BILL ANALYSIS                                                                                                                                                                                                    



                                                                    AB 1266


                                                                    Page  1





          Date of Hearing:  April 27, 2015


                    ASSEMBLY COMMITTEE ON UTILITIES AND COMMERCE


                                Anthony Rendon, Chair


          AB 1266  
          (Gonzalez) - As Introduced February 27, 2015


          SUBJECT:  Electrical and gas corporations:  excess compensation


          SUMMARY:  This bill prohibits an electrical or gas corporation  
          from recovering from ratepayers' expenses for excess  
          compensation paid to an officer of the utility following a  
          triggering event, unless approved by the California Public  
          Utilities Commission (CPUC), as specified.  Specifically, this  
          bill:  


          a)Prohibits an electrical or gas corporation from recovering  
            expenses for excess compensation from ratepayers following a  
            triggering event unless the utility complies with specific  
            requirements and obtains the approval of the CPUC, as  
            specified.


          b)Defines "excess compensation" to mean any salary, bonus,  
            benefits, stock options, or other consideration of any value  
            paid to an officer of an electrical or gas corporation that is  
            in excess of 10 times the average compensation paid by the  
            utility to the utility's journeyman linemen.


          c)Specifies that a "triggering event" occurs if, after January  








                                                                    AB 1266


                                                                    Page  2





            1, 2013, an electrical corporation or gas corporation violates  
            a federal or state safety regulation with respect to the plant  
            and facility of the utility and, as a proximate cause of that  
            violation, ratepayers incur a financial responsibility in  
            excess of five million dollars.


          d)Requires an electrical or gas corporation, prior to paying or  
            seeking recovery of excess compensation following a triggering  
            event, to file a Tier 3 advice letter with the CPUC that  
            includes all of the following:


                   The compensation history for the officer,


                   The proposed compensation to be paid to the officer,  
                including the compensation recovered from ratepayers and  
                that paid solely by shareholders of the utility,


                   Any justification for the proposed compensation, and


                   Any additional information required by the CPUC.


          a)Requires the CPUC to open a proceeding, or expand the scope of  
            an existing proceeding  to evaluate the advice letter and  
            consider the costs to ratepayers of the triggering event, and  
            hold at least one duly noticed public hearing for the  
            proceeding.


          b)Requires the CPUC to issue a written decision determining  
            whether and, if so, how much of each officers' compensation  
            shall be recoverable from ratepayers.










                                                                    AB 1266


                                                                    Page  3





          EXISTING LAW:  


          1)Gives the CPUC regulatory authority over public utilities,  
            including electrical corporations and gas corporations, as  
            defined.  (Public Utilities Code Sections 218 and 222)


          2)Requires the shareholder of a public utility to bear any  
            expenses resulting from a bonus paid to an executive officer  
            of a public utility that has ceased to pay its debts in the  
            ordinary course of business, and prohibits any expense from  
            being recovered in rates.  (Public Utilities Code Section  
            451.5)


          FISCAL EFFECT:  Unknown.


          COMMENTS:  


           1)Author's Statement:   "Neither shareholders nor ratepayers  
            played any role in the management missteps that led to the  
            multi-billion dollar disaster that the SONGS shutdown has  
            become. To reward top executives for successfully passing the  
            buck to everyday ratepayers and stockholders who are trying to  
            build a secure retirement is inexplicable to me, and should  
            face public scrutiny."
           2)Background:   The CPUC requires regulated utilities to go  
            through a General Rate Case to request funding for  
            distribution and generation costs.  A General Rate Case is a  
            state-mandated process in which utilities are required to  
            provide a detailed forecast of how they will structure their  
            operations and make investments for the next three years.  The  
            General Rate Case allows the CPUC to conduct a broad and  
            detailed review of a utility's revenues, expenses, and  
            investments in plant and equipment to establish an approved  
            revenue requirement.  Within the General Rate Case under the  








                                                                    AB 1266


                                                                    Page  4





            "executive compensation" category, as part of the "total  
            compensation" forecast of all utility employees or a separate  
            line item, the CPUC reviews executive compensation.   
            Furthermore, CPUC General Order No. 77-M requires the utility  
            to file a statement showing the names, titles, and duties of  
            all employees with a base salary of at least $125,000  
            annually.  


           3)Closure of San Onofre Nuclear Plant:   In 2012, SCE announced  
            that it was closing the San Onofre Nuclear Generating Station  
            (SONGS) in San Clemente.  The move comes after Southern  
            California Edison (SCE) announced it could not afford to keep  
            the plant open after a leak was discovered in a steam  
            generator tube installed in 2010 that transported radioactive  
            water from one of the reactors.  In 2014, SCE reached a  
            settlement with the CPUC to allow it to collect $3.3 billion  
            from ratepayers and $1.4 billion from shareholders to fund the  
            cost of the closing SONGS.  The settlement also gave  
            ratepayers a share of the money recovered from litigation  
            against Mitsubishi, the manufacturer of the faulty steam  
            generator, as well as an equal share of any legal settlement  
            with Mitsubishi. 


