Sempra Energy, the San Diego–based utility, is wealthy by comparison with other utilities. It is obsessed with handing out its riches to its shareholders (particularly its own top executives) at the expense of its customers. Quietly, officials of the California Public Utilities Commission, supposedly the unbiased regulator, rake in some of that lucre.
Sempra consists mainly of San Diego Gas & Electric (SDGE) and Southern California Gas, although the parent company has wind, solar, pipeline, storage, and liquefied natural gas assets, too.
In theory, public utilities are supposed to provide reasonably priced, reliable service to customers, as well as pleasing shareholders. A major mandate of the state utilities commission is to safeguard consumers. But Sempra and the commission are fixated on pleasing Wall Street.
Behold the enthusiastic views of securities analysts. California has “a constructive regulatory environment,” enthuses Christopher Muir of Standard & Poor’s.
The state’s utilities commission is a “constructive partner” of Sempra, echoes Mark Barnett of the Morningstar analysis firm. “Improved California regulation allows the company to collect best-in-class returns.”
Best-in-class, indeed. Standard & Poor’s lists profits as a percent of revenue for eight comparable American utilities. Sempra’s 13.5 percent whips them all; five of the eight have returns less than half of Sempra’s. Yet both San Diego Gas & Electric and Southern California Gas are now trying to get hefty rate boosts from the commission.
In its 2010 annual report, Sempra has a chart pointing out that its stock’s total return (dividends plus capital gains) zoomed 208 percent from 2000 to 2010, while average utility returns went up a mere 8 percent. The company recently raised its dividend 23 percent and has announced plans to buy back its stock — a classic move to inflate earnings per share and the stock price.
Why is Sempra so profitable and its stock price so high? It shortchanges the poor and middle class, its customers, to reward the rich, its shareholders. This week (Thursday, April 5), at 2:00 p.m. and 6:00 p.m. at the Al Bahr Shrine Center, commission representatives will hear from San Diegans about San Diego Gas & Electric’s proposed scheme to make customers pay for uninsured costs of the 2007 wildfires, for which the company was found negligent. The company also wants customer indemnification for such costs of future fires.
Opponents argue correctly that since San Diego Gas & Electric was found negligent in those fires, the costs should be borne by shareholders, not customers. But the company pampers those shareholders — particularly those inside the company. In 2010, the last year in which comparisons can be made, Sempra’s then–chief executive Don Felsinger brought home $10.2 million. I checked 22 similar utilities: only 2 of the 22 top executives of those utilities made more than Felsinger. I checked chief-executive pay of 8 of the largest utilities: only 2 brought home more than Felsinger in 2010.
“Felsinger’s compensation was definitely on the high end compared with the company’s peers,” deadpans Morningstar’s Barnett. And Sempra also does some finagling in fixing compensation: “The company is not above tweaking performance targets to maximize bonus payouts, as was done in 2010.”
The finagling that appears equally repugnant is the company’s — and the industry’s — role in subsidizing commissioners of the California Public Utilities Commission.
The commissioner who is handling San Diego Gas & Electric’s attempt to stiff consumers is Timothy Alan Simon, who was appointed in early 2007 by former governor Arnold Schwarzenegger, for whom Simon had been an aide. He had been recommended for the commission by California political powerhouse Willie Brown. Simon had been in bankruptcy for four years before his nomination, according to a story in the Los Angeles Times. Former utilities commission president Loretta Lynch was one of several knowledgeable people questioning whether someone with obvious financial woes should be named a commissioner. State senator Christine Kehoe of San Diego challenged Simon’s knowledge of utility issues.
Early last month, commissioners submitted their Form 700 statement of economic interests. Simon’s shows that last year, he took a trip to Italy. The industry-financed California Foundation on the Environment and the Economy picked up the tab for $10,017. Daniel Skopec, Sempra’s vice president of regulatory and legislative affairs, is a member of the foundation. Michael Peevey, president of the regulatory commission, was also on that trip, costing the foundation $9687.10. Peevey took a trip to Ireland and Great Britain last year that cost the foundation $10,078.80. Simon and Peevey also took a trip to Sweden that cost the utility industry a total of almost $12,000.
The industry-supported, Washington, D.C.–based American Gas Association paid almost $2000 to support Timothy Simon’s trips to meetings last year. Debra Reed, the new Sempra chief executive, was formerly on the board of the American Gas Association.
San Diego Gas & Electric picked up the tab for three dinners for Simon, costing $200, plus $12 for a cab ride.
Simon was one busy commissioner last year. On 88 occasions, he took trips, had meals, or accepted gifts, as recorded in the Form 700 category of “Income—Gifts, Travel Payments, Advances, and Reimbursements.” Some of the trips took four days. The trips to Italy and Sweden each took well over a week. The total manna: more than $50,000.
San Diego attorney Michael Aguirre got an anonymous tip from inside the commission that at one of the meals, Simon committed himself to permit San Diego Gas & Electric to fleece its customers for uninsured fire costs. Aguirre wrote Simon, “An issue has arisen about whether you provided private assurances to [San Diego Gas & Electric] officials that the [California Public Utilities Commission] would allow SDGE to raise rates of its customers to pay for liability costs from the 2007 fires that were in excess of SDGE’s insurance.” Aguirre asked for any communications relevant to that topic. “He sent back documents that didn’t answer the question,” says Aguirre.
Sempra’s fat profits, excessive compensation, and coziness with commissioners could be subjects for the April 5 meeting.