BILL ANALYSIS
SENATE LOCAL GOVERNMENT COMMITTEE
Senator Patricia Wiggins, Chair
BILL NO: AB 906 HEARING: 6/17/09
AUTHOR: Hill FISCAL: No
VERSION: 6/8/09 CONSULTANT: Detwiler
CONFLICTS OF INTEREST (URGENCY)
Background and Existing Law
It is a crime for a public official to have a financial
interest in a contract made by that official or by the
governing board on which the member sits. Contracts that
violate this prohibition are void and unenforceable. A
willful violation can result in a fine or prison time, plus
a lifetime ban on holding public office.
However, state law says that an official is not interested
in a contract if the person has only a remote interest.
The official must publicly disclose the interest and the
agency must approve the contract without that official's
vote. State law defines 15 situations that qualify as
remote interests.
In 2008, the California Public Utilities Commission adopted
the California Long-term Energy Efficiency Strategic Plan
to push the investor-owned utilities towards aggressive
energy efficiency goals. In response, utility companies
filed applications seeking the Public Utilities
Commission's authorization for $3.7 billion in energy
efficiency programs in 2009-11. Utilities work with
builders, farmers, and local governments to achieve energy
efficiencies.
Southern California Edison, an investor-owned utility
regulated by the Public Utilities Commission, developed a
Local Government Partnership portfolio to reward cities for
participating in its energy saving activities. Edison
proposed to contract with the City of Simi Valley (Ventura
County) to conserve energy by installing efficient
lighting, improving heating, ventilation, and air
conditioning equipment, replacing pumps, and other
measures.
Because a Simi Valley city councilmember also works for
Southern California Edison, the City cannot contract with
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Edison without violating the ban on economic self-dealing.
Councilmembers in other cities also work for investor-owned
utilities and may face similar problems.
Proposed Law
Assembly Bill 906 adds a 16th item to list of remote
interests that are exempt from the statute that prohibits
economic conflicts of interest.
This new remote interest applies to a contract between an
investor-owned utility that the Public Utilities Commission
regulates and a state, county, district, judicial district,
or city body or board where the contract requires the
utility to provide energy efficiency rebates or other
programs that encourage energy efficiency that benefit the
public.
To qualify for this new remote interest that involves a
person who is an officer or employee of an investor-owned
utility that is regulated by the Public Utilities
Commission, five conditions must apply:
The contract is funded by utility consumers
pursuant to the Public Utilities Commission's
regulations.
The contract is not performed for the utility's
profit.
The contract provides no individual benefit to the
person that is not also available to the public.
The person has recused himself or herself from
participating in making the contract on behalf of the
public agency.
The contract implements a program authorized by the
Public Utilities Commission.
Comments
1. Finding the balance . Simi Valley's situation is a
classic case of clashing public policies. One state policy
prohibits public officials from economic self-dealing; it's
a crime for public officials to have a financial interest
in contracts with their own agencies. The other state
policy pushes investor-owned utilities to contract with
consumers --- including public agencies --- to conserve
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electricity and natural gas; conservation is the best way
to deliver new energy supplies. Neither the Legislature
nor the Public Utilities Commission anticipated that their
policies would conflict. AB 906 resolves this conflict
between the two competing public policies by relegating the
problem to the category of a "remote interest" that doesn't
result in a crime.
2. Won't work . Despite repeated wordsmithing, AB 906
doesn't fix the problem faced by city councilmembers in
Simi Valley and other cities. By requiring that the
contract can't be performed for the utility's profit, the
bill fails to deliver the relief that the sponsors seek.
By definition, an investor-owned utility profits from an
energy conservation contract with a public agency. The
utility gets an economic advantage by conserving
electricity or gas that the public agency used to consume
and then sells that energy to other consumers. The key
test is not that the utility doesn't profit, but that the
public official won't individually benefit from the
contract in ways that aren't publicly available. To make
the bill work, the Committee may wish to consider deleting
the requirement that the contract isn't performed for the
utility's profit.
3. Urgency clause . Regular statutes take effect on the
January 1 following their enactment; bills passed in 2009
take effect on January 1, 2010. The California
Constitution allows bills with urgency clauses to take
effect immediately if they're needed for the public peace,
health, and safety. AB 906 contains an urgency clause so
that Simi Valley and other cities can sign utility
contracts and start conserving energy before 2009 ends.
Assembly Actions
Assembly Judiciary Committee:10-0
Assembly Floor: 73-0
Support and Opposition (6/11/09)
Support : City of Simi Valley, Regional Council of Rural
Counties.
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Opposition : Unknown.