not covered in the settlement. However, we will consider the later request in light of the rate schedule we approve today. Specifically, we will consider (1) whether subsequent increases in the firm's rate schedule are reasonable, and (2) whether the hourly rates requested for personnel not covered in the settlement are reasonable in light of the training and experience of these latter personnel when compared to the training and experience of personnel covered in the settlement.
4 The hourly rate schedules have relied, among other things, on data that we collected regarding rates paid by the utilities and by the Commission itself for representation on Commission matters. The court refers to these data as the Commission's "Of Counsel Survey."
5 TURN v. PUC, 166 Cal. App. 4th at 537.
6 Id.
7 Our statement in prior decisions (noted at the end of the immediately preceding section of today's decision) to the effect that we decline to set "task-by-task compensation rates" does not run afoul of the court's finding. An administrative advocate performs many different "tasks," but each task does not constitute a separate "service" within the meaning of the statute. The statement is correct as far as it goes, but it does not illuminate the problem here, which is whether two services may be different although they involve some of the same tasks, for example, writing briefs.
8 The telecommunications utilities also noted that they had not been parties to any of the captioned proceedings.
9 TURN had previously calculated the additional outside counsel fees as $51,613 "representing the difference between the rates requested and rates awarded for outside counsel's work compensated in D.05-04-049." See Joint Motion to Adopt Settlement (May 15, 2009) at page 2. The calculation had been communicated to the Commission by a letter from TURN to the Commission's General Counsel dated January 26, 2009. TURN estimates that interest on the additional fees, calculated at the three-month commercial paper rate the Commission uses for this purpose, would exceed $7,000 as of the date of the settlement.
