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To be fair, these top-heavy "incentives" are comparable to other big-name utilities the PUC regulates. Kevin Burke, CEO of ConEdison, rakes in a far steeper yearly package of $14.8 million.
As a safeguard, these top-level packages at Cal Water are overseen by its Organization and Compensation Committee, which, the report states, cannot be made up of current employees or anyone with "any material interest" in the company. However, these five so-called non-employee directors receive a $32,500 annual retainer, a benefits plan that will pay $22,000 a year after retirement, stock awards and tidy sums of $1,800 for each meeting attended and $3,600 for each meeting chaired. Board members—many of the same people as the committee members—receive $2,300 for each board meeting they attend. In addition, three of these committee members have a retirement plan that will pay $22,000 annually for the number of years they served on the board.
It's partially for reasons like this that a hefty portion of each rate increase goes not to maintenance in the local districts but to the central office in San Jose. Of the roughly $126.9 million in rate hikes requested by Cal Water in its current case before the PUC, $71 million—more than half—would go to its general office. A large chunk of that—$42.6 million—is requested to pay for salary and benefit increases for recent and projected hires, while other costs are tied up in rent and taxes.
But a pool of other customer-funded expenses may not seem quite so essential. There are dues associated with an organization called the Alliance of Chief Executives, which, according to its website, "creates very private, high-level, confidential environments for members to have strategic business conversations." There are fees associated with new company cars for top-level executives and other general office staff in the $30,000–$40,000 range—even though some of them received money for new cars in the last general rate case, just three years ago.
The PUC may not allow all of these expenses to be folded into Cal Water's current rate hike. In its back-and-forth with each utility, the DRA can recommend removal of fees that seem extravagant. In its last rate hike, Cal Water was unsuccessful in its original request to include the total cost of CEO Nelson's car—$84,500—which the utility later said was mistakenly included.
THE REFUND THAT DISAPPEARED
In the last few rate cases, the DRA has also taken issue with Cal Water's hiring pattern—or lack thereof. In a January 2008 report, it questioned the company's request to hire 148 new employees in its central office—a sizable 62 percent increase over the existing staff. Meanwhile, it states that between 2005 and 2006, the company's actual payroll expenses were $2.57 million lower than the amount allotted them in ratepayer money.
"The amount authorized in rates was much higher than the actual payroll expense, resulting in a significant windfall to its shareholders," the report reads.
A similar issue resurfaced in 2010, when the DRA stated that 13 of the 38 positions that had been authorized with ratepayer money for 2009 were unfilled, and that Cal Water had used the number of employees authorized rather than the number of employees actually hired as a base number for expenses and future payroll needs. It even went so far as to recommend that Cal Water set up an account and refund ratepayers $3.05 million, writing: "CWS unfairly and inappropriately requested and received recovery for new position costs prior to CWS actually hiring those employees."
Darin Duncan and Paul Townsley, Cal Water's manager of rates and VP of regulatory matters, deny that Cal Water received any kind of windfall profits from the payroll gap.
"That was a period when we were really slow in hiring new people," he acknowledges, citing a staffing shortage in HR and a dotcom bust in San Jose. In lieu of hiring full-time, benefited employees, he says, the company hired temp and part-time staff.