Public utilities: electrical and gas corporations: financial distress: reporting., the official text

An act to add Section 720 to the Public Utilities Code, relating to public utilities.

LEGISLATIVE COUNSEL'S DIGEST

Existing law vests the Public Utilities Commission with regulatory authority over public utilities, including electrical corporations and gas corporations.
This bill would require an electrical corporation or gas corporation to submit a financial condition report to the Legislature, as provided, if the corporation’s credit rating reaches a near-distress rating level, as defined, or if the commission issues a cost-of-capital decision, as defined, affecting the corporation. The bill would specify information required to be included in the report, including information determined by the commission to be relevant to the Legislature’s understanding of the corporation’s financial condition.
Under existing law, a violation of the Public Utilities Act or an order, decision, rule, direction, demand, or requirement of the commission is a crime.
Because the above provisions would be part of the act and a violation of a commission action implementing the bill’s requirements would be a crime, this bill would impose a state-mandated local program.
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.

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

SECTION 1.
The Legislature finds and declares all of the following:
(a) Investor-owned utilities provide essential services to millions of California residents and businesses, making their financial stability a matter of public concern.
(b) When an investor-owned utility’s credit rating approaches non-investment-grade status, the probability of financial distress rises substantially, and the risk that the state or ratepayers may be called upon to provide financial assistance increases.
(c) Decisions by the Public Utilities Commission setting an investor-owned utility’s authorized cost of capital directly affect the utility’s ability to attract investment, service its debt, and maintain financial stability.
(d) The Legislature has an interest in receiving timely and accessible financial information from investor-owned utilities before distress reaches a crisis stage, to evaluate whether state action may be warranted.
(e) Investor-owned utilities that are reporting companies under the federal Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.) already disclose extensive financial information through filings with the United States Securities and Exchange Commission. Requiring that information to be presented in a plain language format for the Legislature imposes minimal additional burden while improving legislative oversight.

SEC. 2.
Section 720 is added to the Public Utilities Code, to read:
720.
(a) For purpose of this section, all of the following definitions apply:
(1) “Cost-of-capital decision” means a final decision or order issued by the commission in which the commission determines the authorized cost of capital for an electrical corporation or gas corporation, including the authorized return on equity, the cost of long-term debt, and the capital structure, and including any decision that establishes or modifies an automatic adjustment mechanism applicable to a component of the authorized cost of capital.
(2) “Credit rating agency” means a nationally recognized statistical rating organization that is a credit agency registered with the United States Securities and Exchange Commission, including, but not limited to, S&P Global Ratings, Moody’s Ratings, and Fitch Ratings, to the extent those entities are registered with the United States Security and Exchange Commission.
(3) “Near-distress rating” means a long-term issuer credit rating, assigned by a credit rating agency, of BBB by S&P Global Ratings or Fitch Ratings, or of Baa2 by Moody’s, the rating one notch above the minimum investment-grade threshold, or an equivalent successor designation. A corporation shall also be deemed to have a near-distress rating if a credit rating agency assigns a negative outlook, negative watch, or equivalent designation to the corporation’s long-term issuer credit rating immediately above the near-distress rating level.
(b) (1) An electrical corporation or gas corporation shall submit a financial condition report to the Legislature in accordance with Section 9795 of the Government Code under either of the following circumstances:
(A) (i) No later than 30 days after the end of each calendar quarter in which the corporation holds a near-distress rating, as assigned by a credit rating agency.
(ii) The corporation’s compliance with clause (i) shall begin in the calendar quarter immediately following the quarter in which the rating first reaches the near-distress rating level and end when all credit rating agencies that have assigned a credit rating for the corporation have upgraded the credit rating to at least two notches above the near-distress rating level and no credit rating agency has assigned a negative outlook or watch.
(B) Within 45 days of the commission issuing a cost-of-capital decision affecting the corporation, regardless of the corporation’s credit rating at the time of the decision.
(2) Each financial condition report shall be based on the corporation’s most recent annual report on Form 10-K, quarterly report on Form 10-Q, or current report on Form 8-K filed with the United States Securities and Exchange Commission, and shall include all of the following:
(A) The current long-term credit rating from each credit rating agency, including any outlook or watch designation, and a description of any rating changes since the prior report.
(B) Total compensation paid or accrued during the quarter for each executive officer and director, including all salary, bonuses, equity awards, and severance.
(C) Total dividends paid to shareholders during the quarter and the total amount of any share repurchases.
(D) The number of directors currently serving on the board and the number of unfilled board vacancies.
(E) The corporation’s participation in any state-approved wildfire fund, including contributions made during the quarter, the balance of any internal catastrophic event reserve, and any changes to wildfire or catastrophe insurance coverage since the prior report.
(F) Net income or loss for the quarter and year to date compared to the same period in the prior year, cash generated from operations, the corporation’s debt-to-equity and interest-coverage ratios, total long-term debt outstanding, debt due within the next 12 months, and available liquidity, including cash on hand and unused borrowing capacity.
(G) The total amount of pending legal claims and liabilities, including those related to wildfires or other catastrophic events, the insurance coverage available to offset those liabilities, and any material gaps in that coverage.
(H) Any significant events the corporation was required to disclose to the United States Securities and Exchange Commission during the quarter, including debt defaults, covenant violations, leadership departures, or similar developments.
(I) Whether the corporation’s independent auditor or management has raised doubt about the corporation’s ability to continue operating as a going concern.
(J) A plain language executive summary, not to exceed two pages, describing the corporation’s current financial condition, and steps management is taking to improve it.
(K) Any other information the commission determines is relevant to the Legislature’s understanding of the corporation’s financial condition.
(c) This section does not create any entitlement to public financial assistance.

SEC. 3.
The provisions of this act are severable. If any provision of this act or its application is held invalid, that invalidity shall not affect other provisions or applications that can be given effect without the invalid provision or application.

SEC. 4.
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.