With these changes, we are prepared to adopt the enforcement section of the affiliate transaction rules. Attached as Appendix A to this decision are the adopted rules. Appendix B provides a comparison of the adopted rules to the proposed rules.
The rules attached to this decision as Appendix A are reasonable.
The rules attached to this decision as Appendix A should be adopted and added to the affiliate transactions rules originally adopted in D.97-12-088.
IT IS HEREBY ORDERED that the rules attached to this decision as Appendix A are hereby adopted.
This docket is closed.
This order is effective today.
Dated ____________________, at San Francisco, California.
TABLE OF CONTENTS
Title Page
FINAL OPINION ADOPTING ENFORCEMENT RULES 2
A Ranking of Prohibitions and Remedies 3
"Traffic Ticket" Strategies 4
Higher Fines 5
Temporary Restraining Orders 9
Divestiture as a Remedy 14
Advisory Rulings 15
Amnesty 20
Changes to Specific Sections of Proposed Rule VIII 21
A. Strict Enforcement of the Rules 21
B. Standing 21
C. Procedures 23
C.1 Filing Complaints 23
C.2. Dispute Resolution Process 23
Designated Officer 23
C.2.a. Informal Resolution Period 24
C.2.c. Complaint-Specific Reporting Requirements 26
C.2.d. Commission Investigations 27
C.3. Informing the Commission Staff of the Results of Dispute
Resolution Efforts 29
C.4 Steps Taken When Informal Resolution Fails 29
C.5. Web-Based Log of Complaints 30
C.6 Consumer Services Division Procedures 31
Other Proposed Procedures 31
Further Delegation to the Executive Director 31
An Option to Avoid Seeking Informal Dispute Resolution 32
Informal Discussions Prior to Filing a Complaint 32
D. Penalties 33
D.1. Overview of Enforcement Options 33
D.1.a. Terminate any transaction that is the subject
of the complaint 34
D.1.b. Prospectively limit or restrict the amount, percentage,
or value of transactions entered into between a utility
and its affiliate(s) as a remedy for a violation of these
rules 35
Title Page
D.1.c. Assess such damages and penalties as described in
Paragraphs 2 and 3 below 36
D.1.d. Enjoin conduct in alleged violation of these Rules if the
conduct indicates a potential pattern of abuse or if the
conduct could significantly affect market decisions 36
D.1.e. Apply any other remedy available to the Commission. 36
D.1.f. Prohibit the utility from allowing its affiliate(s) to
utilize the name and logo of the utility, either on a
temporary or permanent basis. 36
D.2. Principles to Apply to the Imposition of Fines 37
D.3. Fines are paid to the General Fund 42
D.4. and D.5 Multiple Violations 42
D.6. Other Penalties or Fines 45
Conclusions 45
Finding of Fact 45
Conclusion of Law 45
FINAL ORDER 46
Appendix A - Adopted Rules
Appendix B - Comparison of Appendix A, Above, to the Originally
Proposed Rules
Extension of the rules adopted by the Commission in D.97-12-088:
VIII. Complaint Procedures and Remedies
A. The Commission shall strictly enforce these rules. Each transaction in violation of these rules shall be considered a separate occurrence.
B. Standing:
1. Any person or corporation as defined in Sections 204, 205 and 206 of the California Public Utilities Code may complain to the Commission or to a utility in writing, setting forth any act or thing done or omitted to be done by any utility or affiliate in violation or claimed violation of any rule set forth in this document.
2. "Whistleblower complaints" will be accepted and the confidentiality of complainant will be maintained until conclusion of an investigation or indefinitely, if so requested by the whistleblower. When a whistleblower requests anonymity, the Commission will continue to pursue the complaint only where it has elected to convert it into a Commission-initiated investigation. Regardless of the complainant's status, the defendant shall file a timely answer to the complaint.
C. Procedure:
1. All complaints shall be filed as formal complaints with the Commission and complainants shall provide a copy to the utility's designated officer (as described below) on the same day that the complaint is filed.
