The board of the Dallas-based utility company Oncor recently authorized a $17 million payment to its chairman and chief executive, Robert Shapard. Three other executives are receiving payments of more than $2.7 million apiece, according to a filing with the Securities and Exchange Commission on Nov. 21, the day before Thanksgiving.
Oncor is responsible for operating a huge network of power lines in North Texas. It is majority owned by Energy Future Holdings, a severely indebted power company, though Oncor has a separate board of majority-independent directors.
The bonuses come under a Stock Appreciation Rights plan set up five years ago, said Oncor spokesman Chris Schein. That means these particular payments are being provided mostly as a lump sum at the end of five years, rather than annually. If the compensation had been distributed over the previous five years, that would put Shapard’s annual pay at $5.8 million, according to Schein. (The calculation includes Shapard's salary and other annual compensation.) That’s near the average annual compensation for utility heads — about $6 million — listed by Forbes, Schein said.
Consumer advocates were incredulous. The company’s performance does “not in any way justify bonuses,” said Tom “Smitty” Smith, Texas director for Public Citizen.
Tom Sanzillo, the finance director for the Institute for Energy Economics and Financial Analysis, a pro-green analysis group, said the bonuses are irresponsible given the financial state of Energy Future Holdings. EFH was formerly known as TXU, until a private equity takeover in 2007. EFH operates some of the state’s oldest coal plants and has faced sharp criticism from environmental groups for fighting some federal air-pollution regulation initiatives. Amid its deep financial struggles, which are partly due to low power prices, EFH could put its power-generation unit, Luminant, through bankruptcy in the next year or so, according to analysts cited by The Dallas Morning News.
“They’re losing customers, losing revenue, they’re in the hole,” Sanzillo said, referring to EFH. Although Oncor is doing better than EFH, “if these are the circumstance under which the corporation thinks it should give out executive bonuses, I wonder if the public is being well served, and I think the answer is no,” Sanzillo added.
In a letter to shareholders this year, Warren Buffett described his investment in EFH bonds a "big mistake." However, Oncor has been profitable for 11 of the last 12 years, according to an analysis by Bloomberg.
The particular form of compensation used by Oncor — stock appreciation rights — are “rights being exercised pursuant to employment contracts,” according to Colin Blaydon, a professor of management at Dartmouth’s Tuck School of Business. “Such contract rights are often a part of employment contracts in private equity-owned enterprises,” he said.
Allan Koenig, an Energy Future Holdings spokesman, said in an email that there was “no managerial relationship” between Oncor and EFH. “We are an 80 percent shareholder and they pay up dividends to EFH and their other investor,” Koenig said. Compensation decisions for Oncor are made by Oncor's board, he said.
Schein said that despite Energy Future Holdings’ woes, Oncor is an “exceptionally performing company.”
“We are just an investment that EFH has made, and we have continued to pay strong dividends, growing the company, and we’re still looking out for the customers by having high reliability and low rates,” he said.
He said the company reported the compensation right before Thanksgiving to remain compliant with SEC rules that require a company to file those documents within four business days of a meeting at which such compensation is decided.
Oncor’s initiatives in Texas have included a comprehensive rollout of smart electric meters, adding an additional $2.19 per month to customers’ bills over a decade. Oncor has also recently begun charging Dallas-area customers about $5 per month to pay for its construction of wind-power transmission lines built across Texas. Those payments have been authorized by state regulators at the Public Utility Commission.