|Advisory Opinion No. 93-4:||Whether there is a conflict of interest between the positions of Executive Director of the New York State Consumer Protection Board and Chair of the Long Island Power Authority in violation of Public Officers Law §74; whether the acts of the current incumbent of those positions conflict with the proper discharge of his duties.|
Pursuant to the authority vested in the New York State Ethics Commission ("Commission") by Executive Law §94(15), the Commission hereby renders its opinion that there is no statutory conflict of interest posed by one individual serving as both Executive Director of CPB and Chair of LIPA, that to date [the State employee] has not violated Public Officers Law §74 by his specific acts in either capacity as alleged, that there may be issues before the CPB that indirectly affect LIPA from which [the State employee] should recuse himself and that the Commission will review the issue when LIPA becomes a producer of energy, if necessary.
No officer or employee of a state agency . . . should have any interest, financial or otherwise, direct or indirect, or engage in any business or transaction or professional activity or incur any obligation of any nature, which is in substantial conflict with the proper discharge of his official duties in the public interest.
The rule of §74(2) is further explained by the standard contained in Public Officers Law §74(3)(a) which provides, for the purposes of the instant request, the following:
No officer or employee of a state agency . . . should accept other employment which will impair his independence of judgment in the exercise of his official duties.
. . . .
[The State employee] has served as Executive Director of CPB since his appointment in 1984. Pursuant to Executive Law §553(2), the Executive Director of CPB has the power and duty to "advise and make recommendations to the governor on matters affecting the consumers of the state and promote and encourage the protection of the legitimate interests of consumers within the state." (Emphasis added.) In relation to utilities, the Executive Director is authorized to:
initiate, intervene in, or participate in any proceedings before the public service commission . . . where he deems such initiation, intervention or participation to be necessary or appropriate. [Executive Law §553(2)(c)]
CPB has no direct statutory authority over or concerning public authorities such as LIPA.
Legislation enacted in 1986 created LIPA, a public benefit corporation, to address significant utility rate increases for residents of Nassau and Suffolk counties as a result of the construction of the Shoreham Nuclear Power Station ("Shoreham") by Long Island Lighting Company ("LILCO").(1) The legislative findings and declarations state, in part:
[A]n authority [LIPA] will provide safe and adequate service at rates which will be lower than the rates which will otherwise result and will facilitate the shifting of investment into more beneficial energy demand/energy supply management alternatives, realizing savings for the ratepayers and taxpayers in the service area [Nassau and Suffolk counties] and otherwise restoring the confidence and protecting the interests of ratepayers and the economy in the service area (Emphasis added.)
Public Authorities Law §1020-c specifically provides that LIPA was not created to be a profit making authority and that no part of the revenues or assets of the authority shall inure to the benefit or be distributed to its trustees, officers or any other private persons except for services rendered to the authority.
As the CPB, LIPA is authorized to intervene in certain proceedings before the PSC, i.e., with respect to investor-owned utilities acts, not those of public authority-generators of energy. Public Service Law §24-a requires the PSC, upon the request of LIPA, provide notice to LIPA of any rate increases or service changes proposed by other utilities subject to the PSC's jurisdiction in LIPA's service territory (Nassau and Suffolk counties). In any such case before the PSC (for example, in any LILCO rate increase or service change proceeding before the PSC), LIPA shall be a party to the PSC proceeding with all the rights and privileges of a party. LIPA's right to intervene in the PSC proceeding is similar to the CPB's authority to intervene, as provided for in Executive Law §553.
LIPA's board consists of nine trustees, one of whom is named by the Governor to be Chair. The Governor appointed [the State employee] a LIPA trustee in 1986, and, in the summer of 1989, the Chair of LIPA. [The State employee] receives no compensation for his service to LIPA.
Pursuant to Public Authorities Law §1020-d, the trustees shall hold office until December 31, 1993. Beginning January 1, 1994, LIPA shall consist of twenty-two trustees, one of whom shall be appointed by the Governor and who shall serve as Chair. The other twenty-one trustees shall be elected from districts established by the New York State Legislature.
Public Officers Law §74 prohibits acts that have the appearance of a conflict of interest between a State officer's or employee's obligations towards the State and his or her private or other interests. The potential of there being a conflict of interest is greatest when a State officer or employee has competing interests between his or her State employment and his or her outside employment or affiliation with a private, for-profit entity. In Advisory Opinion No. 90-6, the Commission, in assessing whether a State employee's involvement with a not-for-profit corporation and its for-profit subsidiary had the appearance of a conflict of interest, stated:
The potential for conflict is more of a problem with the private, for-profit corporation. For in the case of [the private corporation], the profits that may be received from doing business with the State may appear to have been the direct result of involvement of the requesting individual . . .
We [the Commission] express greater concern about the involvement of public servants in profit-making corporations.
