IV. SB 1488 Requires a Critical Examination of Information Proposed for Confidential Treatment But Does Not Prohibit All Use of Confidential Information
A. Parties' Positions on Whether SB 1488 Allows Use of Confidential Information
The IOUs by and large take the position that SB 1488 has no effect on existing law because it merely requires the Commission to "examine its practices regarding confidential information." According to the IOUs, the Commission correctly allows them confidential treatment of many types of data, and therefore its practices already ensure meaningful public participation and open decision making. As Pacific Gas and Electric Company (PG&E) observes, "on its face, SB 1488 requires the Commission only to conduct an examination; it leaves the results of the examination and any changes to the Commission's practices to the discretion of the Commission. The Commission should exercise that discretion free of any influence that may be suggested by the legislative history of SB 1488 as originally proposed."2 Thus, according to PG&E, earlier versions of SB 1488 that proposed to make all utility information open to the public unless the utility proved need for confidentiality are irrelevant to the current interpretation of the legislation. According to PG&E, the conclusion we should draw from the change in the legislation is that the Legislature decided not to require all utility information to be open to the public.3
The Utility Reform Network (TURN) largely supports the IOUs' position on confidentiality. TURN's witness, Michael Florio, testified that the current process strikes the adequate balance between openness and protection of ratepayers from market manipulation:
Q: (by ALJ Thomas) Do you believe that the Commission can act consistently with Senate Bill 1488, which is the bill that we are trying to implement in this rulemaking, and still maintain as confidential large swath of utility information?
A: Yes. I think it can. SB 1488 doesn't require anything except that the Commission consider its practices. And as initially introduced, it would have required dramatic changes. And, you know, we certainly indicated to the author's office that we thought that was ill advised. And I don't recall which hearings we participated in, to what extent. But we definitely made it our view known that the current process is working and should be largely left alone. And I think the bill, the metamorphoses that the bill went through in the legislation is reflective of that, that there is no mandate to change 454.5(g) or anything else.
Q: Do you think, as things currently stand, the Commission is furthering open decision making in the way it is allowing utilities to protect their information?
A: Well, it is a balancing act. . . . I think the Commission should avoid redacted decisions to the greatest extent possible. But I think it can rely on confidential information in coming up with public decisions. And it is going to be a balancing act every time one of these very sensitive matters gets litigated.4
TURN also notes that the term "open decision making" is generally associated with the provisions of the Bagley-Keene Open Meeting Act (Gov't Code §§ 11120-11132) that require most meetings of state agencies to be open and public. TURN believes that this Commission should strive to avoid redacted decisions to the maximum extent possible, but as long as the Commission meets in public session when issuing its decisions, Bagley-Keene is not violated.5
Similarly, the Division of Ratepayer Advocates (DRA) does not support requiring IOUs to make greater disclosure of electric procurement data, although it recommends further study of the issue:
SB 1488 . . . does not require the Investor-Owned Utilities (IOUs) to produce any information in a different manner from the way they have produced it in the past until the Commission examines its practices and finds a need to do so. Thus, for example, only if the Commission finds that the manner in which the IOUs have produced information to support parties' bid formulation impaired meaningful public participation in the past, will the Commission require some modification of that practice. The record of this proceeding at present does not provide the Commission with the basis for making this finding.6
DRA also recognizes that the Commission must protect California consumers from market manipulation, noting that SB 1488's requirement of "meaningful public participation" "must be constrained [as] . . . necessary to protect the IOUs and their ratepayers from unnecessary exposure to market risks."7
Moreover, DRA asserts that only businesses engaged in marketing electricity - and not consumers - are seeking further disclosure: "DRA is not aware of any instance where a member of the public other than a market participant complained about the limitations placed on disclosure of utility information. Thus, there appears to be no need for additional transparency to make Commission proceedings clearer to non-marketers."8
On the other end of the spectrum, non-IOUs in the business of selling electricity very much want access to IOU records. These parties claim SB 1488's mandate that the Commission "ensure" open decision making and meaningful public participation requires us to deny most requests for confidentiality. The Cogeneration Association of California and the Energy Producers and Users Coalition (CAC/EPUC), for example, contend that, "For open decision making to be ensured, all parties must have equal access to all information used as bases for decisions and all parties must have been able to meaningfully participate; if information is to be treated confidentially due to market sensitivity or trade secret status, then equal access to that information by all interested parties through the use of reasonable Protective Orders is necessary."9 Under this interpretation, according to CAC/EPUC,
· The majority of electric procurement information must be publicly disclosed;
· Information proven to be market sensitive or trade secret or both must be disclosed to all parties equally under a reasonable protective order; and
· Information that the IOUs categorically refuse to disclose to all parties equally, even pursuant to a reasonable protective order, simply cannot be used in procurement proceedings or to guide procurement decisions.10
In CAC/EPUC's view, use of confidential information also violates their constitutional due process rights and rights to confront witnesses. "At a minimum, meaningful participation means adherence to constitutional requirements of due process and fundamental fairness in terms of parties' participation in Commission proceedings. This includes in evidentiary hearing settings the absolute due process rights, such as the right to cross-examination."11
