Bry Might Recuse Herself From Future Franchise Fee Decisions - Voice of San Diego

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Bry Might Recuse Herself From Future Franchise Fee Decisions

In response to questions from Voice of San Diego, Councilwoman Barbara Bry said she would recuse herself from future decisions on the city’s franchise fee agreement if Berkshire Hathaway bids, because of her financial interest in the company.

Councilwoman Barbara Bry appears at an election night event at Golden Hall in March 2020. / Photo by Megan Wood

Councilwoman Barbara Bry – or a future Mayor Barbara Bry – may have to stay away from the decision over which company will deliver San Diegans gas and electricity for the next two decades because of a substantial financial interest she holds in a company that wants the lucrative city contract.

In her March economic interest statement, Bry disclosed that her husband owns between $100,000 and $1 million stock in Berkshire Hathaway Inc. A month earlier, Berkshire Hathaway Energy, a subsidiary of the multinational holding company, announced it was interested in taking over the city’s franchise agreement, which grants a utility the right to transmit power to city residents and maintain energy infrastructure.

Despite her investment, she participated in two Council discussions on the terms of the deal.

In response to questions from Voice of San Diego about her financial assets, Bry said she would recuse herself from any future decisions on the contract, if Berkshire Hathaway submits a bid.

For 50 years, San Diego Gas & Electric has had the exclusive right to run power lines on San Diego streets. Now the contract is expiring. The city has been going through months of preparation to consider new bids for the deal, which involves a complex process designed to limit concerns about favoritism.

Three companies – including SDG&E and Berkshire Hathaway – have signaled their intent to bid on the deal, though they are not obligated to. The city is accepting bids from interested companies until Oct. 23, but the city won’t unveil how many bids it received until the Council schedules a hearing, during which the bids will be revealed for the first time.

The two previous City Council discussions in which Bry participated related to the terms of the agreement, such as its length and the minimum payment required to be considered a responsive bid. The city’s final request for bids outlines a 20-year term for the franchise agreement, and requires a minimum upfront payment to the city of $80 million. Though some Council members wanted to make changes to the parameters of a deal, they couldn’t pull together the votes to make any change.

Bry voted against soliciting bids for the contract at the Aug. 6 Council meeting, and argued the process was rushed and the city should take more time to exact more leverage from potential bidders.

“Bry did not consider recusing herself from the July 16 or Aug. 6 meetings because no bids for the city franchise had been submitted at that time, and therefore no conflict existed,” wrote Tom Shepard, Bry’s mayoral campaign manager, in an email. “Once bids have been submitted and the bids opened, if Berkshire Hathaway is among the bidders, she will recuse herself from consideration of the franchise decision.”

Bry’s economic interest disclosure reveals other complications with her political career. A Voice of San Diego review found she or her husband have been invested in over 60 fossil fuel companies, while as a mayoral candidate Bry has pledged to transition the city to 100 percent renewable energy use. She opposes offshore oil drilling, but invests in companies that engage in it, such as Royal Dutch Shell, which has 11 such projects in the Gulf of Mexico alone.

Shepard said Bry’s investment portfolio is managed by UBS Financial Services, and she does not make trading decisions.

“Her position on matters of public policy like offshore oil drilling, which she has consistently opposed, is not influenced by those investments, nor does the size of those investments approach the threshold for constituting a conflict of interest with regard to municipal decisions,” Shepard said.

The Franchise Agreement

During a committee hearing and regular meeting this summer, the City Council failed to garner enough votes to change the request for bids put forward by the mayor. Bry in August argued that the city needed to slow the process down, because a report from a consultant hired by the city had not been reviewed by a third party and the city’s sustainability advisory board had not weighed in on the call for bids.

“Let’s remember that SDG&E cannot stop providing services when this franchise agreement ends,” she said. “They have an obligation to serve us. And we should take our time, do our due diligence, and do everything we can to leverage the city’s bargaining power to ensure we get the best deal for San Diego residents. We’ve seen what happens when we rush into what turns out to be a rushed deal.”

Whether Bry should have been participating in that discussion is a matter of both politics and the law.

The city’s ethics ordinance relies on state regulations outlining conflicts of interest. That state regulation, enforced by the Fair Political Practices Commission, says public officials cannot participate in a decision or use their position to influence a decision if they have a disqualifying financial interest.

A fact sheet published by the city’s Ethics Commission says a disqualifying financial interest exists if it’s a “realistic possibility” on a business in which the official or a member of their family has an investment worth $2,000 or more. That fact sheet specifies instances in which a decision has a “material financial effect” on a business, including any time they bid on a contract with the city.

