BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | SB 18|
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THIRD READING
Bill No: SB 18
Author: Hill (D) and Hueso (D)
Amended: 5/5/15
Vote: 21
SENATE ENERGY, U. & C. COMMITTEE: 10-0, 4/21/15
AYES: Hueso, Cannella, Hertzberg, Hill, Lara, Leyva, McGuire,
Morrell, Pavley, Wolk
NO VOTE RECORDED: Fuller
SENATE APPROPRIATIONS COMMITTEE: Senate Rule 28.8
SUBJECT: California Public Utilities Commission: outside
counsel
SOURCE: Author
DIGEST: This bill requires that any contract or other
agreement by the California Public Utilities Commission (CPUC)
for services by outside legal counsel with respect to a criminal
investigation of the CPUC must be approved by a vote of the
Commissioners of the CPUC and subject to a 30-day review by the
Joint Legislative Budget Committee (JLBC) before entering into
the contract or agreement.
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
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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 (AG) in
representing state agencies and the 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 CPUC makes a finding that extraordinary
circumstances justify expedited contracting for consultant and
advisory services. (Public Utilities Code §632)
3)Requires that no state agency, commissioner, or officer 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 the 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.
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(Government Code §995.8)
8)Provides that the Director of the DGS may exempt from his or
her approval or from approval of the DGS any transactions
involving not more than $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:
1)Requires that any contract or other agreement by the CPUC for
services by outside legal counsel with respect to
representation of the CPUC in a criminal investigation must be
approved by a vote of the Commissioners of the CPUC and be
subject to a 30-day review by the JLBC before entering into
the agreement.
2)Provides specific criteria for the JLBC to consider in its
review, including: the funds the CPUC is using to pay for the
contract, whether the CPUC has complied with all legal
requirements when contracting for such services, and whether
existing programs and operations are affected by the
redirection of the funds.
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
rate-setting 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
Attorney's 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 exposes
some highly questionable exchanges between the two
organizations.
On October 29, 2014, the AG's Office sent a letter to CPUC
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responding to the CPUC'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 CPUC
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, 2015, 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, the Senate Energy Utilities and Communications
Committee questioned newly-appointed CPUC President Michael
Picker and Executive Director Timothy Sullivan on the
appropriateness of using public funds for criminal defense of
the CPUC or its current and former employees. The CPUC argued
that since the AG could not represent the CPUC due to potential
conflict, the CPUC was encouraged to seek outside counsel.
President Picker and Executive Director Sullivan also appeared
before the 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 the Committee or at a
public hearing of the CPUC, or elsewhere, the intent to extend
the contract for criminal legal services.
More recently, the CPUC has provided information related to
pursuit of an additional legal contract for criminal defense for
an unnamed employee. The new contract is in addition to the
Sheppard-Mullin contract. The new contract would be for $35,000
with the Law Office of Anthony J. Brass for "representation of
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CPUC employee in connection with state and federal
investigations of various actions at the CPUC."
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 legal assistance, there are
serious questions about the appropriateness of such contracts
when the focus is related to criminal investigations,
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 at a public hearing of 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 $880 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 the Sheppard-Mullin
contract and other contracts are likely diminishing 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 one
- two percent of the agency's operating budget. However, they
also commented on the need to adjust other priorities in order
to accommodate this redirection of funds. Specifically, they
mentioned not filling some open staff positions, foregoing
information technology projects, and others.
Prior Legislation
SB 96 (Budget Bill, Chapter 356, Statutes of 2013, §46) added
§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
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Com.:YesLocal: No
SUPPORT: (Verified5/18/15)
None received
OPPOSITION: (Verified5/18/15)
None received
ARGUMENTS IN SUPPORT: The author argues that the CPUC's
contracting for criminal legal counsel was never approved by the
Commissioners of 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 the Sheppard-Mullin Web site) 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 was 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 eight people and destroyed 30+ homes.
However, it took several legislative budget actions, including
20 augmentations, to secure the additional funding for pipeline
safety program - a core function of the CPUC.
Prepared by:Nidia Bautista / E., U., & C. / (916) 651-4107
5/21/15 14:25:36
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