BILL ANALYSIS Ó
SENATE COMMITTEE ON ENERGY, UTILITIES AND COMMUNICATIONS
Senator Ben Hueso, Chair
2015 - 2016 Regular
Bill No: AB 1266 Hearing Date: 7/13/2015
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|Author: |Gonzalez |
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|Version: |5/4/2015 As Amended |
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|Urgency: |No |Fiscal: |Yes |
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|Consultant:|Nidia Bautista |
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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).
ANALYSIS:
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.
Background
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
None.
FISCAL EFFECT: Appropriation: No Fiscal
Com.: Yes Local: Yes
AB 1266 (Gonzalez) Page 4 of ?
ASSEMBLY VOTES:
Assembly Floor (48-28)
Assembly Appropriations Committee (12-5)
Assembly Utilities and Commerce Committee (10-5)
SUPPORT:
Coalition of California Utility Employees (source)
California Labor Federation
California State Association of Electrical Workers
Office of Ratepayer Advocates
The Utility Reform Network
OPPOSITION:
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."
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