BILL ANALYSIS
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UNFINISHED BUSINESS
Bill No: SB 204
Author: Bowen (D)
Amended: 8/23/05
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
SENATE FLOOR : 23-14, 5/23/05
AYES: Alarcon, Alquist, Bowen, Cedillo, Chesbro, Ducheny,
Dunn, Escutia, Figueroa, Kehoe, Kuehl, McClintock,
Migden, Murray, Ortiz, Perata, Romero, Scott, Simitian,
Soto, Speier, Torlakson, Vincent
NOES: Aanestad, Ackerman, Ashburn, Battin, Campbell, Cox,
Denham, Dutton, Hollingsworth, Maldonado, Margett,
Morrow, Poochigian, Runner
NO VOTE RECORDED: Florez, Lowenthal, Machado
ASSEMBLY FLOOR : 74-3, 8/24/06 - See last page for vote
SUBJECT : Public Utilities Commission; California Energy
Commission:
Commission memberships
SOURCE : Author
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DIGEST : This bill establishes new conflict of interest
standards for members of the California Energy Commission
and the Public Utilities Commission (PUC).
Assembly Amendments remove a section of the bill that would
have prohibited a person who received a substantial portion
of his or her income directly or indirectly from any person
or corporation subject to regulation by the PUC in the
previous two years from being a member of the PUC, and
would have prohibited a member of the PUC from being
employed by any person or corporation subject to regulation
by the PUC during the term of his or her service on the PUC
and for two years after he or she ceases being a member of
the PUC.
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.
2.Prohibits a commissioner from having an official relation
to, or financial interest in, a person or corporation
subject to regulation by the PUC and 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 PUC to adopt a Conflict of Interest Code and
Statement of Incompatible Activities.
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.
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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.
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.
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.
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.
This bill creates new conflict of interest standards for
members of the CEC and the PUC. Specifically, this bill:
1.Establishes that, if any commissioner of the PUC
voluntarily acquires a financial interest in an entity
that the commissioner knows or should have known in
subject to PUC regulation, the commissioner's office
shall be immediately vacated.
2.Requires the PUC to update its Conflict of Interest Code
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and Statement of Incompatible Activities consistent with
the above.
3.Expands an existing provision which prohibits a person
from being a member of the CED if they have received a
substantial portion of their income from any electric
utility during the previous two years, to include
receiving such income from any corporation subject to CEC
regulation during the previous two years.
4.Expands an existing provision, which prohibits a member
of the CEC from being employed by any electric utility or
applicant to the commission, to prohibit a CEC member
from being employed by any person or corporation subject
to CEC regulation.
Background
California law flatly says a PUC commissioner can't have a
financial interest in any person or corporation subject to
PUC 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 PUC
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-PUC commissioner Henry Duque $5,000 and ordered him
removed from the PUC after finding Duque invested $27,000
in Nextel, a mobile phone company subject to CPUC
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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.
Prior Related Legislation :
SB 118 (Bowen) -- 2003-2004 Session . Addressed the Duque
case by clarifying that a PUC commissioner must forfeit
their office in cases where they voluntarily obtain a
financial interest in a PUC-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) - 2003-04 Session . Contained provisions
similar 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
Minor, absorbable costs to the PUC.
SUPPORT : (Verified 8/26/06)
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California Alliance for Consumer Protection
Utility Consumers' Action Network
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 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.
ASSEMBLY FLOOR :
AYES: Aghazarian, Arambula, Baca, Bass, Benoit, Berg,
Bermudez, Blakeslee, Bogh, Calderon, Canciamilla, Chan,
Chavez, Chu, Cohn, Coto, Daucher, De La Torre, DeVore,
Dymally, Emmerson, Evans, Frommer, Garcia, Goldberg,
Hancock, Jerome Horton, Shirley Horton, Houston, Huff,
Jones, Karnette, Keene, Klehs, Koretz, La Malfa, La Suer,
Laird, Leno, Leslie, Levine, Lieber, Lieu, Matthews,
Maze, McCarthy, Montanez, Mountjoy, Mullin, Nation, Nava,
Negrete McLeod, Niello, Oropeza, Parra, Pavley, Plescia,
Richman, Ridley-Thomas, Sharon Runner, Ruskin, Saldana,
Salinas, Spitzer, Strickland, Torrico, Tran, Umberg,
Vargas, Villines, Wolk, Wyland, Yee, Nunez
NOES: Haynes, Nakanishi, Walters
NO VOTE RECORDED: Cogdill, Liu, Vacancy
NC:do 8/27/06 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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