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AB-1363 Electrical corporations: financing wildfire expenses: executive compensation.(2019-2020)

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Date Published: 05/01/2019 09:00 PM
AB1363:v97#DOCUMENT

Amended  IN  Assembly  May 01, 2019
Amended  IN  Assembly  March 18, 2019

CALIFORNIA LEGISLATURE— 2019–2020 REGULAR SESSION

Assembly Bill
No. 1363


Introduced by Assembly Member Mark Stone

February 22, 2019


An act to add Section 706.5 to the Public Utilities Code, relating to electrical corporations.


LEGISLATIVE COUNSEL'S DIGEST


AB 1363, as amended, Mark Stone. Electrical corporations: financing wildfire expenses: executive compensation.
Under existing law, the Public Utilities Commission has regulatory authority over public utilities, including electrical corporations. 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 prohibits an electrical corporation from recovering from ratepayers any annual salary, bonus, benefits, or other consideration of any value paid to an officer of the electrical corporation, and requires that compensation to instead be funded solely by shareholders of the electrical corporation. Existing law authorizes the commission, upon application by an electrical corporation and in specified circumstances, to issue financing orders to support the issuance of recovery bonds to finance costs in excess of insurance proceeds incurred, or that are expected to be incurred, by an electrical corporation, excluding fines and penalties, related to wildfires.

This bill would establish the Electrical Corporation Recovery Fund as a special fund in the State Treasury. This bill would require an electrical corporation to pay excess compensation, as defined, that would otherwise be paid to an executive officer, as defined, to the fund. The bill would require the excess compensation to be set aside in a separate account within the fund and held in trust for the benefit of the named executive officer throughout a 5-year escrow period, as defined. If, during the escrow period, the commission issues a financing order to support the issuance of recovery bonds to finance costs related to wildfires, the bill would require the Treasurer to transfer any excess compensation escrowed by that electrical corporation to the electrical corporation, and would require the electrical corporation to apply that excess compensation solely to recover, finance, or refinance recovery costs and thereby reduce the amount of issuance of recovery bonds. The bill would require an electrical corporation to inform each of its executive officers that any excess compensation paid to the executive officer is subject to escrow and recovery pursuant to the bill’s requirements, regardless of any action by the executive officer.

This bill would condition electrical corporation recovery from its ratepayers of the costs incurred due to the liability of the electrical corporation for damages to third parties from a wildfire or any other safety-related failure, if those costs are not determined by the commission to be just and reasonable, on the negotiation of an executive compensation structure that meets prescribed principles. The bill would require the Governor to appoint a special master for executive compensation to engage in this negotiation with the electrical corporation and its executive officers. The bill would require the special master to submit to the commission for approval the executive compensation structure. The bill would require the commission to approve the executive compensation structure, contemporaneous with the approval of recovery of those costs from the electrical corporation’s ratepayers, if it determines that the executive compensation structure meets those specified principles.
This bill would make legislative findings and declarations as to the necessity of a special statute for the Pacific Gas and Electric Company.
Under existing law, a violation of the Public Utilities Act or any order, decision, rule, direction, demand, or requirement of the commission is a crime.
Because the provisions of this bill would be a part of the act and because a violation of the approved executive compensation structure would be a violation of an order or decision of the commission implementing its requirements commission, which would be a crime, the bill would impose a state-mandated local program by creating a new crime.
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   Local Program: YES  

The people of the State of California do enact as follows:


SECTION 1.

 Section 706.5 is added to the Public Utilities Code, to read:

706.5.
 (a) For purposes of this section, the following definitions apply:
(1) “Compensation” has the same meaning as set forth in Section 706.
(2) “Electrical corporation” means an electrical corporation, as defined in Section 218, or its privately held successor, that meets all of the following:
(A) The electrical corporation has an electric distribution and transmission service territory exceeding 65,000 square miles.
(B) The electrical corporation has more than 75,000 miles of electric distribution and transmission lines in California.
(C) The electrical corporation has more than two million poles located in California.
(3) “Executive officer” has the same meaning as set forth in Section 451.5.
(b) Within 90 days of the filing of an application by the electrical corporation for the recovery from its ratepayers of costs incurred due to the liability of the electrical corporation for damages to third parties resulting from a catastrophic wildfire or any other safety-related failure, the Governor shall appoint a special master for executive compensation. The special master shall report to the commission pursuant to this section.
(c) (1) As a condition for receiving recovery from ratepayers of costs incurred due to the liability of an electrical corporation for damages to third parties resulting from a catastrophic wildfire or any other safety-related failure that has not been determined by the commission to be just and reasonable within the meaning of Section 451, the electrical corporation and its executive officers shall negotiate with the special master for executive compensation to establish a compensation structure for the executive officers based on the principles enumerated in subdivision (d).
(2) Upon approval by the commission pursuant to subdivision (e), the compensation structure negotiated pursuant to paragraph (1) shall be in effect for the period during which the electrical corporation is receiving recovery from its ratepayers of costs described in paragraph (1).
(d) The compensation structure for executive officers of the electrical corporation shall be structured to promote safety as a priority and to ensure public safety and utility financial stability with performance metrics, and shall be based on the following principles:
(1) (A) Strict limits on guaranteed cash compensation, with the primary portion of the executive officers’ compensation based on achievement of objective performance metrics.
(B) No guaranteed monetary incentives in the compensation structure.
(2) Incentive compensation based on meeting performance metrics that are measurable and enforceable.
(3) Recovery by the electrical corporation of incentive compensation paid to an executive officer if the officer fails to meet a performance metric.
(4) (A) A long-term structure that provides a significant portion of compensation, which may take the form of grants of the electrical corporation’s stock, based on the electrical corporation’s long-term performance and value.
(B) This compensation shall be held or deferred for a period of at least three years.
(5) Minimization or elimination of indirect or ancillary compensation that is not aligned with shareholder and taxpayer interest in the electrical corporation.
(e) (1) The special master shall submit the compensation structure to the commission for approval.
(2) The commission shall, contemporaneous with the approval of any recovery from ratepayers of costs described in paragraph (1) of subdivision (c), approve the compensation structure if it determines that the compensation structure meets the principles set forth in subdivision (d).
(f) It is the intent of the Legislature, in enacting this section, that any approved bankruptcy reorganization of an electrical corporation should, in regards to compensation for executive officers of the electrical corporation, comply with the requirements of subdivision (d).

