PHOENIX -- Legislative attorneys believe a Corporation Commission policy intended to restrict campaign contributions by regulated utilities violates the Arizona Constitution, and the lawmaker who requested that opinion is hoping it will persuade the commission to change course for next year’s election.
Sen. Rick Gray, R-Sun City, asked Legislative Council to review the commission’s 2019 code of ethics. Specifically, he wanted the council’s opinion on whether a policy that prohibits commissioners from taking campaign contributions from regulated utilities, their employees and their lobbyists violates either the Arizona or U.S. constitutions.
Under the rule, commissioners cannot knowingly take contributions from regulated public service corporations, their lobbyists, employees or officers, nor can they accept money from any intervenor in a case that’s before the commission. The commission’s intention in passing the rule was to require commissioners to recuse themselves if they’ve taken money from people involved in cases they’re hearing.
Legislative Council’s answer was that the commission overstepped its authority. The validity of the rules “depends on whether the ACC has authority to prevent a properly appointed or elected member of the commission from participating in ACC activities.” And Legislative Council opined that nothing in state law or the Arizona Constitution gives it such authority. The power of the commission and its individual members is enshrined in the constitution, legislative staff said, and the commission cannot limit those powers.
Even if the commission has the authority to limit commissioners’ power, Legislative Council said that doing so based on campaign contributions may violate the First Amendment, which protects political speech, including campaign spending, under U.S. Supreme Court precedent.
However, Legislative Council didn’t make a determination on that issue and concluded that there are “reasonable arguments on both sides” as to whether the policy violates the free speech protections in the First Amendment. They noted that the ethics doesn’t actually bar contributions to a commissioner. It requires commissioners to recuse themselves based on that spending.
“Therefore, to invalidate the limitations related to independent expenditures a court would have to find that the recusal requirement significantly impairs a person’s First Amendment right to make independent expenditures,” Legislative Council attorney Ken Behringer wrote.
Gray, Sen. Sine Kerr, R-Buckeye, and Rep. Gail Griffin, R-Hereford, sent the opinion to the commission, and they await a response. The commissioners instructed their legal counsel to draft a response for their next staff meeting on Oct. 26.
Commissioners enacted the ethics policy in 2019 in response to controversial spending by Pinnacle West, parent company of energy behemoth Arizona Public Service, in the 2014 and 2016 Corporation Commission elections.
In 2014, Pinnacle West secretly funded dark money groups that spent nearly $10.7 million to elect two Republican commissioners considered sympathetic to its interests who were running against solar energy advocates in both the GOP primary and the general election. Two years later, the company, which had thus far refused to say whether it was behind the 2014 campaign, openly spent $4 million in support of three Republicans in the general election.
Gray, who ran for the commission in 2016 and was defeated in the Republican primary, said he took aim at the ethics policy because it’s unfair and inequitable. Even if an employee wants to give a $5 qualifying contribution to help a commission hopeful get public campaign funding from the Citizens Clean Elections Commission, the ethics policy is a barrier.
“The employees should be able to do whatever they want. If they want to give a five, they ought to be able to give fives. If they want to be able to give 160, they ought to be able to give 160,” Gray said, referring to the maximum amount of “seed money” a person can contribute to a Clean Elections candidate.
The prohibition on campaign contributions also applies to anyone who is registered as a lobbyist with the Corporation Commission, or any entity that is represented at the commission by a registered lobbyist. That includes entities such as solar energy companies that are affected by the commission’s decisions but aren’t directly regulated by it.
APS, which faced years of negative publicity for its decision to break the longstanding unwritten rule that kept utilities out of Corporation Commission races, has sworn off spending in the elections for its regulators. It stayed on the sidelines in 2018, and in 2020, new CEO Jeff Guldner said the company would no longer spend in commission elections.
The code of ethics doesn’t actually restrict utilities’ ability to engage in the kind of outside spending that prompted its passage in the first place. It instead requires commissioners, before they vote on a matter involving a regulated entity, to publicly disclose any such outside spending of at least $1,000 by that entity, or at least $100 by an individual. The disclosure policy applies to any spending that directly or indirectly benefits commissioners or their immediate family, not just independent expenditures in elections.