           4)Executive Compensation:   According to the author, "executive  
            compensation [in the General Rate Case] is never the subject  
            of a standalone proceeding where the public can engage? [In  
            addition,] the [CPUC] has never conducted a proceeding to  
            determine if the compensation for any individual is  
            appropriate or justified, and never considers whether the  
            utility's performance warrants any change in executive  
            compensation. Not after the San Bruno disaster or the SONGS  
            disaster, not even after SCE was fined $200 million for  
            falsifying performance records and customer satisfaction  
            surveys."


            This bill prohibits an electrical or gas corporation from  








                                                                    AB 1266


                                                                    Page  5





            recovering expenses for excess compensation from ratepayers  
            following a triggering event unless the utility submits to the  
            CPUC a Tier 3 advice letter, as specified, and the CPUC opens  
            or expands the scope of a hearing to consider the costs to  
            ratepayers of the triggering event.  The CPUC would have to  
            hold at least one publically noticed hearing to consider the  
            cost to ratepayers of the trigger event and issue a decision  
            on whether and, if so, how much of each officers' compensation  
            shall be recoverable from ratepayers. 


             The author may wish to clarify that it intends to apply this  
            bill only to electric or gas public utilities and not all  
            electrical corporations and gas corporations. 


            The author may also wish to specify that the compensation is  
            limited to compensation which has been approved in rates. 


          5)Suggested Amendments:    



             706.(a) For purposes of this section, the following terms have  
            the following meanings:


            (1) "Excess compensation" means any salary, bonus, benefits,  
             stock options,  or other consideration of any value, paid to an  
            officer of an  electrical corporation or gas corporation   
             electric or gas public utility  that is in excess of 10 times  
            the average compensation paid by the utility to the utility's  
            journeyman linemen.


            (2) A "triggering event" occurs if, after January 1, 2013, an  
             electrical corporation or gas corporation   electric or gas  
            public utility  violates a federal or state safety regulation  








                                                                    AB 1266


                                                                    Page  6





            with respect to the plant and facility of the utility and, as  
            a proximate cause of that violation, ratepayers incur a  
            financial responsibility in excess of five million dollars  
            ($5,000,000).


            (b) No  electrical corporation or gas corporation   electric or  
            gas public utility  shall recover expenses for excess  
            compensation from ratepayers following a triggering event  
            unless the utility complies with the requirements of this  
            section and obtains the approval of the commission pursuant to  
            this section.


            (c) Following a triggering event and prior to paying or  
            seeking recovery of excess compensation, an  electrical  
            corporation or gas corporation   electric or gas public utility   
            shall file a Tier 3 advice letter with the commission that,  
            with respect to any officer paid excess compensation, includes  
            all of the following:


            (1) The compensation history for the officer.


            (2) The proposed compensation to be paid to the officer,  
            including the compensation recovered from ratepayers and that  
            paid solely by shareholders of the utility.


            (3)  Whether any of the compensation paid to officers was  
            previously included or proposed to be included in rates and  
            a  A  ny  justification for the proposed compensation.


            (4) Any additional information required by the commission.


            (d)  If the utility has previously been authorized recovery or  








                                                                    AB 1266


                                                                    Page  7





            has sought recovery of such costs in its rates, then t   T  he  
            commission shall open a hearing, or expand the scope of an  
            existing proceeding, to evaluate the advice letter. As part of  
            the proceeding, the commission shall consider the costs to  
            ratepayers of the triggering event. The commission shall hold  
            not less than one duly noticed public hearing in the  
            proceeding. The commission shall issue a written decision  
            determining whether  any of the previously authorized costs  
            should be refunded to  ,  and if so, how much, of each officers'  
            compensation shall be recoverable  from ratepayers.  


            6)Arguments in Support:   According to the Coalition of  
            California Utility Employees, the sponsor of the bill, "there  
            has been a flurry of revelations of late concerning excess  
            compensation for public utility executives.  They have come at  
            a time when some utilities have shut down resources and asked  
            the ratepayers to absorb much of the cost.  The appropriate  
            filing of an advice letter with the California Public  
            Utilities Commission will provide transparency for the  
            ratepayer and the oversight of the Investor Owned Utilities.   
            Excess compensation, in any form, to officers of a public  
            utility that has violated federal or state safety regulations  
            is unconscionable." 
          


          REGISTERED SUPPORT / OPPOSITION:




          Support


          Coalition of California Utility Employees (Sponsor)


          California State Association of Electrical Workers








                                                                    AB 1266


                                                                    Page  8







          The Utility Reform Network (TURN)




          Opposition


          None on file.




          Analysis Prepared by:Edmond Cheung / U. & C. / (916) 319-2083