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Governor Says Ratepayers Should Not Pay for Retirement of PG&E CEO

SAN JOSE MERCURY NEWS

With outrage growing over PG&E's plan to award outgoing CEO Peter Darbee $35 million as he retires under a cloud of controversy, Gov. Jerry Brown said Friday that ratepayers should not be required to pay any of Darbee's retirement package.

"At a moment when so many Californians face foreclosure, unemployment and depressed wages, it's about time for corporations to rein in executive compensation," Brown said. "At the very least, California ratepayers should not be footing the bill for this."

As Brown weighed in on the controversy, however, the California Public Utilities Commission, which regulates PG&E and other utilities, acknowledged late Friday that ratepayers will pick up nearly one-third of the bill for Darbee's retirement.

Terrie Prosper, a spokeswoman for the PUC, said the commission in 2009 approved a PG&E request to cover salaries, benefits and pensions with rate increases. From that money, "PG&E allocated $9.6 million in pension benefit to Mr. Darbee out of its total pot of ratepayer funds," she said.

It was unclear Friday if the PUC will be able to recover any of that money for ratepayers, or if it will try.

Since becoming governor in January, Brown has named three new members to the five-member commission, giving it a more consumer-oriented bent.

Commission President Michael Peevey, who was appointed by Gov. Gray Davis in 2002 and served as its president during the 2009 PG&E pension rate case, did not respond to calls or emails seeking comment, nor did any of the other four members of the commission including its executive director, Paul Clanon.

Meanwhile, PG&E's recent financial documents revealed that the company's board of directors last month approved an additional $4.25 million grant of stock-based awards to Darbee that will vest in the next three to five years. That money is in addition to the $34.8 million compensation package that PG&E agreed to pay Darbee as part of his retirement from the company on April 30 -- most of which also is in company stock. That brings the total amount, depending on how the stock performs, to about $39 million.

Darbee has not made himself available for interviews.

PG&E spokesman Brian Hertzog said Friday that the board feels the $4.25 million is justified as part of a company program to encourage top performance by its executives in the coming years.

"The longer-term piece is designed to incent them over a longer-term period to ensure that the company performs well financially," he said.

Darbee will still get the award, even though he is leaving the company, Hertzog said.

PG&E reported in March that Darbee's overall compensation declined from $10.6 million in 2009 to $8.4 million in 2010. The company said that was done in recognition of the "challenges" PG&E faced last year.

Darbee, 58, announced his retirement Thursday. During his past year at the helm, PG&E has been rocked by a series of major setbacks and failures, including spending $46 million to bankroll Proposition 16, a defeated June ballot measure that would have reduced competition from green-energy providers; bungling the rollout of millions of its wireless SmartMeters; and having one of its major gas transmission lines explode in San Bruno on Sept. 9, killing eight people and destroying 38 homes.

With that record, the news of Darbee's hefty compensation package continued to resonate with consumer groups and political leaders Friday.

"The governor is right. PG&E is completely out of step with society on this," said Doug Heller, executive director of Consumer Watchdog, a nonprofit organization with offices in Santa Monica and Washington, D.C. "This kind of payout is the opposite of a meritocracy. We shouldn't be rewarding failure."

Heller said that the PUC should make it a top priority to get ratepayers back the $9.6 million portion of the retirement package that is classified as pension benefits, and that PG&E shareholders should fund those costs.

"The PUC should have an emergency session and claw every dollar of that back," Heller said. "Ratepayers should not be expected to cover this."

To keep PG&E's employee pension plan fully funded, the PUC agreed in 2009 to have ratepayers contribute $245.2 million to the plan in 2011, $286.1 million in 2012 and $327 million in 2013.

Loretta Lynch, who served as PUC president from 2000 to 2002, said the commission can reopen the issue. It needs only to find political will to take on the powerful utility, she said.

"It's not surprising since the PUC has been so cozy with PG&E," said Lynch, now a visiting scholar at UC Berkeley. "They couldn't see if PG&E did wrong if they were hit over the head with it. I am hopeful the new commissioners mean a change in attitude. I am hopeful the PUC will pull out a few sticks instead of just always feeding them carrots."

Lynch, who singled out PUC President Peevey, a former president of Southern California Edison, for being too soft on utility regulation, noted that state law requires rates charged to utility consumers to be "just and reasonable."

"Even if the PUC approved an inflated pension plan in the past that led to this result, that doesn't mean the ratepayers have to pay for it," she said. "It's inflated, it's unjust, it's unreasonable. The PUC can determine these costs are unreasonable and PG&E has to eat that. They could cut this amount out of their next determination of profit."

Frank Wolak, an economics professor at Stanford University who specializes in energy markets, said Friday that one way the commission could try to get the money back is to show that PG&E didn't clearly spell out in its 2009 request for rate increases how much Darbee stood to receive. Barring that, the PUC could be open to legal challenge if it tries to revoke the money or reduce future PG&E profits by that amount without a clear justification, he said.

"They could go back," Wolak said, "and say we made a decision based on bad information, and that we were deceived in the past. But it's hard. Hindsight is 20-20."

Contact Paul Rogers at 408-920-5045.

COMPENSATION UPROAR

On the hook: The California Public Utilities Commission allowed rate hikes in 2009 to pay for PG&E benefits, pensions and salaries. According to the PUC, $9.6 million in pension benefits for CEO Peter Darbee will be paid from "the total pot of ratepayer funds."
What Gov. Jerry Brown said: "At a moment when so many Californians face foreclosure, unemployment and depressed wages, it's about time for corporations to rein in executive compensation. "... California ratepayers should not be footing the bill for this."
Online: More coverage of the San Bruno blast and its aftermath at www.mercurynews.com/san-bruno-FIRE.