BILL ANALYSIS Ó
SENATE COMMITTEE ON ENERGY, UTILITIES AND COMMUNICATIONS
Senator Ben Hueso, Chair
2015 - 2016 Regular
Bill No: SB 18 Hearing Date: 4/21/2015
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|Author: |Hill |
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|Version: |3/26/2015 As Amended |
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|Urgency: |No |Fiscal: |Yes |
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|Consultant:|Nidia Bautista |
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SUBJECT: Public Utilities Commission: outside counsel
DIGEST: This bill requires a 30-day review by the Joint
Legislative Budget Committee (JLBC) prior to the California
Public Utilities Commission (CPUC) entering into any contract or
other agreement for services by outside legal counsel with
regards to criminal matters.
ANALYSIS:
Existing law:
1. Establishes the CPUC and empowers it to regulate
privately-owned public utilities in California. Specifies
that the Legislature may prescribe that additional classes
of private corporations or other persons are public
utilities. (Article XII of the California Constitution;
Public Utilities Code §301 et seq.)
2. Establishes that the requirements in Government Code
(related to the exclusive role of the Attorney General in
representing state agencies and role of the Department of
General Services (DGS) to approve contracts) and Public
Contract Code related to entering into contracts for
consultant or advisory services apply to the activities of
the CPUC, except when the commission makes a finding that
extraordinary circumstances justify expedited contracting
for consultant and advisory services. (California Public
Utilities Code §632)
3. Requires that no state agency, commissioner, or officer
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shall employ any legal counsel other than the AG, or one of
her assistants or deputies, in any matter in which the
agency, commissioner, or officer is interested, or is a
party as a result of office or official duty. (Government
Code §11042)
4. Requires that for contracts for the services of legal
counsel entered into by any state agency subject to §11042
of the Government Code, DGS shall require that state agency
to demonstrate that the consent of the AG to the employment
of the other counsel has been granted. (Public Contract
Code §10335)
5. Establishes that contracts for legal defense, legal
advice, or legal services are exempt from the advertising
and bidding requirements in Public Contract Code (Public
Contract Code §10335.5)
6. Provides that the State Personnel Board direct a state
agency to transmit to it for review any proposed contract
it requests to assure that it is consistent with the merit
employment principles and requirements contained in Article
VII of the California Constitution. (Public Contract Code
§10337)
7. Requires that a public entity may not provide for the
defense of criminal action or proceeding, unless the public
entity determines that such defense would be in the best
interests of the public entity and that the employee or
former employee acted, or failed to act, in good faith,
without actual malice and in the apparent interests of the
public entity. (Government Code §995.8)
8. Provides that the Director of the DGS may exempt from
his or her approval or from approval of the department any
transactions involving not more than fifty thousand dollars
($50,000) for which such approval is required by statute
whenever, in his or her judgment, such exemption is
appropriate and in the best interests of the state.
(Government Code §14616)
This bill would require the CPUC to submit for review to the
JLBC any contract or other agreement of services for outside
legal counsel regarding criminal matters prior to the CPUC
SB 18 (Hill) Page 3 of ?
entering into such an agreement.
Background
On September 19, 2014, a chief assistant attorney general
emailed the then executive director of the CPUC to notify the
agency that the AG was initiating an independent investigation
related to (1) the San Bruno explosion investigation; (2) the
ratesetting proceeding for PG&E; and (3) anything relating to
the assignment of Administrative Law Judges.
On October 9, 2014, PG&E revealed that the United States
Attorneys Office is investigating five years' worth of
back-channel communications between the company and the CPUC,
including communications related to judge-shopping for the San
Bruno explosion case. On the same day, PG&E released emails
regarding the communication between CPUC and PG&E that
illuminates some highly questionable exchanges between the two
organizations.
On October 29, 2014, the AG's Office sent a letter to CPUC
responding to the agency's request for representation regarding
the pending investigations whereby the AG's office declined the
request. The letter from the AG's Office cited concern that
their simultaneous investigation and representation of the
agency would "create an untenable conflict of interest or, at
the very least, an appearance of one."
On November 20, 2014, the CPUC entered into a contract with the
law firm Sheppard-Mullin for criminal legal representation in
the amount capped at $49,000, which was revealed months later
when reported in several newspapers.