2. Each utility shall designate an Affiliate Compliance Manager who is responsible for compliance with these affiliate rules and the utility's compliance plan adopted pursuant to these rules. Such officer shall also be responsible for receiving, investigating and attempting to resolve complaints. The Affiliate Compliance Manger may, however, delegate responsibilities to other officers and employees.
a. The utility shall have 15 working days from the date the complaint is filed to investigate and attempt to resolve the complaint. The resolution process shall include a meet-and-confer session with the complainant. A Commission staff member may, upon request by the utility or the complainant, participate in such meet-and-confer sessions and shall participate in the case of a whistleblower complaint.
A party filing a complaint may seek a temporary restraining order at the time the formal complaint is filed. The defendant utility and other interested parties may file responses to a request for a temporary restraining order within 10 days of the filing of the request. An assigned commissioner or administrative law judge may shorten the period for responses, where appropriate. An assigned commissioner or administrative law judge, or the Commission shall act on the request for a temporary restraining order within 30 days, and may grant the request when: (1) the moving party is reasonably likely to prevail on the merits, and (2) a temporary restraining order relief is necessary to avoid irreparable injury, will not substantially harm other parts, and is consistent with the public interest.
A temporary restraining order issued by an assigned commissioner or administrative law judge will only stay in effect until the end of the day of the next regularly-scheduled Commission meeting at which the Commission can consider an order seeking a preliminary injunction. If the Commission declines to issue a preliminary injunction, the temporary restraining order will be immediately lifted. Whether or not a temporary restraining order or a preliminary injunction is issued, the underlying complaint may still move forward.
b. The utility shall prepare and preserve a report on each complaint, all relevant dates, companies, customers, and employees involved, and if applicable, the resolution reached, the date of the resolution and any actions taken to prevent further violations from occurring. The report shall be provided to the Commission and all parties within four weeks of the date the complaint was filed. In addition, to providing hard copies, the utility shall also provide electronic copies to the Commission and to any party providing an e-mail address.
c. The Commission may, notwithstanding any resolution reached by the utility and the complainant, convert a complaint to an investigation and determine whether the utility violated these rules, and impose any appropriate penalties under Section VIII.D. or any other remedies provided by the Commission's rules or the PU Code.
3. The utility will inform the Commission's Energy Division and Consumer Services Division of the results of this dispute resolution process. If the dispute is resolved, the utility shall inform the Commission staff of the actions taken to resolve the complaint and the date the complaint was resolved.
4. If the utility and the complainant cannot reach a resolution of the complaint, the utility it will so inform the Commission's Energy Division. It will also file an answer to the complaint within 30 days of the issuance by the Commission's Docket Office of instructions to answer the original complaint. Within 10 business days of notice of failure to resolve the complaint, Energy Division staff will meet and confer with the utility and the complainant and propose actions to resolve the complaint. Under the circumstances where the complainant and the utility cannot resolve the complaint, the Commission shall strive to resolve the complaint within 180 days of the date the instructions to answer are served on the utility.
5. The Commission shall maintain on its web page a public log of all new, pending and resolved complaints. The Commission shall update the log at least once every week. The log shall specify, at a minimum, the date the complaint was received, the specific allegations contained in the complaint, the date the complaint was resolved and the manner in which it was resolved, and a description of any similar complaints, including the resolution of such similar complaints.
6. Preliminary Discussions
a. Prior to filing a formal complaint, a potential complainant may contact the responsible utility officer and/or the Energy Division to inform them of the possible violation of the affiliate rules. If the potential complainant seeks an informal meeting with the utility to discuss the complaint, the utility shall make reasonable efforts to arrange such a meeting. Upon mutual agreement, Energy Division staff and interested parties may attend any such meeting.
b. If a potential complainant makes an informal contact with a utility regarding an alleged violation of the affiliate transaction rules, the utility officer in charge of affiliate compliance shall respond in writing to the complainant within 15 business days. The response would state whether or not the issues raised by the potential complainant require further investigation. (The potential complainant does not have to rely on the responses in deciding whether to file a formal complaint.)
