BILL ANALYSIS Ó
SB 18
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Date of Hearing: June 15, 2015
ASSEMBLY COMMITTEE ON UTILITIES AND COMMERCE
Anthony Rendon, Chair
SB
18 (Hill) - As Amended May 21, 2015
SENATE VOTE: 39-0
SUBJECT: Public Utilities Commission: outside counsel.
SUMMARY: This bill requires any contract entered into by the
California Public Utilities Commission (CPUC) for outside legal
counsel services to represent it in a criminal investigation to
be approved by a vote of the CPUC and be subject to a 30-day
review by the Joint Legislative Budget Committee. Specifically,
this bill:
a)Requires any contract or other agreement by the CPUC for
services by outside legal counsel to represent the CPUC in a
criminal investigation initiated by any federal, state, or
local agency to be approved by a vote of the CPUC and subject
to a 30-day review by the Joint Legislative Budget Committee
before the agreement is entered into.
b)Requires the Joint Legislative Budget Committee, as part of
its review, to consider all of the following:
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The funds that the CPUC will use to pay for these
services;
Whether the CPUC has followed all of the laws and
procedures applicable to contracting for legal services;
and
Whether, and to what degree, existing programs and
operations of the CPUC will be affected.
EXISTING LAW:
1)Prohibits a state agency, commissioner, or officer from
employing any legal counsel, other than the Attorney General
(AG), or one of her or his 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
duties. (Government Code Section 11042)
2)Authorizes the CPUC to appoint an attorney to represent and
appear for the people of the State of California and the CPUC
in all actions and proceedings involving any question, as
specified, or under any order or act of the CPUC. (Public
Utilities Code Section 307)
3)Requires a state agency to demonstrate to the Department of
General Services (DGS) that the consent of the AG to employ
other counsel has been granted, as specified, for contracts
for services of legal counsel entered into by any state
agency. (Public Contract Code Section 10335)
4)Exempts contracts for legal defense, legal advice, or legal
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services from advertising and bidding requirements, as
specified. (Public Contract Code Section 10335.5)
5)Establishes standards for the use of personal service
contracts to achieve overall cost savings to the state, as
specified. (Government Code Section 19130)
6)Authorizes the State Personnel Board (SPB), at the request of
an employee organization that represents state employees, to
review the adequacy of any proposed or executed contract, as
specified. (Government Code Section 19132)
7)Establishes requirements for purposes of entering into
contracts for consultant or advisory services, as specified,
apply to the activities of the CPUC, except when the CPUC
makes a finding that extraordinary circumstances justify
expedited contracting for consultant or advisory services.
(Public Utilities Code Section 632)
8)Authorizes the SPB to establish standards and controls over
approval of contracts by DGS, as necessary, to assure that the
approval is consistent with the merit employment principals
and requirements contained in Article VII of the California
Constitution. (Public Contract Code Section 10337)
9)Specifies that a public entity is not required to provide for
the defense of a criminal action or proceeding brought against
an employee or former employee, unless the criminal action or
proceeding is brought on account of an act or omission in the
scope of employment as an employee of the public entity, and
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
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public entity. (Government Code Section 995.8)
10)Provides that the Director of DGS may exempt from his or her
approval, or from approval of the department, 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 Section 14616)
FISCAL EFFECT: Unknown.
COMMENTS:
1)Author Statement: "The [CPUC] recently hired criminal defense
attorney for $5.2 million dollars without a vote of the
commissioners ? The [CPUC] paid for the criminal attorney out
of money that would have gone toward hiring
legislatively-authorized positions, improving Information
Technology, strategic planning, and employee training. As
such, the [CPUC] is undermining its ability to fulfill its
statutory and Constitutional responsibilities by hiring a
criminal attorney. For this reason, such a contract should be
subject to a vote of the commissioners, and it should receive
an expedited review by the Legislature. These straightforward
means of oversight would incentivize the [CPUC] to be very
clear on the purpose and scope of any proposal to spend money
on criminal defense."
