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Pepco Holdings CEO's Pay Rose 22% in '05

By Terence O'Hara
Washington Post Staff Writer
Friday, March 31, 2006

Pepco Holdings Inc., the owner of the Pepco electric utility for customers in Washington and parts of suburban Maryland, increased its chief executive's salary and bonus 22 percent in 2005.

Chief executive Dennis R. Wraase's salary and bonus last year was $1.43 million, compared with $1.17 million in 2004. Also, Wraase's base salary of $825,000 is up more than 47 percent since 2003 and will go up to $950,000 this year, according to company documents filed yesterday with the Securities and Exchange Commission.

Top executives at two other area power companies, Constellation Energy Group Inc. and Dominion Resources Inc., are also enjoying historically high levels of compensation. If a proposed merger goes through, Constellation's chairman is guaranteed a salary and bonus in 2007 of $5 million as chairman of the combined companies, according to SEC documents.

Richmond's Dominion Resources is, like Constellation, a diversified energy marketing, production and distribution company. It owns the regulated Dominion Virginia Power utility. Dominion's chief executive, Thomas E. Capps, received $2.3 million in salary and bonus in 2005, compared with $1.1 million in 2004.

Wraase's raise comes at a time of growing profitability for Pepco Holdings, and the company's shareholders have had a 14 percent annual rate of return in the past three years. But it also comes at a time when electricity rates have had record increases and regulatory and legislative scrutiny of utility company operations has grown. Pepco standard service rates for District customers will go up 12 percent this summer, and for the company's 500,000 Maryland customers, the average increase will be $468 a year, or 38.5 percent.

Pepco spokeswoman Debbi Jarvis said the pay increases for Wraase and other senior Pepco Holdings executives have nothing to do with the recent upcoming rate increase, which is attributable to steep rises this year in wholesale energy costs. Pepco doesn't generate electricity; it buys it on the open market and passes any increase or decrease in those costs directly to its customers.

"There's no connection between the two," Jarvis said. "The increase is only money that we collect from our customers and give to our suppliers. The increase is solely based on our supplier cost."

While overall labor costs are factored into utility base rates, senior executive compensation has rarely been raised as an issue for public service commissions that set rates or people's counsels that represent rate payers. This year, however, executive payments and bonus programs have arisen in Maryland with respect to Constellation Energy and its regulated utility subsidiary, Baltimore Gas & Electric Co.

The Maryland Office of the People's Counsel recently lost a rate-base challenge for BGE gas rates in Maryland. BGE sought to include $2 million of employee incentive payments in the rate base -- the basic rate charged to customers before energy costs. The People's Counsel, according to documents filed with the state Public Service Commission, sought to halve that amount. The commission ruled in favor of BGE, and the case is being appealed in the courts.

Constellation's executive pay will also be under review in the approval process for its proposed merger with Florida's FPL Group Inc. Constellation chief executive Mayo A. Shattuck III is slated to receive a stock-based severance payment estimated at about $40 million in the merger, along with a salary and bonus next year of $5 million as chairman of the combined companies, according to SEC documents.

"Those aspects will certainly be reviewed in the ongoing merger review case" before various state and federal agencies, said William Fields, senior assistant people's counsel in Maryland.

Constellation has not yet disclosed Shattuck's pay package for 2005. The Baltimore-based company, while owner of BGE, derives most of its revenue and profit from nonregulated businesses such as its power plants and wholesale energy marketing business. Pepco, on the other hand, owns no power generators and derives most of its revenue from regulated power distributors in Washington, Maryland, Delaware and New Jersey.

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