4. GO 77-M
The new GO 77-M, appended to this decision as Appendices B-1 and B-2, consists of our amendments to GO 77-L, the prior version of the general order.21 Appendix B-3 is a "clean" version of the general order. The amendments have been developed to yield a more complete and accurate picture of Respondent's compensation practices while protecting reasonable privacy interests. Greenlining urged us to expand the OIR to consider a number of issues related to executive compensation. We did so in D.06-06-062 and stated our intent to consider revisions to GO 77-L. In response, the September 12 ALJ Ruling released the staff proposals. We have looked closely at the pre- and post-workshop statements and other comments and have refined the staff proposals by incorporating suggestions from Respondents and from Greenlining. In summary, the amendments to the general order require:
· reporting of total compensation, by category and in the aggregate, for all utility Executive Officers and employees with a base salary of $250,000. (For employees earning a base salary of more than $125,000 but less than $250,000, the current practice continues to be adequate, i.e., reporting all compensation and expenses but excluding pension and benefits.);
· reporting of total compensation, by category and in the aggregate, for all Executive Officers of the utility's holding company for whom compensation disclosures must be made in the holding company's proxy statement (already required for PG&E and Edison);
· disclosure of the proportion of utility or holding company Executive Officer compensation paid, directly or indirectly, by a utility's ratepayers;
· a statement explaining in plain-English all elements of compensation to utility Executive Officers and employees with a base salary of $250,000, including the performance metrics or criteria used to determine incentive compensation;
· an independent auditor's letter verifying that all elements of total compensation have been disclosed and described (already required for PG&E), and because of tax season workload, a two-month extension in the time for submitting the report and letter, from March 31 to May 31; and
· posting on the utility's website of internet links to all public compensation documents filed at the SEC or with this Commission. (SEC link already required of PG&E and Edison.)
In addition, GO 77-M incorporates a provision adopted in D.04-08-055 and D.05-04-030, which issued in Rulemaking 03-08-019, the Commission's last review of this general order but which was not made part of the general order's formal text. The provision authorizes a utility to annually report names of highly compensated individuals in conditional access reports as long as any utility that chooses this option also files a report for public inspection from which the individual names have been redacted. The public version is available for review by members of the public without qualification.
The new reporting provisions in the amendments have been drawn, in significant part, from Commission decisions in the last general rate cases (GRCs) for PG&E and Edison and from recent SEC orders that require public disclosure of the total compensation awarded a corporation's top executives and others.
The GRC decisions require several things. D.04-05-055 directs PG&E to supplement its GO 77 report with a separate list showing the total compensation awarded to all of its officers and to those top officers of its holding company for whom compensation disclosures must be made in the holding company's proxy statement. The decision also requires PG&E to include an independent auditor's letter verifying that all elements of compensation are fully disclosed, clearly described and totally comprehensive. Further, the decision requires PG&E to include an internet site-link to all documents filed with the SEC that relate to any elements of executive compensation.22 D.06-05-016 requires Edison's next GO 77 report to follow the PG&E model.
On July 26, 2006, the SEC voted to amend its rules governing disclosure of compensation to directors and top officers and determined to take additional comment on extending these disclosures to three other highly compensated employees. The SEC released a final version of the new disclosure rules for directors and for the principal executive officer, principal financial officer, and three other highest paid executive officers on August 11, 2006. The SEC's new rules require comprehensive tabular disclosure of total compensation for each of the past three years, including holdings of outstanding equity-related interests received as compensation that are a source of future gains, and retirement plans, deferred compensation, and other post-employment payments and benefits. The tabular format requires reporting of the value of all components of the compensation package, as well as a single figure total. The tabular disclosure must be accompanied by a narrative disclosure, in plain English.
Respondents' workshop statements observe that the GO 77 amendments on total compensation reporting will apply to a greater number of executives and employees than the SEC rule. While true, we do not think that observation exposes an infirmity in our reporting requirements, as our regulatory purposes (e.g., ratemaking) are not identical to the SEC's. Moreover, we have limited the burden of compliance by extending the total compensation reporting requirement only to those executives and employees who receive a base salary of $250,000 or more. Furthermore, though we maintain the objective of the staff proposal to obtain, for these individuals, a plain-English explanation of the elements of the compensation package and description of the basis for any incentive compensation awards, we have revised the text. We have deleted the stand-alone paragraph that staff proposed, rewritten the proposal to remove any normative judgment, and added the revised text to the paragraph that lists all other compensation-related disclosure requirements applicable to the large energy utilities.
We have added two requirements to the staff proposal, both based on suggestions made by Greenlining and both consistent with current practices. First, we require the GO 77 report to include an independent auditor's letter verifying that all elements of total compensation have been disclosed and properly described. PG&E is already subject to this requirement, per D.04-05-055, and D.06-05-016 recently extended the requirement to Edison. Second, recognizing that PG&E and Edison already must provide an internet-link on their respective websites to public, compensation-related filings at the SEC, we require the major energy utilities to make the public version of the GO 77-M report available by that means as well. The additional burden should be minimal and will provide reasonable public access. We think Greenlining's suggestions that we do more are not warranted (e.g., requiring a summary of the report in notices mailed to ratepayers when rate increases are sought; requiring each major energy utility to provide in its own report, for comparison purposes, compensation information for the top officers of the others).
Finally, Greenlining asks that we open a generic proceeding, now, to examine the "indirect impacts" of executive compensation on compensation of middle manages and union employees, on morale and efficiency, and on ratepayers. We decline to do so at this time.
21 The Appendices show corrections made to reinsert in draft GO 77-M an existing paragraph that was unintentionally dropped from the working draft. That paragraph makes the existing general order applicable to utilities having gross operating revenues of $1 billion or more. It will continue to apply to all such utilities other than Respondents, consistent with Public Utilities Code Section 1708, which requires notice and opportunity to be heard before the Commission may alter a prior decision. Because this Rulemaking applies only to Respondents, any modifications to existing law made by today's decision apply only to Respondents.
22 Ordering paragraph 12 of D.04-05-055 states:
PG&E shall file in its GO 77-K reports a separate tab listing the total compensation of the top executive officers of the utility's holding company whose compensation is listed in the holding company's proxy statement as well as the total compensation of all other utility officers. This additional information shall include not only compensation received in the prior year as now required by GO 77-K [the predecessor of GO 77-L] but also compensation awarded in the last year but not yet received, including but not limited to stock option grants. PG&E shall also include an independent auditor's letter verifying that all elements of compensation as required are fully disclosed, clearly described, and totally comprehensive. Disclosure shall include internet site links to all documents filed with the Securities and Exchange Commission that relate to any and all elements of executive compensation as required herein.
Though Ordering Paragraph 12 refers to "total compensation" (and a comprehensive definition of that term is discussed in D.04-05-055 at Section 10.3.1), GO 77 traditionally has sought disclosure of annual compensation only (e.g., salary, expense accounts, and contingent fees, excluding pension or benefits), and has not necessarily captured short- or long-term incentive payments. While Ordering Paragraph 12 clearly seeks disclosure of incentive payments, its intent to require disclosure of total compensation may have been less clear. Review indicates that PG&E's 2005 report continues to exclude pensions and benefits. Note also the directive in Edison's most recent GRC decision, D.06-05-016, that Edison not only follow the PG&E model for GO 77 reporting but also, in its next GRC "provide full transparent and understandable information on the present and future market value of the retirement severance benefits of its top executives." (D.06-05-015, Conclusion of Law 31.)
