The Hearsay Rule Matters In Calif. PUC Proceedings

by Nossaman LLP

Originally Published on Law360.

On Feb. 5, 2014, the California Court of Appeal for the First District issued its decision in The Utility Reform Network v. Public Utilities Commission (TURN v. PUC), in which the court established a clear rule that hearsay evidence, the truth of which is disputed, cannot support a finding of fact by the California Public Utilities Commission. The case concerned an application by Pacific Gas and Electric Company seeking commission approval to acquire a new 586 megawatt gas-fired power plant in Oakley, Calif.

Details of the Case

To support its application, PG&E was required by the assigned commissioner's scoping memorandum to show that the Oakley project was needed "to meet a specific, unique reliability issue." PG&E submitted evidence from the California Independent System Operator in the form of a declaration and a petition filed with a federal agency.

However, PG&E did not present testimony from anyone at CAISO and, therefore, its evidence from CAISO was hearsay. Nonetheless, the commission ruled that there was substantial evidence to support a finding of need for the Oakley project in Decision 12-12-035, and denied rehearing by Decision 13-04-032.

Although the procedural and factual background of the case is complex, the issue before the court boiled down to one key question: whether PG&E's hearsay evidence was sufficient to support the commission's finding that there was a need for the Oakley project. The court answered this question in the negative:

[T]he commission's finding of need is unsupported by substantial evidence, because it relies on uncorroborated hearsay materials the truth of which is disputed and which do not come within any exception to the hearsay rule. Under established California law, such uncorroborated hearsay evidence does not constitute substantial evidence to support an administrative agency's finding of fact. Because the remaining evidence in the record fails to support the commission's finding of need, the decisions must be annulled.

(TURN v. PUC (2014), 223 Cal. App.4th 945, 949.)

The court examined the standards governing the admission and weight of hearsay evidence in commission proceedings to determine whether it was proper for the commission to have based its finding of fact solely on hearsay evidence. The commission's procedures provide that hearsay evidence is admissible in its proceedings. (Rule 13.6(a).)

The court did not challenge this procedure, but noted that admissibility is not the same thing as substantiality (citing Gregory v. State Board of Control (1999), 73 Cal.App.4th 584, 597). The court pointed to several commission decisions that have addressed the weight that may be placed on hearsay evidence and that have held that hearsay evidence may be relied upon if substantiated by other credible evidence.

Based on these decisions, the court held that the commission has followed the "residuum rule," a rule applied by California courts to reviews of administrative agency decisions, whereby the "substantial evidence supporting an agency's decision must consist of at least ‘a residuum of legally admissible evidence'." (TURN, 223 Cal.App.4th at 960-61.)

The court thus concluded that under California law as well as the commission's prior decisions, "uncorroborated hearsay cannot constitute substantial evidence to support an agency's decision," absent specific statutory authorization not present here. (Id. at 962.)

In applying that rule to the case at hand, the court concluded that regardless of the "reliability" of the CAISO hearsay evidence, that evidence could not support a finding of fact without corroboration. The court found other evidentiary material inadequate to corroborate PG&E's hearsay evidence, and that such uncorroborated but disputed hearsay was insufficient to support a commission finding of fact. (Id. at 963-66.)

Implications of TURN v. CPUC for Practice Before the Commission

The Court of Appeal's decision in TURN v. CPUC is significant because investor-owned utilities and other parties frequently support requests for commission action by the use of hearsay evidence. It remains appropriate to submit hearsay evidence in commission proceedings "if a responsible person would rely upon it in the conduct of serious affairs." (Landmark Communications (1999), 84 CPUC 2d 698, 701.)

Going forward, however, applicants seeking commission approvals or authorizations should be careful to corroborate such hearsay evidence with prepared testimony or sworn declarations of experts who are available to testify, so as to ensure that the commission may properly find that there is substantial evidence to support findings of fact.

Moreover, when the assigned commissioner's scoping memorandum defines the issues to be addressed in a commission proceeding, it is essential that the corroborating evidence be directly relevant to issues that are within the defined scope of the proceeding, and also to the contentions the hearsay information is intended to support.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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