2)Background: In the wake of the ongoing controversy regarding
backchannel communications between the CPUC and Pacific Gas
and Electric Company (PG&E) officials, in September 2015, the
California AG opened an independent investigation on the CPUC
over issues relating to the 2010 San Bruno pipeline explosion
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and the selection of an administrative law judge for a rate
setting case. The AG is investigating whether CPUC officials
were influenced by PG&E to select a more favorable judge to
hear a rate setting case involving the 2010 San Bruno
explosion in which the utility is seeking to pay for $1.3
billion in pipeline improvements with ratepayer funds.
In October 2014, the CPUC sent a letter to the AG's office
requesting the AG's office to represent it in the AG's
investigation. The AG's office declined the request and
responded by stating that "the [AG] is conducting an
independent investigation related to the CPUC. As a result,
the [AG's] simultaneous representation of the CPUC - or any of
its individual commissioners or employees - in connection with
the matters [?] cited in [the] request would create an
untenable conflict of interest, at the very least, an
appearance of one."
In November 2014, the CPUC signed a $49,000 contract with the
law firm of Sheppard Mullin to represent it in the AG's
investigation. The contract was subsequently amended to
increase the contract to $5.2 million in March 2015. Due to
the ongoing criminal investigations on CPUC officials and
their relationships with regulated utility officials relating
to the San Bruno explosion, there have been questions on
whether or not it is appropriate for the CPUC to use ratepayer
funds to pay for its outside legal counsel defense, instead of
seeking all civil service attorney options.
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3)Outside Contracts: Existing law tasks the SPB to review
personal service contacts between state entities and vendors
to determine whether the service can be contracted to a
private entity. In March 2015, the California Attorneys,
Administrative Law Judges, and Hearing Officers in State
Employment (CASE) filed a request with the SPB to disapprove
the CPUC legal service contract with Sheppard Mullin. CASE
argues that "the 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
Defenders."
4)Appropriate use of Ratepayer Funds? In light of the CPUC's
hiring of Sheppard Mullin to represent it in the AG's criminal
investigations, there are questions over whether or not the
CPUC exhausted all its efforts to hire civil service attorneys
before contracting with private outside counsel. Furthermore,
the subsequent increase of the contract from $49,000 to $5.2
million without oversight has also brought up questions about
whether or not ratepayer funds should be used for such
purposes and whether or not there should be greater oversight
over this process. Since there does not seem to be any limit
on the amount the CPUC can amend the contract in the future,
there are serious questions about how much ratepayer funds
will eventually be used for the CPUC's criminal legal counsel
and what impact this would have on the CPUCs main operating
purposes and whether those funds are redirected from programs
authorized through the state budget.
This bill requires any contract or other agreement by the CPUC
in which the CPUC retains outside legal counsel services to
represent the CPUC in a criminal investigation initiated by
any federal, state, or local agency to be approved by a vote
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of the CPUC and be subject to a 30-day review by the Joint
Legislative Budget Committee. As part of its review, the
Joint Legislative Budget Committee will consider (1) the funds
that the CPUC will use to pay for these services, (2) whether
the CPUC has followed all of the laws and procedures
applicable to contracting for legal services, and (3) whether,
and to what degree, existing programs and operations of the
CPUC will be affected.
5)Public Vote? This bill would require any contract entered
into by the CPUC for outside legal counsel services to
represent it in a criminal investigation to be approved by a
vote of the CPUC. There are questions of whether or not such
a vote should be open to the public. Although the public does
have the right to evaluate the merits of how ratepayer funds
are used by the CPUC, because of the nature of seeking legal
counsel for criminal investigations, it might be difficult to
hold public hearings without running into issues such as
disclosing individual personal information, details of the
investigation, or running into conflicts with attorney-client
privilege. However, as this bill moves forward, the author
may wish to consider alternative methods to informing the
public of pending contracts and its process before such
contracts are approved.
REGISTERED SUPPORT / OPPOSITION:
Support
None on file.
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Opposition
None on file.
Analysis Prepared by:Edmond Cheung / U. & C. / (916)
319-2083