BILL ANALYSIS Ó
AB 865
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Date of Hearing: April 29, 2016
ASSEMBLY COMMITTEE ON JOBS, ECONOMIC DEVELOPMENT, AND THE ECONOMY
Eduardo Garcia, Chair
AB 865
Alejo - As Amended April 16, 2015
SUBJECT: State Energy Resources Conservation and Development
Commission: grants and loans: diversity
SUMMARY: Requires the State Energy Resources Conservation and
Development Commission (Commission) to establish guidelines for the
purpose of encouraging grantees and borrowers to engage women,
minority, disabled veterans, and LGBT business enterprises in
subcontracts, as specified. Specifically, this bill:
1)Requires the Commission to condition the receipt of a grant or loan
with a commitment by the grantee or borrower of a certain size to
meet diversity planning and reporting requirements.
2)Requires each grant or loan recipient with revenues exceeding $25
million to undertake the following:
a) Annually submit a detailed and verifiable plan for increasing
procurement from women, minority, disabled veteran, and LGBT
business enterprises in all categories, including, but not
limited to, renewable energy, advanced technologies, and
demonstration projects; and
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b) Provide an annual report to the Commission regarding the
implementation of outreach programs to inform and recruit women,
minority, disabled veteran, and LGBT business enterprises to
apply for procurement contracts, as specified.
3)Requires the Commission to establish guidelines for specified
grantees and borrowers to use in creating supplier and subcontractor
outreach programs.
4)Authorizes the Commission to set a revenue threshold other than $25
million for those Commission grantees and borrowers mandated to
comply with the planning and reporting requirements in this measure.
5)Requires that the annual report on outreach program implementation
be a public document and posted on the Internet website of the grant
or loan recipient or Commission.
6)Requires the Commission, following the recipient of the plans and
reports, to consider establishing a Diversity Task Force to consider
and make recommendations about diversity in the energy industry,
including diversity of corporate governing boards and procurement
from diverse businesses.
7)Provides that if the Commission establishes a Diversity Task Force,
that the Commission consider how the Task Force can address and
promote local and targeted hiring.
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8)Defines the following terms:
a) "Control" means exercising the power to make policy decisions.
b) "Disabled veteran business enterprise" has the same meaning as
defined in Section 999 of the Military and Veterans Code, which
is defined under existing law.
c) "LGBT business enterprise" means a business enterprise that is
at least 51 percent owned by a lesbian, gay, bisexual, or
transgender person or persons, or, in the case of any publicly
owned business, at least 51 percent of the stock of which is
owned by one or more lesbian, gay, bisexual, or transgender
persons, and whose management and daily business operations are
controlled by one or more of those individuals.
d) "Minority business enterprise" means a business enterprise
that is at least 51 percent owned by a minority group or groups,
or, in the case of any publicly owned business, at least 51
percent of the stock of which is owned by one or more minority
groups, and whose management and daily business operations are
controlled by one or more of those individuals. The contracting
utility shall presume that minority includes African Americans,
Hispanic Americans, Native Americans, and Asian Pacific
Americans.
e) To "operate" means to be actively involved in the day-to-day
management. It is not enough to merely be an officer or director.
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f) "Renewable energy project" means a project for the development
and operation of an eligible renewable energy resource meeting
the requirements of the California Renewables Portfolio Standard
Program [Article 16 (commencing with Section 399.11) of Chapter
2.3 of Part 1 of Division 1].
g) "Women business enterprise" means a business enterprise that
is at least 51 percent owned by a woman or women, or, in the case
of any publicly owned business, at least 51 percent of the stock
of which is owned by one or more women, and whose management and
daily business operations are controlled by one or more of those
individuals.
EXISTING LAW:
1)Establishes the Commission to serve as the state's primary energy
policy and planning agency. The Energy Commission is comprised of a
five-member board appointed by the Governor and approved by the
California State Senate. Among other duties, the Energy Commission
administers a range of grant and loan programs
2)Requires the Public Utilities Commission (PUC) to require each
electrical, gas, water, wireless telecommunications service
provider, and telephone corporation with gross annual revenues over
$25 million (including commission-regulated subsidiaries and
affiliates) to submit annually a detailed and verifiable plan for
increasing women- and minority-owned business and DVBE procurement
in all categories.
