Dive Brief:

• Legal fees stemming from last year's ex parte scandal at the California Public Utilities Commission have set off a budget fight that is now impacting the state's ability to guard power plants from potential terrorist attacks.
• State lawmakers, angered by legal fees the commission incurred when it hired outside counsel, cut $5 million from the agency's budget, but failed to specify where the cuts would be made, the San Francisco Chronicle reports. 
• The commission has responded with a variety of budget moves that appear to target high-profile projects, including unfunding a mandate to protect power plants from possible attacks.

Dive Insight:

Last year, when scandal broke out regarding off-record communications between Pacific Gas and Electric and state regulators, it would have been hard to imagine a terrorism tie-in. But the CPUC appears to have deliberately unfunded high-profile projects to send a message back to the state legislature.

That's the largely-unsaid theme in the Chronicle's reporting, which looks at how the state got to this point and which projects have been targeted.

Late last summer, PG&E fired three executives for a series of inappropriate emails that appeared to show ex parte communications with regulators, including judge shopping in a rate case. Former president of the CPUC Michael Peevey asked his chief of staff to resign, and then himself declined to seek reappointment. When state and federal lawmakers opened an investigation into the scandal, the CPUC was forced to hire outside counsel to defend staffers.

Those are the legal fees behind the mess: $5 million that angered state lawmakers, resulting in a budget reduction of the same amount. 

"We want to make it clear to them that if they are going to spend it on lawyers, they are going to pay a price for it,” Sen. Jerry Hill (D-San Mateo) told the Chronicle.

But lawmakers didn't specify where the cuts would be made, and recently CPUC Executive Director Timothy Sullivan announced part of that would be funding for a state-mandated program to guard power plants from terrorist attacks. Without the $350,000 to staff the program, utility plans cannot be assessed.

Also cut was about half the budget aimed at modernizing agency databases, which could wind up impacting programs to track gas pipeline leaks.

CPUC's Sullivan told the Chronicle, “The Legislature was sending us a message that they wanted us to pay more attention to their oversight. They didn’t have confidence in what we were doing — they are the ones who cut the budget. Democracy is pretty messy.”