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Friday, Dec. 11, 1998

$69 million golden parachutes questioned

CPL customers will pay bill, say co-ops who oppose merger

By ANDREA JARES
Staff Writer

   Electric cooperatives want state regulators and customers to pay close attention to a $69 million severance package for 16 top executives of Central Power and Light's parent company.
   A golden parachute that size is not exorbitant, business experts say, but it's likely to anger customers who paid high bills during an unusually hot summer. That's the reaction the co-ops hope to get as they fight a merger of CPL's parent, Central and South West Corp., and American Electric Power.
   The co-ops hope to show that consumers will pay the bill - an assertion that CSW disputes.
   The co-ops and the International Brotherhood of Electrical Workers filed a motion with the Public Utility Commission this week, calling for full disclosure of the details of the $69 million compensation package.
   The cooperatives oppose the merger because they believe it may hamper their ability to compete and buy power from utilities in the merger. Cooperatives in Nueces, San Patricio, Victoria and Karnes counties are among the groups filing the motion.
   

`Strong bias' suspected

   The information about the severance package is important, the co-ops say, because some of the executives who receive that money will testify about the merger during Public Utility Commission hearings in April.
   Larry Jones, CSW spokesman, said the details of the $69 million package were not released because the individuals' salaries are a private matter.
   But Mark Davis, attorney for the co-ops, said it's important to know how the merger will affect the personal finances of the individuals who will testify in its behalf.
   "Some of these 16 individuals are witnesses in this case," he said. "It is important to point out that they may have a very strong bias in this case."
   The $69 million figure was disclosed when the merger was announced in December 1997, Davis said, but he noticed recently that the allocations are sealed.
   "It probably is important," said Janee Briesemeister, utility spokeswoman with the Consumers Union, a consumer advocacy group. "It doesn't mean (the executive witnesses) are lying, but it does put their testimony in a different light."
   Dr. James Brock, an economics professor at Miami University in Oxford, Ohio, who is considered an authority on mergers, suspects that the numbers are sealed because they won't sit well with ratepayers - after they paid high bills in last summer's sweltering heat.
   

A `fair deal'

   The original idea behind golden parachutes was to protect CEOs in the event of a hostile takeover. In the past 10 years, they have become commonplace even in friendly mergers, said Jeffrey C. Hooke, an author and former Wall Street investment banker.
   "People on Main Street may find it shocking, but on Wall Street, it is totally accepted."
   In agreeing to the merger, CSW's executives have made a decision that ends their own jobs, Jones noted. The merger will benefit consumers because it will lower rates, he said, and the $69 million is a fair part of the deal.
   "It ensures objectivity and fairness for our customers," Jones said.
   But Davis said the $69 million could have been used to lower costs for consumers.
   Jones said the $69 million executive buyout will have no impact on the average residential customer. Shareholders and customers in 11 states will see an estimated $2 billion in savings over the first 10 years of the merger, he said.
   The $2 billion savings will be split evenly, with the $69 million coming out of the shareholders' half - not the customers' half, Jones said.
   "Unfortunately, motions like these are delaying customers from realizing these savings," he said.
   

Effect on customers

   Hooke agreed that residential customers are not likely to be affected by the executive payout. The $69 million will be inconsequential compared with the amount that the combined companies will save in labor and other costs.
   Brock disagreed, saying mergers historically do not produce noticeable savings and that customers are unlikely to see any of the benefits.
   "You hear all of these claims of greater efficiency and improved profits," Brock said. "But if it does happen, it's harder to find than the abominable snowman.
   "Are your rates going to drop $2 billion? I don't think so. The executives get paid up front. Why can't customers get a rate cut up front?"
   Davis agreed. "Overall, we're not convinced that there will be any true savings," he said of the merger. "The $69 million has got to come from somewhere. The only way they can pay for it is with ratepayers."
   Experts agree that the $69 million golden parachute is not considered exorbitant relative to other merger severance packages, Brock said. In some mergers, individual executives are getting that much and more.
   "A problematic and disturbing aspect of these mergers is that some of these people come out millionaires and multimillionaires and others, who aren't making these decisions, are getting it in the neck," he said.
   The company usually pays for these executive benefits in corroded employee morale, he said.
   

Promised rate cut

   Davis said customers have more to lose than money.
   "Customers may see a $1 a month decrease in their electric bill, but compare that with the loss of a significant amount of jobs ... and loss of local control of utilities."
   Jones said the co-ops are trying to inflame the public with inaccurate scenarios.
   "They are only saying them because they make good copy," Jones said.
   Central and South West has until today to respond to the motion. An administrative law judge with the PUC is expected to call a hearing in the next few weeks to rule on the issue.
   CPL has promised a rate cut that depends on approval of the merger by cities served by CPL and by state and federal regulatory agencies. Final approval is expected in late 1999. If the rate cut is approved, CPL customers will see a drop in rates by $19 million, or 1.5 percent, for the six years following the merger.
   The city of Corpus Christi will hold a public hearing on the merger Tuesday.
   The Oklahoma Corporation Commission will hold a hearing on the merger in January. The Arkansas Public Service Commission is expected to rule on the merger by the end of the year. The Louisiana Public Service Commission will have a hearing in February.
   The Nuclear Regulatory Commission has approved a license transfer of CPL's 25 percent interest in the South Texas Project nuclear plant. Federal Energy Regulatory Commission hearings are scheduled in June.
   CSW still intends to file for merger approval with the Securities and Exchange Commission, the Department of Justice and the Federal Communications Commission.
   Business writer Andrea Jares can be reached at 886-3678 or by e-mail at jaresa@scripps.com

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  © 1998 Corpus Christi Caller Times, a Scripps Howard newspaper. All rights reserved.