Proposed Executive Bonuses at PG&E Come Under CPUC Microscope
Using the still open record of a pending general rate case, the California Public Utilities Commission (CPUC) last week launched a probe of PG&E Corp.'s plans to distribute $83 million in retention bonuses to 17 top executives in the company's corporate, utility and former merchant energy divisions.
An administrative law judge in Pacific Gas & Electric Co.'s pending rate case said in a ruling distributed last Tuesday that "it is not clear" the what extent the bonus retention program was disclosed in the record of the 2003 rate case. The ALJ has put aside the completion of the rate case to take evidence on the bonus issue to assess its "ratemaking and public policy" ramifications.
A long list of data and information has been requested from the utility, including the historic compensation and the bonuses or other incentives that have been in place each year since 2001. In regard to the debated retention bonuses, the CPUC ALJ wants to know whether ratepayers or shareholders will be funding them. The company has maintained that shareholders will pay for them.
Among the assurances being sought from the utility and its parent is that none of the funds used for the bonuses or the compensation of nonutility executives have been taken from PG&E's utility ratepayers. When the added information is filed with the CPUC, the ALJ said it will be made part of the general rate case record.
The payments relate to a "retention program" established by the energy holding company early in 2001 before the bankruptcy and with more than $9 billion in unpaid wholesale power bills in the height of California power crisis.
Granted restricted stock, or so-called "phantom shares," PG&E's 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 three 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. It closed 2003 near its 52-week high at $27.77/share.
A PG&E Corp. spokesperson said the company is moving ahead as previously planned to pay the bonuses and "there is nothing" new to report. The latest CPUC action follows increasing scrutiny earlier in the year by state officials that threatened to unravel the end-of-year decision by PG&E Corp. and its utility to move ahead with distributing the bonuses.
When and how the proceeds from so-called "phantom" stock options will be distributed is still not known, and the PG&E parent company has still not scheduled its 2003 financial reports.
At the end of its first bimonthly business meeting this year, CPUC commissioners lambasted PG&E's senior management for giving out multi-million-dollar rewards, some to senior executives who left the company during the past year. And a local San Francisco business columnist and television commentator, David Lazarus, reported that PG&E filings with the Securities and Exchange Commission earlier in January 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 bailout 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 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 Institute, 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, which is part of the modified bankruptcy plan settlement.
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 budgeted by 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, The Utility Reform Network (TURN), earlier in the week called PG&E's top executives overpaid and suggested that they contribute part of their $83 million in bonuses to a allegedly neglected community energy assistance fund. TURN 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)."
Despite the criticism and its two bankrupt subsidiaries, San Francisco-based PG&E Corp. on Jan. 2 decided to pay the bonuses to 17 top executives.