Pepco shareholders faring better than customers
Sunday, February 13, 2011
The day after the Jan. 26 snowstorm swept through the Washington region, knocking out power for 220,000 Pepco customers, the utility's parent company, Pepco Holdings, announced a $60 million dividend payment to its shareholders.
As Pepco customers in the District and Maryland have contended with inaccurate outage maps, rising electricity bills, and long hours and days of waiting for their lights to come back on, Pepco Holdings investors have prospered. In the past year, they have reaped the benefits of surging revenue, a 12 percent increase in the stock price and a steady stream of dividends. Last year, Pepco Holdings paid more than $240 million in dividends.
The increasingly divergent experiences of ratepayers and stockholders have become fodder for Pepco's local critics, who accuse the utility of putting its investors ahead of its customers. At a hearing this week, Montgomery County Council member Hans Riemer (D-At Large) cited figures from Pepco's public filings showing that Pepco Holdings paid $1 billion in dividends - three times more than Pepco spent on transmitting power and maintaining its distribution network - between 2005 and 2009.
"It appears to me Pepco has been commandeered by a group of executives who are picking every penny out of the company they can and ruining the service," Riemer said in an interview. Pepco is regulated by the state government, but Montgomery has hired a special counsel on utility regulation to press its argument that Pepco should be held accountable for service lapses.
Pepco officials say Riemer unfairly counted dividend payments made by Pepco Holdings, which includes the company's utilities outside the Washington area, Delmarva Power and Atlantic City Electric.
The local utility pays dividends to its parent company, which passes that money along to shareholders. Pepco spokesman Clay Anderson said that between 2006 and last year, the local utility paid $180 million in dividends to the parent company.
Pepco pays one-third of its net income as dividends and invests the rest in the electricity system, Anderson said.
Pepco, which serves 778,000 customers in Washington and the Maryland suburbs, spent $1.4 billion on capital improvements and $1.5 billion on operating and maintenance expenses between 2006 and last year, the company says.
Beyond defending their investment in the grid, Pepco officials are increasingly sensitive to public outrage over service failures and to the sharp contrast between the company's service record and its financial performance.
The day after the Montgomery hearing, Pepco Holdings chief executive Joseph M. Rigby went to Annapolis for his first public appearance since the Jan. 26 storm to tell legislators that the company's response was "not acceptable, and we're going to fix it." As a result, he said, he would forgo up to $900,000 in compensation this year by not accepting a raise or bonus.
Rigby is eligible for a bonus worth his $880,000 annual salary, Anderson said. But the bonus is not guaranteed. Rigby, who joined Atlantic City Electric in 1979 and became Pepco Holdings' chief executive in 2009, did not receive a bonus in 2009 but did in 2007 and 2008, Anderson said.
The bulk of Rigby's compensation as chief executive is stock and stock options. His salary, plus the value of stock options, incentive pay, pension benefits and perks, brought his total compensation for 2009 to more than $3.1 million. As of March, he owned about 150,000 shares in the holding company, which earned him more than $160,000 in dividend payments.