BILL ANALYSIS �
AB 861
Page 1
CONCURRENCE IN SENATE AMENDMENTS
AB 861 (Hill)
As Amended August 24, 2012
Majority vote
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|ASSEMBLY: | |(June 1, 2011) |SENATE: |22-12|(August 29, |
| | | | | |2012) |
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(vote not relevant)
Original Committee Reference: U. & C.
SUMMARY : Increases penalty levels for failure to comply with
utility laws and requires the California Public Utilities
Commission (PUC) to determine rate recovery by an electrical
corporation or gas corporation that is a public utility for
earnings or stock-based price-based incentive pay for its
employees or directors.
The Senate amendments delete the Assembly version of this bill,
and instead:
1)Require the PUC to determine rate recovery by an electrical or
gas corporation that is a public utility for earnings or
stock-based price-based incentive pay for its employees or
directors.
2)Increases the maximum fine per offense against any person or
entity, other than a public utility, that fails to comply with
a utility law or specified requirement, or who aids and abets
a public utility in the violation of the same.
FISCAL EFFECT : According to the Senate Appropriations
Committee, pursuant to Senate Rule 28.8, negligible state costs.
AS PASSED BY THE ASSEMBLY , this bill established the California
Stroke Registry to be administered by the State Department of
Public Health.
COMMENTS : According to the author, "utility ratepayers should
support compensation that is market-based and advances their
interest in safe, reliable service at reasonable rates. An
examination of the practices at PG&E leading up to the 2010
natural gas pipeline explosion in San Bruno has demonstrated
AB 861
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that the utility management focused more on financial
performance than on operations. In the year of the disaster,
PG&E put off safety assessments to future years, switched from
more expensive assessments to cheaper ones, and laid off
operations and maintenance personnel. Leadership was found to
have had "little or no previous experience in the natural gas
industry and/or no direct operating experience," and the
utility's bonus structure-weighted heavily toward financial
indicators-reinforced this financial focus.
"Utilities are not normal corporations. They cannot increase
their profit by increasing market share or selling more product.
They cannot raise their revenue at all, as the total amount
they are able to recover in rates is set by the PUC during their
General Rate Cases. The way a public utility increases its
earnings is by spending less on operations and maintenance. An
incentive based on financial performance appears to undermine
the utilities' safety and reliability mandate by incentivizing
utility management to engage in this type of behavior.
"The PUC has been inconsistent in how it has treated
compensation that incentivizes corporate financial performance,
and it needs to more thoroughly examine who benefits from it.
AB 861 requires the PUC to determine the appropriate ratemaking
treatment for this type of compensation. If shareholders are
indeed the primary beneficiaries, then ratepayers should not be
paying for these programs. The PUC needs to clearly outline its
expectations for recovery through rates of utility bonus plans
for it to be capable of encouraging utilities to align their
incentives with those of their customers."
Last year, the penalties for offenses by a public utility were
increased from a maximum fine of $20,000 per violation to a
maximum fine of $50,000 per violation. This bill would increase
the penalties from $500 to $50,000 against non-utilities that
fail to comply with utility law, employees of the utility, and
also non-public utilities regulated by the PUC. This
modification would align penalties between utilities and
non-utilities.
This bill seeks to clarify current law which gives the PUC
discretion to determine the level and type of executive
compensation that should be borne by ratepayers during the
general rate case of each public utility. In that context, the
PUC can consider the particular facts and circumstances,
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including appropriate incentives for utility performance.
This bill was substantially amended in the Senate and the
Assembly provisions of this bill were deleted. This language
has not been heard by an Assembly policy committee.
Analysis Prepared by : DaVina Flemings / U.C. / (916) 319-2083
FN:
0005826