BILL ANALYSIS
SB 118
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Date of Hearing: June 16, 2003
ASSEMBLY COMMITTEE ON UTILITIES AND COMMERCE
Sarah Reyes, Chair
SB 118 (Bowen) - As Amended: May 7, 2003
SENATE VOTE : 37-0
SUBJECT : Public Utilities Commission: conflict of interest.
SUMMARY : Requires a Public Utilities Commission Commissioner
(the Commissioner) to forfeit his or her office if he or she
voluntarily acquires a financial interest in a corporation or
person that the Commissioner knows or should have known is
subject to regulation by the California Public Utilities
Commission (PUC). Specifically, this bill :
1)States that any Commissioner who voluntarily acquirers a
financial interest in a corporation or person that the
Commissioner knows or should have known is subject to
regulation by PUC will immediately vacate his or her office.
2)Requires PUC to adopt an updated Conflict of Interest Code and
Statement of Incompatible Activities by February 28, 2004.
EXISTING LAW:
1)Prohibits a Commissioner from holding a financial interest in
a person or corporation that is regulated by PUC.
2)Provides that if a Commissioner involuntarily acquires a
financial interest in a person or corporation that is
regulated by PUC, his or her office shall become vacant unless
he or she divest himself or herself of that interest within a
reasonable time.
3)Requires PUC to adopt a Conflict of Interest Code and
Statement of Incompatible Activities.
FISCAL EFFECT : Unknown.
COMMENTS : In April 2002, a San Francisco Superior Court judge
fined then PUC Commissioner Henry Duque $5,000 and ordered him
removed from PUC after finding Duque invested $27,000 in Nextel,
a mobile phone company that is regulated by PUC. Commissioner
SB 118
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Duque had acquired the stock in 1999 believing that Nextel was
regulated by the Federal Communications Commission (FCC) and not
subject to PUC jurisdiction. In fact, Nextel is subject to both
FCC and PUC jurisdiction. Duque disclosed the stock ownership
on his 1999 and 2000 statements of economic interest. Duque
sold the stock in 2000, after receiving a call from a reporter
about the stock.
On January 3, 2003, the First Appellate District of the
California Court of Appeals overturned that order and ruled that
under the plain meaning of the statue the law doesn't specify
any penalty for commissioners who voluntarily invest in a
regulated company. The law only provides for forfeiture of
office if the Commissioner involuntarily acquires an interest in
a regulated company. The court stated that "we must limit
ourselves to interpreting the law as written and leave for the
people and the Legislature the task of revising it as the deem
wise." People v. Duque, 105 Cal. App 4th 259, 266. This bill
is intended to address the Appellate Court Decision and close
the gap in the statute's wording.
Definition of Financial Interest : The Public Utilities Code
contains no definition of what constitutes a financial interest.
The Political Reform Act (PRA) defines what constitutes a
decision in which a public official has a financial interest,
Gov. Code Section 87103, but not what constitutes a financial
interest in a corporation or person.
PRA provisions against conflict of interest apply only when the
public official makes a decision that directly effects his or
her own financial position, the financial position of his or her
immediate family, or the financial position of a company or
property in which the official has an invest of $2,000 or more.
PRA does not contain an absolute ban in ownership of a regulated
company. Since the Public Utilities Code does provide for an
absolute ban on financial interest in a regulated company, it
may be necessary to define financial interest separately from
PRA.
Additionally, by not providing a clear definition of financial
interest, this bill opens a question as to if ownership in a
mutual fund or blind trusts that contains stock in regulated
companies constitutes a financial interest. The committee may
wish to consider amendments to either define financial interests
or require PUC to clearly define financial interest within their
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updated conflict of interest codes.
What impact does forfeiture have on votes taken by the tainted
Commissioner ?
This bill provides that if any Commissioner acquires a financial
interest in a regulated company "his or her office shall
immediately becomes vacant." While the provision provided for
the office to be vacated at the time the financial interest is
acquired, it is probable that the acquisition of the interest
will not be discovered for some time and additional time will
pass while either the courts or the Legislature consider
removing the Commissioner. In the intervening time the tainted
commissioner will likely vote on numerous decision before PUC.
What is to become of the vote made by a Commissioner in an
office that has already become vacant? If such votes are to be
invalidated, will that have a retroactive impact on companies
that have made investments or strategic decisions based on PUC
actions they believed to be valid? Will invalidating votes of
the tainted Commissioner create situations where parties that
know of the conflict protest only after the Commissioner has
voted against their position?
The committee may wish to take amendments to clarify that that
votes made by the tainted Commissioner before he or she is
actually removed from office are not invalid.
REGISTERED SUPPORT / OPPOSITION :
Support
The Foundation for Taxpayers and Consumer Rights
Utility Consumers' Action Network (UCAN)
Opposition
None on file.
Analysis Prepared by : Edward Randolph / U. & C. / (916)
319-2083