Discussion

In this decision, we consider imposing new contracting rules on the respondent energy utilities, with the exception of Lodi and Wild Goose. In a later phase, we will consider the implications of these policies as they related to all other respondent utilities, some of whom claim that special circumstances apply to their companies. We note that in D.04-04-038, the list of respondent utilities was reduced to eliminate, among others, all of the smaller regulated energy utilities. This order does not apply to them.

It is long established that this Commission has broad authority to oversee California jurisdictional utilities. This authority extends to our duty to prevent utilities from passing on unreasonable costs for materials and services to ratepayers. General Telephone Co. v. PUC (1983) 34 Cal.3d 817, 824. Our regulatory authority extends to the manner in which the utility provides services to the ratepayers. Id. At 827. Thus in General Telephone, the Commission's authority to regulate competitive bidding requirements was upheld, recognizing the Commission's broad grant of authority to regulate utility practices in order to guarantee adequate service and benefit to the ratepayer. We agree with SCDCL that the utilities' reliance on Pacific Telephone & Telegraph Co. v. PUC (1950) 34 Cal.2d 822 is misplaced. As the California Supreme Court found in General Telephone, the continuing validity of Pacific Telephone & Telegraph is much in doubt and it certainly does not control in this case given the broad sweep of this Commission's authority confirmed by General Telephone and its progeny.

Similarly, Gay Law Students Assoc. v. Pacific Telephone & Telegraph Co. (1979) 24 Cal.3d 458 provides no basis for preventing the exercise of this Commission's regulatory authority over the payment of prevailing wages or the use of PLAs by jurisdictional utilities. In Gay Law Students the California Supreme Court allowed regulation of the utility's managerial conduct at issue and further limited the reach of Pacific Telephone by refusing to read Pacific Telephone to remove utility labor and employment policies from PUC authority. 24 Cal.3d at 477 (fn.11). Similarly, the court in General Telephone narrowed the reach of Gay Law Students, discussing it in the context of cases limiting intervention in utility management to much narrower circumstances. General Telephone, 34 Cal.3d at 825-26. Verizon itself notes that Pacific Telephone's primary holding has been eroded (Reply comments, page 6, fn. 20) as indeed it has been narrowed virtually into extinction.

As discussed in section 4, above, this Commission's broad statutory authority under Public Utilities Code Section 701 and its specific statutory authority to ensure the well-being of utility employees as well as ratepayers and the general public pursuant to Public utilities Code Section 451 provides additional authority for the adoption of utility contracting rules.

Moreover, the California Supreme Court has repeatedly recognized the benefits to the public, as well as to the specific employees, conferred by the use of prevailing wage laws in California. In Lusardi Construction Co. v. Aubry (1992) 1 Cal.4^th 976, the Court detailed the benefits resulting from the use of prevailing wages. In that analysis the Court not only focused on the benefits obtained by employees covered by prevailing wages and communities benefiting from such covered employees. The Court noted also that the overall purpose of the prevailing wage laws is "to benefit the public through the superior efficiency of well-paid employees." Lusardi Construction, 1 Cal.4^th at 987. Thus, General Telephone and Lusardi Construction combine to instruct us that the Commission's broad authority to ensure adequate service and protect the ratepayer and the public interest are consistent with California labor law goals that also benefit the public. This regulatory authority does not fall within the increasingly narrow band of "invasion of management" prerogatives as contemplated in the older case law cited by utility respondents.

Here, the payment of prevailing wages and PLAs would affect utility customers by reducing the likelihood of project delays on key and critical energy, water and telecommunications infrastructure development. They would promote efficiency during the project construction and more certainty as to project completion, all of which promote system reliability and more certainty as to the costs assumed by utility ratepayers. The studies in our record also demonstrate that prevailing wage requirements increases the supply of well- trained and productive California workers available to work on utility projects. This is critical, as California faces significant infrastructure maintenance and development needs in our hybrid energy markets, our rapidly changing telecommunications markets and in our straining-at-the-seams water markets.

Moreover, SCDCL has made a showing that the payment of prevailing wages promotes a more efficient and skilled workforce, reducing cost overruns, construction delays and injuries and associated ratepayer liabilities on construction projects. No utility respondents have argued that the payment of prevailing wages will increase construction costs, or otherwise harm ratepayers. SCDCL has submitted studies showing that the opposite is true -- that the payment of prevailing wages does not increase construction costs and that in some instances the payment of prevailing wage to highly skilled and efficient workers have lowered construction costs compared to projects that have not used prevailing wages. (SCDCL Exhibits C, E and G).

