Power Exchange Execs’ Pay at Issue
Top officers of the California Power Exchange paid themselves more than $5 million in salary and other compensation in the weeks before the electricity market’s March 2001 bankruptcy filing, according to court papers filed Thursday.
The payments are raising questions among the electricity market’s creditors, which were some of the biggest sellers of power to the state and were branded as gougers by Gov. Gray Davis for charging high electricity prices during the state’s energy crisis.
Such market participants pay the continuing bills of the out-of-business energy market, and now they are worried that they may have been gouged by the Power Exchange, the Pasadena-based nonprofit corporation created by California’s landmark law launching the state’s ill-fated venture into electricity market competition in 1998.
Power Exchange Chief Executive George Sladoje said Thursday that he had not seen the creditor filing, but he added that all salaries, benefits and severance payments were approved by the corporation’s governing board and were reviewed by the exchange’s legal advisors.
“I can assure you that every payment and every policy and plan for payments were made with approval by the board,” Sladoje said.
The filing late Thursday by power-selling subsidiaries of Houston-based Dynegy Inc., Atlanta-based Mirant Corp., Houston-based Reliant Energy Inc. and San Diego-based Sempra Energy is careful to draw no conclusions about the propriety of the large payments to executives as the exchange was turning its own lights off in early 2001 because California’s two largest electricity utilities were running out of cash.
The document details compensation to Sladoje of $1.9 million in the 90 days before March 9, 2001, the day the exchange filed for protection from its creditors under Chapter 11 of the U.S. Bankruptcy Code. By that time, the exchange’s electricity market, which once handled 90% of the power bought and sold in the state, had been closed for more than a month. The court filing also reports compensation of $628,000 in the 90-day period for Lynn Miller, the exchange’s chief financial officer.
Both amounts represent the executives’ normal annual compensation to run the intricate marketplace, which once employed 200 people, and to oversee the complex bankruptcy and the company’s response to the tangle of investigations into California’s energy meltdown, Sladoje said.
The creditor filing also lists $2.6 million in payments to six other top officers, most of whom left their jobs soon after the bankruptcy filing. One officer, who was an employee for less than one month after several months as an outside contractor, received $372,000, according to the filing.
The expenditures were a varying mixture of salary, incentive bonuses, retention payments and accelerated payment of retirement benefits, the filing said.
“In sum, the once-orderly [Power Exchange] compensation process broke down in the months before bankruptcy. Policies were adopted or adjusted without board oversight; plan documents were interpreted to maximize the money officers could pay themselves and other employees; and the officers made advances to themselves,” the filing said.
The filing, made in U.S. Bankruptcy Court in Los Angeles, was designed to call attention to the payments, which the creditors discovered through an independent investigation, according to the document. Any further review or action would have to come from the Bankruptcy Court, the U.S. Trustee or a new nine-member board of directors of the Power Exchange that is expected to be confirmed soon, said lawyers familiar with the proceeding, who wished to remain anonymous.
“We avoided calling this a feeding frenzy,” said one lawyer. “It is unclear to us as to what payments were approved or not approved by the [Power Exchange] board. But when it’s clear that the company is going out of business, it’s pretty alarming” that such payments were made.
Gary Ackerman, executive director of the Western Power Trading Forum, whose members are Power Exchange creditors, said the filing “raises questions of were these appropriate payments, who authorized them and why were they made?”
The exchange, which opened on March 31, 1998, was the cornerstone of California’s pioneering push into electricity deregulation. For the first time, independent power sellers and the big power buyers cut deals for electrons in a competitive market.
But power prices soared in May 2000, creating huge debts for Southern California Edison, the utility arm of Rosemead-based Edison International, and PG&E; Corp.’s Pacific Gas & Electric Co. of San Francisco.
The utilities were freed from the legal requirement late in 2000 that they must buy the bulk of their electricity from the Power Exchange, guaranteeing extinction for the market.
The exchange administers a trust fund of $1.4 billion, consisting largely of funds from Edison, that eventually will be distributed to creditors when the state’s refund case is settled, Sladoje said. PG&E;, which also is operating under bankruptcy protection, has not yet contributed to the trust fund.
Sladoje said the Power Exchange employs only 10 people full time.