In this case, though, the Council was not deciding whether to grant Berkshire Hathaway a contract, and we do not yet know whether the company eventually did submit a bid.

But state regulations refer also to instances in which a decision could affect a business that is not “explicitly involved,” as was the case during the Council’s deliberations this summer. The state says the decision qualifies as having a “material effect,” in that case, if it could result in an increase of the entity’s gross revenues by $1 million or more.

In the context of the city’s franchise agreement, Berkshire Hathaway had not yet bid – but it had formally expressed its interest in doing so – and the City Council decision involved the length of the potential contract and the minimum amount a company would need to bid to be considered.

The question, then, comes down to: Is it “realistically possible” that a decision on the length of the contract and the minimum payment to the city would have a $1 million effect on Berkshire Hathaway if it were to eventually win the city’s franchise agreement? At that time, it was one of three companies to express an interest in bidding on the deal.

Given that the minimum payment suggested by a city consultant was $62 million (later upped by Mayor Kevin Faulconer to $80 million in the final bid) and Councilwoman Monica Montgomery during the meeting proposed increasing the minimum to more than $300 million, there’s a good case to be made that the Council’s August hearing had a “realistic possibility” of having a $1 million effect on any interested bidder.

Other portions of state law, however, suggest ways in which Bry might not be considered to have a conflict of interest. An overview of another relevant section of state law, prepared by the FPPC, says an official does not have a relevant financial interest if her ownership accounts for less than 3 percent of a business’s shares, or if her returns from the stock account for less than 5 percent of her total annual income. There’s also an exemption under state law if an official simply owns stock in a parent company, and it is a subsidiary that’s seeking business with the city. That’s the case here, with Bry holding stock in Berkshire Hathaway, while Berkshire Hathaway Energy is considering a bid.

But even if Bry’s involvement in the Council’s previous discussions does not constitute a legal conflict of interest, she still should have considered recusing herself from the decision, said JoAnne Speers, a government ethics expert who is an adjunct professor at the University of the Pacific’s McGeorge School of Law and the former general counsel to the League of California Cities and chief executive for the Institute for Local Government.

“I think of the law as the floor of ethical issues and public service,” she said. “I look at the law as setting minimum standards of public service behavior, and the question is how high above those standards do officials set their sights, and do constituents have expectations?”

In city contracting, she said, the key value is both fairness, and the perception of fairness, which requires that key decision-makers have no interest in the parties vying for city business.

Speers, though, commended Bry for telling Voice of San Diego that she would recuse from future decisions, if Berkshire Hathaway ends up submitting a bid.

“Clearly that individual is thinking not only about the law, but also about what his or her constituents’ expectations are, and expectations of fairness in the process,” she said. “That’s just great.”

Fossil Fuel Investments

Bry is a proponent of the city’s new government-run utility called San Diego Community Power, which is slated to begin purchasing more renewable energy for the city starting next year.

Yet Bry and her husband’s 2020 stock investments in fossil fuel companies total, at the upper limit, $2.3 million. It’s unclear exactly how much the couple have truly invested, since the FPPC asks candidates only categorize and disclose investments by four dollar-amount ranges. The Bry household has 40 fossil fuel stock or equity investments totaling between $2,000 and $10,000, and 19 totaling between $10,000 and $1 million.

Shepard said those investments – both hers and her husband’s – are irrelevant to her positions as a public official.

“She does not control her husband’s choice of his investments, nor do those investments influence her position of these issues, as illustrated by her consistent support for Community Choice Energy,” Shepard wrote in an email.

Investment disclosures encompass stocks bought or sold the year prior. A public official must report at least half their spouse or domestic partner’s income as well.

Shepard pointed out that most of the energy-related stocks in Bry’s disclosure are held by her husband, which is true. He holds about 82 percent of the couple’s energy-related stocks. But Bry personally purchased stock in 10 fossil fuel companies and one renewable energy company, SunCor Energy, Inc.

According to her disclosure, she invested between $2,000 and $10,000 in companies like Occidental Petroleum and TechnipFMC, which is pioneering floating, ocean-bound liquid natural gas processing plants. And despite opposing offshore drilling publicly, she’s invested in companies that do it, like Royal Dutch Shell.

Asked for an updated list of her financial investments – March’s disclosure covered her holdings in 2019 – Shepard said Bry’s made no significant changes to her portfolio since the most recent filing.

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