Exec Pension Costs in General Rate Cases Protested

By Published On: April 29, 2011

Ratepayer advocates are zeroing in on the soaring cost of pension plans, particularly for executives at three Southern California investor-owned utilities as the California Public Utilities Commission takes up their general rate cases. Southern California’s investor-owned utilities want ratepayers to up the ante by backing $137.5 million-a-year in pension contribution increases to backfill losses stemming from the 2008 market crash. Increases would range from 44 percent to 81 percent, depending on the utility. Their requests appear to ignore the growing public ire about the cost of pensions and compensation--from Wall Street to city hall. Ratepayer groups are questioning why investor-owned utilities “should be shielded from the realities” faced by employees in government and at other private companies, said Michael Shames, Utility Consumers’ Action Network executive director. “This is going to be a big one,” added Marcel Hawiger, energy attorney for The Utility Reform Network. Former Sempra manager and San Diego pension activist Don Wood alleged the CPUC has a history of rubber stamping rate increases to keep utility pensions whole. Utilities maintain they have little choice. “The cost of Southern California Edison’s employee compensation program, the means by which the utility attracts and retains the skilled workforce needed to keep the lights on, is included in customer rates,” said utility spokesperson Gil Alexander. He said pension costs are included in the prices that all companies charge for their products and services. Edison director of investments David Ertel stated in testimony filed with the CPUC earlier this year that the value of the utility’s pension fund declined by 31 percent in 2008, “the worst year since the 1930s.” He explained that the company is legally bound to keep the fund at adequate levels to meet pension liabilities. San Diego Gas & Electric saw the value of its pension plan fall by 26 percent in 2008, according to David Sarkaria, Sempra Energy director of compensation and benefits. He stated in a commission filing that the company’s pension fund management goal is to earn an annual return of at least 7 percent. Another Sempra utility, SoCal Gas, had the same experience, according to Sarkaria. SDG&E spokesperson Stephanie Donovan explained that any ratepayer money ultimately not needed to pay for pension costs would be returned to the utility’s customers through a balancing account. Ratepayer groups are unsympathetic. Attorney Bob Gnaizda, who represents a coalition of ethnic business and economic development groups, maintains utility shareholders and executives “should bear the losses” rather than ratepayers. The groups--which include the Black Economic Council, Latino Business Chamber of Greater Los Angeles, and National Asian American Coalition--say that small businesses and many other Southern California ratepayers have been hit too hard financially to make up for utility pension fund losses. In filings with the commission, they argued that amid what they called “the Great Recession” Edison and Sempra’s two utilities should submit “bare bones” proposals with “no compensation increases.” The groups noted that the region faces a 23 percent real unemployment rate, with more than a “30 percent real unemployment rate for Latinos, Blacks, and Southeast Asian Americans.” Growing ratepayer concern comes as Edison proposes to increase pension fund contributions in the upcoming 2012 test year of its 2012-14 general rate case by 81 percent over the 2009 test year in its 2009-11 rate case. Ratepayer pension contributions at Edison would go from $92.6 million in 2009 to $168.4 million in 2012, an increase of $75.8 million. (Pension contributions in 2010 and 2011 are yet to be tallied, according to an Edison filing.) Alexander said the increase for pensions would break down to about 40 cents/month more on an average residential customer’s bill. At San Diego Gas & Electric, pension contributions are projected to climb by 44 percent, up by $25.7 million. For SoCal Gas, projected contributions to pensions would rise 47 percent, an increase of $35.9 million. Donovan said SDG&E hopes increases in the stock market will boost the value of its pension enough to eliminate any need to call on ratepayers for money. Utilities also propose increasing contributions for 401(k), health, dental, vision, and life insurance plans for their employees and retirees. Most of the increases, consumer advocates maintain, would float to the top of the companies to pay pension benefits for retiring executives. Gnaizda said the coalition he represents is pressing to reduce executive compensation and retirement benefits at Edison to a level comparable to those at the neighboring Los Angeles Department of Water & Power. The attorney contends that pension payouts for executives--which represent a percentage of income--should be based on only the first $200,000 in income. The CPUC is not expected to settle the three-year rate cases until early 2012.

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