The utilities argue that this Commission cannot develop new rules in the absence of evidence that a problem exists. To the contrary, this Commission has a continuing duty to protect the ratepayer and the public. Part of that duty requires the provision of adequate utility service, which may require this Commission to take affirmative steps to improve the accrual of ratepayer benefits and not simply prevent harm to the ratepayer. The Commission in this quasi-legislative rulemaking has the authority to develop rules that will further the policies and goals of California utility and labor law without waiting for problems to manifest. Our discussion in section 4, above, refers to many of the proceedings in which the Commission has exercised its well-settled authority to adopt new rules without waiting for problems to fester and become wide-spread.

The California courts have consistently recognized governmental agencies' ability to promote statutory and policy goals without waiting for problems to develop. In Domar 9 Cal.4^th at 174, 36 Cal.Rptr.2d 521, 885 the court upheld the discretion of the public agency to mandate minority/women outreach programs "despite the lack of empirical evidence" that in the absence of such mandated outreach problems would arise. The agency at issue was entitled to deference in its policymaking as long as that policy was otherwise consistent with its authority and with California law. Similarly, in Assoc. Builders and Contractors, Inc. v. San Francisco Airports Comn. (1999) 21 Cal. 4^th 352 the California Supreme Court held that the local governmental agency "was not required to seek evidence of past labor strife at the airport, or await future labor unrest, before bargaining for a no-strike agreement designed to avoid costly delays in the completion of the project." Id. At 376. The utility parties proffer no rebuttal to SCDCL's studies and data as to the benefits of the payment of prevailing wage and the use of project labor agreements in utility construction. But even if the utilities had submitted evidence, this Commission can properly weigh the benefits and costs and take affirmative steps to enhance ratepayer benefits through the use of such mechanisms without waiting for problems to occur on critically needed infrastructure projects within the jurisdiction of our regulatory authority.

Of course, those mechanisms must otherwise be lawful. Thus, the utility respondents' main challenge to SCDCL's request rests on a legal analysis that federal law preempts or bars this Commission from imposing a prevailing wage requirement as a state minimum labor standard. The utilities rely on Chamber of Commerce v. Bragdon, 64 F.3d 497 (9^th Cir. 1995) to argue that the National Labor Relations Act preempts state requirements in this area and thus that this Commission may not require the payment of prevailing wages on utility construction and maintenance projects.

The reliance on Bragdon is misplaced, as Bragdon has almost entirely been superseded by later Ninth Circuit Decisions, including Dillingham v. Sonoma County,190 F. 3d 1034 (9^th Cir.1999) ("Dillingham II"), where the Ninth Circuit held that the NRLA did not preempt a requirement that contractors on California Public Works Projects employ apprentices from state-approved apprenticeship programs. In Dillingham II the Ninth Circuit explained that "[m]inimum labor standards do not affect the collective bargaining process because minimum labor standards treat all workers - union and non-union-equally and neither encourage nor discourage the collective bargaining process." Dillingham II, 190 F.3d at 1040-1041. Thus, long after Bragdon the United State Supreme Court and the Ninth Circuit have settled that the imposition of California state minimum labor standards escape preemption by the only federal laws upon which the utilities have relied -- or can rely -- in this case.

The utilities in their comments argue that Bragdon is still good law and that the distinction between the rules promulgated here and those found valid in Dillingham II lies in the fact that there the Court was assessing apprenticeship standards and here the question is the requirement of minimum labor standards. This distinction is without a difference. In Dillingham II the Court focused instead on whether Congress preserved state regulatory power in the arena - in that case in the regulation of apprenticeship standards. The utilities acknowledge this focus in their analysis of Dillingham II: "Congress has not intended to leave the area of apprenticeship standards unregulated because federal law unequivocally permits regulation of apprenticeship standards." Joint Comments of Verizon and Pacific Bell on Commissioner Lynch's Draft Decision at 10, quoting Dillingham, 190 F.3d at 1039. Thus, we must look to congressional intent in preserving a state role in utility regulation, as the Dillingham II court analyzed whether Congress preserved a state role in apprenticeship regulation.

In the arena of utility regulation, Congress affirmatively preserved all state power that could constitutionally be exercised under the Commerce Clause. Congress reserved to the states all of the authority that the states then enjoyed in the passage of the Federal Power Act. In fact, Congress explicitly and unequivocally included a savings clause to make clear the states' continuing regulatory authority. 16 U.S.C. 824(a). See Connecticut Light & Power Co. v. Federal Power Com'n., 324 U.S. 515, 529-30 (1945). Moreover, Congress has explicitly preserved a role for state regulation of telecommunications companies in the Telecommunications Act of 1996. We need not analyze Congressional intent in that arena as we do not today apply these rules to telecommunications companies.