3)Defines the following terms:
a) "Women business enterprise" means a business enterprise that
is at least 51% owned by a woman or women; or, in the case of any
publicly owned business, at least 51% of the stock of which is
owned by one or more women; and whose management and daily
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business operations are controlled by one or more of those
individuals.
b) "Minority business enterprise" means a business enterprise
that is at least 51% owned by a minority group or groups; or, in
the case of any publicly owned business, at least 51% of the
stock of which is owned by one or more minority groups, and whose
management and daily business operations are controlled by one or
more of those individuals. The contracting utility is directed to
presume that minority includes Black Americans, Hispanic
Americans, Native Americans, and Asian Pacific Americans.
c) "DVBE" means a sole proprietorship, corporation, or
partnership whose management and control of the daily business
operations is by one or more disabled veterans. If the
enterprise is a sole proprietorship, then at least 51% is owned
by one or more disabled veterans. A publicly owned business must
have at least 51% of its stock unconditionally owned by one or
more disabled veterans. A subsidiary that is wholly owned by a
parent corporation is a DVBE if at least 51% of the voting stock
of the parent corporation is unconditionally owned by one or more
disabled veterans and a joint venture is a DVBE if at least 51%
of the joint venture's management, control, and earnings are held
by one or more disabled veterans.
FISCAL EFFECT: Unknown
POLICY ISSUE FRAME:
Although California has enormous diversity in its population, this
does not mean by default that historically underserved populations are
seeing an increased prosperous role in the U.S. economy. Research
demonstrates that the highest earners received most of their income
from capital gains and business ownership. This strongly suggests that
an often overlooked means for challenging income disparity is to
increase diversity among entrepreneurs and acting on behalf of
minority, women, LGBT, and disabled veteran business owners, to
increase their access to self-employment and correct for historical
disparities.
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This measure proposes to increase the rate of successful
entrepreneurship among minorities, women, LGBT-identified individuals,
and disabled veterans. In doing so the bill recognizes the
demographic shifts of the California marketplace and helps to nurture
the new and next generation of energy technology leaders. As an
additional community benefit, the bill mark progress towards
mitigating social prejudice and income disparity.
The Comment section of the analyses includes additional information on
a model program and its complimentary outreach activities which draw
comparison to the intent of this bill, a Congressional Budget Office
report's findings on income disparity as it relates to business
ownership, and the contrast between current demographic shifts and the
lack of diversity among corporate leadership. Comment 6 includes a
list of amendments the author will be accepting that help
operationalize this measure.
COMMENTS:
1)Author's Purpose: According to the author's statement, "AB865 will
ensure that California's clean energy future is inclusive of diverse
communities. This bill will help working families and working-class
communities make economic and environmental gains with its
investments. The Commission currently directs much of California's
investments in clean energy research, clean transportation, and
energy efficiency. This bill helps ensure California's climate
change policies and investments have maximum co-benefits to reduce
pollution and poverty.
This bill will require recipients of commission funding - which
supports projects advancing clean transportation and energy
technologies as well as cutting edge research - to report annually
on their minority-, women-, LGBT- and disabled veteran-owned
business procurement efforts.
It will also require that fund recipients develop a verifiable
supplier diversity plan. In addition, it will create a diversity
advisory committee to support the Commission's supplier diversity
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efforts, including creating guidelines for fund recipients to use in
carrying out bill requirements.
AB865 builds upon the success of CPUC, General Order 156, which
created an effective supplier diversity program that has led to $8.5
billion in procurement contracts with diverse business enterprises
out of the $24 billion total purchased by applicable companies. The
insurance industry has seen similar success under AB53, with an
effective and innovative diversity task force achieving higher
diversity procurement numbers in California. It is now time to see a
successful supplier diversity program apply to the entire energy
sector."
2)Model Program: Beginning in 1986, the Legislature enacted a series
of statutes, and the PUC adopted General Order (GO) 156, for the
purpose of encouraging greater participation in utility contracts by
women, minorities, and disabled veteran owned business enterprises
(WMDVBE). In 2014, lesbian, gay, bisexual, and transgender business
enterprises were added through statute. Currently regulated
entities include electrical, gas, water, wireless telecommunications
service providers, and telephone corporations with gross annual
revenues over $25 million including commission-regulated
subsidiaries and affiliates.
Statute and GO 156 include rules and regulations for the utilities'
compliance with the WMDVBE contracting program, and requires
participating utilities to inform, recruit, and obtain at least 20%
of their products and services purchased within a five-year period
from women- and minority-owned businesses. The targets are 15% for
minority-owned businesses, 5% for women-owned businesses, and 1.5%
for DVBEs.
