SoCalGas fought a key California climate solution for years. It cost customers millions

At first glance, a September 2019 meeting before the California Public Utilities Commission in Los Angeles looked like democracy in action. Speakers lined up before the state’s powerful utility regulator to debate the merits of natural gas.

One by one, climate activists supported powering buildings with zero-emission appliances running on clean electricity. Burning gas in homes and businesses currently emits a quarter of the state’s carbon pollution that is worsening climate change.

More than a dozen business owners followed suit, arguing instead for the preservation of gas. Their activism, however, was far from grassroots.

A concealed contract showed that the nation’s largest gas utility had paid a leading Los Angeles business association to recruit speakers against electrification, and drive them to the meeting using ratepayer money.

Speaker Sassan Rahimzadeh, owner of a San Diego dry cleaning company, was recruited to attend. He told The Sacramento Bee he was troubled to learn that the arrangement was charged to customers of SoCalGas.

“As a ratepayer,” he said, “that would concern me big time.”

Billing customers for anything other than providing safe and reliable gas service — such as political activities — is a violation of state and federal law. Yet when it comes to SoCalGas using ratepayer dollars to pay for political lobbying, this case is merely one of many since 2019.

After reviewing public documents, The Bee has determined that SoCalGas booked at least $36 million to ratepayers for political lobbying to undermine California policies aimed at addressing the climate crisis since 2019.

That figure is merely the “tip of the iceberg,” according to a 404-page legal filing Monday by the PUC’s Public Advocate’s Office. The independent state watchdog called on the commission to slash the utility’s request for rate hikes by $80 million, citing “the utility’s ongoing and historic misuse of ratepayer funds for political activities.”

SoCalGas was fined $10 million for the same behavior last year. In addition, the independent state watchdog is recommending another $233 million in fines because of SoCalGas’ refusal to open its books to investigators.

The Sacramento Bee’s investigation found numerous previously unreported examples of instances that critics contend are a misuse of customer funds to derail electrification.

• SoCalGas sought to bill customers $732,000 for undefined legal work in 2022 from the Redwood City law firm Reichman Jorgensen, which represented the California Restaurant Association in a lawsuit against Berkeley’s first-in-the-nation gas ban. After receiving questions from The Bee, the company rescinded the charge. This was in addition to $1.1 million to the firm that the utility called an accounting error and said it would charge instead to its corporate account.

• Customers were charged $744,000 by SoCalGas for legal fees to another firm, Holland & Knight, that has launched a series of lawsuits against California climate policies and heavily lobbied against building electrification. SoCalGas denies that money was spent on lobbying but refused to provide spending details, citing attorney-client privilege.

• SoCalGas billed ratepayers $191,789 to defend itself against a California Attorney General investigation into marketing claims that violated state and federal law because the company stated natural gas is a “renewable” energy source. The company agreed on Monday to make a “corrective” statement online and pay $175,000 in penalties.

• SoCalGas billed ratepayers $790,000 for a lawsuit filed in 2020 against the California Energy Commission, claiming the agency was unfairly biased against natural gas. The lawsuit was dropped in 2021.

• And as mentioned above, SoCalGas paid the Business Federation of Los Angeles, or BizFed, an undisclosed sum to recruit opposition to electrification at two meetings before the Public Utilities Commission in 2019. The agency’s independent watchdog is calling for penalties related to the practice.

SoCalGas’ pattern of using ratepayer money calls into question whether its Southern California customers — from San Diego to Fresno and San Luis Obispo — have been unfairly billed for years.

“SoCalGas has been using ratepayer dollars to engage in advocacy efforts against California’s climate policies,” said Mary Flannelly, a spokesperson for the Public Advocates Office. “This inappropriate use of ratepayer funds only serves to benefit SoCalGas at a time when ratepayers are dealing with increasingly high customer bills.“

Officials at the Public Advocates office say the utility has refused since 2020 to allow access for investigators to examine accounting data and crucial documents. Mike Campbell, program manager for the Advocate’s Office, told The Bee he is concerned that the tactics are hiding possible “financial malfeasance.”

SoCalGas counters that it has a first amendment right backed by legal precedent to keep its books closed.

The utility’s actions have also stalled local and statewide decarbonization efforts, affecting Californians up and down the state as communities, including Sacramento, begin to confront the impacts of climate change.

