BILL ANALYSIS                                                                                                                                                                                                    

                              Senator Ben Hueso, Chair
                                2015 - 2016  Regular 

          Bill No:          AB 1266           Hearing Date:    7/13/2015
          |Author:    |Gonzalez                                             |
          |Version:   |5/4/2015    As Amended                               |
          |Urgency:   |No                     |Fiscal:      |Yes             |
          |Consultant:|Nidia Bautista                                       |
          |           |                                                     |
          SUBJECT: Electrical and gas corporations: excess compensation.

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

          Existing law:

          1)Establishes the CPUC and empowers it to regulate  
            privately-owned public utilities in California.  Specifies  
            that the Legislature may prescribe that additional classes of  
            private corporations or other persons are public utilities.   
            (Article XII of the California Constitution; Public Utilities  
            Code 301 et seq.)

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

          3)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 451.5)


          AB 1266 (Gonzalez)                                 Page 2 of ?

          This bill:

          1)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, as  
            specified, unless the utility gets approval from the CPUC. 

          2)Requires an electrical and gas corporation to file a Tier 3  
            advice letter with the CPUC prior to paying or seeking  
            recovery of excess compensation following a triggering event.   

          3)Requires CPUC to open a proceeding or expand the scope of an  
            existing proceeding to evaluate the advice letter.

          4)Requires CPUC to issue a written determination regarding the  
            ability to recover officers' compensation from ratepayers.

          5)Specifies that a triggering event occurs, after January 1,  
            2013, if an electrical or gas corporation violates a federal  
            or state safety violation resulting in ratepayers incurring  
            financial responsibility in excess of $5 million.

          6)Defines excess compensation as any salary, bonus, benefits or  
            other consideration of any value in excess of 10 times the  
            average salary of utility journeyman lineman.

          General Rate Case (GRC).  All utilities that are regulated by  
          the CPUC are required to undergo a GRC to request funding for  
          distribution and generation costs associated with their service.  
           GRCs are major regulatory proceedings and provide the CPUC an  
          opportunity to perform an exhaustive examination of a utility's  
          operations and costs.  Usually performed every three years, the  
          GRC 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. Through  
          the GRC, a utility forecasts how they will structure their  


          AB 1266 (Gonzalez)                                 Page 3 of ?
          operations and make investments for the next three years.   
          Within the GRC, the CPUC reviews executive compensation, as part  
          of the total compensation provided to the utility. 

          CPUC advice letter.  An advice letter is a request by a utility  
          for CPUC approval, authorization, or other relief, including an  
          informal request for approval to furnish service under rates,  
          charges, terms or conditions other than those contained in the  
          utility's approved rates and terms and conditions.  Advice  
          letters are procedurally less formal than other proceedings at  
          the CPUC, which require more judicial-type elements of an  
          evidentiary hearing.  Advice letters are classified into three  
          tiers, ranging from Tier 1 to Tier 3.  Tier 1 advice letters  
          generally become effective upon filing of the letter.  However,  
          Tier 3 advice letters require commissioners to hear the item and  
          take a vote at a publicly noticed meeting.

          San Onofre Nuclear Generating Station (SONGS).  In 2012,  
          Southern California Edison (SCE) reported that SONGS would be  
          temporarily shut down after a steam generator failed and leaked  
          radioactive gas.  In 2013, SCE announced it could not afford to  
          keep the plant open and would permanently retire the plant.  In  
          November 2014, the CPUC approved a settlement agreement between  
          utilities and ratepayer advocates that split the costs of  
          retiring the facility and the associated replacement power, with  
          ratepayers responsible for $3.3 billion of the $4.7 billion  
          total costs. 

          The author argues that the SONGS case presents justification for  
          why this bill is needed.  The author notes that executive  
          compensations were high even in the backdrop of the SONGS  
          closure and the billions of dollars that ratepayers would have  
          to shoulder to retire the facility.  Specifically, the author  
          notes SCE's chairman received $11 million in total compensation  
          in 2013 and that less than three weeks following the SONGS  
          settlement, SCE President cashed out nearly $9 million in stock.  
           Contrast these compensation packages to the roughly $80,000  
          annual salary of a utility journeyman lineman. 

          Prior/Related Legislation

          FISCAL EFFECT:                 Appropriation:  No    Fiscal  
          Com.:             Yes          Local:          Yes


          AB 1266 (Gonzalez)                                 Page 4 of ?


          Assembly Floor                                 (48-28)
          Assembly Appropriations Committee                         (12-5)
          Assembly Utilities and Commerce Committee           (10-5)

          Coalition of California Utility Employees (source)
          California Labor Federation
          California State Association of Electrical Workers
          Office of Ratepayer Advocates
          The Utility Reform Network


          California Business Properties Association
          California Chamber of Commerce
          Southern California Edison
          Southwest California Legislative Council

          ARGUMENTS IN SUPPORT:    The author states that the CPUC "has  
          never conducted a proceeding to determine if the compensation  
          for any individual is appropriate or justified and the CPUC  
          never considers whether the utility's performance warrants any  
          change in ratepayer-paid 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."
          ARGUMENTS IN OPPOSITION:  SCE argues:  "This bill is not  
          necessary? executive compensation for electrical and gas  
          corporations is already under regulatory oversight with multiple  
          opportunities for stakeholder involvement to ensure fair and  
          just compensation for utility officers?despite being a necessary  
          cost of providing safe and reliable utility service, the CPUC  
          routinely denies recovery in customer rates of a significant  
          portion of executive compensation."

                                      -- END --


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