Salary secrets 

PSC revisits pay disclosure before water rate increase

Public Service Commissioner Travis Kavulla predicts that a public hearing slated for later this spring to hash out Mountain Water Company's rate-increase request will devolve into a scene.

"It's going to simply be an absurd spectacle," says Kavulla, who's one of five PSC members charged with vetting rate-increase requests from public utilities such as Missoula's Mountain Water.

The public hearing on Mountain Water's request is going to draw attention, Kavulla says, because ratepayers are currently forbidden from learning how much many state-regulated utilities pay their executives. That means the public won't be allowed to participate in a discussion about the role executive compensation plays in rate setting. "Literally, the press and the public will have to be cleared from the room," Kavulla says.

click to enlarge Missoula Independent news
  • photo by Cathrine L. Walters
  • Mountain Water Company filed a lawsuit to keep its executive compensation private.

Despite a rule passed in 2010 by the PSC that mandated privately owned state utilities such as Mountain Water disclose how much they pay their top three highest earners, the public still isn't allowed to see that information. The rule was put on hold because one week after the PSC passed it, Mountain Water filed a lawsuit in Helena District Court that argued the mandate violated constitutional privacy rights.

"Mountain's employees have a reasonable expectation that the privacy of their financial affairs will be maintained, including the salaries and benefits that they receive working for Mountain, a private non-public employer," stated the 2010 lawsuit.

The issue is timely as a newly elected incarnation of the PSC—one that's composed of all Republican commissioners—is currently debating whether to repeal the executive salary rule altogether, making the lawsuit moot. A preliminary March 5 vote indicated four of the five commissioners oppose the rule. Kavulla was the only one to support it.

In 2011, the world's largest private equity firm, the Carlyle Group, purchased Mountain Water's parent company, Park Water. Last summer, Mountain Water asked the PSC to approve a rate increase of $2.61 monthly for the average metered water user. If approved after the hearing this spring, Missoulians will pay roughly $48.56 per month—more than any other municipal water user in the state.

Kavulla notes that CEO salaries are not inconsequential when regulators and utilities set rates. As a PSC commissioner, Kavulla is privy to earnings information that is kept from the public.

"I think the level of compensation of Mountain Water executives would be newsworthy, would be remarkable, if the people of Missoula were allowed to know it," Kavulla says.

Federal law already requires publicly traded utilities such as NorthWestern Energy to disclose their top manager salaries. According to NorthWestern's 2013 proxy statement, company CEO Bob Rowe received $1.49 million in total compensation in 2012—or roughly $30,000 more than the year prior.

Republican Bob Lake of Hamilton, who ousted Missoula Democrat Gail Gutsche during the November election, is leading the effort to toss the mandate. He says public disclosure of salary information simply isn't the PSC's job.

"We have to protect the consumer, but we also have the obligation to protect the company," Lake says. "We're not in the business of granting the invasion of privacy."

Lake adds that an exclusion in the rule that allows companies to petition to keep salary information private leaves the mandate largely toothless anyway. He asserts that the previous, Democrat-heavy PSC that crafted the rule did so as a political ploy. "Really, it didn't change anything, other than it looked really good in the press," Lake says.

Former Commissioner Ken Toole, the Democrat who spearheaded the rule, says it's not toothless. He points to Mountain Water's vigorous criticism of it as proof. He also notes that because utilities such as Mountain Water don't face competition and earn a guaranteed return from captive customers, they should be subjected to more scrutiny than other private enterprises.

"I think that this secrecy in pay thing is questionable in any regard," Toole says. "But when you start saying, 'This is a public utility,' then I think it's just not justifiable in any way."

Toole sees disclosure as a social justice issue. Transparency offers a means to curb income inequality—a gap that's wider today than at any time since the Great Depression.

"You've got a telephone company located in Dillon. I think (the rule is) going to affect how high they set the pay," he says. "If the CEO has to walk through the town of a depressed economy and they're sucking down $150,000 to $200,000 a year, I think that affects them. And it will make them control it a little bit."

The PSC is slated to hold a public hearing on the executive pay rule April 23. The hearing on Mountain Water's rate increase request has yet to be scheduled.

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