As early as 2015, company emails show that executives identified building electrification as “a significant risk to our business.” In the years since, SoCalGas has engaged in a sprawling and varied opposition campaign to defend its bottom line.

Critics contend the utility is exploiting the state’s rate approval process and lax oversight by billing ratepayers for things it shouldn’t, such as political activities, and only correcting the charges months or years later when regulators or members of the public uncover them.

A former U.S. attorney who has previously prosecuted gas utilities said the issues identified by The Bee could constitute the basis for a fraud investigation.

“If they are taking money from ratepayers, putting the funds into their big coffers for political gain, all the while keeping that practice secret from their customers, that’s fraud,” said Evan Gotlob, now a partner with the law firm Saul Ewing LLP.

SoCalGas rejected the allegation.

“Fraud is a serious, spurious, and irresponsible claim,” SoCalGas spokesperson Alice Walton said in an email to The Bee, “and one that SoCalGas categorically rejects.”

Misuse of customer funds has landed utilities in legal trouble across the nation, including in Florida, Illinois and Ohio. Ohio’s leading utility used $60 million in ratepayer funds to bribe politicians to subsidize coal and nuclear plants and roll back climate initiatives. The state’s speaker of the house was sentenced to a lengthy federal prison term in June.

Experts agree there is one core reason why SoCalGas has so aggressively fought zero-emissions policies: Billions of dollars of market share and the future of energy in California is at stake.

“If California electrifies the way that it has been, which is totally needed to address climate change, where does that leave SoCalGas?” asked David Pomerantz, executive director of the Energy & Policy Institute. “They’re a pipeline company. If we’re not using the pipelines, they’re in big trouble.”

In an email to The Bee, SoCalGas emphasized its ambition to reach net-zero emissions in 2045 by focusing on hydrogen, renewable natural gas and carbon capture technology.

Customer-funded climate opposition?

State regulators are well aware of SoCalGas’ activities.

The Public Advocates Office published a 41-page report in March identifying tens of millions of dollars in inappropriate political spending booked to customers between 2017 and 2019.

Contained in that report is a heavily redacted contract signed by the utility with virtually no details. The Bee was able to uncover that contract was signed by BizFed.

Several people who made comments at a Sept. 10, 2019 meeting in Los Angeles acknowledged that they had been encouraged to attend by BizFed as well as by the Sacramento-based California Restaurant Association, which received $1.8 million in donations from SoCalGas and its owner Sempra between 2019 and 2022.

Rahimzadeh, the dry cleaning business owner who describes himself as an environmentalist with economic concerns about electrification, said he was contacted by BizFed about the PUC meeting.

“They told me, ‘Hey, you know, there’s this hearing here in LA, this is where it’s at.’ They met me there.” He also recalls being contacted directly by SoCalGas prior to the meeting and asked to attend.

The amount of the contract billed to ratepayers remains undisclosed. SoCalGas said releasing it would violate attorney-client privilege and first amendment rights. BizFed also refused to provide a copy of the contract to The Bee.

“We regularly work with diverse business leaders on a wide range of issues affecting our members, and we do not share those internal communications externally,” said Biz Fed’s director of advocacy and policy Sarah Wilfong, who also spoke at the meeting.

SoCalGas told The Bee in an email through a contract public relations firm, “The improper disclosure of a standard outreach contract and other hand-picked materials from several years ago, are part of an ongoing effort by certain intervenors to misrepresent SoCalGas’ public policy positions.”

Campbell, with the Public Advocate’s Office, told The Bee he “absolutely” thought the entire contract should be public, but that his hands were tied once the company claimed it was privileged information.

The contract is merely one piece of a tense standoff between the utility and state officials over transparency regarding company spending with customer funds. Campbell has waited years to access SoCalGas’ financial and other data.

“The utility,” he said, “has tried everything they can think of to throw sand in the gears and assert that the regulators shouldn’t actually be able to see how they spend ratepayers’ money.”

Campbell believes the contract is unlawful.

“Raiding ratepayer accounts for lobbying is illegal,” Campbell said. “Secondly, it’s very clear that you may not have people speak at these meetings without making clear if you’re speaking on the behalf of someone. That’s a violation.”

