BILL ANALYSIS �
SB 434
Page A
Date of Hearing: June 9, 2014
ASSEMBLY COMMITTEE ON UTILITIES AND COMMERCE
Steven Bradford, Chair
SB 434 (Hill) - As Amended: January 6, 2014
SENATE VOTE : 26-2
SUBJECT : Public Utilities Commission: removal of a
commissioner
SUMMARY : This bill expands the prohibition of a sitting
California Public Utilities Commission (PUC) Commissioner from
acting as an owner, director, or officer of a non-state entity
of existing non-state entities created before January 1, 2014 to
those created by future actions of the PUC. Specifically, this
bill :
1)Expands the prohibition of a sitting PUC Commissioner from
acting as an owner, director, or officer of a non-state entity
created before January 1, 2014 to those by future actions of
the PUC.
2)Provides that, beginning June 1, 2014, a Commissioner who acts
as an owner, director, or office of a non-state entity that
was established as a result of an order, decision, motion,
settlement, or other action by the PUC in which the
Commissioner participated, neglects his/her duty and may be
removed pursuant to the California Constitution, irrespective
of when the non-state entity was established.
EXISTING LAW
1)The California Constitution provides that the Legislature may
remove a commissioner for incompetence, neglect of duty, or
corruption, with a two-thirds vote of both houses. (Article
X11, Section 1)
2)Requires the PUC to report on the funding and expenditures of
entities or programs established by the PUC, including, but
not limited to, the California Clean Energy Fund, the
California Emerging Technology Fund, and the Pacific Forest
and Watershed Lands Stewardship Council, as well as entities
or programs established by the commission, other than those
expressly authorized by statute under specified statutes.
SB 434
Page B
(Public Utilities Code �326.5)
3)States the PUC may supervise and regulate every public utility
and may do all things, whether specifically designated in this
part or in addition thereto, which are necessary and
convenient in the exercise of such power and jurisdiction.
(Public Utilities Code �701)
4)Prohibits the PUC from establishing a nonstate entity with any
moneys other than those moneys that would otherwise belong to
the public utility's shareholders and requires that a
nonstate entity created with moneys from a public utility's
shareholders is subject to a 30-day review by the Joint
Legislative Budget Committee prior to creation. (Public
Utilities Code 854.5)
5)Prohibits a public official or a board on which the public
official sits from entering into a contract with an entity in
which the public official has financial interest. (Government
Code �1090)
6)Permits the board of a public entity to enter into a contract
with an entity in which one of its members has a remote
financial interest, as defined, if that member does not
participate in the decision and discloses the remote interest.
(Government Code �1091)
7)Prohibits an officer or employee of the state from engaging in
any employment, activity, or enterprise from which the office
or employee receives compensation or in which the officer or
employee has a financial interest and which is funded by a
state agency unless the employment, activity, or enterprise is
required as a condition of the officer's or employee's regular
state employment. (Public Contract Code �10410)
8)Prohibits, for a two year period, a former state employee from
entering into a contract in which he or she participated in
the decision making process while employed by a state agency
beginning on the date the person left state employment.
(Public Contract Code �10411)
9)Declares that a sitting PUC Commissioner who acts as an owner,
director, or officer of a non-state entity created by the PUC
before January 1, 2014, and is negligent of his/her duty, as
specified, may be removed from office by a two-thirds vote of
both houses of the Legislature.
SB 434
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FISCAL EFFECT : Unknown
COMMENTS : According to the author, "the purpose of the bill is
to enhance state oversight over moneys approved by the
California Public Utilities Commission. Current law prohibits a
commissioner from sitting on a non-state entity that he or she
had a hand in creating as a commissioner, but only if the
non-state entity was created before January 1, 2014 (active June
1, 2014)." This bill would instead ensure that the policy is
forward-looking and would apply to all current and future
commissioners upon the operative date of the legislation, which
would be January 1, 2015 if enacted and signed by the Governor."
1)Background . The impetus for this bill attempts to expand the
PUC commissioner conflict of interest provision in last year's
Resources Budget Trailer Bill by prohibiting current or future
commissioners from siting on a PUC-created non-state entity,
such as a non-profit, if that commissioner was involved in
creating the entity.
