You asked for a summary of legislation proposed this year (HB 6303) to limit compensation for utility company executives. You also wanted to know what role the Department of Public Utility Control (DPUC) plays in determining the proportion of such compensation that is borne by ratepayers and whether public utility commissions in other states have addressed this issue. We answer each question in turn.

PROPOSED LEGISLATION

The initial version of HB 6303 would have required DPUC, in setting utility company rates, to limit the amount of compensation paid by ratepayers to any officer, director or employee of a utility company to twice the governor's salary (i. e. , $ 300,000). In determining the total compensation, DPUC would have to account for all ratepayer funds received by the company, including from state-approved and federally-approved sources. The bill would have required DPUC to (1) require annual filings from all utility companies for which it sets rates to ensure compliance with this provision, and (2) use the full extent of its powers to enforce compliance. The bill would not have limited the compensation that a company provides from other sources, including shareholder funds.

The version of the bill favorably reported by the Energy and Technology Committee would have instead required DPUC to conduct a docket (case) to examine the compensation levels of utility companies' officers, directors, and employees. The examination would have had to assess the impact of compensation limits on ratepayers and the ability of utility companies to attract quality officers, directors, and employees and determine (1) whether there should be a limit on such compensation and (2) how such a limit would be set. The bill would have required DPUC to report its findings to the Energy and Technology Committee by February 1, 2010. The House took no action on the bill.

DPUC AND EXECUTIVE COMPENSATION

DPUC does not directly regulate the amount of compensation provided to utility company executives, although this compensation and the salaries paid to other company employees are typically addressed in rate cases. A key part of a rate case is determining a company's revenue requirements. This determination covers all of the company's costs, including the amount of money a company needs to spend to attract and retain qualified managers and other employees.

In some cases, DPUC has capped the total amount of bonuses and other incentives that can be paid to executives and other utility company managers. As discussed in OLR report 2009-R-0067, in a 1995 decision (docket 95-02-03), DPUC noted that the allocation of executive compensation between ratepayers and shareholders for ratemaking purposes should reflect the fact that the interests of these two groups are not always the same.  It also noted that a monopoly utility has no competition for its captive customers and can increase its revenues by reducing the quality of service or requesting higher rates.  DPUC established a policy that allocates executive compensation between ratepayers and shareholders, and among regulated and non-regulated operations when applicable. (For several utilities, senior executives of utility parent companies have responsibilities for the non-regulated subsidiaries of the parent corporations as well as the regulated utilities). In the decision, DPUC stated that it will allocate to ratepayers of regulated operations only those levels and forms of executive compensation that will benefit them.

In 2004, DPUC capped the total amount of incentive compensation for executives and other managers of Connecticut Light and Power paid by ratepayers at slightly over $ 5 million per year for the period 2004-2007. In 2006, it capped such compensation for United Illuminating at just

under $ 4 million through 2009 (this was the company's three-year average for such compensation for 2002-2004).  In this case, DPUC argued that shareholders benefit from incentive compensation plans and that it is appropriate that shareholders contribute if expenditures exceed the cap.  

In December 2008, DPUC established reporting requirements for compensation paid to utility executives and members of utility boards of directors (docket 08-01-16).  Among other things, DPUC ordered the utilities to provide information on bonuses, stock awards and options, total compensation, and the proportion of compensation charged to ratepayers. It required the companies to post this information on DPUC's website (http: //www. ct. gov/dpuc/).

ACTIONS IN OTHER STATES

The only state where we have found initiatives in the area of ratepayer-paid compensation for utility executives is Washington. In a 2000 rate case, the Washington Utilities and Transportation Commission allowed an electric utility (Avista) to recover only $ 410,900 of a CEO's base salary of $ 750,000 from ratepayers. More recently, the commission prohibited the rate recovery of executive “change of control” compensation connected to the sale of Puget Sound Energy.

This year, a legislative committee in Washington heard SB 5072. The bill would have limited the combined value of all cash and noncash benefits provided to any executive officer or director of a regulated gas or electric utility from ratepayers to the average of the annual salaries of the three highest paid executives of consumer-owned utilities in the state. Under the bill a “consumer-owned utility” meant a municipal electric utility, a public utility district, an irrigation district, a cooperative, or a mutual corporation or association that distributes electricity to more than one retail electric customer in the state. Legislative staff estimated that the average annual salary of the three highest paid consumer-owned utility executive was approximately $ 290,677. The committee took no action on the bill. A summary of the bill is available at http: //www. leg. wa. gov.

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