Financial records show BizFed has received $1.01 million in contributions from Sempra and its subsidiaries since 2017. BizFed also worked with SoCalGas to successfully lobby the Port of Los Angeles and Long Beach in favor of natural gas trucks, Public Advocate filings show.

The port’s decision in favor of natural gas trucks stands to further erode air quality in a region already suffering from some of the nation’s most polluted air.

How SoCalGas pays the bills

In the world of investor-owned utilities such as SoCalGas, there are two kinds of costs: above the line, which are billed to customers, and below the line, which come from corporate profits.

One issue that has maddened watchdogs such as Matt Vespa, an attorney for the organization EarthJustice, is the tens of millions of dollars SoCalGas pays to outside law firms that go on to lobby regulators and launch lawsuits against climate policies threatening the utility.

SoCalGas has engaged in what critics call a game of cat and mouse. Citing attorney-client privilege, the utility vehemently denies they are behind the lobbying or lawsuits but refuses to reveal what customers are actually being billed for.

In October, Vespa requested information from SoCalGas through the PUC about a $1.1 million payment from a ratepayer account to the law firm Reichman Jorgensen. The utility asserted the expense should be paid by ratepayers, saying in a written response, “The dollar amount $1,143,592... is considered a ratepayer cost.”

Only after Vespa pressed the matter did the utility admit six months later that it had made an accounting mistake, what they described as having “unintentionally characterized” $1.1 million in ratepayer expenses.

The Bee then reviewed financial disclosures filed by the company on May 30th and discovered another $732,000 in fees to Reichman Jorgensen billed to ratepayers in 2022. After The Bee asked SoCalGas about the expenditure, the company said it was removing it from the ratepayer account. It provided no explanation as to why customers had been billed in the first place.

Then in June, after Vespa and the Public Advocates Office questioned tens of millions of dollars that SoCalGas and Sempra said it had spent for outside legal costs charged to customers, the company revised its estimate and walked back $5 million in 2021 charges.

“SoCalGas is saying, the system’s working,” Vespa said. “Intervenors ask questions, and we lowered it. They should do things right the first time.”

Another law firm and more questions

Reichman Jorgensen wasn’t the only law firm paid by SoCalGas that went on to lobby and file lawsuits that would stand to benefit the utility. The Bee discovered the utility also spent more than a million dollars between 2019 and 2021 with the powerhouse international law firm Holland & Knight.

More than 50% of the payments to the San Francisco firm were paid for by customers. Holland & Knight has more than 1,500 lawyers worldwide and is “one of only a few large firms in the U.S. with a dedicated Oil and Gas Practice,” according to the firm’s website.

Jennifer Hernandez, a partner with the firm with a decades-long track record of battling California regulators on climate change and other environmental regulations, told The Bee she wasn’t involved in any recent work for SoCalGas.

“To the extent you’re looking for a smoking gun,” she said, “you’re not gonna find it.”

Hernandez, who sits on the board of BizFed’s research institute and advises the group on climate policy, has been a thorn in the side of California regulators and environmental organizations for years.

In the late 1990s, The Bee reported how Hernandez stirred controversy among environmentalists by pushing for what they considered lax cleanup standards in contaminated areas. Environmentalists believed the proposed legislation was too developer friendly.

Bill Magevern, a staffer for the Sierra Club in the 1990s, recalled in a recent interview that “Jennifer Hernandez showed up calling herself an environmentalist, a civil rights and housing activist. Later we learned she was working for the largest landowner in California.”

Fast forward 25 years, The Bee found that Hernandez was intricately involved in lobbying California agencies on issues that are in virtual lockstep with the firm’s million dollar client, SoCalGas.

The Bee reviewed more than a dozen documents Hernandez and Holland & Knight sent in 2021 as part of official proceedings with the California Energy Commission over proposed changes to what are called Title 24 Building Codes. The discussion included proposed bans on new natural gas appliances in California.

Hernandez said that despite what others might think, she is concerned about the environment. But she has also expressed concern with regulatory overreach that she believes ultimately disproportionately affects working class families.

Internal emails as well as communications with the American Gas Association show that beginning at least as early as 2015, SoCalGas executives were worried about the impact of a debate at the CEC over the future of gas water heaters in California and how a ban on the appliance would have an escalating impact on company profits.

