Only two of the 53 Entergy Corp. executives eligible for long-term incentive compensation in Entergy Arkansas’ rate case currently before the Public Service Commission live in Arkansas, the state’s largest utility said Thursday.
Entergy Arkansas has proposed a rate increase of about $145 million, down from an increase of $178 million first sought in March by the utility, which has about 700,000 customers in the state.
No one identified the two Arkansas executives who would be eligible for the highest incentives. The top two Entergy executives who live in Arkansas are Hugh McDonald, chief executive officer, and Jeremy Browning, vice president at Arkansas Nuclear One near Russellville, company spokesmen said.
Even with the proposed rate increase, Entergy Arkansas’ customers are expected to see a drop in monthly bills next year. Any rate increase will coincide with a bigger rate reduction resulting from Entergy Arkansas’ decision to join a regional transmission organization on Dec. 19 and the resulting withdrawal from Entergy Corp.’s system agreement.
The commission’s general staff recommends that the commission approve only about $109 million of the utility’s requested rate increase. If the commission approves that amount, the average Entergy Arkansas residential customer would see a 3.62 percent reduction in a monthly bill, lowering a bill of $100 to $96.38.
In addition to the reductions recommended by the general staff, the state attorney general’s office is suggesting the commission reduce Entergy Arkansas’ request by another $24 million, which would drop the rate increase to $85 million.
Entergy Arkansas said that by early next week it should be able to estimate the amount of money sought in the rate case that would be paid to Arkansas executives under the incentive-payment plans and how much would be paid to executives from New Orleans-based Entergy Corp.
Although exact numbers are uncertain, a significant amount of the incentive pay is likely for Entergy Corp. executives, said Shawn McMurray, senior assistant attorney general.
McMurray told the commission Tuesday that Entergy Arkansas should not be allowed to charge its ratepayers for stock options “for a few highly placed executives at Entergy Corp., most of whom are out of state.”
The attorney general recommends disallowing the cost of incentives or bonuses that are based on financial criteria which are unnecessary for providing utility service, McMurray said.
The combined effect of eliminating those requests for incentive subsidies from Entergy Arkansas customers to Entergy executives is about $13.5 million, McMurray said.
That breaks down to about $19 for each of Entergy Arkansas’ customers, McMurray said.
No party to the rate case is asking that Entergy Arkansasbe prevented from including some incentives in its case, said Julie Munsell, an Entergy spokesman.
“There isn’t a line item [amount] out of $145 million [for incentives],” Munsell said.
Jordan Tinsley, an attorney representing hospitals and some University of Arkansas System schools served by Entergy Arkansas, estimates that the incentives requested by Entergy Arkansas add between $11 million and $13 million to the rate case.
It isn’t uncommon for utilities to request that ratepayers pay for executive incentives, said David Cruthirds, a Houston regulatory lawyer and publisher of energy newsletter “The Cruthirds Report.”
“The theory could be that we have to pay [the incentives] to [be able to hire] this top-tier talent,” Cruthirds said. “And without that, we won’t be able to run as efficiently and make as good decisions. There is a certain fundamental appeal and legitimacy to that.”
In a recent rate case by Entergy Texas before the Public Utility Commission of Texas, the Texas regulator chose to disallow any incentives as part of the proposed rate increase, Tinsley said.
“The [Texas commission] denied [the incentives],” said Elizabeth Smith, an attorney for some of the same clients represented by Tinsley. “Then [Entergy Texas] asked for it again after [the commission] denied it. Not only did the commission deny it the second time, they also didn’t let [Entergy Texas] recover the legal expenses [of requesting the incentives a second time].”
There is a debate among regulators about the appropriateness of incentives being paid by utility customers, Tinsley said.
“We have surveyed numerous jurisdictions across the country and determined that the majority of regulators continue to agree that when you incentivize a utility’s employees on the financial performance of the company, that causes the interests of the utility to diverge from the interests of ratepayers,” Tinsley said. “Since these incentives are designed to benefit shareholders [of publicly traded utilities] and not to benefit utility customers, they shouldn’t be recovered in rates.”
His clients aren’t opposed to utilities such as Entergy Arkansas paying bonuses to its executives but just how those bonuses are funded, Tinsley said.
Front Section, Pages 1 on 10/25/2013