Similarly, in Advisory Opinion No. 91-7, the Commission relied in part on the fact that banks are for-profit institutions when it concluded that service as a SUNY campus president and as a compensated member of the board of directors of a bank in which the campus deposits funds presents the appearance of a conflict of interest under Public Officers Law §74.
The potential for the appearance of a conflict of interest is less when an individual is engaged in dual service for the State and for a not-for-profit organization or another public entity other than the State, such as a local governmental entity, because neither the individual nor the not-for-profit or the public entity reap a profit and the public's interest may be advanced by the dual service. For example, in Advisory Opinion No. 91-20, the Commission concluded that there is not an appearance of a conflict of interest for a State agency head to serve as the president of the agency's closely affiliated not-for-profit corporation because the two entities share a common purpose and "there is not a competitor who could call 'foul'" by the dual service.
This does not mean that an individual's service for the State and a not-for-profit or non-State public entity cannot present the appearance of a conflict of interest. The Commission's regulations on outside activities (19 NYCRR Part 932) require policy-making employees to obtain the approval of their appointing authorities and the Commission to engage in certain types of public employment or serve in certain public positions. In determining whether to approve, the Commission inquires whether the State and the public or not-for-profit entity conduct business with each other, whether the State agency regulates or is lobbied by the other entity or whether there are conflicting duties or responsibilities.(2)
As State entities, neither CPB nor LIPA is a profit-making enterprise. There is no regulatory relationship between the two; neither lobbies the other and their duties and responsibilities are not conflicting.
Neither do the legislative mandates of the CPB and LIPA pose any inherent conflict between the two entities. The missions of the two agencies are not inconsistent. Even the member of the public alleging improprieties seems to agree with this assertion when he states on page six of his letter:
Insofar as both LIPA and the CPB are obligated and dedicated to minimizing the cost of electricity to consumers on Long Island, there is no conflict between the two entities.
The appropriate statutes direct both entities to act in certain subject areas (CPB on consumer matters, LIPA regarding implementing a plan for Shoreham) in the best interests of the public (CPB for State consumers, LIPA for ratepayers and taxpayers in Nassau and Suffolk counties).
The Commission concludes that the positions of Executive Director of CPB and Chair of LIPA are not in conflict; rather, the positions are compatible in advancing the interests of the citizens of the State. The more difficult situation arises when or if LIPA becomes a power generator because CPB could take positions at odds with LIPA. Then the question becomes a close one, and the Commission will revisit the issue, if necessary.
B. Whether [the State employee] by his specific acts in each capacity has violated Public Officers Law §74.
The allegations that [the State employee], by certain specific acts, has violated the provisions of §74, shall be discussed in the order presented.
I. The CPB is, and has been, precluded from representing objectively the legitimate interests of consumers before the New York State Public Service Commission ("PSC") because of [the State employee's] position with LIPA.
a. The Shoreham settlement.
Shoreham is an 800 megawatt electrical generating facility constructed by the Long Island Lighting Company ("LILCO") at a cost of over $5 billion. In 1989, Shoreham was granted an operating license by the Nuclear Regulatory Commission. Notwithstanding these facts, the State and Suffolk county have opposed the operation of the plant for both safety and financial concerns since 1983.
On February 28, 1989, the Governor announced that the State and LILCO had entered into a proposed agreement that called for, among other items, the decommissioning of Shoreham. The agreement was made contingent upon the approval of the New York State Public Service Commission ("PSC"). In March 1989, PSC held a "30-day proceeding" to consider the propriety of the agreement. The proceedings focused, in part, on which would be more costly: to permit LILCO to operate the Shoreham facility or to decommission Shoreham. One facet of the proposed Shoreham agreement before the PSC was the role of LIPA in the decommissioning of the facility. As proposed in the PSC proceeding, LIPA would purchase Shoreham from LILCO.
[The State employee] as CPB Executive Director, submitted testimony advocating that PSC approve the proposed Shoreham agreement, including the continued role of LIPA. It is alleged that [the State employee] had a personal and institutional interest as Chair of LIPA in ensuring LIPA's continued existence and that, therefore, he could not comment objectively on the proposed Shoreham agreement. At the time of [the State employee's] testimony, he was a trustee of LIPA, not its Chair. PSC approved the agreement on April 13, 1989.(3)
According to [the State employee] and from information received from PSC, CPB's opposition to the construction of Shoreham dates back to the 1970's. In that light, [the State employee's] testimony in 1989 advocating decommissioning, as opposed to operation of Shoreham, is consistent with CPB's earlier positions.