Tensions between SoCalGas and the California Energy Commission simmered. In 2020, SoCalGas filed a lawsuit alleging that the agency disregarded state law by deciding “to substantially eliminate” the use of natural gas in the state. Ratepayer advocates were particularly outraged that the utility charged its own customers $790,394 for the lawsuit.

The following year, after gaining no traction in the courts, SoCalGas agreed to dismiss its lawsuit. EarthJustice’s Vespa called the litigation a vehicle to “harass” California regulators.

“What is so messed up here,” he said, “is not only are ratepayers paying for this litigation, but then the agencies, which are taxpayer funded, have to squander resources to defend against baseless harassment lawsuits.”

In October of 2022, Vespa became suspicious that SoCalGas paid Holland & Knight with customer money to lobby on the utility’s behalf. He used a PUC process to require the utility to respond.

It responded, “Holland & Knight LLP did not represent SoCalGas in the 2022 Title 24 Building Code proceeding.” But it did not provide any explanation for its customer-funded payments to the firm, citing attorney-client privilege.

The Bee examined a lobbying memo submitted to the CEC by Holland & Knight’s Hernandez on behalf of the firm, not a client. The firm said “Holland & Knight further submits these comments in light of our commitment to the social and economic equity for California’s working class families, who will undoubtedly suffer disparate impacts resulting from the Project.”

The 16-page memo Hernandez authored in 2021, the same year her firm received $594,511 in ratepayer dollars, contained nearly identical points to a memo crafted a few months earlier by SoCalGas. Both memos downplayed health concerns related to gas appliances and dismissed findings by leading scientists on the issue.

“Studies have shown that using indoor natural gas appliances does not contribute in any significant way to indoor air pollution,” Hernandez wrote, “and that the use of natural gas appliances does not impose appreciable health and safety risks beyond those imposed by electric appliances.”

Holland & Knight did not respond to questions on what work the firm performed on behalf of SoCalGas with ratepayer funds or whether Hernandez’s communications with the CEC were related.

Lindsay Buckley, a CEC spokeswoman, when asked if Hernandez was lobbying on behalf of SoCalGas, responded, “All I can say is what she is saying mirrors what we are hearing from the gas company.”

SoCalGas did not respond to The Bee’s written questions about Holland & Knight. In a general statement the company said “questions on attorneys’ scope of work would require SoCalGas to disclose non-public, attorney-client privileged advice and counsel these firms provided to SoCalGas and would be asking SoCalGas to waive its attorney-client privilege and work product, which is inappropriate.”

Vespa is skeptical of SoCalGas’ explanations.

“The contents of those letters, they’re very similar,” Vespa said. “But it’s just hard to pin this stuff down because then you end up in all these attorney-client privilege issues. And that’s similar to what happened with the Berkeley lawsuit. SoCalGas is saying ‘We hired this firm to research all the legal issues in the litigation, but it’s not related.’”

Hernandez has also been the lawyer of record for a flurry of lawsuits filed on behalf of a relatively obscure organization called The Two Hundred for Home Ownership. The lawsuits challenge the California Air Resources Board’s authority to order certain actions related to climate change, including regulating vehicle and building emissions. If any of the lawsuits are successful they could reverse landmark climate change-related regulations.

Electrification in San Luis Obispo

Robert Apodaca, the founder of the Oakland-based Two Hundred for Home Ownership, has been represented by Hernandez in numerous lawsuits filed against the California Air Resources Board. Apodaca was a central figure in the fight against electrification in San Luis Obispo in 2019, as the city became the first to take on the issue in SoCalGas territory.

In a phone interview with The Bee, Hernandez said that the climate-related advocacy she has engaged in with Holland & Knight on behalf of the Two Hundred has been performed free of charge and not paid for by SoCalGas.

“Just ask my partners,” she said. “This a pro-bono passion play and has been for years.”

Apodaca’s involvement coincided with SoCalGas forming a front group called Californian’s for Fair and Balanced Energy, or C4BES, which purported to be an independent organization but in reality was a front group for the utility.

Apodaca became involved in the San Luis Obispo fight shortly after a $99,000 donation landed in December of 2018 in the account of an organization that he started in 2008, United Latinos Vote. It was the first donation the organization received in seven years.

