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.
We recognize 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.70 To the contrary, PG&E reached what TURN calls a "great deal" for ratepayers.71
Still, we are troubled that PG&E would place itself in a position where its shareholders' interests were at odds with those of its ratepayers. Although the situation in this proceeding ended happily for ratepayers, that may not be the case in the future. To protect ratepayers from conflicts of interest in the future, we will henceforth prohibit PG&E from negotiating, without prior authorization from the Commission, for gas supplies or gas-transportation services, including interstate pipeline services, with entities in which unregulated affiliates of PG&E, including PG&E Corporation, have an have an option to acquire an equity interest, including, as was the case here, an outstanding offer to acquire an option for an equity interest.72 This restriction is consistent with the D.06-12-029, Appendix A-3, Rule III.B.A, which requires utilities to obtain prior Commission approval before engaging in resource procurement transactions with affiliates. If PG&E is authorized to proceed with negotiations, the affiliate transaction rules in D.06-12-029, Appendix A-3, will apply to the negotiations and any subsequent agreement for as long as the option remains outstanding.
Our adopted restriction on certain transactions 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.
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 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 2002.73 The composition of the URMC and RPC are consistent with this need and Commission guidance.
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 the restriction on certain affiliate transactions adopted by today's decision adequately addresses the issues raised by Reid and TURN, thereby making TURN's recommendation moot.
70 Exhibit PG&E-6, pp. 2-1 to 2-5; and Exhibit PG&E-6, p. 1-3, lines 14-31.
71 TURN Opening Brief, p. 1.
72 Because the record of this proceeding is limited to the Ruby Pipeline, we decline at this time to extend this prohibition to PG&E's procurement of goods and services other than gas supplies and gas transportation services.
73 D.06-12-029, p. 20.
