BILL NUMBER: AB 861 AMENDED
BILL TEXT
AMENDED IN SENATE JUNE 7, 2012
AMENDED IN SENATE MAY 14, 2012
AMENDED IN ASSEMBLY MAY 27, 2011
INTRODUCED BY Assembly Member Hill
FEBRUARY 17, 2011
An act to add Part 14 (commencing with Section 14640) to
Division 3 of Title 1 of the Corporations Code, and to
amend Sections 2110 and 2111 of, and to add Sections 451.6 and 451.7
to, the Public Utilities Code, relating to public utilities.
LEGISLATIVE COUNSEL'S DIGEST
AB 861, as amended, Hill. Public Utilities Act: remedies for
violation: gas and electrical corporation executive officer
compensation incentives.
(1) The California Constitution establishes the Public Utilities
Commission, with regulatory jurisdiction over all public utilities,
as defined. The Public Utilities Act provides that every public
utility and every officer, agent, or employee of a public utility,
who violates or fails to comply with, or who procures, aids, or abets
any violation by any public utility of any provision of the
California Constitution or of the act, or who fails to comply with
any part of any order, decision, rule, direction, demand, or
requirement of the commission, or who procures, aids, or abets any
public utility in a violation or noncompliance, in a case in which a
penalty has not otherwise been provided, is guilty of a misdemeanor
and is punishable by a fine not exceeding $1,000, or by imprisonment
in a county jail not exceeding one year, or by both fine and
imprisonment.
This bill would provide that the fine may not exceed $5,000.
(2) The act additionally provides that every corporation or
person, other than a public utility and its officers, agents, or
employees, knowingly violating or failing to comply with, or
procuring, aiding, or abetting any violation of the California
Constitution relating to public utilities or of the act, or that
fails to comply with any part of any order, decision, rule,
direction, demand, or requirement of the commission, or procuring,
aiding, or abetting any public utility in a violation or
noncompliance, in a case in which a penalty has not otherwise been
provided, is subject to a penalty of not less than $500, or more than
$20,000, for each offense.
This bill would increase the maximum penalty to not
less than $1,000 and not more than
$1,000,000 $50,000 for each offense.
(3) Existing law authorizes the commission to fix the rates and
charges for every public utility, and requires that those rates and
charges be just and reasonable. Existing law requires that any
expense resulting from a bonus paid to an executive officer, as
defined, of a public utility that has ceased to pay its debts in the
ordinary course of business, be borne by the shareholders of the
public utility and prohibits any expense from being recovered in
rates.
This bill would require that any expense resulting from an
earnings- or stock price-based incentive program paid to an
executive officer employee or director of an
electrical or gas corporation be borne by the shareholders of the
utility and would prohibit any expense from being recovered in rates.
Because this provision of the bill would be a part of the act and
because a violation of an order or decision of the commission
implementing this requirements would be a crime, the bill would
impose a state-mandated local program by creating a new crime.
(4) This bill would prospectively require the
commission to require an energy utility, as defined, to prohibit
compensation, as defined, to utility officers, as defined, if the
energy utility does not implement a policy that, in the event a fine
or penalty is levied by the commission, the energy utility would
recover a proportional amount of the incentive-based compensation, as
defined, received by any current or former officers of the energy
utility during the 5-year period preceding the date on which the fine
or penalty was levied in excess of what would have been paid to the
officers in incentive-based compensation had the fine or penalty been
levied during the period in which the violation that resulted in the
fine or penalty occurred. , if monetary sanctions are
imposed by the commission on an energy public utility, as defined,
for a violation, as defined, that the energy public utility recover
any excess compensation, as defined, received by any current or
former officer or director, as defined, of the energy public utility
during the 5-year period preceding the date on which the monetary
sanctions are imposed. If monetary sanctions are imposed by the
commission on an energy public utility for a violation,
and the energy public utility is owned 80% or more by a holding
company, as defined, the bill would prospectively require that the
holding company recover any excess compensation received by any
current or former officer or director of the holding company during
the 5-year period preceding the date on which the monetary sanctions
were imposed.