Similarly, the Independent Energy Producers Association (IEP) claims that, "The Legislature was not looking for the Commission to give a nod toward meaningful participation and openness or to go through the motions of procedural reform without significantly altering its practices."12 "Proceedings should be open to the public. The public cannot participate, in a meaningful way or otherwise, if it is locked out of the hearings where the record for decision is developed."13
The Alliance for Retail Energy Markets (AReM) and Constellation NewEnergy, Inc. (CNE) focus on confidentiality of their own ESP data, rather than on access to IOU data. With regard to their own ESP data, AReM and CNE express views that mirror the IOUs' positions on IOU data. Thus, AReM/CNE believe SB 1488 does not mandate further openness:
SB 1488 did not alter or modify existing law. Therefore, contrary to what some parties may argue or suggest, SB 1488 is not relevant to the Commission's determination as to whether any particular information it receives from an LSE [load serving entity] or other entity is protected or should be kept confidential. Rather, the Commission's charge under SB 1488 is to make sure that, notwithstanding the confidentiality due to certain information under existing law, interested parties have adequate information to participate in the Commission's proceedings in a meaningful manner and the public record contains enough information to explain the Commission's actions. That is all SB 1488 requires or, indeed, allows.14
B. Discussion - SB 1488 Requires A Critical Examination of Information Proposed for Confidential Treatment But Does Not Prohibit All Use of Confidential Information
We believe the correct interpretation of SB 1488 lies somewhere between the two extremes set forth above. We do not believe the Legislature intended that we accept without critical analysis utilities' (and other entities') assertions that their data are confidential. It is not enough, for example, that utilities redact large portions of their procurement plans and that we allow those redactions by default. Rather, we must examine different types of data critically, and determine whether utility assertions about confidentiality have merit.
By the same token, we acknowledge that SB 1488 is significantly watered down from its original version. As originally drafted, SB 1488 "would change the presumption to favor public disclosure by providing that all information furnished by a public utility... shall be made public unless a provision of the [Public Records Act] or the CPUC requires it to be withheld."15 The final version of the statute does not explicitly favor public disclosure. Rather, the guiding principle established by SB 1488 is that the Commission must act carefully before allowing utilities to redact data. We must act as more than a rubber stamp for a party seeking confidentiality.
Indeed, the statute requires not "universal public participation," but rather "meaningful public participation." We find that this language permits some use of confidential data, where there is an overriding statutory requirement of protection. The statute makes clear where those statutory requirements lie by quoting § 454.5(g) and 583. (We discuss these provisions in detail below.) By citing to statutes that restrict public access to records, we find an acknowledgement by the Legislature that in some cases confidential treatment is required by statute.
A similar interpretation applies to SB 1488's reference to open decision making. We do not interpret this term to preclude any reliance on confidential information, if a statute (such as § 454.5(g)) requires confidentiality, or gives the Commission discretion to keep information confidential. The Legislature easily could have prohibited all use of confidential information if that were its intent. SB 1488 directs the Commission to examine the issue of confidentiality, not to outlaw all protections.
Allowing confidential treatment for records that deserve protection under statute does not "[lock parties] out of the hearings where the record for decision is developed,"16 as IEP claims. Nothing in this decision prohibits parties from participating in our proceedings. Rather, our decision acknowledges that the Legislature has made provisions for confidential treatment of certain documents, and recognizes that we are not at liberty to ignore those protections. There are ways to deal with confidential information during the course of hearings that do not prohibit participation or remove participants from the hearing room: e.g., reference on the record to a page/line in a document without identifying its text; description of the information at a high level without revealing details; sealing of exhibits but not the transcript, and other methods. We intend to use these methods when confidentiality is required by statute. While we do not ban all use of closed hearing rooms, such action should occur rarely, and when all of the foregoing alternatives fail.
We also agree with TURN that the Bagley-Keene Open Meeting Act does not preclude us from sealing data that statute otherwise requires be confidential. Bagley-Keene relates primarily to the requirement that we meet in public session when issuing our decisions.
We cannot disregard California's recent history in carrying out our duty to implement SB 1488. Californians are still paying for the energy crisis that commenced in 2000. As the Federal Energy Regulatory Commission (FERC) found in its Final Report on Price Manipulation in Western Markets, Docket No. PA02-2-000 (March 26, 2003) (FERC Report), "Over [May-October 2000], electric prices rose to levels often in excess of $500/MWh [megawatt hour] even though natural gas prices would have supported electric prices of only about $75/MWh." The FERC concluded that, "Such high bids and clearing prices far exceed the level needed to recover the capacity costs of generation" and that, "the excessively elevated bid prices appear to be solely an attempt to raise prices." By contrast, "in 1998 and 1999 (California's restructuring commenced operation on April 1, 1998), the California spot market produced average annual wholesale energy prices of $29 and $31/MWh, respectively."17
The arguments of parties seeking enhanced access to IOU records are based mostly on the premise that public disclosure will send the correct signals to generators about what generation to construct in the future and make it easier for them to bid on IOU contracts.
