BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | SB 18|
|Office of Senate Floor Analyses | |
|(916) 651-1520 Fax: (916) | |
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UNFINISHED BUSINESS
Bill No: SB 18
Author: Hill (D) and Hueso(D)
Amended: 8/24/15
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
SENATE FLOOR: 39-0, 5/28/15
AYES: Allen, Anderson, Bates, Beall, Block, Cannella, De León,
Fuller, Gaines, Galgiani, Glazer, Hall, Hancock, Hernandez,
Hertzberg, Hill, Hueso, Huff, Jackson, Lara, Leno, Leyva, Liu,
McGuire, Mendoza, Mitchell, Monning, Moorlach, Morrell,
Nguyen, Nielsen, Pan, Pavley, Roth, Runner, Stone, Vidak,
Wieckowski, Wolk
NO VOTE RECORDED: Berryhill
ASSEMBLY FLOOR: 80-0, 9/10/15 - See last page for vote
SUBJECT: Public Utilities Commission: outside counsel
SOURCE: Author
DIGEST: 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 submitted to the Joint Legislative Budget Committee (JLBC)
for review, with specified information, and approved by a vote
of the CPUC no sooner than 30 days after the contract has been
submitted to the JLBC.
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Assembly Amendments make technical changes.
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 (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)
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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 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
initiated by any federal, state, or local agency must be
approved by a vote of the Commissioners of the CPUC no sooner
than 30 days after the contract or agreement is submitted to
the JLBC for review.
2)Requires the contract or other agreement submitted to the JLBC
to be accompanied by information about (a) the funds the CPUC
will use to pay for the services; (b) whether the CPUC has
followed all of the laws and procedures applicable to
contracting for legal services; and (c) whether, and to what
degree, existing programs and operations of the CPUC will be
affected.
Background
On September 19, 2014, a chief assistant attorney general
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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 exposed
some highly questionable exchanges between the two
organizations.
On October 29, 2014, the AG's Office sent a letter to CPUC
responding to the CPUC's request for representation regarding
the pending investigations whereby the AG's Office declined the
request citing 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 March 26th, CPUC
Executive Director signed an amendment to extend the contract
from $49,000 to $5.2 million.
Uncharted territory. A state agency contracting outside
criminal attorneys for its defense seems extremely unique, and
possibly unprecedented. While the CPUC may have legal authority
to contract for outside legal assistance, there are concerns
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 raised concerns about the need
for more public review and transparency. Moreover, there seems
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to be no 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.
CPUC workload. 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 legislative budget subcommittee hearing,
leadership staff 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
Com.:YesLocal: No
According to the Assembly Appropriations Committee, this bill
will have minor, absorbable costs, if any.
SUPPORT: (Verified9/10/15)
None received
OPPOSITION: (Verified9/10/15)
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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 the pipeline safety program - a core function of the CPUC.
ASSEMBLY FLOOR: 80-0, 9/10/15
AYES: Achadjian, Alejo, Travis Allen, Baker, Bigelow, Bloom,
Bonilla, Bonta, Brough, Brown, Burke, Calderon, Campos, Chang,
Chau, Chávez, Chiu, Chu, Cooley, Cooper, Dababneh, Dahle,
Daly, Dodd, Eggman, Frazier, Beth Gaines, Gallagher, Cristina
Garcia, Eduardo Garcia, Gatto, Gipson, Gomez, Gonzalez,
Gordon, Gray, Grove, Hadley, Harper, Roger Hernández, Holden,
Irwin, Jones, Jones-Sawyer, Kim, Lackey, Levine, Linder,
Lopez, Low, Maienschein, Mathis, Mayes, McCarty, Medina,
Melendez, Mullin, Nazarian, Obernolte, O'Donnell, Olsen,
Patterson, Perea, Quirk, Rendon, Ridley-Thomas, Rodriguez,
Salas, Santiago, Steinorth, Mark Stone, Thurmond, Ting,
Wagner, Waldron, Weber, Wilk, Williams, Wood, Atkins
Prepared by:Nidia Bautista / E., U., & C. / (916) 651-4107
9/11/15 8:51:43
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