(5) The General Corporation Law authorizes and regulates the
formation and governance of general corporations.
This bill would require a holding company of an investor-owned
energy utility, as defined, in the event a fine or penalty is levied
by the commission on the investor-owned energy utility, to recover a
proportional amount of the incentive-based compensation, as defined,
received by any current or former officers of the utility holding
company during the 5-year period preceding the date on which the fine
or penalty was levied in excess of what would have been paid to the
officers in incentive-based compensation had the fine or penalty been
levied during the period in which the violation that resulted in the
fine or penalty occurred.
(6)
(5) The California Constitution requires the
state to reimburse local agencies and school districts for certain
costs mandated by the state. Statutory provisions establish
procedures for making that reimbursement.
This bill would provide that no reimbursement is required by this
act for a specified reason.
Vote: majority. Appropriation: no. Fiscal committee: yes.
State-mandated local program: yes.
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. Part 14 (commencing with Section
14640) is added to Division 3 of Title 1 of the Corporations Code, to
read:
PART 14. PUBLIC UTILITY HOLDING COMPANIES
14640. For purposes of this part, the following terms have the
following meanings:
(a) "Commission" means the Public Utilities Commission.
(b) "Holding company" means an entity with ownership of 80 percent
or more of an investor-owned energy utility.
(c) "Incentive-based compensation" means, including, but not
limited to, short-term incentives, long-term incentives, stock
options awarded as compensation, and special recognition awards.
(d) "Investor-owned energy utility" means a gas corporation, as
defined in Section 222, an electrical corporation, as defined in
Section 218, of the Public Utilities Code, or one that is both a gas
corporation and an electrical corporation.
(e) "Officer" means a person required to file under Section 16 of
the Securities Exchange Act of 1934 (15 U.S.C. Sec. 78a et seq.) with
respect to an investor-owned energy utility or a utility holding
company of an investor-owned energy utility.
14641. In the event a fine or penalty is levied by the commission
on an investor-owned energy utility, the holding company shall
recover a proportional amount of the incentive-based compensation
received by any current or former officers of the holding company
during the five-year period preceding the date on which the fine or
penalty was levied in excess of what would have been paid to the
officers in incentive-based compensation had the fine or penalty been
levied during the period in which the violation that resulted in the
fine or penalty occurred.
SEC. 2. SECTION 1. Section 451.6 is
added to the Public Utilities Code, to read:
451.6. (a) Any expense
resulting from an earnings- or stock price-based incentive program
paid to an executive officer employee or
director of an electrical corporation or a gas corporation
shall not be recoverable either directly or indirectly in rates and
shall be borne exclusively by the shareholders of the public utility.
(b) For purposes of this section, "executive officer" means any
person who performs policymaking functions and is employed by the
electrical corporation or gas corporation subject to the approval of
the board of directors, and includes the president, secretary,
treasurer, and any vice president in charge of a principal business
unit, division, or function of the utility.
SEC. 3. SEC. 2. Section 451.7 is
added to the Public Utilities Code, to read:
451.7. (a) For purposes of this section, the following terms have
the following meanings:
(1) "Compensation" means, but is not limited to, base pay, health
and welfare benefits, retirement benefits, and other benefit
programs.
(2)
(1) "Energy public utility" means a gas
corporation, an electrical corporation, or a public utility
that is both a gas corporation and an electrical corporation.
(2) "Excess compensation" means the difference between what an
officer or director received in incentive-based compensation during
the period in which a violation occurred and what that officer or
director would have received had a monetary sanction been imposed
concurrent with the violation.
(3) "Holding company" means an entity with ownership of 80 percent
or more of an energy public utility.
(3)
(4) "Incentive-based compensation" means, but is not
limited to, short-term incentives, long-term incentives, stock
options awarded as compensation, and special recognition awards.
