PG&E to reconsider nearly $80 million in windfalls due executives

By: MICHAEL LIEDTKE - Associated Press | Friday, December 12, 2003 8:05 PM PST ∞

SAN FRANCISCO -- Pacific Gas and Electric's corporate parent said Friday it is reconsidering a plan to give nearly $80 million in bonuses to 17 executives, a move designed to deflect criticism as the bankrupt utility approaches a key vote on its reorganization plan.

PG&E Corp. had pledged to reward the executives with a combined 3.04 million shares of company stock as part of a management retention plan drawn up nearly three years ago amid soaring California electricity costs that crippled Pacific Gas and Electric. The crisis culminated in the utility's April 2001 bankruptcy.

The stock promised to the PG&E executives is worth $78.7 million, based on PG&E's current market value.

The San Francisco-based company is poised to hit performance targets that would require the stock rewards to be paid Dec. 31 -- timing that threatens to put PG&E in an awkward position.

The utility is pushing the state Public Utilities Commission to approve a proposed bailout that would impose a $7.2 billion surcharge on Pacific Gas and Electric customers over a nine-year period. A pivotal vote on the proposal is scheduled Dec. 18.

U.S. Bankruptcy Judge Dennis Montali raised the stakes of next week's PUC vote by approving the proposed bailout late Friday, contingent on state regulators signing off on the deal.

Several PUC members, as well as some utility customers, believe the proposed bailout is too generous, criticism that could be amplified if PG&E were to deliver the promised payments as scheduled.

Although the bonuses would be paid by shareholders rather than ratepayers, PG&E decided it would be appropriate to reassess the rewards primarily because of "issues of appearance," company spokesman John Nelson said.

If the PUC blocks PG&E's preferred route from bankruptcy, the utility has threatened to pursue other alternatives -- a process that could result in several more years of financial limbo.

Investors are betting PG&E will clear the necessary hurdles to emerge from bankruptcy early next year. PG&E's stock has nearly doubled in value this year after gaining 3 cents Friday to close at $25.85 on the New York Stock Exchange.

The executive bonuses wouldn't be an issue right now, if investors didn't have such high expectations for the company.

The payments are due this year only if PG&E's stock performance dating back to Jan. 22, 2001, was better than 25 percent of its peer group. Through Friday, PG&E's stock had soared by 165 percent since Jan. 22, 2001 -- more than any of the 11 other utilities to which it is being compared.

If PG&E honors the bonus promise, the biggest payments would go to Robert Glynn, the holding company's chief executive, and Gordon Smith, the utility's chief executive.

Glynn would get 615,385 shares, worth $15.9 million Friday, and Smith would get 358,975 shares, worth $9.3 million. Seven of the executives eligible for bonuses worked for an unregulated energy merchant that PG&E Corp. abandoned in bankruptcy court in July. Only one of those executives, Thomas King, still works for the utility.

PG&E didn't set a timetable for completing the review of the bonus program. The examination is being handled by a committee that doesn't include any of the executives eligible for the stock rewards, Nelson said.