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TO: Dr. Mark Toney, Executive Director of The Utility Reform Network FROM: Kelly Foley DATE: March 10, 2015 Dear Dr. Toney, ‘Thank you for reaching out to me regarding the review of the rules and practices governing Ex Parte communications at the California Public Utilities Commission (CPUC). Thave spent my career working as an attorney in the utility sector. My experience includes 6 years as an attorney with Pacific Gas & Electric Company and over 6 years at Sempra Energy. I have also represented the Vote Solar Initiative and served as an advisor at the California Energy Commission. I am currently employed as the General Counsel of California Clean Power. I write you, however, as a concerned energy industry professional and am not representing any organization L write with the hope that the information I provide in this letter supplements your review of Ex Parte Communications and the CPUC Rule Making Process. Specifically, I witnessed a direct intervention in a utility solicitation by then-CPUC President Michael Peevey to assist a private generating company in obtaining a costly and unneeded power purchase contract with San Diego Gas & Electric Company (SDG&E). Although some of the facts surrounding President Peevey's intervention were disclosed in the course of litigation regarding the approval of the contract, I believe this may be the first time the underlying intervention has been discussed subsequent to the original occurrence. In the Spring of 2003, I was an attorney assigned to represent Sempra Energy Resources in an SDG&E request for proposals (RFP) seeking new local electric generating capacity that would be available by 2007. Sempra Energy Resources, which is an unregulated affiliate of SDG&E, planned to submit a bid into the RFP for the sale of the proposed 500 MW gas-fired Palomar Energy Center in Escondido (Palomar). Palomar was expected to come online in 2006. During the course of the RFP, Calpine Corporation sought to secure a long-term power purchase agreement (PPA) with SDG&E for a 590 MW gas-fired power plant under development in Otay Mesa (Otay Mesa). The Otay Mesa plant had a 2008 expected completion date, over a year later than the RFP requirement, and also required considerable costly transmission upgrades. Because SDG&E’s RFP identified a need for less than 300 MW by 2007, it seemed clear that either Palomar or Otay Mesa, but not both, would be selected by SDG&E. Because Palomar was further along in the development process and did not require costly transmission upgrades, Palomar was deemed the superior least cost/best fit project under SDG&E’s bidding rules. Because its 2008 completion date was well past the time when new resources were originally needed, Otay Mesa did not technically qualify as a conforming RFP bid. Sempra Energy Resources filed a number of pleadings at the CPUC making these points. In the Summer of 2003, in the middle of the controversy over the choice between Palomar and Otay Mesa, I participated in a conference call that included representatives of Sempra Energy Resources, SDG&E, Calpine and the CPUC. I do not know how the call was initiated and did not know the call would occur until a few minutes before it started. Participants on the call included CPUC President Michael Peevey and CPUC Administrative Law Judge Carol Brown. President Peevey ran the call. During the call President Peevey made the following points: First, he said that if SDG&E wanted to buy Palomar from its affiliate, SDG&E would also need to make a deal with Calpine for Otay Mesa. If SDG&E did not reach an agreement with Calpine, the CPUC, based on utility affiliate transaction concerns, would not approve the proposal to acquire Palomar. Second, he directed Sempra Energy Resources to cease making CPUC filings that were critical of the Otay Mesa project. I was the attomey who had been responsible for making these critical filings on behalf of Sempra Energy Resources. Third, he indicated that SDG&E"s concerns regarding the lack of need for both projects and the need for a significant new transmission line to interconnect Otay Mesa would be resolved to SDG&E’s satisfaction. Tam unaware of the filing of any ex parte notice or any other publi the conference call. disclosure of the events of After this call, SDG&E executed agreements with Otay Mesa and Palomar, and submitted them for CPUC approval as part of a package. When SDG&E’s proposal to acquire Palomar and execute a PPA with Otay Mesa was brought before the Commission later that year, ALJ Carol Brown, who had been on that original call, was assigned to oversee evidentiary hearings and write a proposed decision. Although there was substantial opposition to the Otay Mesa contract from consumer groups, and evidence in the record that CPUC President Peevey had intervened in the solicitation process to assist Calpine, ALJ Carol Brown wrote a proposed decision supporting SDG&E’s proposal for both plants that was approved by the CPUC on a 3-2 vote, with CPUC President Michael Peevey providing the decisive vote in favor of approval Clearly, the events I deseribe above raise problematic concerns. But I write you not to pass judgment on any of the conference call participants, including the CPUC. Rather, | bring this up twelve years after the fact to help demonstrate that the more recent revelations pointing to the dire need for CPUC reform are not new, surprising or limited to a few circumstances or specific participants, For years I (and I believe many of my colleagues) have well known that regulatory loopholes were being exploited but, sadly, I also believe that it was so common place as to seem normal. This is not an excuse for my or anyone else’s past silence, but rather a contextual explanation To the extent that I can assist you in your effort to ensure CPUC transparency, accountability and oversight in the future, I suggest at least two potential reforms. First, a ban on ex-parte communications in ratesetting proceedings would have made this type of conversation, and other similar discussions that were noticed in the proceeding, unequivocally impermissible. Second, any Commissioner who directs a utility to enter into specific commercial deals should be disqualified from voting on whether the deal is reasonable. In the case of Otay Mesa, efforts to have CPUC President Peevey disqualified based on bias were denied because, unfortunately, there are no clear rules prohibiting decision makers from engaging in this kind of behavior and then voting on the resultant outcome. Very Truly Yours, Silly Joby Kelly Foley