The donor was the California Building Industry Association. According to SoCalGas financial disclosures, the CBIA received $30,000 from SoCalGas and Sempra companies between 2019 and 2022, and has been active in the anti-electrification fight.

Dan Dunmoyer, president and CEO of CBIA told The Bee that the donation had nothing to do with SoCalGas and was because of the organization’s longstanding association with Apodaca and The Two Hundred.

Following the BIA donation, United Latinos Vote received thousands of dollars in donations from multiple oil companies, including $3,400 each from Chevron, Marathon and Phillips 66.

Apodaca appeared in the press as United Latinos Vote executive director and penned a full-page ad in the Los Angeles Times. The ad, an open letter to the Sierra Club, accused the environmental group of wanting to phase out our “dirty” stoves and cars so that wealthy Californians can buy subsidized Teslas.

SoCalGas’ front group, C4BES, highlighted United Latinos’ LA Times ad in an email blast and touted Apodaca’s open letter.

In repeated attempts, the Public Advocate’s Office questioned whether C4BES was funded with ratepayer dollars. SoCalGas initially told the Public Advocate that “ratepayer funds have not been used to support the founding or launch” of C4BES.

Ultimately, according to the advocate’s March report, “SoCalGas revealed that they had booked costs to create and support C4BES to a ratepayer account, and that the utility authorized $29.1 million for these efforts.”

The utility said it then removed the charge from the customer account.

Accountability for customers

The California Public Utilities Commission has been asleep at the switch, advocates say, allowing SoCalGas to hold back documents and financial records for years while ignoring pleas to take more punitive action.

The PUC issued $10 million in fines to the utility in 2022 but the commission’s watchdog arm says that number should be far higher.

The Public Advocate’s Office asked the PUC to impose fines of $100,000 per day for not allowing investigators to access SoCalGas’ accounting books and for failing to turn over crucial documents in 2020.

Campbell told The Bee the office still considers that penalty request active. As of August 15, the total fines would amount to $233 million.

On Monday, the Public Advocate recommended another $80 million in rate reductions, saying “evidence shows that SoCalGas has not tracked employee time” spent on lobbying activity funded by ratepayers.

Pomerantz, the Executive Director of Energy & Policy, said it’s time to get tougher.

“It is the Public Utilities Commission’s job,” he said, “to hold SoCalGas accountable for following rules to protect customers from being forced to illicitly fund SoCalGas’ anti-electrification political machinations.”

The Bee asked the PUC to comment on concerns that it has been lax in regulating SoCalGas and what action, if any, it intends to take regarding its public advocate’s recommendations.

The PUC responded with a written statement that the agency can not comment at this time because the agency is currently in the midst of proceedings with SoCalGas to determine costs it can collect from its customers.

The legislature also could play a role, but so far has largely deferred to the PUC.

Just this year, some states have taken action to address the opaque way utilities use customer funds. Maine, Connecticut and Colorado passed laws to impose new transparency requirements. Several advocates told The Bee that legislation in California could help rein in SoCalGas, but so far no comprehensive reform has been proposed.

There is one state watchdog, however, who has been quietly investigating SoCalGas for a 2019 marketing campaign.

The campaign falsely claimed that natural gas produced by the utility was a “Affordable, Clean and Renewable” energy source. That slogan was displayed on SoCalGas’ website and printed on merchandise such as tote bags, t-shirts and notepads as well as promoted at community events.

The attorney general complaint released Monday charged that SoCalGas had violated federal and state laws related to green energy marketing. In 2018, just a year before the marketing campaign took place, the attorney general said SoCalGas acknowledged that no gas used in its core market was renewable.

In 2022, said the attorney general, that percentage was still under 5%.

This harms Californians, Bonta argued, because climate change is “fueling longer, more intense fire seasons, resulting in catastrophic losses of life and property and damage to natural resources.”

SoCalGas has agreed to pay $175,000 in penalties related to the campaign. That amount is less than the nearly $200,000 the utility charged customers for its legal defense.

Back in June, during PUC proceedings where the utility first acknowledged it was under investigation by the attorney general, the utility was asked how much it had billed customers for its legal defense.

SoCalGas wouldn’t publicly disclose that information. The company cited attorney-client privilege.