Statute directs CPB to act to best promote the interests of the consumers of New York State. According to [the State employee], and consistent with CPB's legislative mandate, the agency could not have advocated for the proposed Shoreham agreement unless the agency was satisfied that the State's consumers would benefit by the plant's closing.(4) There is nothing to suggest that CPB's position in the matter of the proposed Shoreham agreement was improperly influenced by [the State employee's] service on the LIPA board. CPB's position certainly was not influenced by [the State employee] being LIPA Chair, as he did not serve in that capacity when he presented his testimony. Rather, the Commission concludes that [the State employee's] position appears consistent with CPB's longstanding opposition to Shoreham's operations.
b. Reconsideration of the settlement.
In a LILCO rate increase proceeding before it, PSC trial staff moved to strike the testimony of an expert who offered evidence in light of 1991 facts and circumstances to show that consumers have been economically disadvantaged by the closing of Shoreham. That motion was supported by CPB and LIPA. It is alleged that, contrary to its statutory obligation to protect the interests of the State's consumers, CPB argued for exclusion of the testimony because [the State employee], as Chair of LIPA, had an interest in seeing that the Shoreham settlement was not re-opened.
Whether the expert's testimony should have been considered was a question for PSC trial staff which argued that it be excluded in its motion before the administrative law judge. [the State employee] has informed the Commission that CPB had considered the expert's testimony in earlier proceedings before PSC and had rejected its credibility. Thus the CPB position is consistent with its earlier position when [the State employee] was not Chair. There is nothing to suggest to the Commission that [the State employee] would have taken a different position on behalf of CPB even were he not Chair of LIPA.
c. LILCO's demand side management ("DSM") costs.
In the same LILCO rate increase proceeding before the PSC, LILCO asked for certain DSM costs.(5) LIPA objected to the DSM costs; CPB took no position on the issue. It is alleged that, because DSM programs tend to decrease consumer demand for electricity and because LIPA anticipates converting Shoreham into a gas-fired electrical generating facility (and will become an energy producer), LIPA has an interest in thwarting LILCO's efforts in this area. The requesting individual alleges that CPB inappropriately took no position on the DSM issue because [the State employee] did not want CPB taking stances antagonistic to LIPA.
[The State employee] and [ ], counsel to LIPA, informed the Commission that, as is usual in such proceedings before PSC, the entities do not comment on all aspects of the LILCO rate increase request due to each agency's limited resources. The Commission does not construe the mere failure to comment in this instance as indicative of any position, unless CPB were required to take a position. The statute does not require CPB to do so.
Further, [the counsel to LIPA] explained that LIPA did not object in principle to LILCO's DSM costs. Rather, it argued that there were better means by which LILCO could pursue consumer conservation programs than those proposed by LILCO. In this light, the argument that CPB's failure to take a formal position before the PSC was an effort by [the State employee] to advance his personal interests or those of LIPA to the detriment of CPB's mission is not compelling.
d. Shoreham decommissioning.
LIPA has no independent expertise for decommissioning a nuclear power plant and must rely on LILCO's cooperation to decommission Shoreham. It is alleged that, because LIPA needs LILCO's assistance in this regard, CPB has not taken positions before PSC against the interests of LILCO because of [the State employee's] service as Chair of LIPA.
According to information received from CPB, LIPA and PSC, since the Shoreham agreement was approved, both CPB and LIPA have taken positions contrary to those of LILCO. This is evidenced by the recent LILCO rate increase proceeding before the PSC. (See section c., above.) As a practical matter, according to [the State employee] and [the counsel to LIPA] , CPB and LIPA, because of their similar obligations to protect the interests of consumers and to conserve both agencies' resources have divided case presentation in the recent LILCO rate increase proceeding. In fact, LIPA opposed various LILCO positions. Further comment by the CPB was not mandated and arguably unnecessary as LIPA is required to represent the interest of the affected ratepayers, who are the consumers. No reason has been given why CPB would take a position contrary to LIPA in this instance. Based on CPB's prior action since the 1970s, one might expect that LIPA did represent CPB's view as well.
e. Conversion of Shoreham to a gas-fired facility.
According to its counsel, LIPA's current main activity is the decommissioning of Shoreham. On October 29, 1992, the Nuclear Regulatory Commission approved LIPA's plan for decommissioning of Shoreham, which is currently underway and should be completed by late 1993.
LIPA, pursuant to its enabling statute, is mandated to design a plan for developing the Shoreham site and, in doing so, must consider alternative sources of energy for Long Island. In July 1991, LIPA issued a report concerning the possible conversion of Shoreham to a gas-fired electrical generating facility once the plant is fully decommissioned. LIPA issued a request for proposals ("RFP") for development plans to convert Shoreham to a gas-fired facility. According to counsel at LIPA, three consortia submitted responses to the RFP on July 16, 1992. LIPA is currently reviewing these bids. LIPA has posed several rounds of written questions to each of the three consortia and has conducted face-to-face interviews with each group.
