BILL ANALYSIS
SB 204
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Date of Hearing: June 27, 2005
ASSEMBLY COMMITTEE ON UTILITIES AND COMMERCE
Lloyd E. Levine, Chair
SB 204 (Bowen) - As Amended: May 10, 2005
SENATE VOTE : 23-14
SUBJECT : Public Utilities Commission: State Energy Resources
Conservation and Development Commission: commission membership.
SUMMARY : Creates new conflict of interest standards for
members of the California Energy Commission (CEC) and the
California Public Utilities Commission (PUC). Specifically,
this bill :
1)Prohibits any person who has received a substantial portion of
his or her income from any person or corporation subject to
regulation by the CEC, or who engages in the sale or
manufacture of any major component of any electric facility in
the previous two years, from being a member of the CEC.
2)Prohibits a member of the CEC from being employed by any
person or corporation subject to regulation by the CEC, or who
engages in the sale or manufacture of any major component of
any electric facility, for two years after he or she ceases
being a member of the CEC.
3)Prohibits any person who has received a substantial portion of
his or her income from any person or corporation subject to
regulation by the PUC in the previous two years from being a
member of the PUC.
4)Prohibits any member of the PUC from being employed by any
person or corporation subject to regulation by the PUC for two
years after he or she ceases being a member of the PUC.
5)Prohibits any PUC commissioner from holding any other
appointed or elected office.
6)Prohibits PUC commissioners and employees from participating
in any matter that directly affects his or her own financial
interest or the financial interest of his or her spouse, minor
child, or partner; or of any organization in which he or she
is serving as an officer or director, trustee, partner, or
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employee.
7)States that any PUC commissioner who voluntarily acquires a
financial interest in a corporation or person that the
commissioner knows or should have known is subject to
regulation by PUC must immediately vacate his or her office.
EXISTING LAW :
1)Prohibits members of the 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 or any facility seller
or manufacturer within two years after service on the CEC.
d) Holding any other elected or appointed public office or
position.
e) Engaging in any employment, activity, or enterprise,
which is clearly inconsistent, incompatible, or in conflict
with 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.
1)Prohibits partners, employers and employees of a member of the
CEC from acting as an attorney, agent or employee for any
person or entity other than the state in connection with any
matter in which the CEC is a party or has a direct and
substantial interest.
2)Provides that the Governor appoints, and the Senate must
confirm, PUC commissioners to serve 6-year terms.
3)Authorizes the Legislature to remove a commissioner for
incompetence, neglect of duty or corruption, by a two-thirds
vote of each house.
4)Prohibits a PUC commissioner from holding a financial interest
in a person or corporation that is regulated by the PUC.
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5)Provides that if a PUC commissioner involuntarily acquires a
financial interest in a person or corporation that is
regulated by the PUC, his or her office shall become vacant
unless he or she divests himself or herself of that interest
within a reasonable time.
6)Prohibits a PUC commissioner from having an official relation
to, or financial interest in, a person or corporation subject
to regulation by the PUC; 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. (Section 7 of Article XII of the
California Constitution and Section 303 of the Public
Utilities Code)
7)Prohibits any state officer or employee from engaging in any
employment, activity, or enterprise, which is clearly
inconsistent, incompatible, or in conflict with his or her
duties as a state officer or employee.
8)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.
FISCAL EFFECT : Unknown.
COMMENTS : According to the author, the purpose of this bill is
to ensure that PUC commissioners are free from conflict of
interest and that their decisions aren't influenced by positions
they may have held prior to appointment to the PUC. This bill
originally attempted to meet that goal by enacting conflict of
interest standards for the PUC based on existing standards for
CEC commissioners. After the bill was introduced, the author and
Senate Energy, Utilities and Communications Committee determined
that it would also be appropriate to update the CEC's conflict
of interest standards to more accurately reflect the CEC's
current regulatory jurisdiction.
1) Current conflict of interest rules for all Government
Employees : While this bill creates new specific conflict of
interest rules for CEC and PUC commissioners, existing
provisions of the Government Code prohibit all state officials
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from engaging in any employment, activity or enterprise clearly
inconsistent, incompatible, or in conflict with to his or her
duties, or participating in or attempting to influence a
governmental decision in which he or she know or should know he
or she has a financial interest. Additional, the Political
Reform Action (PRA) prohibits all public officials at any level
of state or local government from making or participating in
making a governmental decision in which he or she knows or has
reason to know he or she has a financial interest.
2) Changes to CEC commissioners' conflict of interest rules:
Since its creation in 1975, the CEC commissioners have been
subject to specific conflict standards that bar income from
electric utilities and persons who engage in the sale or
manufacture of any major component of any electric facility from
two years prior to appointment to the CEC until 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 an electric utility or a facility manufacturer for two
years after the end of his or her term.
The current conflict of interest rules were written at a time
when the only parties seeking to build power plants, and thus
regulated by the CEC, were fully integrated electric utilities.
Today a number of parties beyond the electric companies build
power plants that must be approved by the CEC and the CEC's
jurisdiction has expanded to include oversight of a number of
renewable energy and energy efficiency programs. Given these
changes in the CEC jurisdiction, the current law limiting CEC
commissioners' conflict of interest restrictions to electric
companies no longer makes sense. This bill addresses the changes
in CEC jurisdiction by amending the conflict of interest rules
to prohibit CEC commissioners from taking income from any entity
subject to regulation by the commission.
