BILL ANALYSIS
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THIRD READING
Bill No: SB 204
Author: Bowen (D)
Amended: 5/10/05
Vote: 21
SEN. ENERGY, UTIL. & COMMUNICATIONS COMM. : 6-3, 4/5/05
AYES: Escutia, Alarcon, Bowen, Dunn, Kehoe, Murray
NOES: Battin, Campbell, Cox
NO VOTE RECORDED: Morrow, Simitian
SENATE APPROPRIATIONS COMMITTEE : Senate Rule 28.8
SUBJECT : Public Utilities Commission; California Energy
Commission:
Commission memberships
SOURCE : Author
DIGEST : This bill establishes detailed conflict
standards for members of the California Public Utilities
Commission.
ANALYSIS :
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)
CONTINUED
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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
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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 items 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 in 1975.
This bill includes amendments to Section 303 to subject
commissioners to removal from office it they knowingly
acquire or maintain a financial interest in a PUC regulated
entity.
The bill also updates the appropriate provisions of the CEC
so that its income and employment restrictions apply to
"any person or corporation subject to regulation by the
CEC", rather than applying only to electric utilities and
facility manufacturers.
The bill makes a violation of these provisions a
misdemeanor and is punishable by a fine of not more than
$10,000 by imprisonment in the county jail for not more
than one year, or both, for each violation.
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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
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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.
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.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: Yes
SUPPORT : (Verified 5/10/05)
California Alliance for Consumer Protection
Utility Consumers' Action Network
OPPOSITION : (Verified 5/10/05)
California Chamber of Commerce
California Manufacturers Association
ARGUMENTS IN SUPPORT :
Proponents argue that 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
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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.
ARGUMENTS IN OPPOSITION :
The California Chamber of Commerce argues that this bill
excludes a class of technical experts from serving as
commissioners for the sole reason that they have made a
professional choice to work for a regulated entity. They
argue this denies the Governor the ability to identify and
appoint qualified candidates for the PUC. They argue
"moreover, we find the exclusion of only industry
candidates to reinforce the common misperception that
persons who work in industry somehow lack the capacity of
objective and fair analytical analysis of public policy
issues."
NC:do 5/12/05 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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