GO 156 further requires woman- and minority-owned business
enterprises to be certified through the CPUC's Utility Diversity
Supplier Program Clearinghouse, and disabled veteran-owned
businesses to be certified by the Department of General Services
pursuant to DVBE certification established under the California
Disabled Veteran Business Enterprise Program. There are currently
7,944 verified vendors in the Clearinghouse database, of which 2,358
are minority-owned businesses, 2,661 are women-owned businesses,
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1,164 are minority women-owned or woman and minority male-owned
businesses, and 1,761 are DVBEs. Utilities subject to these
diversity contracting requirements are assessed a charge based on
intrastate revenues to support operation of the Clearinghouse.
Regulated entities are required to annually submit a detailed and
verifiable plan, with goals and timetables, for increasing WMDVBE
participation in all categories of procurement, including
technology, equipment, supplies, services, materials, and
construction. Although there is no penalty for failure of a utility
to meet its goals, each utility is required to report annually on
its progress. The CPUC, in turn, is required to make an annual
progress report to the Legislature.
The California Constitution prohibits the state from discriminating
against, or granting preferential treatment to, any individual or
group on the basis of race, sex, color, ethnicity, or national
origin in the operation of public employment, public education, or
public contracting. According to the CPUC, nothing in GO 156
authorizes or permits a utility to use set-asides, preferences, or
quotas in administration of its WMDVBE program, and utilities retain
the authority to use legitimate business judgment to select a
supplier for a particular contract.
3)Outreach Activities: AB 865 requires grantees and borrowers to
establish outreach programs as a means to inform and recruit a
broader diversity of applicants to their contracting activities.
Examples of the types of outreach activities recommended in GO 156
include:
a) Actively seek out opportunities to identify WMDVBE contractors
and to expand WMDVBE source pools;
b) Actively support the efforts of organizations experienced in
the field who promote the interests of WMDVBE contractors;
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c) Work with WMDVBE contractors to facilitate contracting
relationships by explaining utility qualification requirements,
bid and contracting procedures, materials requirements, invoicing
and payment schedules, and other procurement practices and
procedures;
d) Encourage employees involved in procurement activities to
break apart purchases and contracts as appropriate to accommodate
the capabilities of WMDVBEs; and
e) At the request of any unsuccessful WMDVBE bidder, provide
information concerning the relative range/ranking of the WMDVBE
contractor's bid as contrasted with the successful bid.
GO 156 also provides that outreach activities should vary for each
utility depending on its size, service territory, and specific lines
of business.
4)Using Entrepreneurship to Address Income Disparity: In
understanding how business ownership can shift the income disparity
dynamic, it may be useful to consider a 2011 Congressional Budget
Office (CBO) report on after-tax incomes of American households.
The CBO found that between 1979 and 2007, income for households at
the higher end of the income scale rose much more rapidly than
income for households in the middle and at the lower end of the
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income scale. Most significantly, by the end of the reporting
period (2005-2007), the after-tax income received by the top 20%
exceeded the after-tax income of the remaining 80%. The chart below
illustrates the CBO's findings in more detail.
------------------------------------------------------------
| After-Tax Income Growth 1979 to 2007 |
| |
| |
------------------------------------------------------------
|---------+---------------+--------------+------------------|
| Income |Income Earners | Percentile |Percentage Growth |
| Bracket | | | |
| | | | |
| | | | |
|---------+---------------+--------------+------------------|
| 1 | Top 1% | 100th | 275% |
| | | | |
| | | | |
|---------+---------------+--------------+------------------|
| 2 | Next 20% | 81st to 99th | 65% |
| | | | |
| | | | |
|---------+---------------+--------------+------------------|
| 3 | Next 60% | 20th to 80th | 40% |
| | | | |
| | | | |
|---------+---------------+--------------+------------------|
| 4 | Bottom 20% | 1 to 19th | 18% |
| | | | |
| | | | |
-----------------------------------------------------------
------------------------------------------------------------
|Source: "Trends in the Distribution of House Income Between |
|1979 and 2007,3 Congressional Budget Office, 2011 |
| |
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| |
------------------------------------------------------------
The two primary reasons for the increase in income disparities were
(a) the uneven distribution in the sources of household income and
(b) the differing economic circumstances of those sources.
