Sunday, March 21, 2010

Bad Timing: Darbee's $10.559 Million Paypalooza Faces Advisory Shareholder Vote May 12

Today's scorching editorial against Proposition 16 in the San Jose Mercury News, hometown newspaper to a business culture many consider the most advanced in the world, makes clear that March has been a very bad month (with 10 days still to go) for PG&E's embattled CEO, Peter Darbee.

While each of the newspapers that has taken up Proposition 16 has attempted to outdo its competitors in heaping scorn on the manipulative debasement PG&E has brought to the initiative process, the Merc is the first to specifically call out Darbee as the mastermind behind this brazen assault on his own electricity customers.

If Shakespeare made a soothsayer's warning to Julius Caesar to "beware the Ides of March" resonate through the ages, consider what has befallen Darbee over the course of the first three weeks of the month:
  • March 1 marked his prideful confession of the real thinking behind Proposition 16, veering miles off his political consultants' message to boast to Wall Street.  The written transcript doesn't do justice to this debacle.  Real gawkers will go to the raw audio, found here at 2:39:21 to 2:44:09.
  • March 2 was the meltdown of the PG&E corporate profile in Kern County, a hotbed of customer revolt against high air conditioning rates and an early warning sign of distemper throughout the Central Valley.  The local spokesman admitted in a public hearing of the Kern County Board of Supervisors that PG&E's rates are unfair and that Valley customers are charged excessively in order to subsidize the Bay Area.  The Kern Supervisors voted unanimously to put an advisory measure on the ballot to replace PG&E as the local utility.
  • March 8 was when PG&E filed its Preliminary Proxy Statement, detailing Darbee's $10.6 million pay package for 2009 -- some 8% more than Goldman Sachs paid its CEO -- and announcing an advisory vote on the company's Executive Compensation Plan at the May 12, 2010 shareholder meeting in San Ramon.  CalPERS and other shareholder activists had successfully forced through a "say on pay" resolution at the 2008 meeting, but this will be the first time it has been implemented.
  • March 11 marked the San Diego Chamber of Commerce Energy and Water Committee's vote on Proposition 16:  22 to 0 to oppose, with 4 abstentions.  Perhaps no surprise, given PG&E's acknowledgment that its top tier residential rates are 49 cents per kwh compared to 29 cents for the Southern California investor-owned utilities, but an early indicator that PG&E's jihad against local governments doesn't play well south of the Tehachapis.
  • March 17 was the California Public Utilities Commission informational hearing on Proposition 16, which somehow Darbee deemed too unimportant to attend.  Odd behavior for the CEO of a regulated business which is dependent upon its regulator for its entire cash flow and which, for the first time in the CPUC's 99-year history, is attempting to unilaterally write its own business advantage into the State Constitution.  You'd think publicly communicating PG&E's rationale would be in the job description of a $10.6 million CEO.
March 31 is the intended date for a Final Proxy Statement.  Even allowing for the forensic cleanup that might be applied to the disclosures in the March 8 filing, unless the shareholder vote is canceled outright there are several features likely to trigger controversy between now and the May 12 meeting: 
  • the size of Darbee's take is driven by what are considered to be comparable companies, but the PG&E Board's Compensation Committee has managed to define this peer group so that it is dominated by multi-state and multi-national companies that derive significant portions of their revenue from competitive energy markets and consequently entail a much higher level of business risk.
  • no recognition is given to the fact that PG&E derives all of its revenue from its regulated business, that its regulatory risk is concentrated in one state rather than across multiple jurisdictions, and that it benefits from a bankruptcy settlement that obligates its regulator to maintain a level of generosity that will assure at least a single "A" investment grade rating for its debt.
  • Darbee has packed the four-member Compensation Committee with two of his telephone company cronies from his days at PacBell, including the Committee Chair.  Even with the two other members, the Committee is completely devoid of any professional experience in the regulated electricity or natural gas business.
  • the Committee, which met four times in 2009, is unavoidably dependent upon its "independent executive compensation consultant" but had to replace said independent consultant after determining that "in order to avoid potential conflicts of interest, its consultant should provide no other services to PG&E Corporation or its affiliates."  Apparently, discovery of $996,000 of other work being done for Management compared to $118,000 for the Committee stretched the concept of "independent" too far, and in September 2009 the Committee switched consultants.
  • although PG&E shareholders adopted a resolution in 2006 restricting golden parachutes, the policy apparently did not restrict platinum arrangements with Darbee:  he's entitled to $10.0 million upon termination for cause; $27.6 million upon death or disability; $29.5 million upon resignation or retirement;  $34.2 million upon termination without cause; and $48.1 million upon change in control and other triggering events.
Awkwardly, these measures along with the excess service credits Darbee has received in the PG&E Corporation Supplemental Retirement Plan (16.5 years of credit after 6.5 years of participation) appear to be in substantial conflict with the "Guiding Principles" released by the Conference Board Task Force on Executive Compensation -- a group of 13 business leaders on which PG&E board member  David R. Andrews served and whose web site prominently displays the endorsement of CalSTRS.

(Photo credits:  Caesar, QED Book Publishing; Darbee, Genesis Photo Agency)