BILL ANALYSIS                                                                                                                                                                                                    



                                                                  AB 2303
                                                                  Page  1

          Date of Hearing:   April 12, 2004

                    ASSEMBLY COMMITTEE ON UTILITIES AND COMMERCE
                                 Sarah Reyes, Chair
                  AB 2303 (Leno) - As Introduced:  February 19, 2004
           
          SUBJECT  :   Public Utilities: Corporate taxation: insolvency.

           SUMMARY  :   

          1)Requires that any expense resulting from a bonus paid to an  
            officer or employee of an insolvent utility be borne by the  
            shareholders of the utility and not through rates.

          2)Provides that no tax deduction shall be allowed for costs paid  
            or incurred during the taxable year by a public utility for  
            any bonus paid to an officer or employee during the period the  
            utility is insolvent. 

           EXISTING LAW:   Provides that public utilities may recover in  
          rates its costs and expenses plus a reasonable return on value  
          of property devoted to public use. 

           FISCAL EFFECT  :   Unknown. 

           COMMENTS  :   This bill arises from a December 31, 2003,  
          announcement by PG&E that it would pay over $85 million in stock  
          in "retention bonuses" to 17 current and former senior  
          executives while the company was still officially under Chapter  
          11 bankruptcy protection.  The retention bonuses were part of a  
          program established shortly before the utility filed for  
          bankruptcy protection in April 2001.  The bonuses issued as  
          incentives to encourage PG&E's executives to stay with the  
          company during the bankruptcy.  

          PG&E states that the bonuses will be funded by reducing  
          shareholder dividends.  The California Public Utilities  
          Commission (CPUC) is currently conducting an investigation to  
          determine the extent to which these bonuses were disclosed in  
          PG&E's General Rate Case and to what, if any extent, the bonus  
          will be paid through rates. 

          Under CPUC established rates, all investor owned utilities,  
          including PG&E, may recover in rates all reasonable operating  
          costs.  Operating costs generally include salaries and bonuses  








                                                                  AB 2303
                                                                  Page  2

          if the CPUC finds such expenses are reasonable.  Consequently,  
          bonus programs similar to PG&E's could, with CPUC approval, be  
          recovered in rates. 

          This bill will limit the ability of a utility to recover bonuses  
          through rates and limit the company's ability to treat the  
          bonuses as expenses for tax purposes only if the utility is  
          insolvent.  Under all other financial circumstances, the utility  
          may still recover all reasonable expenses, including bonuses,  
          through rates.  The bill defines insolvent to mean the utility  
          is insolvent if it has ceased to pay its debts in the ordinary  
          course of business, it cannot pay its debts as they become due,  
          or the utilities liabilities exceed the utilities assets. 




           REGISTERED SUPPORT / OPPOSITION  :   

           Support
           
           Greenlining Institute
          The Engineers and Scientists of California
          The Utility Reform Network (TURN)

           Opposition 
           
          None on file.

           
          Analysis Prepared by  :    Edward Randolph / U. & C. / (916)  
          319-2083