Households in the higher income brackets (1 & 2) received a majority
of their income through capital gains and business income, which
increased in value as a share of total income, while individuals in
the bottom two brackets (3 & 4) received a majority of their income
from labor income and capital income, which decreased in value.
With the recession, this income disparity has continued to increase,
in part, because of the impact of long term unemployment on wages (a
core component of labor income), and rental rates (a core component
of capital income).
The findings in the report also suggest that policies that inhibit
access to self-employment serve to reinforce income disparities and
that policies which encourage entrepreneurship, especially to
historically underserved populations, could begin to break the
trend.
5)Market Impacts of California's Demographic Shift: As unprecedented
numbers of baby boomers prepare to retire from the market place,
many corporate boards will be seeking new members to help shape
their businesses for the future. This demographic trend reflects
not only a generational shift in the U.S., but it also marks a shift
in the race and ethnicity of the nation's working age population.
The California Budget Project estimates that by 2020, nearly 60% of
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the working age population in California will be comprised of
Latinos, African Americans, and Asian Americans. Similarly, the
composition of the U.S. consumer base is changing. Minority
purchasing power in the U.S. is expected to triple from $1.3
trillion in 2000 to over $4 trillion by 2045. This represents over
a 70% growth of total U.S. purchasing power during the same time
period. Latino and African American purchasing power is already so
significant in the U.S. that if it were compared to national GDPs,
it would be greater than all but nine economies in the world.
Companies that want to remain competitive are designing new and
adapting existing products and services to meet this expanding
market. Corporate leadership, however, has not kept pace with the
changing demographics, and there remains a gap in the ethnic and
gender diversity on corporate boards. According to a 2008 report by
Virtcom Consulting on the leadership of Fortune 100 companies, while
women comprise slightly more than half the U.S. population, they
hold only 17% of the positions on corporate boards of Fortune 100
companies. Research also suggests that companies with more diverse
boards have higher performance and other financial metrics such as
return on equity, return on sales, and return on investment.
However, even given this type of empirical evidence for
out-performance, there has been very little progress in bringing
diversity to boardrooms. The above-referenced report states that
Caucasian, non-Latinos, still hold a disproportionate share of board
seats by occupying 84% of the 1,031 corporate board seats of Fortune
100 companies. African Americans held 10%, Asian Americans 2%, and
Latinos 4%. Another study conducted by the Alliance for Board
Diversity examined growth in diversity from 2004 to 2006, revealing
that only three net seats were gained by women and minorities.
A 2012 study by Alliance for Board Diversity noted that between 2004
and 2012, among Fortune 100 companies:
Women had gained only 38 board seats, 16.2% to 19.8% or a 2.9%
increase.
Minority men had gained only 12 seats, 11.9% to 12.4% or a
0.5% increase.
Minority women had gained 9 seats, 3% to 3.9% or a 0.9%
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increase.
Among Fortune 500 companies, women held less than 20% of corporate
board seats in 2014, according to a January 2015 study by Catalyst,
a Canadian nonprofit organization that publishes research on women
and business.
Encouraging more diverse boards is an important public policy as it
lessens income and equity gaps, generates higher tax revenues, and
contributes to the state's overall competitiveness. By modernizing
the state's procurement policies to reflect new cultural, racial and
gender business conditions, AB 865 advances an important public
policy for the post-recession economy.
1)Proposed Amendments: The Committee staff is in discussions with the
author on the amendments listed below.
a) Shift the size of business revenue trigger to a size of loan
or grant trigger.
b) Streamline the Commission's oversight and clarify the purpose
of the outreach programs.
c) Reduce planning and reporting to an outreach plan and a
document that tracks its implementation and outcomes.
d) Direct the Commission to address certification of the targeted
populations including the use of existing certification processes
of the state and nationally recognized third-party
certifications.
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e) Require the grantee or borrower, within 60 days following a
grant award or loan approval subject to this bill, to report to
the Commission on whether they are a certified business, as well
as the diversity composition of their suppliers and
subcontractors in the current and prior year.
f) Require the grantee or borrower to continue to track and
report on the diversity of its subcontractors for two-years
following receipt of the Commission's funds or the term of the
loan or grant, whichever is longer.
g) Require all annual reports to be on the Commission's website.
