BILL ANALYSIS
AB 906
Page 1
Date of Hearing: May 5, 2009
ASSEMBLY COMMITTEE ON JUDICIARY
Mike Feuer, Chair
AB 906 (Hill and Smyth) - As Amended: April 27, 2009
PROPOSED CONSENT (As Proposed to be Amended)
SUBJECT : Conflict of Interest: Remote Interest in a Contract
KEY ISSUE : Should the existing "conflict of interest" law
relating to public officials be amended so as to allow public
entities to contract with investor-owned utilities in order to
take advantage of energy efficiency programs, so long as certain
safeguards are established to prevent conflicts of interest?
FISCAL EFFECT : As currently in print this bill is keyed
non-fiscal.
SYNOPSIS
Existing law generally prohibits public officials from
participating in the making of public contracts in which they
have a financial interest. However, existing law also provides
for a number of exemptions to this rule if the interest is
deemed "remote," the interest is disclosed, and other
precautions are taken to eliminate potential conflicts of
interest. This bill would expand the definition of "remote
interest" to include certain contracts between public entities
and investor-owned utilities, even where a member of the public
entity is also an official or employee of the investor-owned
utility. However, the exemption would only apply where the
contract provides the public entity with energy efficiency
rebates or otherwise allows the public entity to participate in
other energy conservation programs. According to the author,
this change will allow local agencies, in particular, to enter
into contracts that promote energy conservation. As with other
"remote interest" exemptions, this bill would also require
standard safeguards. For example, the interest would have to be
disclosed; the contract could not be made for the profit of the
investor-owned utility; the official could not reap any special
advantage from the contract; and the official would have to be
recused from any participation in the making of the contract.
The bill is sponsored by the City of Simi Valley, which, for
reasons discussed below, was uncertain as to whether it could
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participate in an energy conservation program with Southern
California Edison. There is no known opposition to the bill.
SUMMARY : Revises the definition of "remote interest" in the
existing conflict of interest statute pertaining to government
officials in order to allow a government entity to enter into a
contract with an investor-owner utility, if the purpose of the
contract is to provide energy efficiency, as specified.
Specifically, this bill :
1)Provides that an officer of a public entity shall be deemed to
have only a "remote interest" in a contract entered into by a
body or board of which the officer is a member, if that
officer is also an officer or employee of an investor-owned
utility that is regulated by the Public Utilities Commission
(PUC) and the contract requires the investor-owned utility to
provide energy efficiency rebates or otherwise encourages
energy efficiency that benefits the public, if all of the
following apply:
a) The contract is funded by utility consumers pursuant to
regulations of the PUC;
b) The contract is not performed for the profit of the
investor-owned utility and provides no individual benefit
to the officer that is not also provided to the public;
c) The officer has recused himself or herself from all
participation in the making of the contract on behalf of
the state, county, district, judicial district, or city
body or board of which he or she is a member;
d) The contract is approved by the PUC.
2)Contains an urgency clause.
EXISTING LAW :
1)Provides that Members of the Legislature, as well as state,
county, district, judicial district, and city officers or
employees, shall not be financially interested in any contract
made by them in their official capacity, or by any body or
board of which they are a member. (Government Code Section
1090.)
2)Provides that a government officer shall not be deemed to be
interested in a contract entered into by a body or board of
which the officer is a member if the officer has only a
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"remote interest," as defined, in the contract. Requires,
however, that the remote interest be disclosed to the body or
board which the officer is a member and noted in its official
records, and thereafter that the body or board authorizes,
approves, or ratifies the contract in good faith by a vote of
its membership, without counting the vote or votes of the
officer or member with the remote interest. (Government Code
Section 1091 (a).)
3)Enumerates the circumstances that would lead to characterizing
an interest as remote. (Government Code Section 1091 (b).)
COMMENTS : In order to guard against potential conflicts of
interest, existing law generally prohibits a government
official, in his or her official capacity, from participating in
the making of any contract in which the official has a financial
interest. At the same time, however, existing law provides a
number of exemptions to this general rule where the member's
interest is deemed sufficiently "remote" and is properly
disclosed and cabined. These exemptions generally reflect the
fact that officials who serve on various public entities may
occasionally have associations with private entities with whom
the public entity may wish to contract. Rather than impose a
complete ban on such contracts - which might severely limit the
public agencies contracting options - existing law attempts to
create safeguards that will eliminate any potential conflicts of
interest.
The measure is sponsored by the City of Simi Valley. The City
applied to, and was accepted to participate in, Southern
California Edison's Energy Efficiency Partnership Program, which
helps government agencies, businesses, and communities save
money, energy, and the environment by installing more
energy-efficient equipment. Edison is the only utility in the
region that offers this program. However, because one of the
sitting Council members was an employee of Edison prior to
serving on the Council, the City was uncertain whether it could
participate in the energy efficiency program without violating
the conflict of interest statute.
AB 906 provides legislative clarification that participation in
an energy efficiency program, which serves a statewide policy
interest in energy conservation, should not be barred solely
because a government official may have been an employee of the
utility company, so long as the conditions outlined in this bill
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are met. Specifically, this bill would expand the "remote
interest" exemption so as to permit a contract between a public
entity and an investor-owned utility regulated by the PUC, even
where one the members of the contracting pubic entity is also an
officer or employee of the investor-owned utility. The bill
would provide, however, that such contracts can only be entered
into if the purpose of the contract is to provide the public
entity with energy efficiency rebates or otherwise encourage
energy efficiency. In addition, the contract cannot be
performed for the profit of the investor-owned utility; there
must be no individual benefit to the official; and the official
must recuse himself or herself from all participation in the
making of the contract.
Recent Legislative History: Last year this Committee passed on
consent AB 2801 (Carter, Chapter 163, Stats. of 2008), which
expanded the definition of "remote interest" to allow a
government body to enter into a settlement agreement where a
member of that body might have an interest in the outcome of the
settlement. That bill was sponsored by the City of Rialto,
where a City Council member had, prior to being elected to the
Council, brought a suit against the City. The City was
uncertain as to whether it could enter into a settlement of the
suit without violating the conflict of interest statute. AB
2801 provided that an interest in a settlement agreement was a
"remote interest" for purposes of the statute so long as certain
conditions were met, including a requirement that the member
recuse himself or herself from any participation in the matter.
ARGUMENTS IN SUPPORT : According to the author, this bill will
allow a government body to enter into a contract with an
investor-owned utility in order to participate in
critically-needed energy conservation programs, while at the
same time ensuring that there is no direct or indirect financial
benefit to any individual member or members of the government
body, and the contract is not made for the profit of the
investor-owned utility.
Author's Amendment : The author proposes to add an urgency
clause.
REGISTERED SUPPORT / OPPOSITION :
Support
AB 906
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City of Simi Valley (sponsor)
Opposition
None on file
Analysis Prepared by : Thomas Clark / JUD. / (916) 319-2334