S. Cal. Gas Co. v. Pub. Utilities Comm'n

87 Cal.App.5th 324

303 Cal.Rptr.3d 500

SOUTHERN CALIFORNIA GAS COMPANY, Petitioner,

v.PUBLIC UTILITIES COMMISSION, Respondent.

B310811

Court of Appeal, Second District, Division 1, California.

Filed January 6, 2023

As Modified on Denial of Rehearing February 3, 2023

Gibson, Dunn & Crutcher, Julian W. Poon, Michael H. Dore, Andrew T. Brown, Los Angeles, Daniel M. Rubin and Matthew N. Ball for Petitioner.

John A. Pacheco, San Diego, for San Diego Gas & Electric Company as Amicus Curiae on behalf of Petitioner.

Arocles Aguilar, Mary McKenzie, Christine Hammond, Dale Holzschuh, San Francisco, Carrie G. Pratt and Edward Moldavsky for Respondent.

Earthjustice, Matthew Vespa, Rebecca Barker and Sara Gersen for Sierra Club as Amicus Curiae on behalf of Respondent.

Jerry Flanagan and Scott L. Nelson for Public Citizen and Consumer Watchdog as Amici Curiae on behalf of Respondent.

CHANEY, J.

These original proceedings involve efforts by the Public Utilities Commission (PUC or the Commission) to discover whether the political activities of Southern California Gas Company (SCG) are funded by SCG's shareholders, which is permissible, or ratepayers, which is not. The Commission propounded several discovery requests (called "Data Requests") on SCG, and when SCG failed fully to comply, moved to compel further responses that ultimately resulted in an order to comply or face substantial penalties. SCG seeks a writ of mandate directing the Commission to rescind its order on the ground that the discovery requests infringe on SCG's First Amendment rights.

We grant the petition. SCG has shown that disclosure of the requested information will impact its First Amendment rights, and the Commission failed to show that its interest in determining whether SCG's political efforts are impermissibly funded outweighs that impact.

BACKGROUND

The California Constitution authorizes the Legislature to exercise control over companies delivering heat or power to the public, and authorizes the PUC to "establish rules, examine records, issue subpoenas, ... take testimony, punish for contempt, and prescribe a uniform system of accounts for all public utilities subject to its jurisdiction." ( Cal. Const., art. XII, § 6.)

In 1985, the Legislature authorized the creation of a division within the Commission, later named the Public Advocate's Office (PAO, the Office, or CalAdvocates), "to represent and advocate on behalf of the interests of public utility customers and subscribers within the jurisdiction of the commission." (Stats. 2018, ch. 51, § 39.) The PAO's goal is "to obtain the lowest possible rate for service consistent with reliable and safe service levels." ( Pub. Util. Code, § 309.5, subd. (a).)¹

To serve this goal, the PAO is authorized to "compel the production or disclosure of any information it deems necessary to perform its duties from any entity regulated by the commission." ( § 309.5, subd. (e).) Any objection to a PAO request for production is adjudicated by the PUC. (Ibid .)

SCG, an investor-owned utility that provides natural gas to the public in several Southern California counties, is subject to Commission regulation and PAO discovery inquiries.

As an investor-owned utility, SCG differentiates between "ratepayer funds" ("above-the-line accounts") and "shareholder funds" ("below-the-line accounts"). Activities or contracts are preliminarily booked to an above-the-line or below-the-line account, with the final ratemaking decision settled at a "general rate case" proceeding (GRC). At a GRC, SCG generally seeks cost recovery from ratepayers only for expenditures in its above-the-line accounts. Expenditures in SCG's below-the-line accounts (i.e., shareholder-funded accounts) are not recovered from ratepayers. In this manner, SCG may use its 100 percent-shareholder-funded accounts to, among other things, advocate for natural gas, renewable gas, and other clean-fuel (e.g., hydrogen) solutions.

A. PAO Discovery Inquiry

1. Rulemaking 19-01-011 proceeding

On January 31, 2019, the PUC initiated an unrelated proceeding, designated "Rulemaking 19-01-011," regarding building decarbonization. In that proceeding, an association known as Californians for Balanced Energy Solutions (C4BES), which presents itself as "a coalition of natural and renewable natural gas users," moved to obtain party status.² The Sierra Club opposed the motion, alleging that C4BES was actually an "astroturfing" group founded and funded by SCG.³

2. Discovery requests before the ALJ

As a result of the Sierra Club's allegation in Rulemaking 19-01-011 that C4BES was an astroturfing group funded by SCG, the PAO undertook to investigate the allegation, and in May 2019, initiated a discovery inquiry into the extent to which SCG used ratepayer funds to support putative grassroots organizations advocating for SCG's anti-decarbonization positions. The discovery inquiry, conducted outside any formal proceeding, comprised more than a dozen data requests. We will focus on three data requests and one subpoena.

a. July 2019 Data Request

On July 19, 2019, the PAO issued a data request to SCG, Request No. "CalAdvocates-SC-SCG-2019-04," concerning the financing of SCG's activities.⁴

SCG responded by producing a Work Order Authorization, which in turn contained a Balanced Energy Internal Order which accounted for shareholder contributions to fund the work order. The point of SCG's production was to show that it did not use ratepayer contributions to fund astroturf groups.