1)Related Legislation: Below is a list of bills from the current and
prior sessions.
a) AB 873 (Davis) PUC Procurement Contracts with Water Companies:
This bill requires each water corporation with 10,000 or more
service connections to submit annual plans for increasing
procurement from women- and minority-owned businesses and DVBEs
to encourage each electrical, gas, water, and telephone
corporation that is not required to submit a plan under current
law to voluntarily adopt a plan for increasing women, minority,
and DVBE procurement in all categories. Status: Signed by the
Governor, Chapter 316, Status of 2008.
b) AB 1255 (V. Manuel Pérez) Corporate Board Registries
Notification: This bill, as it was heard in JEDE, would have
enhanced access to information about the range of minority and/or
women candidates qualified to serve on corporate boards by
requiring that the Secretary of State provide corporations a
listing of known registries of potential board candidates.
Status: The bill was amended with different language in the
Senate, 2012.
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c) AB 1678 (Gordon) LGBT Procurement Participation: This bill
extends provisions that require investor owned electrical, gas,
water, wireless telecommunication service providers, and
telephone corporations to encourage, recruit, and utilize
minority, women, disabled veteran owned business enterprises to
include Lesbian, Gay, Bisexual, and Transgender business
enterprises. Status: Signed by the Governor, Chapter 633,
Statutes of 2014.
d) AB 1918 (Davis) PUC Procurement Wireless Telecommunications:
This bill requires the PUC to require specified wireless
telecommunications service providers to annually report on their
progress in increasing contracting with women- and minority-owned
businesses and DVBEs. Status: Signed by the Governor, Chapter
456, Statutes of 2010.
e) AB 2593 (Bradford) Diversity at the Air Resources Board: This
bill would have required businesses with gross annual revenues
exceeding $25 million that participate in programs administered
by the Air Resources Board (ARB) that receive funding from the
Greenhouse Gas Reduction Fund to report to ARB on efforts to
increase procurement from women, minority, and disabled veteran
business enterprises. Status: Vetoed by the Governor, 2014. The
Governor's veto message stated, "This bill would require a
business enterprise with gross annual revenue exceeding $25
million, participating in a program administered by the Air
Resources Board that is funded from the Greenhouse Gas Reduction
Fund, to report annually to the Air Board regarding supplier
diversity procurement. Without question, I support the general
goal, but this bill establishes a burdensome and expensive
requirement for businesses with no clear way to ensure that
supplier diversity would actually increase. Furthermore, State
agencies are already taking action to report on diversity
procurement and currently report to both the State and Federal
governments on supplier diversity procurement contracts."
f) AB 2758 (Bradford) PUC Minority and Women Procurement Goal
Reporting: This bill requires the PUC to include in their
required report to the Legislature, the renewable energy,
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wireless telecommunications, broadband, smart grid and rail
projects as categories for which utilities should increase
procurement from women, minority, and disabled veteran-owned
enterprises, specified. Status: Signed by the Governor. Chapter
475, Statutes of 2010.
g) AB 3678 (Moore) PUC Procurement Goals: This bill codified the
broader parameters of GO 156, and requires electrical, gas, and
telephone corporations (with gross annual revenues exceeding $25
million) to annually submit a detailed and verifiable plan for
increasing women- and minority-owned business procurement in all
categories that includes short- and long-term goals and
timetables, and furnish an annual report. It also required the
PUC to establish guidelines for the plans. Status: Signed by the
Governor, Chapter 1259, Statutes of 1986.
h) SB 2398 (Dills) PUC DVBE Procurement Goal: This bill included
DVBEs in the classes of entities eligible under women- and
minority-owned business programs. A subsequent PUC decision
includes disabled veteran-owned business enterprises (D.
95-12-045) and establishes a 1.5-percent goal for disabled
veteran-owned businesses. Status: Signed by the Governor,
Chapter 516, Statutes of 1990.
2)Double Referral: The Assembly Rules Committee has referred this
measure to the Assembly Committee on Utilities and Commerce (U&C)
and the Assembly Committee on Jobs, Economic Development and the
Economy. This measure passed U&C on a 10 to 3 vote.
REGISTERED SUPPORT / OPPOSITION:
Support
Asian Business Association
Asian Business Association, Inland Empire
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Asian Pacific Environmental Network
California Black Chamber of Commerce
Coalition for Clean Air
Environment California
Environmental Defense Fund
Equality California
Green Technical Education and Employment
Greenlining Institute (Sponsor)
Natural Resource Defense Council
sustainableSMARTS
West Angeles Community Development Corporation
Opposition
None received
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Analysis Prepared by:Toni Symonds / J., E.D., & E. / (916) 319-2090