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Court of Appeal Again Rejects CPUC Intervenor Compensation Award to TURN and CforAT

In the United States, parties to legal proceedings bear their own attorney’s fees. Generally, a court may award attorney’s fees only where a statute or an agreement amongst the parties provides for an award of attorney’s fees.

In 1979, the California Supreme Court held that notwithstanding these limitations, the California Public Utilities Commission, based on “equitable” considerations, could award attorney’s fees in quasi-judicial (adjudication) proceedings before the Commission but that it could not award such fees in rate proceedings (or rulemakings).[1] In 1984, the Legislature responded by abrogating the distinction between the two types of proceedings and permitting the Commission to award fees (“intervenor compensation”) in many, if not most, formal matters before the Commission.

In the ensuing 35 years, intervenor compensation awards have grown in number and size and have formed the principal funding source for many groups that intervene as parties in proceedings before the Commission.

The Commission’s application of the 1984 statute (Section 1801-1807 of the Public Utilities Code) has recently drawn the attention of the Court of Appeal in the First Appellate District. On March 13, 2018, the Court of Appeal (First District, Division Four) again rejected an award of intervenor compensation to The Utility Reform Network (“TURN”) and the Center for Accessible Technology (“CforAT”).

Background

TURN and CforAT sought compensation for their efforts in connection with AT&T’s proposed acquisition of T-Mobile, then a subsidiary of Deutsche Telekom. After AT&T announced the proposed transaction in 2011, a number of state and federal agencies, including the Commission (I.11-06-009), opened proceedings to consider the effects of the merger. The Commission held workshops and other public forums in which TURN and CforAT participated and offered expert economic analysis. The Commission intended to employ the results of its investigation as a basis for submitting comments to the Federal Communications Commission (“FCC”) which was considering whether to approve the merger. Just prior to doing so, however, AT&T and T-Mobile (1) called off the transaction and (2) moved to dismiss the CPUC proceeding.

The Commission granted the motion to dismiss. Its order, however, was not a summarily stated dismissal. The Commission (1) noted that AT&T sought dismissal “after approximately six months of concentrated effort to evaluate the proposed transaction, undertaken in good faith by Commission staff and parties participating in this proceeding”, (2) required AT&T to pay for the cost of the public workshops and (3)invited requests for intervenor compensation even though not substantive order had been issued with respect to the proposed merger. TURN and CforAT accepted that invitation. Both sought, and were awarded, intervenor compensation with respect to the dismissed proceeding.

New Cingular I

New Cingular Wireless (AT&T) sought appellate review arguing that the intervenors could not have made a “substantial contribution”[2] to a Commission decision because no decision on the merit’s was issued.

In 2016, the Court of Appeal disagreed with AT&T stating that:

“New Cingular’s position runs contrary to the statutory language contemplating that even a “procedural recommendation[]” (§ 1802, subd. (i)) if adopted by the CPUC in a “final order or decision” (§ 1804, subd. (c)) will justify an award of compensation. Here,…the Final Decision and Order affirms all interim decisions of the ALJ and Assigned Commissioner. Some of the procedural positions taken by TURN are reflected in formal interim rulings, and some others, although not memorialized in any written order, were effectively followed. What is important, though, is not the form in which positions taken by TURN were adopted, but that the CPUC decided to adopt some position TURN advocated. By proceeding through discovery to the brink of preparing comments on the merits, the CPUC implicitly decided to reject the argument that it was powerless to proceed; and because it treated the proceeding, procedurally, as a rate-setting matter, it implicitly decided to follow TURN’s classification recommendation. These were not trivial procedural matters in the overall context of the proceeding.[3]

While rejecting AT&T’s position that no award could be made with respect to an order of dismissal, the Court nonetheless vacated the awards of intervener compensation. The Court stated that:

“Although the awards to TURN and CforAT are entitled to considerable deference, the bottom line under both Yamaha and Ramirez is that, even when an agency is to be given wide-berth in interpreting a statute, we defer only to the extent we are prepared to accept “‘the validity of its reasoning, its consistency with earlier and later pronouncements, and all those factors which give it power to persuade, if lacking power to control.’”…. In this case, the CPUC’s explanation of the legal basis for the awards at issue falls short when measured against that bottom-line standard. To begin with, the Final Decision and Order framed its intervenor compensation eligibility determination in terms so broad as to suggest that compensation was due simply as an “acknowledgment” of participation in Docket No. I11-06-009, without any consideration given to the statutory requisites for awarding compensation.

