Appeals court backs ex-member of PUC

The San Francisco Chronicle

A state appellate court in San Francisco overturned a judge’s order that a member of the California Public Utilities Commission be removed from office for investing $27,000 in a mobile-phone company the agency regulates.

In a ruling made public Monday, the court found that when Henry Duque was a PUC commissioner, he violated state law by investing in Nextel Communications. But it also ruled that a San Francisco Superior Court judge had no authority to fine Duque $5,000 and order him removed from office.

The judge’s order, issued in April, was suspended while the appeals court considered the case, enabling Duque to finish his term on Dec. 31.

“We are very pleased,” said Thomas Willis, Duque’s attorney. “His actions don’t warrant removal from office.”

Much of the the ruling is moot because Duque left office two weeks ago. But the court’s action could spur lawmakers to take steps to prevent PUC commissioners from flouting the law in the future by buying stock in PG&E, SBC Communications and other regulated companies.

“The law should be changed,” said Sen. Debra Bowen, D-Marina del Rey (Los Angeles County), who chairs the Senate Energy, Utilities and Communications Committee. “It is ludicrous to have a situation where if someone deliberately purchases stock in a regulated company, there is no consequence.”

In a 12-page ruling, the three-judge panel found that the law requires commissioners who involuntarily gain an interest in a regulated company, such as through a gift or inheritance, to divest the stock in a reasonable period of time or risk being removed from office.

But because of a “critical gap” in the statute’s wording, the court found that the law does not specify any penalty for commissioners who voluntarily invest in a regulated company — and said the court has no authority to impose its own penalty.

“It is simply beyond our purview, as an intermediate appellate court, to create or imply such a remedy where it is not statutorily or constitutionally compelled,” Presiding Justice Barbara Jones said in the unanimous ruling.

Jones said the ruling would not let law-breaking commissioners off scot-free because the Legislature can still remove PUC members for corruption. In addition, like other state officials, PUC members can be fined if they violate other conflict-of-interest rules.

A lawyer for the Santa Monica watchdog group that filed the suit said it likely will appeal the case to the California Supreme Court.

“It’s a travesty that they could decide that somebody who voluntarily violated the law in this way and held the stock for over a year would not have any punishment,” said Pamela Pressley, a lawyer with the Foundation for Taxpayer and Consumer Rights.

Duque earned close to $70,000 on the investment, the foundation noted. And it pointed out that Duque participated in three votes involving Nextel, but there’s no evidence that the rulings affected Nextel‘s stock price.

Duque’s attorney, however, pointed out that Superior Court Judge Alfred Chiantelli only questioned Duque’s judgment, not his honesty or integrity.

Relying on his stockbroker’s advice, Duque said he didn’t realize Nextel was regulated by the PUC until he received a phone call in August 2000 about the investment from a Chronicle reporter.

At that point, Duque testified that he sold the stock to avoid any appearance of a conflict.

Still, Bowen said she intends to introduce legislation to spell out specific penalties for commissioners who violate the statute, in an effort to discourage PUC members from disregarding the law in the future.

Bowen, however, said she is also sensitive to the possibility that a commissioner could invest in a large corporation without realizing that it included a regulated subsidiary.

“I am not sure we want the PUC equivalent of sudden death,” Bowen said.

Despite objections by the foundation, the PUC agreed to pay Duque’s legal fees, which totaled $340,937, as of November, according to PUC spokeswoman Terrie Prosper.

In addition, PUC President Michael Peevey, a Duque supporter, has been attempting to find another position with the PUC for the embattled former commissioner, according to several sources at the agency.

By remaining on the state payroll for several more months, Duque would qualify for additional medical and pension benefits, the sources said.

But the PUC sources said the appointment has been complicated by rules requiring Duque, a Republican, be appointed to office by Gov. Gray Davis, a Democrat, or take a civil service exam and find a way around a PUC hiring freeze.

Peevey referred comment to Prosper, who would only say that Duque is not on the payroll or employed as a consultant. Duque could not be reached for comment.

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