BILL ANALYSIS                                                                                                                                                                                                    



          SENATE COMMITTEE ON APPROPRIATIONS
                             Senator Ricardo Lara, Chair
                            2015 - 2016  Regular  Session

          AB 1266 (Gonzalez) - Electrical and gas corporations: excess  
          compensation.
          
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          |Version: May 4, 2015            |Policy Vote: E., U., & C. 7 - 3 |
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          |Urgency: No                     |Mandate: Yes (see staff         |
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          |Hearing Date: August 17, 2015   |Consultant: Marie Liu           |
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          This bill meets the criteria for referral to the Suspense File. 


          Bill  
          Summary:  AB 1266 would prohibit an electrical or gas  
          corporation from recovering expenses for excess compensation, as  
          defined, from ratepayers if there have been safety violations  
          that result in over $5,000,000 in ratepayer costs.


          Fiscal  
          Impact:  Unknown ongoing costs, potentially $200,000 annually,  
          to the Public Utilities Reimbursement Account (special) for  
          proceedings and review of excess compensation.


          Background:  All CPUC regulated utilities are required to have their rates  
          approved by the CPUC through a General Rate Case (GRC). These  
          cases usually are performed every three years and allow the CPUC  
          to examine the utility's revenues, expenses, and infrastructure  
          investments, including executive compensation. A utility can  







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          request changes to rates outside of the GRC through an advice  
          letter, which are procedurally less formal than the GRC or other  
          proceeding. Advice letters are classified into three tiers based  
          on when and how they become effective. Tier 3 advice letters  
          require commissioners to hear the item and take a vote at a  
          publically noticed meeting.
          In 2012, Southern California Edison (SCE) temporarily shut down  
          the San Onofre Nuclear Generation Station (SONGS) after a steam  
          generator failed and leaked radioactive gas. In 2013, SCE  
          announced that it could not afford to keep the plant open and  
          that SONGS would be permanently retired. Under a CPUC approved  
          settlement, ratepayers will be responsible for paying for $3.3  
          billion of the $4.7 billion total costs necessary to retire the  
          facility and supply replacement power. In 2013, SCE's chairman  
          received $11 million in total compensation in 2013, and less  
          than three weeks following the SONGS settlement, the president  
          of SCE cashed out nearly $9 million in stocks. 




          Proposed Law:  
            This bill would prohibit an electrical or gas corporation from  
          recovering expenses for an officer's excess compensation from  
          ratepayers following a "triggering event" unless the utility  
          files a Tier 3 advice letter with the following information:
           The officer's compensation history.


           The officer's proposed excess compensation, delineating  
            between the compensation requested to be paid by ratepayers  
            and compensation paid by the shareholders.


           Whether the excess compensation was previously included or  
            proposed prior to the triggering event.


          If the excess compensation was previously requested prior to a  
          triggering event, the CPUC would be require to open a  
          proceeding, or expand an existing hearing, to consider the  
          ratepayer costs of the triggering event and whether any  
          previously-approved expenses for excess compensation should be  
          refunded to ratepayers.








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          This bill would define "excess compensation" as any salary,  
          bonus, or benefits paid to an officer of a utility that is more  
          than 10 times the average compensation paid to the utility's  
          journeyman linemen. 


          A "triggering event" would be defined a violation of federal or  
          state plant and facility safety regulations after January 1,  
          2013 that result in the ratepayers incurring a financial  
          responsibility of over $5 million.




          Staff  
          Comments:  Costs to the CPUC associated with this bill are  
          largely unknown because it is unknown how often triggering  
          events will occur and the bill does not specify how long the  
          limitations on excess compensation would be imposed. As an  
          example, assuming that the bill's limitation on excess  
          compensation be limited to the existing GRC cycle and  
          California's three largest IOUs all have a triggering event  
          after receiving authorization to recover excess compensation in  
          rates, the CPUC would likely need $200,000 annually ongoing in  
          proceeding costs to consider whether ratepayers should be  
          refunded costs associated with excess compensations.
          Staff notes that the bill defines excess compensation for an  
          officer of an IOU as any salary, bonus, benefits, or other  
          consideration of any value, paid to an officer that is more than  
          10 times the average "compensation" paid by the utility to the  
          utility's journeyman linemen; however "compensation" for the  
          linemen is not defined. The Senate Energy and Utilities analysis  
          on this bill reported that the average annual salary of linemen  
          is approximately $80,000. However, SCE reported to this  
          committee that the average annual compensation of its linemen  
          was $201,626 based on the average lineman's base salary plus  
          overtime ($162,602) and 24% for benefits. As the definition of  
          "compensation" would affect when the review required by this  
          bill would be triggered,  staff recommends  that compensation be  
          defined and be specified in annual amounts or, alternatively,  
          the author may wish to consider setting excess compensation at a  
          set amount, say $2 million, which would be adjusted annually for  








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          inflation.


          This bill constitutes a state mandate as it creates a new crime.  
          However, under the California Constitution, costs associated  
          with this mandate are not reimbursable. 




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