SAN FRANCISCO – While Californians focus on freeing their economy from the grip of a gruesome pandemic and pushing through another season of devastating wildfires and power blackouts, the leadership of Pacific Gas & Electric, or PG&E, the state’s largest electric utility, has quietly set itself a different priority: a great big pay raise.
Not content with lavishing more than $1 million in retainers to on its board of directors, PG&E is now making a cash grab through California regulators that would put ratepayers on the hook for boosting the company’s profit by $201 million, despite years of the utility’s haphazard and dangerous management.
And the windfall the company is seeking would likely do nothing to change the status quo, in which many victims of the 2018 California Camp fire that PG&E caused have yet to see a cent of the $13.5 billion the company owes them.
The investor-owned utility late last month petitioned California’s Public Utilities Commission, or PUC, asking for an increase to 11 percent return on equity. If the PUC grants the request, it would guarantee exactly $201.3 million in additional profit for PG&E and its shareholders, with no clear major advantages for its captive customers.
But the profit hike would likely be a boon for the company’s board of directors, who already receive generous retainers and significant stock holdings, courtesy of PG&E.
“PG&E never ceases to amaze with how far it will go to ask for rewards on the backs of ratepayers, when it deserves to be penalized for its appalling behavior,” said EWG President and Bay Area resident Ken Cook.
“The company should be helping mitigate the wildfires it causes, and figuring out how to switch to a clean energy agenda that will benefit everyone. Instead, their only consistent focus appears to be on helping themselves to more of California customers’ money,” Cook added.
PG&E executives partly blame the Covid-19 pandemic for the company’s poor stock performance, compared to other companies, whose share prices surged over the past year, as one reason it needs more than $200 million in extra profit.
Their petition states:
... while major stock indices have surged upward over the last 16 months, including a 37 percent rise in the S&P 500 index – an overall rise in the average public company’s valuation that is consistent with falling interest rates and with the expected relationship between the costs of debt and equity – the index of utility stocks has increased only 1 percent over this period, and PG&E’s stock price has declined.
The poor performance of PG&E’s stock started long before the pandemic.
Over the past five years, its stock has plummeted, from a high of $70 per share in September 2017 to $9 today. In late July, the stock market analyst firm Seeking Alpha deemed PG&E “a terrible investment” – and the utility keeps making terrible choices.
PG&E agreed to stop paying dividends to shareholders until the company achieves $6.2 billion in earnings, as part of a deal with Gov. Gavin Newsom that bailed out the utility from its 2019 bankruptcy, which resulted from its mounting liability for a series of wildfires.
The proposal before the PUC to secure an additional $201.3 million in guaranteed earnings for PG&E and its shareholders would help the company meet its earning requirements under the deal and let dividends once again flow to its investors.
PG&E’s governance guidelines for board members include a provision that strongly encourages, if not requires, members to hold significant investments in the utility. The investments are at least five times the amount of the annual retainer each board member receives, which can be well over $100,000 – adding up to more than $1 million combined.
According to PG&E’s 2021 proxy statement (page 38) to shareholders, the total amount of compensation awarded to its board in 2020, including the annual retainer and stocks, was $4,676,619, with $3,354,282 coming in the form of stock.
The only way to end PG&E’s long record of putting profits above fairness for captive ratepayers is for Newsom and California lawmakers to move forward with legislation that would acquire PG&E and operate it as a publicly run utility.
“What California needs now,” says Cook, “is a utility grounded in the public interest – to reverse the trend of mismanagement and excessive utility bills, profits and executive pay, and to meet the growing challenges of climate change in an equitable and least-cost fashion.”
In 2020, Newsom signed the Golden State Energy Act, which would have created a nonprofit “public benefit corporation” to take control of PG&E and its operations, if the company failed to meet certain policy and financing requirements. But the utility came out of bankruptcy and took steps to keep the company investor-owned.
PG&E’s flawed request to the PUC for another $200 million in profit makes it essential that lawmakers revive their push to make the utility publicly run, with no exceptions.
Ratepayers shouldn’t have to save PG&E’s troubled stock, which slumped following the utility’s bankruptcy caused by the Camp fire, which killed scores of people and destroyed the town of Paradise. PG&E pled guilty to 84 counts of manslaughter and faced up to $30 billion in liability, according to some analysts – several times more than the company was worth at that time. Its bond rating was cut to junk status.
PG&E’s latest outrageous request for a $200 million profit hike follows its July bid for the PUC to approve a $3.6 billion rate increase to pay for wildfire safety measures.
Less than two weeks after the utility made that request, the Dixie fire ignited, which may have started from a damaged power line owned and operated by PG&E. As of September 12, the fire had burned at least close to a million acres across five counties and was only three-fourths contained, according to California’s Department of Forestry and Fire Protection.
The request before PUC for the profit boost could also make it easier for PG&E to meet its duty to pay $13.5 billion to victims of the devastating Camp fire. The victims compensation fund will pay out with company stock if its price rises. Most victims have not yet been paid.
“Any further compensation for PG&E’s board members, including annual retainers and stock, as well as dividends for all shareholders, should be deferred indefinitely until every single fire victim is compensated,” said Cook.
“This company’s egregious mismanagement has destroyed entire communities, killed scores of people and left their loved ones to pick up the pieces. Helping them rebuild and go on with their lives should be PG&E’s priority – not increasing the wealth of its board and investors,” Cook added.
The Environmental Working Group is a nonprofit, non-partisan organization that empowers people to live healthier lives in a healthier environment. Through research, advocacy and unique education tools, EWG drives consumer choice and civic action. Visit www.ewg.org for more information.