Whether the legislature can actually do anything to influence commission policy remains to be seen. Gray said he hopes the commission will “re-evaluate” its position in response to Legislative Council’s opinion.
If that doesn’t happen, Gray is unsure what his next step would be, or whether it’s legislation, a ballot measure or something else.
“We’ll have to look at it. I’m not an attorney, so I don’t know what the legal consequences would be. If it needs to be challenged, it needs to be challenged. If we do not defend people’s constitutional rights, then it will evaporate,” he said.
Whatever happens with the commission’s ethics policy, things won’t change for APS. Company spokeswoman Jill Hanks said APS has no position on the ethics rules and that Guldner’s commitment to stay out of commission races stands.
It’s unclear exactly what the commission’s legal counsel will say in its response to Legislative Council. But Chairwoman Lea Marquez Peterson, a Republican, said the commissioners obviously believed they were within their rights to draft the code of ethics that’s now in place. And there were good reasons for the commission to enact it, she said.
“When I was appointed, and even prior to that, I’d certainly heard about the cloud of corruption over the Arizona Corporation Commission and elections. So it was important to me as one of my first votes on the commission to work on the code of ethics, and then as the chairwoman to bring it back and finalize it so we could move forward,” she said.
Peterson said it would have been “legally challenging” to impose an ethics policy involving entities that the commission doesn’t regulate, such as solar companies. Because of APS’s controversial electioneering, there was a “hypersensitivity” at the commission about utility involvement in elections, to the point where they didn’t want utilities or their employees involved in commission elections.
“There are lots of people in this state, more than 7 million, and we can certainly get support by being out in the community and visiting Rotary Clubs, chambers and different events,” Peterson said.
Democratic Commissioner Anna Tovar, who wasn’t on the commission when the original policy was implemented, also said it’s important to keep the disputed rules in place.
“It offers that transparency and accountability that our constituents are seeking, of where did funds come from for our campaign,” Tovar said.
Legislative Council’s opinion regarding forced recusal may be a moot point.
According to Wesley Van Cleve, the commission’s assistant general counsel, the ethics code doesn’t actually require anyone to recuse themselves from anything if they knowingly take a prohibited contribution. The code of ethics states that commissioners “shall not” accept prohibited contributions, but it doesn’t explicitly specify any enforcement mechanisms. Van Cleve described it as an “honor code” situation.
“It’s voluntary. The code is there for the commissioners to essentially police themselves, if you will. One commissioner couldn’t require recusal of another commissioner. And they can essentially volunteer to recuse themselves or not,” Van Cleve said.
Van Cleve said the only situation in which recusal would be required by the ethics code would be if a non-Clean Elections candidate unknowingly accepted a prohibited contribution and either couldn’t or wouldn’t return it.
The ethics code also states that if commissioners, except for those who run with public funding under the state’s Clean Elections, unknowingly accept a prohibited contribution, they must return it. And if they are unable or unwilling to return it, the commissioners must recuse themselves from matters involving that entity, except for Clean Elections candidates. Clean Elections candidates qualify for public funding by collecting a designated number of $5 qualifying contributions from voters, and they’re permitted to raise limited amounts of “seed money” outside of the lump sum they received from the state.
For Clean Elections candidates in such situations, the ethics code requires that they make a public declaration about the contribution, and give others the opportunity to say why they believe the commissioner should recuse him or herself.
The commission said at the time that the ethics code was passed that it intended to exempt Clean Elections candidates from the requirement. Four of the five current members of the commission were elected with Clean Elections funding.
Some of Legislative Council’s arguments regarding the ethics code focus on process and procedure. They note that official comments guiding commissioners on how to comply include instructions that aren’t actually part of the written rules. The prohibition on any employees of regulated entities contribution to commissioners, for example, is in a comment, not the text of a rule itself.
Those comments also include rules requiring commissioners to disclose contributions and publicly available information about independent expenditure funding on the commission’s website. Those requirements are also part of Arizona’s campaign finance laws, and must be disclosed to the Secretary of State’s Office as well.
Jeremy Duda is associate editor of the Arizona Mirror, an independent non-profit news organization.