3) Changes to conflict of interest rules for PUC commissioners:
Existing law prohibits members of the PUC from holding an
official relationship with, or having a financial interest in,
any person or corporation subject to PUC regulation. The law
also provides that if a PUC commissioner involuntarily acquires
a financial interest in an entity subject to regulation by the
PUC, the commissioner will forfeit his or her office unless he
or she divests that interest within a reasonable time. The
statute provides for no specific remedy of a PUC commissioner
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who voluntarily acquires a financial interest in a regulated
company. This ambiguity in the statute has led a California
Court of Appeals to rule that while a commissioner that
unwittingly acquires stock in a regulated company may have to
forfeit office, a commissioner that knowingly acquires stock in
a regulated company need not forfeit office.
Additionally, the PUC does not have any standards that apply to
financial interests a commissioner may have prior to appointment
to the PUC or after he or she leaves the PUC.
SB 204 changes the current PUC conflict of interest rules by
applying standards similar to the standards that apply to CEC
commissioners. Under this bill, no person can serve as a PUC
commissioner if he or she has received a substantial portion of
his or her income from any person or corporation that is
regulated by the PUC in the two years prior to appointment to
the PUC. Additionally, no commissioner can be employed by a
regulated entity while he or she is a member of the commission
or for two years after he or she leaves office.
The bill also addresses the ironic problem that a commissioner
would be forced to forfeit office if he or she involuntarily
acquired a financial interest in a regulated company, but not if
he or she voluntarily acquired the same interest by providing
that the penalty for voluntarily acquiring a financial interest
in a regulated entity will result in forfeiture of office.
4) Conflict of interest rules for CEC and PUC are still not the
same : While the intent of this bill is to strengthen the PUC's
conflict of interest rules by applying the CEC's standards to
the PUC, the standards that are being applied to the PUC are
different from the CEC's rules in two important ways. First,
violation of the CEC's conflict of interest rules is a felony,
while violation of the rules as they are applied to the PUC
would only result in a misdemeanor.
Second, the CEC rules allow the Attorney General to make a
finding that a financial interest is not so substantial as to be
deemed likely to affect the integrity of the services, which the
state may expect from the commissioner, so that the party could
still serve on the CEC. The new rules proposed by this bill do
not contain a similar provision for PUC commissioners. This
difference means that the PUC rules are absolute, and there
would be no mechanism to allow a nominated commissioner whose
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financial interest would not affect his or her performance to
seek an exemption to the rules. The author and the committee may
want to consider amending the bill to assure that the provision
allowing the Attorney General to make a finding that the
financial interest will not impact a commissioner's also job
applies to the PUC .
5) What is financial interest: The Public Utilities Code
contains no definition of what constitutes a financial interest.
The 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.
The 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 investment of $2,000 or
more. The PRA does not contain an absolute ban on ownership of
a regulated company. Since the Public Utilities Code provides
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 whether ownership in a
mutual fund or a blind trust that contains stock in regulated
companies, constitutes a financial interest. The committee may
wish to consider amendments to either define financial interests
or require the PUC to clearly define financial interest within
its updated conflict of interest codes .
6) 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 become vacant."
While the provision provides 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 decisions before the PUC.
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What is to become of the votes 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 .
7) How would this apply to existing PUC commissioners: While
this bill has no retroactive provisions and would not force any
current PUC commissioners to leave office because of any income
they may have received prior to serving on the PUC, it is
instructive to look at how this bill would have been applied to
the existing commissioners.
Only two of the current commissioners appear to have ever
received income from entities subject to PUC regulation:
Commissioners Michael Peevey and Dian Grueneich. Commissioner
Peevey was appointed to the PUC in March of 2002. From 1995
until 2000, Commissioner Peevey was President of NewEnergy Inc.,
then the nation's largest energy service provider. Prior to
that, Mr. Peevey was President of Edison International and
Southern California Edison Company. Since Mr. Peevey was
appointed to the Commission, at least two years after he left
NewEnergy and Southern California Edison, the provisions in SB
204 would not have affected his ability to serve on the PUC.
Commissioner Dian Grueneich was appointed to the commission in
January 2005. Prior to her appointment, Commissioner Grueneich
owned a law and consulting firm that represented a number of
clients before the PUC. While Commissioner Gruneneich's client
list is not publicly available, she may have represented some
companies that are "regulated" by the PUC. During Commissioner
Grueneich's confirmation hearing before the Senate Rules
Committee, a number of witnesses, ranging from industry
representatives to consumer groups to environmentalists
testified that she was well qualified to serve on the PUC.
However, because she may have represented companies that were
regulated by the PUC, if SB 204 had applied, she would not be
allowed to serve on the PUC.
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REGISTERED SUPPORT / OPPOSITION :
Support
California Alliance for Consumer Protection
California Public Interest Research Group (CALPIRG)
Utility Consumers' Action Network (UCAN)
The Foundation for Taxpayer and Consumers Rights.
Opposition
California Chamber of Commerce
California Manufacturing & Technology Association
California Public Utilities Commission
Analysis Prepared by : Edward Randolph / U. & C. / (916)
319-2083