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Eng v. Edison International

United States District Court, S.D. California

May 5, 2017

HAROLD ENG, individually and on behalf of all others similarly situated, et al, Plaintiffs,



         Before the Court is the Motion to Dismiss Plaintiffs' Second Amended Complaint (“SAC”) filed by Defendants Edison International, Southern California Edison's (“SCE”)[1] parent company, Theodore F. Craver, Jr., William James Scilacci, and Ron Litzinger. (Docket No. 40.) For the following reasons, the Court GRANTS Defendants' motion to dismiss, but gives Plaintiffs leave to file an amended pleading.


         I. SONGS Settlement[3]

         SCE is a partial owner of the San Onofre Nuclear Generating Station (“SONGS”). In January 2012, following installation of two replacement steam generators, one of the new steam generator tubes leaked. SONGS was shut down. The California Public Utility Commission (“CPUC”) initiated an investigation, the Order Instituting Investigation (Oil), in October 2012. Part of the investigation focused on how to allocate the costs of the outage and eventual shut down as between SCE, San Diego Gas & Electric (“SDG&E”), and consumers.

         A settlement was reached between SCE, SDG&E, The Utility Reform Network (“TURN”), and the Office of Ratepayer Advocates (“ORA”) in March 2014.[4] Over the course of the next few months, SCE made numerous public statements about the settlement. On March 20, 2014, SCE filed a Form 8-K with the SEC announcing the settlement. On March 27, 2014, SCE made a number of statements regarding the settlement. SCE issued a press release formally announcing that a settlement had been reached and indicated that “[i]f implemented, the Settlement Agreement will constitute a complete and final resolution of the [Oil] and related proceedings regarding” SONGS. (SAC f 80.) The same day, SCE held a conference call in which Craver, Edison's Chief Executive Officer, stated that the settlement “resolves all matters related to the [Oil] involving” SONGS. (SAC 81.) On the same call, Litzinger, President of SCE at the time, in responding to an inquiry from an analyst about CPUC's involvement in the settlement, stated that the CPUC commissioners “were not involved [in the settlement process] other than encouraging settlement publically.” (SAC 1 82.) Similarly, at a May 28, 2014 conference, Craver indicated that the settlement was primarily negotiated with consumer groups. (SAC 197.)

         The CPUC Administrative Law Judge (“ALJ”) overseeing the investigation held an evidentiary hearing on May 14, 2014 on the settlement that included the parties to the settlement, objectors, CPUC President Michael Peevey, and other commissioners. In response to a question from an objector about his communications with commissioners, Litzinger stated that “[t]he only ex parte communication [he] had with Commissioners was following the Phase I Proposed Decision. And it was noticed.” (SAC 1 95.) Similar to its public statements at the time the settlement was reached, SCE's Form 10-Qs, filed on April 29, 2014, July 31, 2014, and October 28, 2014, state that implementing the settlement “will constitute a complete and final resolution of the CPUC's Oil and related proceedings regarding” SONGS shut down and settlement. (SAC ¶¶ 90, 99, 107.) On October 28, 2014, during a conference call, Craver, when asked about ex parte communications with reference to recent issues at PG&E, stated that SCE was making sure personnel were aware of expected proper conduct, they had a compliance program and training, and were redoubling efforts on awareness. (SAC 1108.)

         Following the parties' approval of a modification recommended by the CPUC, the amended settlement was approved by the CPUC on November 20, 2014. SCE issued a press release the same day describing the settlement as “resolving all issues regarding the public utility commission investigation.” (SAC 1112.)

         II. CPUC Investigation and Unreported Ex Parte Communications

         Peevey's home was searched on January 27, 2015. Notes about the settlement were found in a desk drawer, although the contents were not disclosed to the CPUC and the public until April 2015. On February 2, 2015, SCE adopted a broader reporting policy regarding ex parte communications with CPUC decisionmakers. On February 9, 2015, SCE filed a notice of ex parte communication for a communication that took place on March 26, 2013 at an industry conference in Warsaw, Poland at a meeting that included SCE Vice President of External Relations Stephen Pickett, Peevey, and Edward Randolph, CPUC Director of Energy. Pickett claimed at the time it was a one-sided communication in which he only listened to Peevey, took notes that Peevey kept, and did not engage. SCE claimed in the Notice that, based on new information from Pickett, Pickett may have crossed into a substantive communication in reacting to at least one of Peevey's comments.

         SCE's February 24, 2015 Form 10-K reiterated the prior statements about the settlement resolving issues regarding SONGS. It also disclosed the late-filed notice of ex parte communication as to the Warsaw meeting, noted the involved executive and CPUC president were retired, and acknowledged the Alliance for Nuclear Responsibility's (“A4NR”) request for CPUC to open an investigation of the ex parte communications. The same day, Craver characterized the CPUC rules on ex parte communications as being geared to disclosure to provide equal access to decision makers, not prohibiting communications entirely, and stated “fundamentally, when we have proceedings before the Commission, we follow the rules.” (SAC 1122.)

         On April 15, 2015, the CPUC ordered SCE to turn over all documents related to the settlement between March 2013 and November 2014. On April 17, 2015, ORA sought return of $648 million to customers and TURN indicated it would urge the CPUC to assess the maximum sanction against SCE and apply it to reducing customer rates. Documents were produced on April 29, 2015 and included an April 1, 2013 memo detailing “Elements of a SONGS Deal” from Pickett to Defendants Craver, Litzinger, and Scilacci. (SAC 132.) Plaintiff also alleges that other emails from 2013 and 2014 reflect a general knowledge at SCE of employee contacts with the CPUC that were not reported as ex parte communications.

         On June 24, 2015, TURN called for the 2014 Settlement to be overturned or reopened. On August 5, 2015, the ALJ issued a lengthy Order to Show Cause why not to impose sanctions for SCE's unreported reportable ex parte communications with the CPUC. The Order discussed SCE's conduct and identified ten violations of the CPUC's rules on ex parte communications. This was followed by issuance of a proposed ruling and a final decision by the CPUC on December 3, 2015 to sanction SCE $16.7 million for failing to report eight reportable ex parte communications.

         On May 9, 2016, the CPUC “reopened the record to review the 2014 Settlement Agreement against [the CPUC's] standards for approving settlements ... in light of the [CPUC's] December 2015 Decision fining [SCE] for failing to disclose ex parte communications ...

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