CPUC can't force SoCalGas to disclose shareholder data, court says

An appellate court panel overturned part of a California Public Utilities Commission resolution that sought to compel Southern California Gas Co. to turn over shareholder data for an investigation of allegations that it funded and orchestrated a special interest group masquerading as a grassroots organization.

In a unanimous decision published Jan. 6, 2nd District Court of Appeal Justice Victoria G. Chaney wrote that the investor-owned utility's shareholder data was protected by the company's First Amendment rights of association. Justices Helen I. Bendix and Frances Rothschild concurred. Southern California Gas Company v. Public Utilities Commission of the State of California, B310811(Cal. App. 2nd Dist., filed Jan. 6, 2023).

Gibson, Dunn & Crutcher LLP partner Julian W. Poon argued the case. With him on the briefs were partner Michael H. Dore and associate attorneys Andrew T. Brown, Daniel M. Rubin, and Matthew N. Ball.

Citing the landmark 1958 case of NAACP v. Alabama, Chaney wrote, "Compelled disclosure of affiliation with groups engaged in advocacy may constitute as effective a restraint on freedom of association as [other] forms of governmental action." National Ass'n for the Advancement of Colored People v. Alabama ex rel. Patterson, 357 U.S. 449, 2 L. Ed. 2d 1488, 78 S. Ct. 1163 (1958).

The issue before the panel stemmed from the Sierra Club's opposition to a motion filed by an association called Californians for Balanced Energy Solutions (C4BES) to obtain party status, with the Sierra Club alleging that C4BES was founded and funded by the utility to push its agenda. The commission in 2019 launched an investigation into those claims and sought to ascertain the extent to which the gas company used ratepayer funds to advocate for anti-decarbonization positions. The commission submitted data requests and a subpoena for information concerning the financing of the utility's activities and access to its accounting system.

The company maintained that information about its political activities that were fully shareholder funded was neither responsive to the commission's request nor subject to its oversight, and to turn it over would have a chilling effect on its investors' activities. The gas company moved in May 2020 to quash or stay the subpoena to allow it to implement software to exclude material that it deemed protected by attorney-client privilege.

The commission responded a month later with a motion for contempt and monetary sanctions.

It issued a resolution in December 2020 rejecting the gas company's assertion that data requests would have a chilling effect on its First Amendment rights of association, and ordered the gas company to comply with the regulator's discovery requests.

The appellate court granted the gas company's request for a writ of review of the commission's resolution, and allowed several entities to submit amicus briefs.

"Based on the record of that proceeding, there was no transparency as to whether the Sierra Club's allegation was correct or, if it was, whether C4BES was funded by SCG's ratepayers as opposed to shareholders," Chaney wrote in the opinion.

The Sierra Club and nonprofit consumer rights organizations Consumer Watchdog and Public Citizen filed amicus briefs on behalf of the utilities commission.

"As a general matter, we are very concerned about the increasing tendency of companies trying to use the First Amendment as a shield for effective government regulation of activities," Scott Nelson, an attorney with Public Citizen, commented on Monday.

"Our concern is if the commission wasn't entitled to look behind the company's allocation of expenditures, it couldn't really verify that the company was in fact only using shareholder funds and not using ratepayer funds," Nelson continued. "The court disagreed with that and basically said the commission can't look further unless it has more evidence that ratepayer funds were being used."

Gas Company officials did not respond to requests for comment.