BILL ANALYSIS Ó
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