Thus, this Commission need only examine whether setting minimum wage requirements for use in utility construction contracts also constitutes a state minimum labor standard which would escape federal preemption under Dillingham and its progeny. The utilities attempt to conflate the issue of congressional intent to preempt, as discussed above, with the minimum labor standard analysis set forth by Dillingham II. As SCDCL sets forth in their comments, two separate bases exist for this Commission's valid exercise of its authority and the rules promulgated today meet each basis. Whether a requirement to pay prevailing wages constitutes a minimum labor standard that the Ninth Circuit and California courts have found permissible and not preempted is a distinct and separate inquiry from whether Congress contemplated a state regulatory role in the arena regulated.

A review of relevant recent case law establishes that such wage requirements do constitute permissible state minimum labor standards. California courts are clear that prevailing wage laws constitute minimum labor standards that are not only beneficial but are also not subject to preemption under federal law. People v. Hwang (1994) 25 Cal.App.4^th 1168. The Ninth Circuit has recently settled that setting minimum wages for state-registered apprentices, when working on private construction projects, constitutes a state minimum labor standard that is not preempted by the NLRA. Assoc. Builders and Contractors of Southern California, Inc. v. Nunn, 356 F.3d 979, 986-991 (9^th Cir. 2004). Nunn and the Ninth Circuit caselaw on which Nunn is based show that Bragdon has little remaining vitality. If Bragdon were still good law, the Ninth Circuit would not have reached the decisions it did in Dillingham II and Nunn.

The utilities' reliance on the Nunn court's distinction that the regulation in Bragdon affected all private construction work while the regulation in Dillingham II did not is inapposite. Here the rules we promulgate affect only construction work performed for certain regulated utilities, an arena constitutionally within this Commission's mandate to regulate.

It is well-settled that a utility functions as a hybrid entity and not merely as any other private company. First, the California Constitution, Art. XII, sec. 3, provides broad regulatory authority over public utilities. The California Supreme Court has recognized the different status and treatment of public utilities. "[T]he nature of the California regulatory scheme demonstrates that the state generally expects a public utility to conduct its affairs more like a governmental entity than like a private corporation." Gay Law Students, 24 Cal. 3d at 469-70. Moreover, public utilities enjoy special powers not available to private corporations, in part because of their inherently regulated status which treats them as operating more like a public entity than an exclusively private entity. See Barham v. Southern California Edison Co., (1999) 74 Cal.App.4th 744, 753 (for purposes of inverse condemnation, the courts hold public utilities to the standards imposed on public entities.) Thus, even if Bragdon survives as good law, the utilities regulated by the Commission pursuant to its constitutional mandate are not "totally private" entities as those covered by the regulation at issue in Bragdon.

Our constitutional authority serves further to distinguish the actions we take today from the actions considered by the court in Bragdon. The constitutional authority of local governments is not in any way comparable to the powers of the Legislature under Art. XII, Section 3. The Commission has broad authority as provided by the Legislature to enact these rules, a power not as clearly within the pruview of the local government in Bragdon.

Setting minimum wage requirements neither attempts "to regulate conduct which is either arguably protected or prohibited by the NLRA [,]" Dillingham II, 190 F.3d at 1040 (which would trigger Garmon preemption) nor does it interfere "in activity which Congress intended to be unregulated [,]" Contract Services Network, Inc. v. Aubry, 62 F.3d 294, 298 (9^th Cir. 1995) (which would trigger Machinists preemption). Here, prevailing wages would be paid to the employees of all utility contractors whether those workers were union members or not members of any union. See Hwang, 25 Cal.App.4^th at 1182 (prevailing wage laws "protect union and non-union employees alike"). Moreover, we have already discussed the benefits that accrue from the use of prevailing wages on construction projects.

SCE argues that a prevailing wage requirement will force all utility companies to pay union wage rates. This is factually inaccurate. See Nunn, 356 F.3d at 989-90. Moreover, SCE's discussion of Labor Code sec. 1720(a)(1) is irrelevant because this statute does not prohibit the Commission's promulgation of new rules to regulate the actions of regulated utilities.

The utility parties argue that this Commission would somehow impermissibly interfere in the already-established Department of Industrial Relations prevailing wage determinations or, alternatively, that the process of setting prevailing wages would be unduly cumbersome. Both concerns are misplaced. By requiring the payment of prevailing wages on utility construction projects (a practice that Southern California Edison notes it already follows) the appropriate state standards setting and enforcement authorities would ensure compliance. Utilities merely would require the payment of prevailing wages in their construction bid packages and contract documents. Upon request, utilities would provide that information compliance data to the Commission. The normal and already - available enforcement mechanisms - and the utilities' obligations under Rule 1 of our rules of practice and procedure - would provide all the enforcement necessary without the creation of any additional processes or requirements. Thus, the development of this simple requirement, using existing and well-settled determination and enforcement mechanisms of our sister agencies and the legal process, will provide ratepayer access to the benefits described not only by the data submitted by SCDCL but also as detailed in California statutes and in California Supreme Court decisions concerning the use of prevailing wage requirements in California.