Ruby LLC
Ruby LLC opposes TURN's proposal to open a new phase of this proceeding to consider changes to the Commission's affiliate rules. Ruby does not believe this proceeding is an appropriate forum to consider changes to the Commission's rules. If the Commission is inclined to reconsider its affiliate rules, Ruby LLC recommends that a rulemaking proceeding be opened.
We share Reid and TURN's concern about the conflict of interest that arose when PG&E's Corporation was offered the option to acquire an ownership stake in the Ruby Pipeline while PG&E was negotiating with Ruby LLC. At the time, it would have been in the interest of PG&E Corporation's shareholders for Ruby to obtain the highest price for service provided to PG&E, while it would have been in the interest of PG&E's ratepayers to obtain the lowest possible price.
However, we decline to adopt the remedies proposed by Reid and TURN. There is no evidence that PG&E Corporation attempted to influence the negotiations between PG&E and Ruby LLC, or that PG&E strived for anything but the best possible deal for its ratepayers.83 To the contrary, PG&E reached what TURN calls a "great deal" for ratepayers.84
Although there was a conflict of interest, our rules governing affiliate transactions are designed to prevent such conflicts from harming either ratepayers or competitors. Our rules explicitly prohibit a holding company from attempting to influence a utility in way that encourages the utility to provide an affiliate with preferential treatment, an unfair competitive advantage, or non-public information.85 If PG&E's parent company had violated our rules by attempting to influence PG&E to favor the Ruby Pipeline over other competitors, we would not hesitate to deny A.07-12-021, levy monetary penalties, and impose other sanctions.
Our affiliate-transaction rules also require utilities to obtain services from affiliates through an open and competitive bidding process.86 In addition, electric utilities must use independent evaluators to review and assess solicitations for energy resources that could result in affiliate transactions.87 If PG&E Corporation had exercised its option, these rules would have been triggered retroactive to the date that PG&E Corporation acquired its option. In that case, the Commission would have little choice but to deny PG&E's proposed gas transportation arrangements with the Ruby Pipeline because these rules would have been violated. The end result is that any potential harm to ratepayers or competitors from the conflict of interest would be avoided.
We are confident that our existing rules for affiliate transactions adequately protect ratepayers and competitors, which makes it unnecessary to adopt Reid's proposed remedies. In addition, Reid's proposal to prohibit PG&E from employing any person who is also employed by PG&E Corporation casts too wide a net because it would include clerical employees and others who could not possibly influence affiliate transactions.88
Similarly, Reid's proposals to exclude from PG&E's URMC anybody who is employed by PG&E Corporation or who is a member of PG&E Corporations RPC is already addressed by D.06-12-029, Affiliate Rules V.E and V.G, which strike a careful balance between the need to keep utilities and affiliate separate with the need for senior officer oversight and corporate governance. These Rules recognize that, absent a showing of specific conflict, holding company officials must have access to all material information about their subsidiaries' businesses in order for them to certify the company's financial statements and internal controls in compliance with state and federal law, including the Sarbanes-Oxley Act of 2002.89 At the same time, the Affiliate Rules V.E and V.G prohibit the use of the URMC and RPC as a means to transfer confidential information from the utility to an affiliate, to create opportunities for preferential treatment or unfair competitive advantage, or to provide opportunities for cross-subsidization of affiliates. The composition of the URMC and RPC is consistent with the needs of corporate governance and Commission requirements.
We also decline to adopt TURN's proposal to open another phase of this proceeding to consider changes to the affiliate rules. We conclude that our existing affiliate transaction rules adequately address the issues raised by Reid and TURN, thereby making TURN's recommendation unnecessary.
83 Exhibit PG&E-6, pp. 2-1 to 2-5; and Exhibit PG&E-6, p. 1-3, lines 14-31.
84 TURN Opening Brief, p. 1.
85 D.06-12-026, Appendix A-3, Rule II.C.
86 D.06-12-029, Appendix A.3, Rule III.B.
87 D.04 12-048, pp. 128 - 129.
88 The Commission's affiliate-transaction rules already prohibit a utility and its affiliates from jointly employing the same personnel except in narrowly specified circumstances. (D.06-12-013, Appendix A-3, Rule V.G.)
89 D.06-12-029, p. 20.