Calpine, for example, claims it needs all IOU data in order to determine when and where to build power plants: "making more procurement related information available - particularly information related to supply and demand - will encourage the entry of new, more efficient generation into the market which will increase the overall efficiency of available supply and, in turn, put downward pressure on prices over the long-term."18
IEP focuses on having IOU information in order to bid on utility Requests for Offers/Proposal (RFOs or RFPs) for procurement: "fairness requires that all potential bidders should have a reasonable and fair opportunity to compete with each other and with utility-sponsored projects." IEP concedes, however, that "a solicitation is not exactly a Commission proceeding. . . ."19 Similarly, CAC/EPUC claim that, "While SB 1488 may not on its face require public disclosure of information in the RFP process, greater information dissemination could lead to more cost effective procurement."
There is no evidence that in enacting SB 1488 the Legislature was concerned with enhancing the competitive posture of generators. While we accept that the release of more information on utility procurement could lead to more efficient investment decisions, we must guard against the release of information that can lead to more opportunities for market manipulation. We seek to strike a balance between the rights of the public to open decision making, particularly with regard to the expenditure of ratepayer money, and the realization of market efficiencies through better information flow on the one hand, and the prevention of market manipulation on the other.
SCE testified that in a market such as the IOU procurement bidding process, one-sided release of information will result in higher, not lower, prices for ratepayers in most situations:
The RFP process is a competitive process where, generally, the IOUs are attempting to purchase the best fit power at the lowest price, and generators are attempting to sell at the highest possible price. This situation is perhaps the clearest real life example of Dr. Plott's experiments, where the release of data would be one-sided. As Dr. Plott explained,
[T]he behavior of bidders at auction is sensitive to their beliefs about the behavior of other bidders, and those central beliefs are coordinated by the announcement of the R[esidual] N[et] S[hort].20
. . .
[L]ower cost bids are increased to near the highest bid when the (RNS) is large. With a large amount to be procured, the bidder knows that bids just below an expected price will be accepted, and so the bidder raises the prices on the low cost units to just below the safe bidding levels. The bidder wants to get as high a price as possible without exposure to the risk of losing the bid to a competitor. Accordingly, the profit margins on the low cost units increase dramatically.21
We believe the most realistic interpretation of SB 1488 must take into account California's recent experience with market manipulation. Ratepayer protection requires us not only to allow meaningful input into our decision making, but also to protect consumers from market manipulation and other harm that can arise if market sensitive information is released across the board.
2 PG&E Opening Brief at 7. All citations to a party's Opening Brief are to the brief that party filed on or about February 6, 2006. All citations to a party's Reply Brief are to that party's brief filed on or about February 22, 2006.
3 See also Southern California Edison Company (SCE) Opening Brief, Feb. 6, 2006, at 4 ("In the case of SB 1488, it is clear from the plain language of the statute that it does not in any way abrogate existing protections for confidential information.").
4 RT Vol. 5, 822:8-823:9. Citations to the Reporter's Transcript (RT) in this decision show the volume, page:line(s).
5 TURN Opening Brief at 3.
6 DRA Opening Brief at 3.
7 Id. at 4.
8 Id.
9 CAC/EPUC Opening Brief at 3.
10 Id. at 2. See also Calpine PowerAmerica and Calpine Corporation (Calpine) Opening Brief at 3 ("all parties in procurement related proceedings before the Commission must have equal access to the same information and data. . . .").
11 CAC/EPUC Opening Brief at 4.
12 IEP Opening Brief at 5.
13 Id. at 6. See also Calpine Opening Brief at 4 ("'meaningful public participation and open decision making' requires - to the greatest extent possible - equal access to information for all parties.")
14 AReM/CNE Opening Brief at 7.
15 PG&E Opening Brief at 8, citing Sen. Com. on Judiciary, Analysis of Sen. Bill No. 1488 (2003-2004 Reg. Sess.) as amended March 30, 2004, p. 2. As discussed later in this decision, we do not agree with PG&E and other IOUs who claim that § 583 places the burden of proof that documents are not confidential on parties seeking disclosure.
16 IEP Opening Brief at 6.
17 FERC Report at VI-45 - VI-46 & VI-52. The FERC Report is available on the Internet at http://files.findlaw.com/news.findlaw.com/hdocs/docs/ferc/wstmrkt32603rptpt2.pdf.
18 Calpine Opening Brief at 2.
19 IEP Opening Brief at 27.
20 SCE/Plott Ex. 1 at 17:23-25.
21 Id. at 15:6-11 (emphasis added).
