BILL ANALYSIS
AB 2303
Page 1
ASSEMBLY THIRD READING
AB 2303 (Leno)
As Amended April 21, 2004
Majority vote
UTILITIES AND COMMERCE 7-4 REVENUE AND TAXATION 6-0
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|Ayes:|Reyes, Calderon, Correa, |Ayes:|Bermudez, Wyland, Chavez, |
| |Jerome Horton, Levine, | |Chu, Laird, Leno |
| |Ridley-Thomas, Longville | | |
| | | | |
|-----+--------------------------+-----+--------------------------|
|Nays:|Campbell, Bogh, La Malfa, | | |
| |Strickland | | |
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APPROPRIATIONS 16-5
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|Ayes:|Chu, Berg, Calderon, | | |
| |Corbett, Correa, | | |
| |Firebaugh, Goldberg, | | |
| |Leno, Nation, Negrete | | |
| |McLeod, Oropeza, Pavley, | | |
| |Ridley-Thomas, Wesson, | | |
| |Wiggins, Yee | | |
| | | | |
|-----+--------------------------+-----+--------------------------|
|Nays:|Runner, Bates, Daucher, | | |
| |Haynes, Keene | | |
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SUMMARY : Requires that any expense resulting from a bonus paid
to an executive officer of an insolvent utility be borne by the
shareholders of that utility rather than being recovered through
rates. Specifically, this bill :
1)Requires the cost of any bonus paid to an executive of an
insolvent utility regulated by the California Public Utilities
Commission (CPUC) to be borne by that utility's shareholders
rather than by ratepayers. (Affected employees include the
utility's president, secretary, treasurer, and any vice
president in charge of a principal business unit, division, or
function.)
AB 2303
Page 2
2)Exempts from the above a bonus that is part of an employee's
compensation contract.
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 : Potential minor absorbable cost to CPUC for
enforcement, which could be offset to some extent by any penalty
revenues.
COMMENTS : This bill arises from a December 31, 2003,
announcement by Pacific Gas and Electric (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 PG&E 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. 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
if 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. This 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.
AB 2303
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Analysis Prepared by : Edward Randolph / U. & C. / (916)
319-2083
FN: 0005273