SB 96, the Resources Budget Trailer Bill for the Budget Act of
2013, contained reforms directed at the PUC regarding creation
of non-profits and reduction conflicts of interests in
contracting with and sitting on non-state entities. However,
certain provisions in the Trailer Bill are narrow and do not
preclude a commissioner from sitting on PUC-contracted or
PUC-established entities after he or she leaves office. In
addition, there is a prohibition which applies only to
non-state entities created before January 1, 2014.
The author believes this prohibition should be applicable to
all current and future commissioners as non-state entities are
not subject to oversight by the Legislature or any state
department.
2)PUC not like other state agencies. The PUC is a constitutional
created agency with broad powers. The PUC has the authority to
establish rates and return on investment for the California
investor-owned utilities. The PUC also has plenary power to
assess surcharges. Further, existing law allows that the PUC
"may do all things" which are necessary and convenient in the
exercise of its power and jurisdiction. This includes
establishing trust funds and other organization, unless a
statute is enacted that specifically prohibits such an action.
SB 434
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3)Why is the prohibition needed . Within this capacity, the PUC
reviews current policy and attempts to set rates in a manner
that is forward thinking and in compliance with the terms of
state law. In recent years, the Commission has extended its
reach a number of times beyond its rate-making capabilities,
spending considerable time and effort to create entities that
use ratepayer funds but are outside the state budget process.
It is common for Commissioners or their designees to serve on
these nonprofits as board members, officers, or advisors.
In many of these cases, the Legislature has stepped in to stop
these practices. This issue was highlighted in 2008, where the
Legislature required the Commission to report on expenditures
from specific non-budget entities established by the CPUC (PU
Code 326.5). See examples below:
a. Lawrence Livermore National Laboratory (LLNL) ($150
million, subsequently reduced to $35 million as a result of
SB 96, 2013). In July 2011, the PUC sought authority to
increase customer rates to recover more than $150 million
for research conducted by Lawrence Livermore National
Laboratory (LLNL) for a five-year cooperative research and
development agreement entitled "California Energy Systems
for the 21st Century Project," (CES-21Project). The PUC
issued a decision in late 2012 authorizing the utilities to
enter into the agreement, and to provide the PUC with a
list of proposed projects annually. The utilities would be
exempt from anti-trust laws. There was no known competitive
solicitation for this project or consideration of other
currently pending proposals at both the Legislature and the
PUC, such as the Public Goods Charge and the Electric
Program Investment Charge.
b. California Emerging Technology Fund (CETF) ($60
million). CETF was created in a pair of telecommunications
mergers from an alternate decision, jointly proposed by the
PUC President and another commissioner, "for the purpose of
achieving ubiquitous access to broadband and advanced
services in California, particularly in underserved
communities."<1> The PUC President later became Chair of
CETF's board and chair of CETF's grants committee.
c. California Clean Energy Fund (CalCEF) ($30 million). The
--------------------------
<1> D.05-11-028, November 18, 2005, p. 114.
SB 434
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PUC created CalCEF in PUC Decision 03-12-035 in 2003 where
it approved a settlement agreement with PG&E related to the
2000-2001 electricity crisis when PG&E went into
bankruptcy. The decision allowed PG&E to emerge quickly
from bankruptcy. According to the PUC, CalCEF is a family
of non-profit organizations working to accelerate the
movement of clean energy technologies. The PUC ordered PG&E
shareholders to provide $30 million to CalCEF over a 5 year
period. The PUC President serves as a member of CalCEF
Ventures.
d. Pacific Forest and Watershed Lands Stewardship Council
($100 million). Also as part of the PG&E bankruptcy
settlement decision, the PUC created the Stewardship
Council. The PUC ordered PG&E to collect $100 million from
ratepayers to fund the Council. The PUC Executive Director
serves as a member of the Stewardship Board.
The provision contained in SB 434 draws a bright line between
the PUC and the entities it oversees and regulates as it
ensures no current or future commissioners can serve on
non-state entities that are not subject to the Legislature's
oversight.
REGISTERED SUPPORT / OPPOSITION :
Support
Communications Workers of America, District 9 AFL-CIO
Opposition
None on file.
Analysis Prepared by : DaVina Flemings / U. & C. / (916)
319-2083