Amend Compensation Levels

Reporting Thresholds:

In the rulemaking, we suggested increasing the reporting threshold to $200,000 annual compensation for employees of Tier I utilities (over $1 billion annual revenue). This figure was first proposed by G/LIF in its petition and 14 of the 16 parties commenting on the issue supported an increase to this amount. However, as commented on by G/LIF and the Commission's Office of Ratepayer Advocates (ORA), the $200,000 amount was to include stock options, pension benefits and other forms of compensation not defined in GO 77-K. ORA instead supports an increase to $100,000 for Tier I utilities and a similar increase (33%) for Tier II and Tier III utilities. ORA advised that it uses this data in its review of formal requests for rate increases by the utilities. PG&E in its opening comments supported the $200,000 level for Tier I utilities and additionally stated that employee compensation levels should be limited only to "base salary," and not to incentives and other forms of compensation. Southwest Gas Corp. (SWG) supports a general $200,000 level for Tier I utilities and a similar increase (166%) for Tier II and Tier III utilities.

The purpose of GO 77 is to provide the Commission with data to be used in the rate-setting process to determine if salaries and other compensation received by utility officers and employees is excessive or out of line with prevailing standards. To do this, we need meaningful data that not only includes salaries, but the other forms of compensation now defined in the GO (expense accounts, contingent fees and other moneys). We also recognize that reporting such data at 1986 levels is now out of date and cumbersome.

The reporting levels should be updated and increased, but to a more modest level than initially proposed. An increase to $200,000 is excessive in terms of the need for the data, particularly if stock options and pension benefits are excluded from this sum. Only San Diego Gas & Electric Company (SDG&E), in comments to the draft decision, provided any justification of how the $200,000 figure compares to actual salaries paid or the percent of employees being compensated at or above that amount. We believe a more conservative increase to $125,000, excluding stock options and pension benefits, for Tier I utilities will allow for the necessary comprehensive review of the data and also give us the ability to compare the compensation levels of a greater cross-section of employees.

Additionally, to simplify the reporting categories, Tier II and Tier III utilities will be consolidated into a single tier. The Tier II annual revenue level is now $1 million to $1 billion, while Tier III is $500,000 to $1 million. The consolidation results in a new Tier II of annual operating revenues between $500,000 and $1 billion. The annual employee compensation report trigger for the new Tier II will be $85,000, an approximate average of the former Tier II and Tier III levels ($60,000 and $40,000, respectively) increased by 66%.

A general increase of 66% to the annual employee compensation thresholds is reasonable. This increase ($125,000 for large utilities and $85,000 for others) will be closer in line with 2004 compensation levels and also continue to allow the public and staff access to meaningful data for review of the rate-making process.

Automatic Annual Adjustments:

We solicited comments on whether to establish an automatic annual adjustment to the employee compensation levels, based on the GDPPI (published by the U.S. Department of Commerce, Bureau of Economic Analysis (BEA)). After reviewing the issue and considering the comments received, we now believe any automatic annual adjustment of the reporting levels based on the GDPPI could prove to be too complex and that any computations of increases or decreases using this data could lead to confusing results for parties compiling or using the data. Several parties commented that any automatic increase should be clearly defined and easy to understand. Roseville Telephone (Roseville) commented that the current GDPPI index has no easily identifiable figure to determine increases. The current BEA web site showing the GDPPI ( www.bea.doc.gov) appears to no longer provide these data and explains that some of the information is unavailable. The data that are provided use fractions of percents that can easily be misinterpreted and miscalculated. We understand that an automatic inflation index would lessen the need for future adjustments, but we must maintain a level of control and simplicity on the annual employee compensation levels. In view of these concerns, we will not implement any automatic change to the reporting levels.

Exempting CLECs and NDIECs from GO 77-L

All parties commenting on this issue agree that certificated CLECs and NDIECs should be exempted from the provisions of GO 77-L. As stated in the rulemaking (p. 13) and by all parties, certificated CLECs and NDIECs are not rate-regulated by the Commission, and we do not use GO 77 data filed by them. We now exempt them from GO 77-L.

In Decision (D.) 00-12-030 (gas storage), D.98-09-024 (commercial mobile radio providers) and D.96-07-052 (railroads), we previously exempted certain regulatees from GO 77 for the same reasons (no Commission rate-setting responsibilities). Certificated CLECs and NDIECs are now added to the regulatees not covered by the provisions of the general order. GO 77-L will include a list of all exemptions.

Two parties, Roseville Telephone and the Frontier Companies, commented that, in addition to CLECs and NDIECs, utilities operating under the New Regulatory Framework (NRF) should similarly be exempted from the provisions of GO 77-L. This proposal was previously discussed and rejected in the rulemaking (p. 14), in that compensation data filed by NRF utilities is necessary and used in the regulation of these companies.