“Code of Ethics” has not increased trust in Arizona Corporation Commission, as APS seems poised to continue spending on races

The Arizona Corporation Commission adopted a Code of Ethics earlier this year that Commissioner Boyd Dunn hailed as the “most comprehensive Code of Ethics for any utility regulatory body in the United States.” Almost a year of work went into developing the ethics code, and one incumbent commissioner currently up for election, Justin Olson, has cited his work on the Code as a reason he has been a “part of the solution” to restoring the erosion of public trust in the Commission.

As another Corporation Commission election approaches, however, the Code of Ethics has done little to blunt criticism that the ACC is more beholden to the companies that it regulates than to the Arizona public.

The Code of Ethics was beset with criticism from the start. Days after it was signed, columnist Abe Kwok of The Arizona Republic wrote, “Too bad the Code of Ethics lacks vigor where it counts. It doesn’t address the judgment lapses that have given the commission a black eye in recent years. Nor does it encourage the kind of beyond-reproach behavior that a quasi-judicial body like the commission demands.”

Candidates running for the ACC this year have similarly shredded the effort. Democratic candidate Sandra Kennedy recently wrote, “Until Commissioners agree to prohibit contributions in any form from anyone who appears at any time in front of the Commission for regulatory reasons, and gives an outside agency enforcement authority, their ‘Code of Ethics’ is just another version of the old story about the fox guarding the hen house.”

Bill Mundell, who lost in the Democratic ACC primary, called the commission’s new ethics policy “a joke” during a debate earlier this year. “There are so many loopholes you can drive a Mack truck — or I should say a rate increase — through.”

Jim O’Connor, who lost in the August Republican ACC primary, said during the campaign trail, “We need 350 pages to explain to public servants how to be ethical. God gave that to us when we were born. It’s called common sense.”

Republican Rodney Glassman, another ACC candidate who won one of two seats in his party’s primary and will be on the November ballot, has made ethics a central theme of his campaign.

Even a current commissioner acknowledges that the public continues to believe the ACC has an ethics problem. In a filing on October 10 of this year, Republican Commissioner Bob Burns was blunt: “As all of us that serve on this Commission are very well aware, much of the public that we serve currently believes that the Commission is less than ethical in many of its dealings.”

Two factors have led to the Code of Ethics’ failure to rebuild trust: first and foremost, the Code of Ethics did nothing to dissuade regulated companies from contributing massive sums of money toward electing or defeating ACC candidates, which has been at the root of the ACC controversy since 2014. Second, commissioners seem to have failed to follow even the meager protocols that the Code of Ethics set forth.

Campaign Spending Not Discouraged

The new Code of Ethics still allows APS and other regulated companies to get involved in the election of the regulators – one of the main frustrations that Arizonans have had with the ACC. In a 2018 formal complaint docket against an APS rate increase, customers not only complained about their higher electric bills, but also about their perception that the ACC was compromised. One customer said, “my usage for my business in the last 6 months is up 2.9% over last year my bill has increased 22.4%. It is clear that the Arizona Corporation Commission is in the pockets of APS, but allowing them to steal from the Arizona public like this is criminal.”

The Code of Ethics states, “Commissioners are not expected to know or disclose the funding source of any independent expenditures, unless these funding sources are confirmed by the donors; however, Commissioners must continue to disclose any and all campaign contributions as required by Arizona law.” The code further states that a Commissioner must declare any contributions “to her or her candidate committee” from a party to a proceeding in front of the ACC.

But disclosing campaign contributions was never a problem. Dark money groups spent millions on independent expenditures in 2014 to help current commissioner Tom Forese and former commissioner Doug Little get elected; it is widely assumed that APS was the origin of that money, an allegation the company has never confirmed or denied. APS then spent openly through a PAC in 2016 to benefit current commissioners Bob Burns, Andy Tobin, and Dunn, further fueling customer frustration with the ACC.

Burns understood that independent expenditures were at the root of  the problem and proposed the following change in January 2018:

A Commissioner shall recuse herself/himself from participating and/or voting on any matter before the Commission in which any of the following is known to that Commissioner to have occurred with regard to campaign contributions or contributions of any kind which directly or indirectly benefit that Commissioner … if the contribution may be reasonably perceived to influence a candidate’s election to the Commission or influence for a sitting Commissioner ‘s election to a future elected office.” (emphasis added)

Burns’ effort failed.

Burns said that while the code couldn’t prohibit what an individual or entity can contribute, his change would rander direct or indirect spending on behalf of a candidate by a company like APS ineffective, since that Commissioner would then have to recuse themselves on any APS matter. Arizona PIRG Education Fund, a consumer advocate, filed comments in the docket to make it known that they supported Burns’ proposal.

APS’ parent company, Pinnacle West, has parked $3.2 million in a PAC called Arizonans for Sustainable Energy Policy, which a spokesperson has said “will be used for independent expenditures, focused solely on candidates.” The PAC contributed $300,000 to the Arizona GOP on September 28, according to the GOP’s campaign finance filing on Oct. 10. The utility has yet to spend the money on candidates; in 2016 it did not make its expenditures on the ACC races until late October.

Commissioners are Not Disclosing Gifts, Travel, Meals, Despite Code of Ethics

The Code of Ethics does advise the commissioners that they should “self-regulate their outside activities to minimize the risk of conflict.” It further states that they can’t solicit food or gifts designed to influence official action. The code also makes it known that the commissioners are required to report quarterly any “gifts or things of value received directly from any person or entity affiliated with a public service corporation regulated by the Commission.” Gifts or things of value is defined as a value of more than $20.

