The California Public Utilities Commission (“CPUC”) is a state agency vested with considerable constitutional and statutory powers.  Historically, the CPUC has wielded these powers primarily in pursuit of its traditional regulatory duties, focusing on the fundamentals of ratesetting and public utility operations.  But in recent years, the Commission has elected to exercise its authority to advance a more aggressive agenda of social issues, including promulgating rules meant to encourage the participation of minority business enterprises in utility procurements (General Order 156).  While many regulated utilities have seen great success implementing the CPUC’s public interest-type initiatives, legal challenges to those policies have arisen.  Often, the question of what adjudicatory authority is permitted to resolve conflict must be decided before getting to the substance underlying a particular conflict.

Such was the case in PegaStaff v. Pacific Gas and Electric Company (“PegaStaff”), a lawsuit recently decided by the California Court of Appeal’s First Appellate District, in which the appellate court reversed the trial court’s grant of Pacific Gas and Electric’s (“PG&E”) motion to dismiss for lack of subject matter jurisdiction. 

At the trial court level, the Pegastaff staffing agency sued PG&E over the implementation of a tier system preferential to minority enterprises – a program put into place by PG&E in order to comply with the CPUC’s General Order 156.  PegaStaff was not a minority enterprise and so the minority enterprise program had the effect of substantially reducing PegaStaff’s provision of labor to PG&E.

The trial court determined that Public Utilities Code Section 1759, which limits the jurisdiction of trial courts to review CPUC rules and decisions, barred it from hearing the case.  The Court of Appeal, applying the 3-part test interpreting Public Utilities Code 1759 that was formulated in San Diego Gas & Electric Co. v. Superior Court(1996) 13 Cal.4th 893 (“Covalt”) and was applied in Hartwell Corp. v. Superior Court(2002) 27 Cal.4th 256 (“Hartwell”), disagreed and reversed, on the basis that Pegastaff’s superior court action against PG&E would not “interfere with or frustrate” the CPUC’s exercise of regulatory authority.  The Court of Appeal reasoned that, as in Hartwell where Public Utilities Code Section 1759 did not deprive the superior court of jurisdiction to hear claims involving water that failed to meet water quality standards, PegaStaff’s claims that PG&E’s minority enterprise program violated or were not otherwise sanctioned by the CPUC’s General Order 156 were not barred. 

CPUC-regulated utilities can take at least two things from the PegaStaff opinion.  First,PegaStaff underpins Covalt and Hartwell to the extent that Public Utilities Code Section 1759 does not operate to categorically shield CPUC-regulated utilities against superior court actions, even where the utility claims that the CPUC has mandated the challenged activity.  Second, PegaStaff serves as a caution that the implementation of CPUC regulation – even where that regulation inspires enthusiastic support in furtherance of a commendable public policy – requires careful, and sometimes restrained, execution in order to avoid a possible challenge.