(5) "Monetary sanction" means a commission imposed requirement
that an energy public utility pay money as a result of a violation
that relates to public safety, including any fine, penalty, or
requirement to pay restitution.
(4)
(6) "Officer" means a person
required to file under and "director," with respect to
an energy public utility or holding company, have the same meaning
as defined in Section 16 of the federal Securities
Exchange Act of 1934 (15 U.S.C. Sec. 78a et seq.) with
respect to an energy utility .
(7) "Violation" means the failure by an energy public utility to
comply with any provision of the California Constitution, of this
part, or of any order, decision, decree, rule, direction, demand, or
requirement of the commission that relates to public safety, results
in a monetary sanction being imposed on the energy public utility by
the commission.
(b) The commission shall require an energy utility to
prohibit compensation to utility officers if the energy utility does
not implement a policy that, in the event a fine or penalty is levied
If a monetary sanction is imposed by the
commission on an energy public utility for a violation ,
the energy public utility shall recover a
proportional amount of the incentive-based compensation
excess compensation received by any current or former
officers officer or director of the
energy public utility during the five-year period
preceding the date on which the fine or penalty was levied
in excess of what would have been paid to the officers in
incentive-based compensation had the fine or penalty been levied
during the period in which the violation that resulted in the fine or
penalty occurred monetary sanction was imposed
.
(c) If a monetary sanction is imposed by the commission on an
energy public utility for a violation, and the energy public utility
is owned 80 percent or more by a holding company, the holding company
shall recover any excess compensation received by any current or
former officer or director of the holding company during the
five-year period preceding the date on which the monetary sanction
was imposed.
(d) In any order or decision of the commission that imposes a
monetary sanction on an energy public utility, the commission shall
make findings whether the monetary sanction is being made as a result
of a violation relating to safety. If monetary sanctions are being
imposed, in part, as a result of a violation relating to safety, the
commission shall specify what monetary sanctions are being imposed
because of a violation relating to safety.
(e) The requirements of this section are applicable to any
contract between an energy public utility and a director or officer
of that energy public utility, and to any contract between a holding
company and a director or officer of that holding company, that is
executed, modified, or extended beginning January 1, 2013.
SEC. 4. SEC. 3. Section 2110 of the
Public Utilities Code is amended to read:
2110. Every public utility and every officer, agent, or employee
of any public utility, who violates or fails to comply with, or who
procures, aids, or abets any violation by any public utility of any
provision of the California Constitution or of this part, or who
fails to comply with any part of any order, decision, rule,
direction, demand, or requirement of the commission, or who procures,
aids, or abets any public utility in the violation or noncompliance
in a case in which a penalty has not otherwise been provided, is
guilty of a misdemeanor and is punishable by a fine not exceeding
five thousand dollars ($5,000), or by imprisonment in a county jail
not exceeding one year, or by both fine and imprisonment.
SEC. 5. SEC. 4. Section 2111 of the
Public Utilities Code is amended to read:
2111. Every corporation or person, other than a public utility
and its officers, agents, or employees, which or who knowingly
violates or fails to comply with, or procures, aids or abets any
violation of any provision of the California Constitution relating to
public utilities or of this part, or fails to comply with any part
of any order, decision, rule, direction, demand, or requirement of
the commission, or who procures, aids, or abets any public utility in
the violation or noncompliance, in a case in which a penalty has not
otherwise been provided for the corporation or person, is subject to
a penalty of not less than one thousand dollars ($1,000)
five hundred dollars ($500) , nor more than
one million dollars ($1,000,000) fifty
thousand dollars ($50,000) for each offense.
SEC. 6. SEC. 5. No reimbursement is
required by this act pursuant to Section 6 of Article XIII B of the
California Constitution because the only costs that may be incurred
by a local agency or school district will be incurred because this
act creates a new crime or infraction, eliminates a crime or
infraction, or changes the penalty for a crime or infraction, within
the meaning of Section 17556 of the Government Code, or changes the
definition of a crime within the meaning of Section 6 of Article XIII
B of the California Constitution.