On February 24, CASE (California Attorneys, Administrative Law
Judges, and Hearing Officers in State Employment) told the State
Personnel Board, "CPUC is currently undergoing at least two
separate investigations into criminal wrongdoing. To the extent
CPUC needs experienced criminal defense counsel, the State of
California has an entire office of trained criminal defense
attorneys at the Office of the State Public Defender."
On March 3, 2015, this committee questioned newly-appointed CPUC
President Michael Picker and Executive Director Timothy Sullivan
on the appropriateness of using public funds for criminal
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defense of the agency or its current and former employees. The
CPUC argued that because the Attorney General could not
represent the agency due to potential conflict, the CPUC was
encouraged to seek outside counsel. President Picker and
Executive Director Sullivan also appeared before this committee
on March 25th at the third of three oversight hearings related
to CPUC Reform. The following day Executive Director Sullivan
signed an amendment to the initial contract with Sheppard-Mullin
to extend the contract from $49,000 to $5.2 million. However,
neither President Picker nor Executive Director Sullivan
mentioned to this committee, or elsewhere, the intent to extend
the contract for criminal legal services.
Uncharted Territory
A state agency contracting outside criminal attorneys for its
defense seems to be extremely unique, and possibly
unprecedented. While the CPUC may have legal authority to
contract for outside criminal attorneys, there are serious
questions about the appropriateness of such contracts,
particularly when it's unclear if the intent is to provide
criminal defense of former or current employees with funds from
a Ratepayer Reimbursement Account. At a minimum, the process by
which the contract was secured with a cap of $49,000, and then
seemingly overnight amended for $5.2 million without public
review, including by the CPUC, has further eroded the public's
trust. Moreover, there doesn't seem to be a limit to CPUC's
ability to continue to amend the amount of the contract moving
forward. With attorneys charging the CPUC a discounted rate of
$800+ per hour, there's no telling how quickly the $5 million
might be spent and whether the CPUC may be looking to further
amend the contract for a larger amount.
In addition, the $5.2 million utilized for this contract is
likely diminished some of the work the CPUC would have pursued
with these funds. At a recent budget subcommittee hearing,
leadership staff of the CPUC noted that the $5.2 million was
"absorbable", representing roughly 1-2 percent of the agency's
operating budget. However, they also commented on the need to
shift some priorities to accommodate this redirection of funds,
including not filling some open positions, foregoing information
technology projects, and others.
The author and committee may wish to amend the bill to require
the CPUC to review any contract or agreement related to criminal
SB 18 (Hill) Page 5 of ?
legal counsel at a publicly noticed voting meeting of the CPUC.
Furthermore, the author and committee may wish to amend the bill
to provide criteria for the JLBC to consider in its review, for
example how the contract will be funded and any potential impact
on existing programs and operations of the agency.
Prior/Related Legislation
SB 96 (Budget Bill, Chapter 356 2013, Section 46) adds Section
854.5 in the Public Utilities Code, which limits the ability of
the CPUC to create non-state entities, whether for profit or not
for profit. Among the provisions in the section, requires that a
non-state entity to be created with moneys from a public
utility's shareholders shall be subject to a 30-day review by
the JLBC prior to creation.
FISCAL EFFECT: Appropriation: No Fiscal
Com.: Yes Local: No
SUPPORT:
None received.
OPPOSITION:
None received.
ARGUMENTS IN SUPPORT: The author argues that the CPUC's
contracting for criminal legal counsel was never approved by the
CPUC, let alone the Department of Finance or the Legislature. He
further states that were the contract subject to scrutiny, these
entities might have asked why it is appropriate for a firm
involved in business before the CPUC, including the San Onofre
steam generator litigation (as advertised on its website) to
also represent the CPUC.
Putting the $5.2 million contract into context, the author notes
that, in 2013, the CPUC spent $4.5 million on its gas safety
program, $3.6 million of which as reimbursed by the federal
government. The $4.5 million of investment was double that spent
in 2010, the year of the San Bruno natural gas pipeline
explosion that killed 8 people and destroyed 30+ homes. However,
it took several legislative budget actions, including 20
augmentations, to secure the additional funding for pipeline
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safety program -a core function of the CPUC.
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