BILL ANALYSIS Ó
AB 861
Page 1
( Without Reference to File )
CONCURRENCE IN SENATE AMENDMENTS
AB 861 (Hill)
As Amended August 24, 2012
Majority vote
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|ASSEMBLY: | |(June 1, 2011) |SENATE: |22-12|(August 29, 2012) |
| | | | | | |
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(vote not relevant)
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|COMMITTEE VOTE: |11-0 |(August 30, 2012) |RECOMMENDATION: |concur |
|(U. & C.) | | | | |
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Original Committee Reference: HEALTH
SUMMARY : Increases penalty levels for failure to comply with
utility laws and requires the California Public Utilities
Commission (PUC) to determine rate recovery by an electrical
corporation or gas corporation that is a public utility for
earnings or stock-based price-based incentive pay for its employees
or directors.
The Senate amendments delete the Assembly version of this bill, and
instead:
1)Require the PUC to determine rate recovery by an electrical or
gas corporation that is a public utility for earnings or
stock-based price-based incentive pay for its employees or
directors.
2)Increases the maximum fine per offense against any person or
entity, other than a public utility, that fails to comply with a
utility law or specified requirement, or who aids and abets a
public utility in the violation of the same.
FISCAL EFFECT : According to the Senate Appropriations Committee,
pursuant to Senate Rule 28.8, negligible state costs.
AB 861
Page 2
AS PASSED BY THE ASSEMBLY , this bill established the California
Stroke Registry to be administered by the State Department of
Public Health.
COMMENTS : According to the author, "utility ratepayers should
support compensation that is market-based and advances their
interest in safe, reliable service at reasonable rates. An
examination of the practices at PG&E leading up to the 2010 natural
gas pipeline explosion in San Bruno has demonstrated that the
utility management focused more on financial performance than on
operations. In the year of the disaster, PG&E put off safety
assessments to future years, switched from more expensive
assessments to cheaper ones, and laid off operations and
maintenance personnel. Leadership was found to have had "little or
no previous experience in the natural gas industry and/or no direct
operating experience," and the utility's bonus structure-weighted
heavily toward financial indicators-reinforced this financial
focus.
"Utilities are not normal corporations. They cannot increase their
profit by increasing market share or selling more product. They
cannot raise their revenue at all, as the total amount they are
able to recover in rates is set by the PUC during their General
Rate Cases. The way a public utility increases its earnings is by
spending less on operations and maintenance. An incentive based on
financial performance appears to undermine the utilities' safety
and reliability mandate by incentivizing utility management to
engage in this type of behavior.
The PUC has been inconsistent in how it has treated compensation
that incentivizes corporate financial performance, and it needs to
more thoroughly examine who benefits from it. AB 861 requires the
PUC to determine the appropriate ratemaking treatment for this type
of compensation. If shareholders are indeed the primary
beneficiaries, then ratepayers should not be paying for these
programs. The PUC needs to clearly outline its expectations for
recovery through rates of utility bonus plans for it to be capable
of encouraging utilities to align their incentives with those of
their customers."
Last year, the penalties for offenses by a public utility were
increased from a maximum fine of $20,000 per violation to a maximum
fine of $50,000 per violation. This bill would increase the
penalties from $500 to $50,000 against non-utilities that fail to
comply with utility law, employees of the utility, and also
AB 861
Page 3
non-public utilities regulated by the PUC. This modification would
align penalties between utilities and non-utilities.
This bill seeks to clarify current law which gives the PUC
discretion to determine the level and type of executive
compensation that should be borne by ratepayers during the general
rate case of each public utility. In that context, the PUC can
consider the particular facts and circumstances, including
appropriate incentives for utility performance.
This bill was substantially amended in the Senate and the Assembly
provisions of this bill were removed.
Analysis Prepared by : DaVina Flemings / U. & C. / (916) 319-2083
FN: 0005863