Hartford Courant - November 5, 2007
By MARK PETERS Courant Staff Writer
Connecticut Light & Power, which is facing sharp criticism over its customer service, has quietly asked state regulators to make ratepayers pick up the tab for millions of dollars in bonuses paid to top executives.
In the past, shareholders - not electricity customers - have paid for the often six-figure incentive plans for top officers of both Northeast Utilities and its CL&P subsidiary, including NU's president and CEO, Charles Shivery, and CL&P President Raymond Necci.
Money from electric rates traditionally has covered only the salaries of company officers. Money for bonuses typically has come from company earnings.
Now CL&P is arguing that incentive bonuses are part of its costs, so customers should start paying them.
But consumer advocates and large-scale electric users are promising a fight, saying electric rates shouldn't be used to fatten already lucrative executive pay packages.
"To develop a new stream of revenue from ratepayers to reward already highly paid executives seems outrageous," said Tom Swan, executive director of the Connecticut Citizen Action Group.
Those opposed to the request also ask: Why now? State officials are investigating reports of poor customer service at CL&P and inaccurate electric meters. At the same time, consumers are angry over electric rates that have risen 90 percent in the past seven years, though that is mainly due to wholesale electricity prices over which CL&P has no control.
"How do you justify bonuses?" asked Attorney General Richard Blumenthal. "I'm tempted to say they really are their own worst enemy."
As part of its proposal to increase electric rates on Jan. 1, CL&P asked the state Department of Public Utility Control to let it pass on to its customers the $3.5 million cost of annual executive bonuses. Ratepayers also would pay nearly $1.5 million in additional costs to enhance executive retirement plans, according to filings with the DPUC by consumer advocates.
Utility officials said a group of about 15 executives would qualify for the $3.5 million bonus pool to be funded by ratepayers, including Shivery and other top NU and CL&P officers. Shivery's total pay package in 2006 was $4.2 million, according to federal filings.
Money for bonuses and additional retirement pay represents only a sliver of the $189 million in new revenue CL&P is asking to collect through an overall rate increase of 4.6 percent. That would amount to about $6.25 a month for a typical household.
But one consumer advocate described the bonus request as a "lightning rod" during deliberations about the larger rate increase. The DPUC is expected to decide on CL&P's request in late December.
"As long as companies are allowed to pass on the extra compensation and benefits to ratepayers without any limitations, the companies will continue to add benefits that your typical ratepayer does not have," Helmuth W. Schultz III and Donna M. Deronne wrote in recent DPUC testimony. The two are regulatory consultants who were testifying as expert witnesses on behalf of the Office of Consumer Counsel, a state agency that represents electric ratepayers and has been leading the fight against the bonuses.
Schultz and Deronne also questioned whether CL&P executives deserve incentive bonuses, saying there's no evidence management did more than simply what is expected of them.
"There seems to be a very severe disconnect between performance and reward," Blumenthal said.
Connecticut Industrial Energy Consumers, a group representing large electric users in the state, said it doubted that CL&P can ensure it doles out executive incentives based on performance that's in line with its customers' - rather than shareholders' - best interests, noting that one measure of executive performance is profits.
"This goal primarily enhances shareholders' wealth," the group wrote in its testimony.
CL&P officials, in testimony and interviews, said that ratepayers benefit from executive incentives, which are based on performance. The probable alternative, they said, would be to pay larger salaries so the company can remain competitive for the best leaders.
The company is in "a war for talent" making it critical to have pay packages that attract capable executives, they said.
"We really believe these incentive compensation costs are part of doing business," said Jean M. LaVecchia, vice president of human resources for NU, which is based in Berlin.
The Edison Electric Institute, an electric utility company trade group, doesn't keep statistics on whether incentives for corporate officers are typically included in electric rates. But a spokesman said that anecdotal evidence shows that incentives are often charged to ratepayers, although that can vary from state to state.
In Connecticut, portions of the incentive bonuses for executives at United Illuminating, the utility covering the New Haven and Bridgeport areas, come in part from rates. The same is true for the salary and bonus of the chairman of another utility, Aquarion Water Co., according to a filing with the DPUC.
CL&P officials said incentives, by encouraging high-quality executive performance, help improve electric reliability, reduce the frequency of rate increases and assure the overall health of the company.
That, in turn, attracts investors, CL&P officials said in DPUC filings.
"If we were to underpay people, I think we would suffer the consequences," LaVecchia said.
Contact Mark Peters at mrpeters@courant.com.
Copyright © 2007, The Hartford Courant