 

New Cingular II

On remand, The Commission again awarded intervenor compensation to TURN and CforAT. While the Commission modified its rationale for doing so, the awards were in the same amounts awarded in the order vacated by New Cingular Wireless I.

Again, AT&T sought appellate review and, last month, again the order was vacated. The Court’s decision was initially unpublished which would have prevented it from being cited as authority. While the Court ultimately elected to publish New Cingular II, one gleans from the opinion a view by the Court that it contains nothing new, that the Court already said all it thought it needed to express in New Cingular Wireless I, which set forth “limitations” the Commission again exceeded. The Court stated that:

On remand, as expected ,the CPUC jettisoned its harmonization rationale, but seems to have focused on the fact we confirmed it has discretion to award intervenors’ compensation under…[Sections 1801-1807] while ignoring the limitations we identified. We said that, on remand, the CPUC needed to “anchor its rationale in its own factual findings and show how those findings fit into the statutory language” while avoiding the justification of fees and costs for reasons that “produce[] a range of discretion going well beyond anything claimed in . . . [any] prior administrative decisions since 1992.”

The Remand Decisions fail to bridge this gap in the record, choosing instead to patch it over with a new rationale that suffers from the same flaw we identified before. The CPUC has now taken the view that, so long as positions advocated by TURN and CforAT “would have” materially influenced a decision on the merits in Docket. No. I11-06-009—had there been one—an award of 100 percent of the claimed fees and costs is reasonable… In doing so, it makes no serious attempt to link with any specificity the fees and costs incurred to any of the many interim rulings, both procedural and substantive, that the record shows were adopted as part of the final resolution of Docket No. I11-06-009.[4]

Again, the matter was remanded to the Commission “for further proceedings consistent with New Cingular [I] and with this opinion.” Ironically, the day before the Court issued its opinion in New Cingular II, TURN filed a notice with the Commission seeking intervenor compensation for its activity in New Cingular I. No proceedings have yet been scheduled with regard to the remand directed by New Cingular II.

 

Why the Commission Receives Less Deference from the Courts in Intervenor Compensation Matters Than in Other Proceedings.

As a general matter, Courts will broadly defer to the Commission’s construction of statutes the Commission is charged with administering.[5] Moreover, that broad deference has even been afforded in a case involving construction of a term in the statutes governing intervenor compensation. [6] As New Cingular I indicates, however:

“even when an agency is to be given wide-berth in interpreting a statute, we defer only to the extent we are prepared to accept ‘“the validity of its reasoning, its consistency with earlier and later pronouncements, and all those factors which give it power to persuade, if lacking power to control.’”

In New Cingular I, the court pointed out that Sections 1801-1807 (the intervenor compensation statues) constitute a set of “explicit, limited fee rules”. Accordingly, “(i)t is not enough for the CPUC simply to demonstrate that its proffered interpretation bears a reasonable relation to the language and purposes of Article 5 [Sections 1801-1807] under Greyhound …”[7] The Court pointed out that applying Greyhound deference to “explicit” rules enacted “as part of a detailed statutory scheme defining the CPUC’s jurisdiction in this area…would effectively swallow the statutory scheme in whole, rendering its limitations subordinate to the CPUC’s interpretation of the statute.”

The Court’s recognition of Sections 1801-1807 as “explicit, limited fee rules” is consistent with a decision of the California Supreme Court issued shortly after the Legislature enacted Sections 1801-1807 in 1984. The Court held that by enacting specific rules (Sections 1801-1807), the Legislature “foreclosed the notion that additional implied authority exists.”[8] The Court also rejected TURN’s suggestion that “independent authority for the commission’s fee rules might derive from article XII, section 2 of the California Constitution, which permits the commission, “subject to statute and due process,” to “establish its own procedures”; the Court observed that “(a)gain, the statutory limitation is SB 4 (Section 1801-1807) itself.” Those “limitations” bind the Commission.

