LA Public Service Commission to develop rules regulating ratepayers'

New Orleans CityBusiness, Jun 6, 2005 by Richard Slawsky

J. Wayne Leonard, CEO of New Orleans-based Entergy Corp., received $2.9 million in long-term incentive payouts in 2003 as part of his compensation package.

Robert Glynn, CEO of San Francisco-based PG&E Corp., received $9.9 million in long-term incentive payouts the same year.

The difference between the companies?

Entergy earned $623.1 million on 2002 revenues of $8.3 billion.

PG&E lost $874 million on revenues of $12.5 billion in 2002.

PG&E, parent company of Pacific Gas and Electric Co., was in the midst of a three-year bankruptcy brought on in part by California's 2000 and 2001 energy crisis and the Enron energy-trading scandal.

Entergy's relative performance didn't impress the Louisiana Public Service Commission at its May meeting when it worked out a deal with officials from Entergy Louisiana to kill the company request for an $18.3 million rate increase, which would have included $5 million in long-term incentive bonuses for its executives.

We are talking about a rate increase on the backs of people who cannot afford it, said Public Service Commissioner Foster Campbell of Shreveport. Campbell was highly critical of Entergy's request to include bonus payments in calculations for rate increases.

Bonuses for Entergy Louisiana executives apparently will be harder to come by in the future. At Campbell's request, the Public Service Commission is developing new rules regulating how executive bonus costs can be passed on to ratepayers.

Bonuses for executives who run a monopoly shouldn't come from the backs of ratepayers, Campbell said.

The PSC staff will present a status report on the proposed rules at its July 20 business and executive session.

Five states and the District of Columbia already bar utilities from passing bonus payment costs on to customers.

Entergy implemented the $18.3 million rate increase in late April in anticipation of being granted the rate increase. Following the PSC denial, Entergy was ordered to refund the increase plus interest to its customers. The refund is expected to total more than $330,000 or about 50 cents per customer.

Entergy's executive bonus program is based on the performance of Entergy stock compared with other U.S. utility company stocks. During 2004, Entergy stock rose 18.1 percent from $57.25 per share to $67.59 per share. Last week, Entergy stock sold for $71.83 per share.

Entergy officials say bonuses benefit ratepayers by helping the company retain experienced executives who help lower costs at the utility.

There is a direct relationship between the operation of the utility and incentives that have been paid, said Entergy Louisiana CEO Renae Conley. Entergy's management has improved safety records and reduced outages and customer complaints, she said.

Entergy officials have also been able to negotiate long-term contracts for natural gas that would have resulted in a savings for customers despite the proposed rate increase, she said.

PSC officials, however, see no meaningful benefit to Entergy customers and Entergy's rising stock price has no impact on its rates.

Pacific Gas and Electric creditors accepted a similar argument in 2003 while the company was mired in bankruptcy. Debtholders approved payment of $7.2 million in retention bonuses to 226 executives the company considered essential to restoring the company to financial stability.

Six top PG&E executives and 17 vice presidents received bonus payments equal to 100 percent of their 2001 salary. Another 77 executives received 75 percent of their salary as a bonus with the rest receiving between 25 percent and 50 percent.

The highest payout was $630,000 to CEO Gordon Smith. The average bonus was $77,000.

Those bonuses came just a month after PG&E executives shared in $57.4 million in bonuses distributed to 6,500 employees for meeting certain financial goals. PG&E emerged from bankruptcy last year.

Entergy Louisiana sought $167 million in increases beginning last year. By May, the increase was whittled down to $18.3 million.

The increase would have cost the 660,000 Entergy Louisiana customers an additional 93 cents per month.

Entergy officials say their executives rank on the low end of the pay scale when compared with utilities and companies of similar size. Entergy is consistently recognized as one of the best-run utilities in the country, they say.

In 2003, BusinessWeek named J. Wayne Leonard CEO of the Year and Entergy was named Global Energy Company of the Year, said Entergy spokesman Morgan Stewart. In March, the U.S. Department of Labor awarded Entergy with its Exemplary Voluntary Efforts Award, one of its top awards for practicing diversity in the workplace. Moreover, the (trade association) Edison Electric Institute has awarded Entergy its top award - the Edison Award - twice, as well as other top awards for service and storm restoration.