PG&E's $83 Million in Executive Bonuses Draws More Fire
As the first week of the New Year drew to a close, increasing scrutiny by local news media and state regulators threatened to unravel the end-of-year decision by PG&E Corp. and its utility to move ahead with distributing $83 million in bonuses to 17 top executives in the corporation and Chapter 11 bankruptcy bound utility and merchant energy units. When and how the proceeds from so-called "phantom" stock options will be distributed was still undetermined.
At the end of their bimonthly business meeting Thursday, members of the California Public Utilities Commission lambasted PG&E's senior management for giving out multi-million-dollar rewards, some to senior executives that left the company during the past year. And a local business columnist and television commentator, David Lazarus, said filings with the Securities and Exchange Commission earlier in the week indicated an extra $3.3 million of "long-term incentive bonuses" also may be due to the PG&E Corp. CEO Robert Glynn and his counterpart at the Pacific Gas and Electric Co. utility, Gordon Smith.
"The idea that these executives would massively be rewarded for these past three years is intriguing," said CPUC Commissioner Geoffrey Brown. "With ratepayers having been forced to pay out billions of dollars to bail out the utility (from Chapter 11), and shareholders having been forced to forego dividends for 13 quarters, it would appear the only ones benefiting (from the three years in bankruptcy) are the very executives who voluntarily brought the company into bankruptcy in the first place. It does make one wonder about the extent of shareholder democracy."
Brown and other commissioners said they are aware the bonuses are to be paid by shareholders -- not PG&E utility ratepayers -- which normally escapes the purview of the state regulatory commission, but a consumer group, the Greenlining Coalition, reportedly was considering a filing to the CPUC to seek its oversight of the executive payouts.
In a letter to Commissioner Brown, the Greenlining group alleged that the PG&E utility "hid the bonuses" in its most recent rate case request that is still being processed by the CPUC, although a settlement is in the works on it, and is part of the modified bankruptcy plan settlement.
Greenlining said it will soon file a motion to the effect that bonuses were, in fact, part of the rate case and ask the CPUC to intervene, said Commissioner Brown, who indicated, however, that the "facts are not all in, so I will not pre-judge the outcome." But he then went on to say that "if, in fact, PG&E (utility) ratepayers are expected pay any or all of those (bonuses), then I intend to be the first one to call for a disallowance of those costs."
CPUC President Michael Peevey, a millionaire and former president and director of Southern California Edison Co., said he agreed with Brown's remarks. "There is something distasteful about bonuses that for one or two of the recipients will exceed the entire charitable contributions budget of the company. That strikes me as something perverse," Peevey said, "and I would hope that PG&E unclogs what seems to be a very tin ear and learns to walk without two left feet."
Adding to the cacophony of criticism, the head of California's major utility consumer group, TURN, earlier in the week called PG&E's top executives overpaid and suggested that they contribute part of $83 million in bonuses the company authorized at the beginning of the New Year to a allegedly neglected community energy assistance fund. TURN Executive Director Bob Finkelstein made the suggestion in a public statement released to news media throughout the state.
The consumer group (The Utility Reform Network) suggested that the 17 PG&E corporate and utility executives give part of their bonuses to the "Relief for Energy Assistance through Community Help (REACH)."
TURN accused the PG&E utility of cutting back the REACH funding since the company's "dire financial circumstances." The program offers one-time funds to customers facing shutoffs because they are unable to pay their utility bills. "At the same time, the executives responsible for those circumstances will add tens of million of dollars in bonuses to their already bloated salaries," Finkelstein said.
"Social service agencies say the company is tightening the screws on its neediest customers, refusing payment arrangements to consumers after they receive a 48-hour notice. Anyone who cannot pay in full is at risk of being shut off, regardless of the circumstances or amount owed."
San Francisco-based PG&E Corp. Jan. 2 decided to pay the bonuses to 17 top executives, despite having both its major business units in separate Chapter 11 bankruptcy cases and strong criticism from groups like TURN.
The payments relate to a "retention program" established by the energy holding company early in 2001 before its utility, Pacific Gas and Electric Co., filed in April 2001 for Chapter 11 bankruptcy with more than $9 billion in unpaid wholesale power bills in the height of California power crisis. "Performance targets" were established for top corporate, utility, and merchant energy unit (former PG&E National Energy Group) executives.
Granting restricted stock, or so-called "phantom shares," PG&E top officers are now eligible to receive multi-million-dollar payouts, with PG&E CEO Glynn slated to get $17.1 million for his 615,385 shares. In total, more than 3 million shares were vested and the company stock price, which more than doubled last year after it had hit single-digit levels in the first months of the bankruptcy, closed 2003 near its 52-week high at $27.77/share.
"If Glynn and the other executives benefiting from the company's largesse donated even part of their bonuses to assistance programs, they'd obviously still be able to put food on the table- and champagne and caviar too," said Finkelstein, calling the bonuses "practically criminal," since they surfaced publicly again at same time that cold, rainy winter weather is causing the utility to shut off customers who the consumer group said "may have to choose between food and heat."
A Wall Street Journal report early in the month quoted leading California utility consumer advocates as being unhappy with the executive payouts, but saying there was not much they could do to block them. As part of its Dec.18 approval of a modified bankruptcy reorganization plan, the CPUC reportedly considered blocking the executives bonuses, but eventually declined to include that provision in its narrowly approved (3-2) decision by the five-member regulatory panel.
While the PG&E utility is now slated to pay off $12 billion to creditors, regain its investment-grade credit, cut retail electric utility rates by more than $1 billion and eventually restore a dividend (sometime in 2005), some of the executives slated to get bonuses are no longer with the company and were with its merchant energy unit (PG&E NEG), which went into Chapter 11 last summer, and is no longer a part of PG&E Corp.