SEC. 2.

 The Legislature finds and declares that a special statute is necessary and that a general statute cannot be made applicable within the meaning of Section 16 of Article IV of the California Constitution because of the unique circumstances regarding the service territory of the Pacific Gas and Electric Company.

SEC. 3.

 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.
SECTION 1.Section 706.5 is added to the Public Utilities Code, to read:
706.5.

(a)For purposes of this section, the following terms have the following meanings:

(1)“Average covered compensation increase” means the percentage, if any, by which the value of the average covered compensation awarded to all covered employees in a calendar year exceeds the value of the average covered compensation awarded to all covered employees in the preceding calendar year, adjusted for any changes in part-time or full-time status.

(2)“Covered compensation” means the combined value of the covered employee’s wages and benefits for the calendar year. Covered compensation may be paid entirely as wages or in any combination of wages and fringe benefits. Covered compensation includes, but is not necessarily limited to, both of the following amounts:

(A)The covered employee’s hourly wage rate or the per diem value of the covered employee’s monthly salary, extrapolated to the full calendar year.

(B)Employer payments toward the covered employee’s health and welfare and pension benefits. Employer payments toward health and welfare and pension benefits shall include only those payments that are recognized as employer payments under paragraphs (1) and (2) of subdivision (b) of Section 1773.1 of the Labor Code.

(3)(A)“Covered employee” means an individual who has been employed by an electrical corporation for at least one calendar year.

(B)“Covered employee” does not include any of the following:

(i)A managerial, supervisory, or confidential employee.

(ii)A temporary employee.

(iii)A part-time employee who has worked less than 20 hours per week, on average, during that calendar year.

(4)“Escrow period” shall mean five years from the date on which any excess compensation is received by the State Treasury, except that the escrow period for any funds escrowed by an electrical corporation shall be tolled during any period in which any of the following is true:

(A)The electrical corporation has ceased to be able to pay its debts in the ordinary course of business.

(B)The liabilities of the electrical corporation exceed its assets.

(C)The electrical corporation asserts that its liabilities exceed its assets.

(5)“Excess compensation” means, for each executive officer, the executive compensation for that executive officer multiplied by the difference between the percentage increase in executive compensation and the average covered compensation increase.

(6)“Executive compensation” means any annual salary, bonus, benefits, or other consideration of any value, paid or to be paid to an executive officer during a calendar year.

(7)“Executive officer” means any person who performs policymaking functions and is employed by the public utility 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 public utility.

(8)“Increase in executive compensation” means the percentage increase, if any, in the value of the executive compensation awarded to an executive officer in a calendar year above the value of the executive compensation awarded to the executive officer in the preceding calendar year. For purposes of this calculation, the value of the executive compensation awarded to the executive officer in the preceding calendar year shall include the compensation awarded to the predecessor of the executive officer, if any.

(b)(1)The Electrical Corporation Recovery Fund is hereby created as a special fund in the State Treasury.

(2)Until December 31, 2035, rather than pay excess compensation to an executive officer, an electrical corporation shall send any excess compensation to the State Treasury, where the excess compensation shall be set aside in a separate account within the Electrical Corporation Recovery Fund and held in trust for the benefit of the named executive officer throughout the escrow period unless authorized to be transferred to the electrical corporation under the conditions set forth in subdivision (d).

(3)The composition of the assets that comprise the excess compensation sent to the State Treasury shall be pro rata identical to the assets that comprise the total executive compensation for the executive officer for the calendar year, except that nonliquid benefits such as use of a vehicle or health insurance shall be represented by the present cash value of those benefits.

(4)Moneys in each separate account shall be invested by the Treasurer in four-week United States Treasury bills, and any income from that investment shall be credited to the account from which the investment was made.

(c)The commission shall consider the availability of all funds held in trust in the Electrical Corporation Recovery Fund for an electrical corporation’s executives as among the other factors the commission considers pursuant to paragraph (12) of subdivision (a) of Section 451.1.

(d)If the commission issues a financing order pursuant to Section 850.1, following application by an electrical corporation, the Treasurer shall transfer any excess compensation escrowed by that electrical corporation to the electrical corporation, and the electrical corporation shall apply that excess compensation solely to recover, finance, or refinance recovery costs and thereby reduce the amount of issuance of recovery bonds.

(e)Upon hiring of an executive officer and on January 1 of every calendar year thereafter, an electrical corporation shall inform each of its executive officers that any excess compensation paid to the executive officer is subject to escrow and recovery under this section, regardless of any action by the executive officer.

SEC. 2.

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.