BILL ANALYSIS 1
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SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE
DEBRA BOWEN, CHAIRWOMAN
SB 118 - Bowen Hearing Date:
April 22, 2003 S
As Amended: April 21, 2003 FISCAL B
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DESCRIPTION
Current law bars any California Public Utilities Commission
(CPUC) commissioner from having a financial interest in any
person or corporation subject to CPUC regulation. The penalty
for violation of this provision in cases where the commissioner
involuntarily acquired the interest and didn't divest him or
herself of the interest within a reasonable period of time is
forfeiture of office.
Current law , as interpreted by the courts, doesn't require a
commissioner to forfeit his or her office in cases where he or
she voluntarily acquires a financial interest in company subject
to CPUC regulation.
This bill requires a CPUC commissioner to forfeit their office
in cases where they voluntarily obtain a financial interest in
any person or corporation subject to CPUC regulation.
This bill requires the CPUC to update its conflict of interest
code.
BACKGROUND
Under California law, it's clear a CPUC commissioner cannot have
a financial interest in any person or corporation subject to
CPUC regulation. However, the penalty for violating this law
isn't clear, as the First Appellate District of the California
Court of Appeals has recently found.
If the commissioner obtained the financial interest
involuntarily (e.g. through an inheritance, or acquisition of a
regulated company by a non-regulated company) the law requires
the commissioner to be removed from office if he or she doesn't
rid him or herself of the financial interest within a reasonable
period of time. However, if the financial interest is obtained
voluntarily (e.g. direct purchase of utility stock) forfeiture
of office isn't required.
In April 2002, a San Francisco Superior Court judge fined
then-CPUC Commissioner Henry Duque $5,000 and ordered him
removed from the CPUC after finding then-Commissioner Duque
invested $27,000 in Nextel, a mobile phone company that's
regulated by the CPUC.
On January 3, 2003, the First Appellate District of the
California Court of Appeals overturned that order, ruling that
because of a "critical gap" in the statute's wording, the law
doesn't specify any penalty for commissioners who voluntarily
invest in a regulated company .
On April 9, 2003, the state Supreme Court declined to take
review of the decision by the State Appellate Court, thus
allowing the Appellate Court decision to stand.
COMMENTS
1.Just What Constitutes A "Financial Interest?" The penalty
imposed by this bill is triggered by a commissioner having a
"financial interest" in companies subject to regulation by the
CPUC.
Under Government Code Section 87103 (created by the Political
Reform Act of 1974), a public official has a "financial
interest" in a decision if it is reasonably foreseeable the
decision will have a material financial effect on the
official, a member of his or her immediate family, or on any
of the following:
(a) Any business entity in
which the public official has a direct or indirect
investment worth $2,000 or more.
(b) Any real property in
which the public official has a direct or indirect
interest worth $2,000 or more.
(c) Any source of income,
except gifts or loans by a commercial lending institution
made in the regular course of business on terms available
to the public without regard to official status,
aggregating $500 or more in value provided or promised
to, received by, the public official within 12 months
prior to the time when the decision is made.
(d) Any business entity in
which the public official is a director, officer,
partner, trustee, employee, or holds any position of
management.
(e) Any donor of, or any
intermediary or agent for a donor of, a gift or gifts
aggregating $250 or more in value provided to, received
by, or promised to the public official within 12 months
prior to the time when the decision is made.
For purposes of this section, indirect investment or
interest (see (a) and (b) above) means any investment or
interest owned by the spouse or dependent child of a
public official, by an agent on behalf of a public
official, or by a business entity or trust in which the
official, the official's agents, spouse, and dependent
children own directly, indirectly, or beneficially a 10%
interest or greater.
1.One Strike & You're Out . Should this bill become law, a CPUC
commissioner who involuntarily acquires a financial interest
in an entity regulated by the CPUC would suffer no penalty
provided he or she disposes of the interest in a reasonable
period of time after being made aware of the conflict.
However, a commissioner who voluntarily acquires a financial
interest in an entity regulated by the CPUC would immediately
be removed from office. The author and committee may wish to
consider whether that penalty is too strong in light of the
fact that it's possible for a commissioner to "voluntarily"
acquire a financial interest in a company that's regulated by
the CPUC in an semi-"involuntary" manner.
For example, a commissioner could purchase stock in Company A
- which has no business before the CPUC - without knowing that
Company A owns more than 10% of Company B, which is regulated
by the CPUC. (A commissioner who buys Company A and Company A
later acquires a minimum 10% interest in Company B would be
covered by the "involuntary acquisition" provision of current
law and would merely have to sell their interest in Company A
in a reasonable period of time after being made aware of the
conflict).
To address this concern, the author and committee may wish to
consider adding the phrase "that the commissioner knows or
should know is" after the word "person" on Page 2, Line 7, of
the bill. This will provide a court, should an accusation be
brought against a commissioner, the flexibility to determine
whether the commissioner knew or should have known that he or
she was acquiring a financial interest in a company that's
regulated by the CPUC.
2.What Happens To Tainted Decisions? This bill is silent on the
validity of any votes cast by a commissioner who is found
guilty of having a financial interest in companies subject to
regulation by the CPUC. The question of what to do regarding
this issue isn't easily answered because it's a discussion
littered with complications and unintended consequences. For
example, if a commissioner is found guilty of having a
financial interest in Energy Company A, should only their
votes on issues involving Energy Company A be invalidated? Or
should their votes on issues involving Energy Company B,
Energy Company C, and Energy Company D also be invalidated,
since those votes may have had an indirect effect on Energy
Company A? Furthermore, what happens to business decisions
and investments Energy Company A may have made in the wake of
a particular decision? Is it fair - or practical - to
invalidate those actions since, in most (if not all) cases,
Energy Company A would have had absolutely no control over or
influence on the investment decisions made by a particular
commissioner?
POSITIONS
Sponsor:
Author
Support:
Foundation for Taxpayer and Consumer Rights
Oppose:
None on file
Randy Chinn
SB 118 Analysis
Hearing Date: April 22, 2003