However, not one quarterly report has been published as of October 12, 2018. The commissioners have only posted their 2017 financial disclosure statement that was filed with the Secretary of State, a document which all state officials in Arizona are required to file.

During the process of developing the code, one of the comments Dunn and the rest of the commissioners received from a citizen suggested, “no private dinners or ball games with utility executives or their lobbyists.”

But the code was finalized without strict rules to limit a commissioner’s travel to industry events. As noted by Kwok in his opinion column, “It’s revealing that proposed amendments to stop direct benefits such as paid meals or trips were voted down by the commissioners.”

For example, Dunn’s calendar for the first six months of the year details 9 different industry conferences outside of Arizona, including events in Palm Beach Florida for a Harvard Electricity Policy Group meeting and a seperate energy event in Cancun, Mexico. Since he has not filed any quarterly reports, it’s impossible to know whether Dunn received gifts on those trips such as airfare or hotel stays with a value of more than $20.

The Energy and Policy Institute previously revealed that a utility-funded organization called the Harvard Electricity Policy Group has given hundreds of thousands of dollars in free flights, expensive hotel rooms and swanky dinners to commissioners who are supposed to regulate the utilities funding the group. Dunn has attended those events, having been recruited to do so by an APS lobbyist, and APS has been listed as a funder of the Harvard group.

Karl Rabago, the Executive Director of the Pace Climate and Energy Center in New York and a former Texas utility regulator told EPI in an interview earlier this year:

Industry-paid junkets are classic breeding grounds for regulatory capture. While often trying to pass as policy forums, they are frequently the setting for subtle recruitment to industry points of view set in swanky settings stacked with industry advocates. Even regulators with the strongest principles are subject to the adverse effects, which is why industry groups fund these policy forum junkets in the first place.”

Public Calendars Now Disclosed – But Limited In Detail

In addition to the example of Dunn noting industry conferences on his calendar but not making it clear if he attended the events since he did not file a gift disclosure form, other problems continue to exist: not all of the commissioners appear to be posting fully detailed calendars.

Based on his calendar disclosures, Commission Chairman Tom Forese is either not working or not showing a good-faith attempt at producing a transparent calendar. There are several weeks in the calendars Forese has released that list few or no meetings. Ironically, on September 1, 2017, during the development of the code, Forese wrote to the other commissioners in the docket, “I believe access to Commission calendars and other public records should be made more readily available to the public.”

The final Code of Ethics includes Forese’s request: “To ensure transparency and promote accountability to the public, Commissioners shall make their official calendars available to the public on the Commission website on at least a quarterly basis.”

Arizona Code of Judicial Conduct Unlikely to Fix Issues

Glassman, a candidate for the ACC, has made it known on many occasions that he wants the commissioners to adopt the same code of conduct as the Arizona Supreme Court. On February 5, he submitted his proposal to the commissioners in the Code of Ethics docket. A month later, he again submitted the proposal to the docket and said, “I strongly urge the commission” to adopt the proposal.

He also wrote in an opinion article, “Ratepayers have the right to … not have commissioners hearing cases that will benefit lobbyists and utilities that have contributed to their campaigns … these ethical dilemmas would be eliminated if the ACC adopts the Arizona Judicial Code of Conduct.”

However, it is unclear how the 54-page Arizona Code of Judicial Conduct would “restore integrity” to the ACC, as his campaign website, letters to the ACC, and his opinion article state.

The judicial code allows judges to accept meals, travel, gifts, campaign contributions, and does not discourage independent campaign expenditures on behalf or against certain judges – some of the reasons why public frustration at the state’s utility regulators hasn’t relented.

Furthermore, the code requires disqualification when “a party, a party’s lawyer, or the law firm of a party’s lawyer has within the previous four years made aggregate contributions to the judge’s campaign in an amount that is greater than the amounts permitted pursuant to A.R.S. § 16-905.” (Rule 2.11)

In other words, if the Code of Judicial Conduct was adopted by the ACC, APS would not be discouraged from funding independent campaigns on behalf of ACC candidates. And the utility could still make direct contributions to ACC candidates as long as it didn’t break the state’s contribution limit law.

Years of Scandal Led to Code of Ethics Adoption

Dunn opened a docket to create a Code of Ethics after a series of scandals had accumulated at the ACC:

• Former Commissioner Gary Pierce was investigated by the FBI for bribery and fraud that eventually led to charges being filed in court; a judge later declared a mistrial after jurors couldn’t reach a verdict.
• Former Commissioner Susan Bitter Smith resigned because of her private-sector work as head of the Southwest Cable Communications Association and the conflict of interest it created since the ACC regulates telecommunication companies. The Arizona Attorney General’s Office had filed a petition with the Arizona Supreme Court seeking to remove Bitter Smith.
• Former commissioner Bob Stump threw away his cell phone to allegedly avoid producing thousands of text messages amid charges that he was using text messages to communicate with one of the groups APS allegedly was funding in 2014 to help elect Forese and Little, as well as with APS executive Barbara Lockwood in order to avoid creating email records. Stump is now a lobbyist for utilities in the state, including APS. Amanda Ho, his policy advisor while on the commission, is a lobbyist directly employed by APS.
• The ACC had considered taking away a water company’s lucrative service territory and giving it to a competing company that made thousands of dollars in campaign contributions to Dunn and Forese.

Image attribute to Gage Skidmore. Corporation Commissioners-elect Doug Little and Tom Forese speaking at the Arizona Republican Party 2014 election victory party at the Hyatt Regency in Phoenix, Arizona. https://bit.ly/2PGhq3w