D. Penalties
1. When enforcing these rules or any order of the Commission regarding these rules, the Commission may do any or all of the following:
a. Order a utility to stop doing something that violates these rules;
b. Prospectively limit or restrict the amount, percentage, or value of transactions entered into between the utility and its affiliate(s);
c. Assess fines or other penalties;
d. Prohibit the utility from allowing its affiliate(s) to utilize the name and logo of the utility, either on a temporary or a permanent basis;
e. Apply any other remedy available to the Commission.
2. Any public utility which violates a provisions of these rules is subject to a fine of not less than one dollar ($1), nor more than $500,000 for each offense. The remainder of this subsection distills the principles that the Commission has historically relied upon in assessing fines and restates them in a manner that will form the analytical foundation for future decisions in which fines are assessed. Before discussing those principles, reparations are distinguished.
a. Reparations
Reparations are not fines and conceptually should not be included in setting the amount of a fine. Reparations are refunds of excessive or discriminatory amounts collected by a public utility. PU Code § 734. The purpose is to return funds to the victim which were unlawfully collected by the public utility. Accordingly, the statute requires that all reparation amounts are paid to the victims. Unclaimed reparations generally escheat to the state, Code of Civil Procedure § 1519.5, unless equitable or other authority directs otherwise, e.g., Public Utilities Code § 394.9.
b. Fines
The purpose of a fine is to go beyond restitution to the victim and to effectively deter further violations by this perpetrator or others. For this reason, fines are paid to the State of California, rather than to victims.
Effective deterrence creates an incentive for public utilities to avoid violations. Deterrence is particularly important against violations which could result in public harm, and particularly against those where severe consequences could result. To capture these ideas, the two general factors used by the Commission in setting fines are: (1) severity of the offense and (2) conduct of the utility. These help guide the Commission in setting fines which are proportionate to the violation.
i. Severity of the Offense
The severity of the offense includes several considerations. Violations which caused actual physical harm to people or property are generally considered the most severe, with violations that threatened such harm closely following. After physical harm, economic harm is considered; that is, the amount of expense which was imposed upon the victims. Another way of measuring economic harm is the unlawful benefits gained by the public utility. Generally, the greater of these two amounts will be used in establishing the fine.
The fact that the economic harm may be difficult to quantify does not itself diminish the severity or the need for sanctions. For example, the Commission has recognized that deprivation of choice of service providers, while not necessarily imposing quantifiable economic harm, diminishes the competitive marketplace such that some form of sanction is warranted.
Many potential penalty cases before the Commission do not involve any harm to consumers but are instead violations of reporting or compliance requirements. In these cases, the harm may not be to consumers but rather to the integrity of the regulatory processes. For example, compliance with Commission directives is required of all California public utilities:
"Every public utility shall obey and comply with every order, decision, direction, or rule made or prescribed by the Commission in the matters specified in this party, or any other matter in any way relating to or affecting its business as a public utility, and shall do everything necessary or proper to secure compliance therewith by all of its officers, agents, and employees." Public Utilities Code § 702.
Such compliance is absolutely necessary to the proper functioning of the regulatory process. For this reason, disregarding a statutory or Commission directive, regardless of the effects on the public, will be accorded a high level of severity.
The number of the violations is a factor in determining the severity. A series of temporally distinct violations can suggest an on-going compliance deficiency which the public utility should have addressed after the first instance. Similarly, a widespread violation which affects a large number of consumers is a more severe offense than one which is limited in scope. For a "continuing offense," PU Code § 2108 directs the Commission to count each day as a separate offense.
ii. Conduct of the Utility
This factor recognizes the important role of the public utility's conduct in (1) preventing the violation, (2) detecting the violation, and (3) disclosing and rectifying the violation. The public utility is responsible for the acts of all its officers, agents, and employees:
"In construing and enforcing the provisions of this part relating to penalties, the act, omission, or failure of any officer, agent, or employee of any public utility, acting within the scope of his [or her] official duties or employment, shall in every case be the act, omission, or failure of such public utility." Public Utilities Code § 2109.