The LIPA staff intends to make recommendations to the LIPA board of directors at the beginning of 1993 whether to proceed with the conversion plans and, if so, which is the best consortium to carry out the plans. [The State employee], as Chair of LIPA, has indicated to his counsel at LIPA that the authority should conduct public hearings on the issue during the first quarter of 1993. It is alleged that CPB has not and will not aggressively scrutinize LIPA's proposals for Shoreham because of [the State employee's] interest in seeing that LIPA becomes an energy producer.
According to the PSC, the LIPA proposal to convert Shoreham to a gas-fired electrical generating facility would have to overcome many hurdles before implementation: analysis of public comments, negotiation of a power supply contract between LIPA and LILCO, preparation of an environmental impact statement ("EIS") and LIPA's obtaining the necessary operating permits. According to [the State employee] and confirmed by PSC, CPB does not comment on such proposals in their infancy. Furthermore, to date, LIPA's report on the future of Shoreham has not been the subject of any formal PSC or other State agency proceeding or comment.
Significantly, even if LIPA should become an independent power producer in the future, PSC has no jurisdiction over it. PSC reviews the rates charged by stockholder-owned utilities only. LIPA, a public benefit corporation, would not be required to apply to PSC to set its rates. CPB only comments on rate increase cases that are before PSC. Therefore, [the State employee] would have no opportunity on behalf of CPB to take any position before the PSC on rate-setting by LIPA.
There always remains the possibility that CPB could, in the future, comment on any issue which could directly or indirectly affect LIPA. [The State employee] must be aware of these issues and, in such cases, recuse himself from them as CPB's Executive Director.
Should LIPA become an energy producer, it would have to sell its product to LILCO for distribution. The PSC does review power supply contracts between utilities like LILCO (i.e., investor-owned) and independent sources such as LIPA. According to PSC, CPB has not, in past cases, participated in or commented on such contracts. CPB also has never participated in individual PSC cases involving LILCO purchases from cogenerators and other independent power producers. However, just because the CPB has not participated in such proceedings in the past does not necessarily mean that CPB will or should not take a position in the future. It is also clear that LIPA could be affected by any PSC decisions relative to LILCO. Therefore, if [the State employee] continues as LIPA Chair and CPB Executive Director when LIPA becomes an energy producer, the Commission shall reconsider the issue of whether there is a conflict or the appearance of a conflict of interest for [the State employee.](6)
This opinion, until and unless amended or revoked, is binding on the Commission in any subsequent proceeding concerning the requesting individual who acted in good faith, unless material facts were omitted or misstated by the persons in the request for opinion.
Joseph M. Bress, Chair
Barbara A. Black,
Angelo A. Costanza,
Robert E. Eggenschiller, Members
Odell, D., dissenting. [The State employee], as Executive Director of the Consumer Protection Board plays an objective, advisory role promoting and protecting the interests of State consumers.
As Chair of the Long Island Power Authority, by contrast, [the State employee] is in a management operating role taking positions and making decisions that impact now on the consumers, rate payers and taxpayers of the State of New York on a host of matters, e.g., demand side management issues before the Public Service Commission; distribution leasing rates with LILCO; real estate tax assessments; the conversion of Shoreham to a gas fired utility; the disposition of nuclear fuel, etc.
I find an inherent conflict of interest between these two disparate roles in violation of Public Officers Law §74.
Dated: February 8, 1993
1. L. 1986, c. 517, §1; its first chair was [ ], who served until 1989 when [the State employee] became chair.
2. See, for example, Advisory Opinions Nos. 90-25 and 91-11 and the Commission's regulations on the receipt of honoraria and reimbursement for travel expenses, 19 NYCRR Part 930.
3. All legal challenges to the settlement agreement, as cited in the letter from the member of the public, have been dismissed. See; Citizens for an Orderly Energy Policy, Inc. v. Cuomo; Dollard v. Long Island Power Authority; and Nassau Suffolk Contractor's Association, Inc. v. Public Service Commission; 78 NY2d 398, 576 NYS2d 185 (1991).
4. Each of the various groups affected by the Shoreham agreement, including CPB, presented voluminous expert testimony to support its positions before the PSC. As is always the case, the testimony called for certain judgments and considerations to be made. While adverse parties did object to the findings presented in the CPB's testimony, in the absence of evidence of bad faith on the part of [the State employee], the Commission must respect the fact the parties before PSC had different opinions on whether closing Shoreham would be more or less costly to consumers. Such differences of opinion do not raise ethical questions of conduct under the Public Officers Law.
5. Demand side management costs are funds that the utility designates to be used for energy conservation programs for consumers.
6. In conversations with the Commission, [the State employee] himself recognizes that a conflict could occur at this time. Further, LIPA could become an energy producer after January 1, 1994, at a time when the new LIPA board should be in place. It is possible that this issue could become moot at that time.