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Public Citizen Applauds Yzagguire?s Decision to Resign

Jan. 17, 2002

Public Citizen Applauds Yzagguire?s Decision to Resign

Public Citizen Had Filed Complaint Seeking His Removal, Asks for Full Review of Conflicts and Appointment Laws

AUSTIN, Texas ? Public Citizen, which earlier this month sought for the removal of Texas Public Utility Commission (PUC) Chairman Max Yzaguirre because of a conflict of interest, today applauded his decision to resign. Yzaguirre resigned after saying that the controversy surrounding his appointment was taking attention away from PUC issues.

On Jan. 7, Public Citizen sent a letter to Travis County Attorney Ken Oden, asking for Yzaguirre?s removal because he had failed to fully disclose his relationship with Enron North America. Texas law provides for removal of a state official by a number of law enforcement officials, including the county attorney.

Yzaguirre failed to fully disclose the extent of his employment with Enron at the time of his appointment, leading many to believe he didn?t have a conflict under Texas law that would prevent his appointment. He failed to disclose until Nov. 15, months after he took office, that he was a vice president of Enron North America, a company that reported an interest in at least 15 energy companies in Texas that buy and sell power and gas to utilities.

“Max Yzaguirre?s appointment to the to the PUC was illegal due his undisclosed conflict of interest,” said Tom “Smitty” Smith, director of Public Citizen?s Texas office. “It is part of an emerging pattern in which Enron failed to make full disclosures to regulators and the public.”

The conflict arises because Enron is a major wholesaler that buys and sells power to utilities, owns pipelines that transport gas and owns wind companies that generate power. Enron is a frequent filer at the commission. As chairman, Max Yzaguirre had to rule on 30 cases in which Enron has stated a position or asked that specific actions be taken to benefit its business interests. Yzaguirre spent much of his professional life working for Enron, so his instincts have to be honed to protection Enron?s interests, Smith said.

The legislature has long recognized this problem and has instituted a two- year cooling off period. Section ? 12.053. Of the Public Utility Regulatory Act says:

(b) A person is not eligible for appointment as a commissioner if the person:

(1) at any time during the two years preceding appointment:

  1. personally served as an officer, director, owner, employee, partner, or legal representative of a public utility, affiliate, or direct competitor of a public utility;

Smith noted that the governor?s spokesperson has said that it is important to be open and honest and fully disclose one?s background so appointment advisers can make the best decisions. Yzaguirre?s failure to make full disclosure has kept the public from reviewing the appointment decisions made by the governor, Smith said. Without full disclosure of all of the corporate positions Yzaguirre held, it was impossible for the system of checks and balances within the governor?s office, the Senate, the nominations committee and the press to work to weed out conflicts, he said.

Lack of adequate disclosure, poor review of appointments and conflicts of interest are not new to the state or to the affairs of the PUC. In the late 1980s Public Citizen raised questions about possible conflicts when Paul Meek was appointed chairman of the PUC and reported substantial interests in American Petrofina. In the early 1990s, he took actions and voted on measures that would have potentially increased the amount of natural gas purchased by Texas Utilities. American Petrofina was a supplier of gas to that utility. Public Citizen and Citizen Action filed a formal compliant with the attorney general who conducted an investigation. Meek later resigned.

The current scandal shows at least five flaws in the law, Smith said:

  1. It allows companies that contribute to the governor to have their current or former employees appointed.
  2. The appointment process is flawed – too little information is available to the nominations committee, the forms don?t adequately disclose conflicts or the extent of an appointees holdings, too little investigation is done of possible conflicts, and too much deference is given by the state Senate to the governor.
  3. The PUC standard for conflicts doesn?t preclude commissioners from voting to benefit companies they may own stock in, that they have worked for or served on the board of, and that provide utility services in a deregulated market – such as Retail Electric Providers.
  4. The state?s standard for conflict is flawed. We need to have a clear standard that says you can?t be appointed, vote or take actions that affect a company that was your former employer or affects stock that comprises 10 percent or more of your holdings, affects 10 percent or more of your income, or would change the value your holdings by 10 percent or more.
  5. The process for removing an appointee or a commissioner is flawed. The attorney general is one of those who can take action- but no time lines are set, the standards for acting are unclear. Further, one must question the fairness of any process that allows the enforcer to accept campaign contributions from a company whose former employee may be investigated.

“This crisis shows how weak our protections against conflict of interest are both in state law and in PUC statutes,” Smith said. “We will be calling upon the Legislature to initiate a full review of the chairman?s actions and whether they rise to the level of a conflict that should lead to the chairman?s removal. This crisis highlights the need for Texans to use the upcoming sunset review of the Ethics Commission to revise these conflict standards for all officeholders to protect ourselves against conflicts of interest.”

          To read the letter, click here