BILL ANALYSIS                                                                                                                                                                                                    Ó






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          |SENATE RULES COMMITTEE            |                       AB 1266|
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                                   THIRD READING 


          Bill No:  AB 1266
          Author:   Gonzalez (D)
          Amended:  9/4/15 in Senate
          Vote:     21  

           SENATE ENERGY, U. & C. COMMITTEE:  7-3, 7/13/15
           AYES:  Hueso, Hill, Lara, Leyva, McGuire, Pavley, Wolk
           NOES:  Fuller, Cannella, Morrell
           NO VOTE RECORDED:  Hertzberg

           SENATE APPROPRIATIONS COMMITTEE:  5-2, 8/27/15
           AYES:  Lara, Beall, Hill, Leyva, Mendoza
           NOES:  Bates, Nielsen

           ASSEMBLY FLOOR:  48-28, 6/3/15 - See last page for vote

           SUBJECT:   Electrical and gas corporations:  excess  
                     compensation


          SOURCE:    Coalition of California Utility Employees
          
          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 for a five-year  
          period following a triggering event, unless the utility obtains  
          approval from the California Public Utilities Commission (CPUC).

          Senate Floor Amendments of 9/4/15 require investor-owned  
          electrical and gas utilities to place all authorized executive  
          compensation in a separate fund account in order to allow the  
          CPUC an available mechanism to refund to ratepayers excess  
          compensation that was previously authorized in a utility's  








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          general rate case should a triggering event occur. 
          
          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)

          This bill:

          1)Prohibits an electrical or gas corporation from recovering  
            from ratepayers expenses for excess compensation paid to an  
            officer of the utility for a five-year period following a  
            triggering event, as specified, unless the utility gets prior  
            approval from the CPUC. 

          2)Requires an electrical and gas corporation to file an  
            application with the CPUC prior to paying or seeking recovery  
            of excess compensation for a five-year period following a  
            triggering event.  

          3)Requires CPUC to open a proceeding to evaluate the  
            application.

          4)Requires CPUC to issue a written determination whether any  
            expenses for excess compensation proposed to be paid by the  
            electrical corporation or gas corporation should be recovered  
            in rates, or if previously authorized to be recovered in rates  
            should be refunded to ratepayers. 







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          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 annual salary, bonus,  
            benefits or other consideration of any value paid to an  
            officer of an officer of an electrical corporation that is an  
            excess of $1 million.

          7)Requires the CPUC to require investor-owned electrical and gas  
            corporations to place all authorized executive compensation in  
            a special fund account so that this bill can be implemented  
            without violating any prohibition on retroactive ratemaking. 

          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  
          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. 

          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. 

          Need for this bill.  The author argues that the SONGS case  







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          exemplifies the need to make the executive compensation process  
          for officers and executives of California regulated utilities  
          more transparent and responsive to the ratepayers.  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 company stock.  

          Time machine of sorts.  The CPUC in a GRC proceeding authorizes  
          forecasted operations and investments of a utility for the  
          coming three years.  However, a triggering event that results in  
          $5 million or more in ratepayer costs can occur after the  
          approval of a GRC.  As such, the author's Senate Floor  
          amendments require regulated investor-owned electric and gas  
          utilities to place all authorized executive compensation into a  
          fund account.  The fund account is intended to provide the CPUC  
          a flexible mechanism to refund to ratepayers previously approved  
          executive compensation should a triggering event occur after the  
          initial approval.

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

          According to the Senate Appropriations Committee, unknown  
          ongoing costs, potentially $200,000 annually, to the Public  
          Utilities Reimbursement Account for proceedings and review of  
          excess compensation.

          SUPPORT:   (Verified9/4/15)


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


          OPPOSITION:   (Verified9/4/15)









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          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."

          ASSEMBLY FLOOR:  48-28, 6/3/15
          AYES:  Alejo, Bloom, Bonilla, Bonta, Brown, Burke, Calderon,  
            Campos, Chau, Chiu, Chu, Cooper, Dababneh, Dodd, Eggman,  
            Cristina Garcia, Eduardo Garcia, Gatto, Gipson, Gomez,  
            Gonzalez, Gordon, Gray, Roger Hernández, Holden, Irwin,  
            Jones-Sawyer, Levine, Lopez, Low, McCarty, Medina, Mullin,  
            Nazarian, O'Donnell, Perea, Quirk, Rendon, Rodriguez, Salas,  
            Santiago, Mark Stone, Thurmond, Ting, Weber, Williams, Wood,  
            Atkins
          NOES:  Achadjian, Travis Allen, Baker, Bigelow, Brough, Chang,  
            Chávez, Dahle, Frazier, Beth Gaines, Gallagher, Grove, Hadley,  
            Harper, Jones, Kim, Lackey, Linder, Mathis, Mayes, Melendez,  
            Obernolte, Olsen, Patterson, Steinorth, Wagner, Waldron, Wilk
          NO VOTE RECORDED:  Cooley, Daly, Maienschein, Ridley-Thomas

          Prepared by:Nidia Bautista / E., U., & C. / (916) 651-4107
          9/8/15 21:01:58


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