BILL ANALYSIS
AB 2303
Page 1
CONCURRENCE IN SENATE AMENDMENTS
AB 2303 (Leno)
As Amended August 23, 2004
Majority vote
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|ASSEMBLY: |55-22|(May 17, 2004) |SENATE: |26-9 |(August 24, |
| | | | | |2004) |
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Original Committee Reference: U. & C.
SUMMARY : Requires that any expense resulting from a bonus paid
to an executive officer of an public utility that has ceased to
pay its debts in the ordinary course of business shall be borne
by the shareholders of that utility rather than being recovered
through rates.
The Senate amendments :
1)Require the California Public Utilities Commission (PUC) to
conduct an audit of an insolvent public utility to ensure the
provision of this bill are enforced.
2)Requires the prohibition to remain in place for two year after
the utility resumes paying its debts.
3)Make technical, non-substantive, changes.
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.
AS PASSED BY THE ASSEMBLY , this bill required that any expense
resulting from a bonus paid to an executive officer of an
insolvent public utility be borne by the shareholders of that
utility rather than being recovered through rates.
FISCAL EFFECT : Potential minor absorbable cost to PUC 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
AB 2303
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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. PUC 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 PUC 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 PUC finds such expenses are reasonable. Consequently, bonus
programs similar to PG&E's could, with PUC 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.
Analysis Prepared by : Edward Randolph / U. & C. / (916)
319-2083
FN: 0008808