Evaluation of the Settlement Agreement
The Settlement Agreement is an uncontested "all-party" settlement. The Commission applies two complementary standards to evaluate such agreements. The first standard, set forth in Rule 12.1(d), is applicable to both contested and uncontested agreements; it requires that the "settlement is reasonable in light of the whole record, consistent with law, and in the public interest." The second standard applies to all-party settlements, and requires that all active parties support the proposed settlement, the parties fairly represent all affected interests, no settlement term contravenes statutory provisions or prior Commission decisions, and settlement documentation provides the Commission with sufficient information to permit it to discharge its future regulatory obligations.10
We turn first to the Rule 12.1(d) standard. We address each part of this standard below and after considering the Phase 3 record and prior Commission decisions, we conclude that the Settlement Agreement is in the public interest and should be approved. The Phase 3 record consists of SDG&E's admission that it violated Rule 8.3 and the contested showings on the alleged Rule 1.1 violation. As the parties reached this settlement before the ALJ set hearings, these showings have not been tested in the hearing room, but neither the Commission nor the parties have been obliged to expend the resources such a hearing would entail. Furthermore, while SDG&E does not admit to violating Rule 1.1, in the apology made part of the Settlement Agreement, SDG&E formally acknowledges the critical importance of "clear and accurate communications" for the regulatory process to retain its integrity and recognizes its lobbying efforts "fell short of its own high standards here."11
The parties' joint motion stresses that the settlement components constitute a carefully negotiated "package" but also states that the settling parties believe "each of the items is individually supported by the record or the circumstances of this case."12 SDG&E's apology is important but insufficient alone, we think, given the record here. The Settlement Agreement implicitly recognizes the seriousness of the Phase 3 allegations and combines the apology with another element - the shareholder payments - in order to provide direct benefit to the Commission (through reimbursement of costs associated with this proceeding), SDG&E's ratepayers and the San Diego service territory (through charitable contributions)13 and the State (through the General Fund contribution). Finally, but of no small importance, the Settlement Agreement includes appropriate remedial measures - it requires SDG&E to develop and sponsor a professional responsibility class at shareholder expense and in consultation with CPSD and the Commission's Public Advisor. The class is to be offered in San Francisco for the benefit of SDG&E's local employees, Commission staff, and others who practice before the Commission but in addition, is to be offered internally as well - the Settlement Agreement requires all of SDG&E's Directors and Officers to attend.
The joint motion includes a review of prior Commission decisions concerning alleged Rule 1 (as Rule 1.1 was known prior to September 2006) or ex parte rule violations by energy utilities. These include:
· D.92-03-04214 - Commission found Southern California Gas Company (SoCalGas) had misrepresented the status of an affiliate arrangement in a filed report, potentially violating Rule 1; no penalties or sanctions were imposed;
· D.97-08-05515 - alleged Rule 1 violation by Pacific Gas and Electric Company (PG&E) for failure to identify or produce information in discovery settled as part of a larger proceeding (the Gas Accord) by stipulation with the Commission's Consumer Services Division (CSD, the predecessor to CPSD), whereby PG&E agreed to pay $850,000 to the General Fund and ensure certain employees attended at least four hours of an ethics class;
· D.00-09-034 - CSD investigation into SoCalGas' sale of its Montebello Storage Field settled with no admission of Rule 1 violation by SoCalGas and voluntary payment of almost $3.5 million to General Fund, as well as development of an ethics course focusing on Rule 1;
· D.08-01-021 - Commission found PG&E had violated ex parte rules; no sanctions imposed; PG&E offered apology and committed to undertake ex parte best practices remedial measures.
Given both the Phase 3 record detailed above and the Commission-approved resolution of prior Rule 1.1 matters, we conclude the Settlement Agreement has been carefully crafted to address the allegations of wrongdoing, to offer reasonable amends to the Commission and the public, and to take appropriate steps to prevent a repeat of the problems that occurred here. As such, the Settlement Agreement is reasonable in light of the whole record, consonant with the public interest, and should be approved under Rule 12.1(d).
Our action here is not inconsistent with D.08-07-046 and D.09-06-052, where we declined to adopt a general rate proceeding settlement in which SDG&E and the Southern California Gas Company promised to make certain charitable contributions. As noted in D.09-06-052, amounts related to charitable contributions must be excluded from authorized rates. Accordingly, in that ratesetting proceeding we declined to adopt a settlement requiring corporate charitable contributions, noting that the Commission does not, as part of its ratemaking responsibilities, interject itself into utility management decisions regarding corporate philanthropy. However, that decision also noted that different public interest considerations apply when considering a settlement in a merger proceeding. 16 Similarly, different considerations apply to charitable contributions included in settlement of an alleged Rule 1.1 violation in a transmission siting case. A Rule 1.1 violation harms the public, not just the utility's ratepayers in their capacity as ratepayers, as it undermines the integrity of the Commission's procedures. Thus, broader issues of public interest are relevant here. Accordingly, it is appropriate to include in a settlement of these alleged violations charitable contributions that serve the broader public interest.
The Settlement Agreement substantially meets the established standard for all-party settlements. SDG&E and CPSD, the settlement proponents, are the only parties to Phase 3 and have had full opportunity to represent their respective interests. Furthermore, in this proceeding CPSD has represented the public interest in maintaining the integrity of the Commission's processes. As discussed, above, the Settlement Agreement is consistent with prior Commission decisions and we are unaware of any conflict with other law. The Settlement Agreement's terms detail SDG&E's payment and remedial obligations and how it is to discharge them. However, in order to provide the Commission with sufficient information to monitor SDG&E's performance under the terms of the Settlement Agreement, we will require SDG&E to report to the Commission on the status of its performance, as set forth in the Ordering Paragraphs. We also clarify here that we understand that all of the requirements set forth in the Settlement Agreement's Paragraph 3, entitled "Professional Responsibility Class," shall be met within the one year time frame provided in that paragraph, including, but not limited to, participation in the class by SDG&E's Directors and Officers.
Based on the rationale and clarification above and on the reporting requirements set forth in the Ordering Paragraphs, the parties' joint motion should be granted and the Settlement Agreement should be approved.
10 San Diego Gas & Electric, 46 CPUC 2d 538 (1992) [partial settlement of SDG&E general rate case issues, supported by all parties, approved on basis of a four-factor test adopted by the decision].
11 Settlement Agreement, Paragraph 4 at 4-5.
12 Joint Motion at 5.
13 These charitable contributions (1) mitigate economic hardships arising from the payment of utility bills and (2) provide disaster relief assistance. The later is germane to the issues in this case, as various parties to Phases 1 and 2 were concerned about the possibility that certain power line locations might result in fires in the future.
14 43 CPUC2d 498.
15 73 CPUC2d 754.
16 D.09-06-052, slip op. at 4, n.6.