However, SCG redacted a name or signature from its response, and the Work Order Authorization itself indicated the work was billed to a ratepayer-funded account (Federal Energy Regulatory Commission (FERC) account 920.0). (SCG later claimed this was an accounting error, which it corrected to FERC 426.4.) The PAO moved the Commission's administrative law judge (ALJ) to compel a further response, which the ALJ granted.

b. August 2019 Data Request

On August 13, 2019, the PAO served SCG with a request for all contracts covered by the Work Order Authorization, Request No. "CalAdvocates-SC-SCG-2019-05." In response, SCG produced contracts funded jointly by ratepayers and shareholders, but objected to producing C4BES-related contracts funded solely by shareholders on the ground that to produce them would violate its rights of free speech and association. The PAO moved the ALJ to compel further responses.

(1) ALJ November 1, 2019 Ruling

On November 1, 2019, the ALJ granted the PAO's motion to compel further responses to the August 13 request, ordered SCG to produce requested documents within two business days, and denied SCG's request for a two-week stay to afford it an opportunity to appeal the ruling.⁵

(2) SCG November 1, 2019 Motion to Stay

On November 1, 2019, SCG moved to reconsider and stay enforcement these rulings.

c. May 2020 Data Requests and Subpoena

(1) May 1 Request

On May 1, 2020, as part of its continuing inquiry into SCG's use of ratepayer monies to fund an anti-decarbonization campaign through astroturf organizations, the PAO served Request No. "CalAdvocates-TB-SCG-2020-03" on SCG, seeking remote access to SCG's System Applications & Products accounting system. This accounting system is a large database that includes sensitive financial and nonfinancial material related to SCG's transactions, including vendor invoices, third-party payments, workers-compensation payments, employee reimbursements, and other attachments relating to approximately 2,000 vendors and other parties. The PAO's request included a request for "information regarding all contracts, invoices, and payments made to third parties," and a request to train and assist a PAO auditor to access SCG's accounts.

(2) Subpoena

On May 5, 2020, the PAO served a subpoena on SCG, commanding the utility to provide PAO "staff and consultants" with the same information as set forth in Request No. CalAdvocates-TB-SCG-2020-03, including "access to all databases associated in any manner with the company's accounting systems," and "both on-site and remote access ... at the times and locations requested by [PAO]," "no later than three business days after service," i.e., by May 8. The focus was on determining, for example, what accounts were used to track shareholder-funded activity, what payments are made from those accounts, and what invoices were submitted in support of those payments. The subpoena was supported with a PAO declaration that SCG's "responses to data requests in the investigation have been incomplete and untimely."

(3) May 8 Request

On May 8, 2020, the PAO demanded the production of data contained in SCG's accounting system for all "100% shareholder funded" accounts that "house[ ] costs for activities related to influencing public opinion on decarbonization policies," and "for lobbying activities related to decarbonization policies" (the May 8 data request).

SCG responded by proposing that "access to attachments and invoices [in the accounting system] would be shut off [by default] but could be requested by [PAO's] auditor," at which time "[a]n attorney would then be able to quickly review requested invoices and provide nonprivileged ... materials to the auditor." The PAO rejected SCG's proposal.

SCG also offered to provide access to approximately 96 percent of the information related to its accounts—shielding only constitutionally protected and/or privileged material—provided that the PAO agreed to a non-disclosure agreement or confidentiality protocol. The PAO rejected this offer as well.

On May 18, 2020, SCG produced fixed copies of two years’ worth of its accounting data (2016-2017) for accounts specifically identified by the PAO.

B. Proceedings before the Full Commission

1. December 2, 2019 and May 22, 2020 SCG Motion for Reconsideration/Appeal and Motion to File Declarations Under Seal

On December 2, 2019, SCG appealed from and moved the full Commission to reconsider the ALJ's November 1, 2019 ruling. On May 22, 2020, SCG supplemented this motion with (1) a separate motion, and ...