The scope of one of those limitations – that the Commission may only direct “public utilities” to pay compensation to intervenors[9]– is presently before the Commission. An application for rehearing pending at the Commission challenges the lawfulness of a proposed[10] new Rule 17.5 which would require:

“every applicant seeking a Certificate of Public Convenience and Necessity(CPCN) through an initial application or a transfer of an existing CPCN shall post a bond or equivalent security instrument in a form and amount determined by the presiding Administrative Law Judge to be sufficient to guarantee payment of intervenor compensation awarded to any intervenors who make substantial contributions to the proceeding.”

The Rule posits the possibility that an unsuccessful applicant for a CPCN-an entity that never becomes a “public utility”- would nonetheless be required to pay intervenor compensation. The question is not whether the new Rule makes sense from a policy perspective. The question is whether it constitutes an attempt to exercise “implied authority” in a manner contrary to “explicit rules.” In other words, no one can question that some inequity arises when an intervenor that successfully opposed a CPCN application is left without compensation. Is that inequity, one the Commission can redress though an amendment to its rules? Or, is the solution one the Legislature must fashion?[11] The Commission is expected to address this issue in the very near future.

 

Final Policy Question

While Courts leave policy questions to the Legislature, it is worth remembering that utilities do not pay intervenor compensation. Their ratepayers do.[12] For large utilities the award barely shows up in rates. For small companies, however, the impact on ratepayers can be significant. In one case, each ratepayer of a small water company was required to pay in excess of $100 to fund an intervenor to advance a position most of the ratepayers opposed.[13] At some point, the Legislature may wish to revisit how intervenor compensation is funded.

 

______________________________
1 Consumers Lobby Against Monopolies (“CLAM”), Towards Utility Rate Normalization v. Public Utilities Commission, 25 Cal. 3d 891 (1979).

2 Public Utilities Code Section 1803(a).

3 New Cingular Wireless PCS v. Public Utilities Commission,[3] (The Utility Reform Network et al., Real Parties in Interest) 246 Cal. App. 4th 784; 2016 Cal. App. LEXIS 298 (April 19, 2016).

4 New Cingular Wireless PCS, LLC v. Public Utilities Commission; The Utility Reform Network et al., Real Parties in Interest 2018 Cal. App. Unpub. LEXIS 1705.

5 Greyhound Lines, Inc. v Public Utilities Commission, 68 Cal. 2d 406 (1968).

6 Southern California Edison v Public Utilities Commission, 117 Cal. App. 4th 1039 (2004).

7 Greyhound Lines, Inc. v Public Utilities Commission, 68 Cal. 2d 406 (1968).

8 Southern California Gas Company, Pacific Telephone & Telegraph Co. and PG&E v. Public Utilities Commission, 38 Cal. 3d 64 (1985), 695 P.2d 186.

9 Section 1807.

10 While a Commission decision adopted Rule 17.5, it does not appear in the Commission’s Rules of Practice and Procedure on the Commission website.

11 Courts often recognize that even the most glaring inequity is often one that lies beyond a judicial remedy. See, County of Inyo v. Public Utilities Commission., 26 Cal. 3d 154, 167 (1980), 604 P.2d 566:

“Although petitioner eloquently describes the inequity of subjecting the residents of Inyo County to the fixing of water rates by the LADWP over whom they have neither control nor check, and although we hold the Constitution enables the Legislature to confer jurisdiction upon the PUC to correct this situation, we can find no present statute or decision which sanctions PUC power to exercise a bifurcated rate regulation leaving the LADWP the power to fix water rates for residents of the city and delegating to the PUC the power to fix water rates for nonresidents.”

12 Section 1807 provides in part that “an award paid by a public utility … shall be allowed by the commission as an expense for the purpose of establishing rates of the public utility by way of a dollar-for-dollar adjustment … so that the amount of the award shall be fully recovered within one year from the date of the award”.

13 See Application of James L. and Marianne S. Orvis to sell, and Aspen Forest Investment Co., LLC, to buy, Five Thousand (5,000) Shares of the Common Stock of the water system known as Lake Alpine Water Company, Decision 16-09-026 (September 15, 2016). Award of $76,484.46 borne by 500 ratepayers.

 

Tom MacBride
April 25, 2018
Tmacbride@goodinmacbride.com

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