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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