BILL ANALYSIS 1
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SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE
MARTHA M. ESCUTIA, CHAIRWOMAN
SB 204 - Bowen Hearing Date:
April 5, 2005 S
As Introduced: February 10, 2005 Non-FISCAL B
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DESCRIPTION
This bill establishes detailed conflict standards for members of
the California Public Utilities Commission (CPUC).
Existing law :
1) Authorizes the Legislature to remove a commissioner for
incompetence, neglect of duty or corruption, by a
two-thirds vote of each house.
(Section 1 of Article XII of the California Constitution)
2) Prohibits a commissioner from having an official
relation to, or financial interest in, a person or
corporation subject to regulation by the CPUC; requires any
commissioner who involuntarily acquires a financial
interest in such a person or corporation to divest of the
interest within a reasonable time, or vacate the office;
requires the CPUC to adopt a Conflict of Interest Code and
Statement of Incompatible Activities.
(Section 7 of Article XII of the California Constitution
and Section 303 of the Public Utilities Code)
3) Prohibits members of the California Energy Commission
(CEC) from:
a. Receiving a substantial portion of income
directly or indirectly from any electric utility
during the two years prior to appointment.
b. Selling or manufacturing any major component
of any facility (i.e. thermal power plant or electric
transmission line) during the two years prior to
appointment.
c. Working for any electric utility, applicant
or, within two years after service on the CEC, any
facility seller or manufacturer.
d. Holding any other elected or appointed public
office or position.
e. Engaging in any employment, activity or
enterprise which is clearly inconsistent,
incompatible, in conflict with or inimical to the
member's CEC duties.
f. Acting on matters in which the member knows
he/she, his/her spouse, minor child, or partner or any
organization in which the member is serving, or has
served while serving as a member of the CEC or within
two years prior to appointment, has a direct or
indirect financial interest.
(Section 25205 of the Public Resources Code)
4) Prohibits partners, employers and employees of a member
of the CEC from acting as an attorney, agent or employee
for any person other than the state in connection with any
matter in which the CEC is a party or has a direct and
substantial interest.
(Section 25205 of the Public Resources Code)
5) Prohibits any state officer or employee from engaging in
any employment, activity or enterprise which is clearly
inconsistent, incompatible, in conflict with or inimical to
his or her duties as a state officer or employee.
(Section 19990 of the Government Code)
6) Prohibits any state or local government public official
from participating in or attempting to influence a
governmental decision in which he or she knows or has
reason to know he or she has a financial interest.
(Section 87100 of the Government Code)
This bill establishes conflict standards for the CPUC based on
the existing CEC standards (described in 3 and 4 above). While
the standards are essentially the same, the application is more
comprehensive - e.g., commissioners are prohibited from
receiving income from any person or corporation subject to
regulation by the CPUC, rather than only electric utilities or
facility manufacturers, which were the relevant entities for the
CEC at the time Section 25205 was enacted (1975).
BACKGROUND
California law flatly says a CPUC commissioner can't have a
financial interest in any person or corporation subject to CPUC
regulation. The same basic provision has been in the law since
1875. This financial conflict ban applies regardless of whether
the commissioner takes action to benefit his or her financial
interest - a commissioner simply can't hold an interest in an
entity 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 recently found.
Ironically, 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 clearly
requires the commissioner to vacate the office, unless he or she
gets rid 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) or held
since before appointment to the CPUC, the statute is silent and
the penalty is unclear.
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 Duque invested $27,000 in
Nextel, a mobile phone company subject to CPUC regulation.
In January 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. In April 2003, the state Supreme Court
declined to take review of the Appellate Court decision, thus
allowing the decision to stand.
Since its creation in 1975, the CEC commissioners have been
subject to stricter and more specific conflict standards. The
unique features of the CEC statute are its provisions barring
income from specified entities from two years prior to
appointment to the CEC and two years after service on the CEC.
Thus, a person with income from an electric utility or facility
manufacturer in the last two years is ineligible to serve on the
CEC and a former commissioner may not work for a facility
manufacturer for two years after the end of term.
COMMENTS
1) What does this bill add? Existing provisions of the
Constitution and Public Utilities Code, as described above,
prohibit members of the CPUC from having an official
relation to, or financial interest in, a person or
corporation subject to regulation by the CPUC while they
are a commissioner . Existing provisions of the Government
Code prohibit state officials from engaging in any
employment, activity or enterprise clearly inconsistent,
incompatible, in conflict with or inimical to their duties,
or participating in or attempting to influence a
governmental decision in which they know or should know
they have a financial interest. Again, these standards
apply only to actions taken during the term of state
service.
These existing laws address unethical actions, such as quid
pro quo, bribery and the like, but do not address the issue
of income conflicts directly as this bill does. What this
bill adds is the standard borrowed from the CEC - an
"ethical buffer" preventing a commissioner from taking
money from the companies he or she is regulating from two
years prior to two years after his or her service. This is
a high standard, but it has worked for 30 years at the CEC
and may be appropriate for an economic regulator with so
much influence over the fortunes of regulated utilities and
their customers.
2) Existing CPUC conflict laws inadequate to address known
conflicts. As the Duque example indicates, the existing
law prohibiting commissioners from having a financial
interest in CPUC-regulated entities appears to be
inadequate to address known or deliberate conflicts because
the explicit remedy only relates to financial interests
involuntarily acquired.
This raises two issues for the author and the committee to
consider:
The first is whether this bill should include amendments to
Section 303, the subject of the Duque case, to fill the
"critical gap" identified by the court and subject
commissioners to removal from office if they knowingly
acquire or maintain a financial interest in a
CPUC-regulated entity.
The second is whether this bill should incorporate specific
penalties, as the CEC statute does. Using the CEC statute
as a model, the penalties could be "any person who violates
any provision of this section is guilty of a felony and
shall be subject to a fine of not more than ten thousand
dollars ($10,000) or imprisonment in the state prison, or
both."
3) CEC conflict statute outdated. The chief "regulatory"
duty of the CEC is licensing of thermal power plants. When
the statute creating the CEC (Warren-Alquist Act) was
enacted in 1975, "electric utilities" were really the only
entities in the business of building power plants, so it
makes sense that the conflict standards enacted at the time
applied to electric utilities and their suppliers,
"facility manufacturers."
However, various policies and economic factors have since
created a number of other classes of companies in the power
plant business which are not, strictly speaking, "electric
utilities." These include utility holding companies,
exempt wholesale generators and qualifying facilities.
The author and the committee may wish to consider whether
this bill is the right occasion to update the CEC statute
to reflect the changes in the electric industry over the
past 30 years. Borrowing from the CPUC standard, the CEC
statute could be amended so that its income and employment
restrictions apply to "any person or corporation subject to
regulation by the CEC."
4) Prior related legislation:
SB 118 (Bowen) of the 2003-2004 session addressed the Duque
case by clarifying that a CPUC commissioner must forfeit
their office in cases where they voluntarily obtain a
financial interest in a CPUC-regulated company. In this
form, SB 118 was approved by the Senate and made it to the
Assembly Floor before being amended to address a different
subject.
AB 2006 (Nunez) of the 2003-2004 session contained
provisions identical to this bill as part of a larger
electricity policy measure. AB 2006 was approved by the
Senate and Assembly, but was vetoed by the Governor.
POSITIONS
Sponsor:
Author
Support:
California Alliance For Consumer Protection
Utility Consumers' Action Network
Oppose:
California Chamber of Commerce
Lawrence Lingbloom
SB 204 Analysis
Hearing Date: April 5, 2005