(1) The Utility's Actions to Prevent a Violation
Prior to a violation occurring, prudent practice requires that all public utilities take reasonable steps to ensure compliance with Commission directives. This includes becoming familiar with applicable laws and regulations, and most critically, the utility regularly reviewing its own operations to ensure full compliance. In evaluating the utility's pre-violation actions, the Commission will consider the utility's past record of compliance with Commission directives.
(2) The Utility's Actions to Detect a Violation
The Commission expects public utilities to monitor diligently their activities. Where utilities have for whatever reason failed to meet this standard, the Commission will continue to hold the utility responsible for its actions. Deliberate as opposed to inadvertent wrong-doing will be considered an aggravating factor. The Commission will also look at the management's conduct during the period in which the violation occurred to ascertain particularly the level and extent of involvement in or tolerance of the offense by management personnel. The Commission will closely scrutinize any attempts by management to attribute wrong-doing to rogue employees. Managers will be considered, absent clear evidence to the contrary to have condoned day-to-day actions by employees and agents under their supervision.
(3) The Utility's Actions to Disclose and Rectify a Violation
After a violation occurs, the Commission expects the public utility to promptly bring it to the attention of the Commission. The precise timetable that constitutes "prompt" will vary based on the nature of the violation. Violations which physically endanger the public must be immediately corrected and thereafter reported to the Commission staff. Reporting violations should be remedied at the earliest administratively feasible time.
Prompt reporting of violations furthers the public interest by allowing for expeditious correction. For this reason, steps taken by a public utility to promptly and cooperatively self-report and correct violations may be considered in assessing any penalty.
iii. Financial Resources of the Utility
Effective deterrence also requires that the Commission recognize the financial resources of the public utility in setting a fine which balances the need for deterrence with the constitutional limitations on excessive fines. Some California utilities are among the largest corporations in the United States and others are extremely modest, one-person operations. What is accounting rounding error to one company is annual revenue to another. The Commission intends to adjust fine levels to achieve the objective of deterrence, without becoming excessive, based on each utility's financial resources.
iv. Totality of the Circumstances in Furtherance of the Public Interest
Setting a fine at a level which effectively deters further unlawful conduct by the subject utility and others requires that the Commission specifically tailor the package of sanctions, including any fine, to the unique facts of the case. The Commission will review facts which tend to mitigate the harm caused by the violation as well as any facts which exacerbate the harm. In all cases, the harm will be evaluated from the perspective of the public interest.
v. The Role of Precedent
The Commission adjudicates a wide range of cases which involve sanctions, many of which are cases of first impression. As such, the outcomes of cases are not usually directly comparable. In future decisions which impose sanctions the parties and, in turn, the Commission will, however, explicitly address those previously issued decisions which involve the most reasonably comparable factual circumstances and explain any substantial differences in outcome.
3. Each violation of any provision of Sections III, IV, or V of these Rules shall count as a point against the utility. In the event that a utility accumulates three or more points, the Commission may impose a one (1) year prohibition, to go into effect immediately, on the utility entering into any transactions (including sales of any tariffed or non-tariffed services) with any of the affiliate(s) involved in such violations. In determining whether to impose this sanction, the Commission will consider the severity of the offenses and conduct of the utility under the criteria of Rules D.2.b.i and D.2.b.ii.,and the time period over which the violations occurred. In the absence of special circumstances, such sanctions will not be imposed for a single, ongoing offense and will not be imposed unless the Commission previously finds that the utility has committed such serious violations and notifies the utility prior to the third offense that another serious violation will lead to the imposition of such sanctions.
The ban will not be lifted prior to the end of one year and not until the utility demonstrates, through a filed application, that it is in compliance with all of the provisions of these rules, and specifies measures the utility has taken to prevent further violations of these rules from occurring. In the event that a utility violates a temporary affiliate transaction ban imposed by the Commission, the Commission shall impose additional penalties consistent with these rules.
4. Each violation of any provision of Section VII of these rules shall count as a point against the utility. In the event that a utility accumulates three or more points, the Commission may impose a ban on the offering of any non-tarriffed products and services for a period of one year. The use of this sanction is subject to the same limitations set forth in subsection D.3.
(END OF APPENDIX A)
