Shocking salaries

SHOCKING SALARIES
Power company execs rake in the bucks while
pushing rate hikes & coal plants
By Glenn Puit
Great Lakes Bulletin News Service
Calendar year 2008 was one of the most troubled in Michigan’s history:
tens of thousands of residents lost their jobs during the greatest
economic collapse in an American generation.
But during that same year several power companies in Northern Michigan
used their customers’ money to hand out eye-popping bonuses and raises
to a small cadre of their top executives.

CADILLAC & ROGERS CITY
Executives at some of Northern Michigan’s rural electric cooperatives
have received handsome compensation and pension packages while
promoting a coal-fired power plant for Rogers City that state
regulators say is unneeded and that one study concludes could at least
double the electric rates of their members.
Wolverine Power Supply Cooperative Inc., in Cadillac, which is largely
owned by four retail electric cooperatives in rural northern Lower
Michigan, spent nearly $1 million on compensation and benefits for its
two top executives in a single year.
According to Wolverine’s IRS 990 forms, which are readily available
online because it is a not-for-profit organization, a former executive
of Wolverine, Thomas W. Stevenson, received $533,908 in compensation
in 2007. Wolverine’s current chief executive officer, Eric Baker,
received $294,993 in compensation that year, his first in that
position.
The cooperative’s tax filing also lists substantial annual
contributions to benefit packages for both executives, more than
$80,000 each, which Wolverine refers to as its “health and deferred
compensation” plan, as well as payments of $325,000 to Wolverine’s
board of directors that year.

SEEKING COAL POWER
The past and current CEOs have been considered driving forces behind
the push to build a new coal plant in Rogers City. When they unveiled
the project in May 2006, they estimated that it would cost about $1.2
billion. But a study performed two years ago by T.R. Rose & Assoc., of
New York City, found the estimate to be at least $300 million too low
at that time. The study, which was commissioned by the
Interlochen-based Michigan Energy Alternatives Project, concluded that
the project would push co-op members’ utility rates sharply upward.
This fall, the company asked the Federal Energy Regulatory Commission
(FERC) for permission to collect unlimited amounts of money from its
members for the project construction fund. The money would come from
members of the four retail co-ops that own Wolverine: Cherryland
Electric Cooperative, Presque Isle Electric & Gas Co-Op, Great Lakes
Energy, and HomeWorks Tri-County Electric Cooperative.
The request to FERC, some observers say, could indicate increasing
financial pressure on Wolverine — and, by extension, its
member-owners. It could also reflect the sharp shift in coal plant
economics that persuaded American utilities to cancel 110 coal plants
over the past few years.

RATE HIKES
When the co-op unveiled the proposal, Baker said the plant would
protect co-op members from electricity rate spikes by replacing the
power his company gets from distant suppliers with power from its own
plant. The executive also said that the new plant was necessary for
meeting his members’ growing demand for electricity.
Expert studies have since rejected both claims: Almost two years ago,
the Rose study, by municipal and utility funding veteran Tom Sanzillo,
found that, because all of the new electricity would come from the
same expensive, new plant, members’ rates would at least double.
And, late this summer, the Michigan Public Service Commission (MPSC)
found that Wolverine does not need the additional electricity from its
proposed plant. Wolverine’s demand numbers for September fell 14.6
percent from the previous year.
The Michigan Department of Environmental Quality is expected to rule
on the plant’s air permit application within weeks, and the agency
must consider the MPSC’s finding that the plant is unneeded, as well
as determine whether burning coal is the most prudent and feasible way
for the company to generate electricity.

JOBS PROMISED
Despite the financial obstacles and growing evidence that its members
will see a big jump in their electric bills if the plant is ever
built, Baker and other Wolverine officials continue to promote their
project. The company continues to say that it will bring about 100
new, fulltime plant jobs to the community — and that building the new
plant is “all about affordability.”
But the salary level of the directors in Wolverine’s extended family
of retail co-ops suggests that affordability has not been a top factor
in decisions about executive pay:

• At Great Lakes Energy in Boyne City, president and CEO Steve
Boeckman earned a salary similar to Baker’s in 2007. Boeckman
received $274,087, and according to the federal forms, an additional
$55,913 as a contribution to the cooperative’s benefits and/or
deferred compensation plan. His salary increased by $43,000 from 2005
to 2007, and that figure does not include possible annual
contributions to Boeckman’s benefits plan.
• The Michigan Electric Cooperative Association, which publishes
Country Lines Magazine on behalf of the co-ops and is closely aligned
with Wolverine, paid CEO Mike Peters, $223,838 in 2007, along with a
$34,000 contribution to his benefits plan, according to the federal
filings.
• At HomeWorks Tri-County Electric Co-Op, CEO Scott Braeger received
$208,782 in 2007, plus a contribution of $43,765 to his benefits
package for that year.
• At Cherryland Electric Cooperative in Traverse City, general manager
Tony Anderson received $133,903 in 2007 and is listed as getting a
$45,551 contribution for his benefits plan.
• At Presque Isle Electric and Gas, CEO Brian Burns was paid $130,310
in 2007; his benefits plan contribution was listed at $41,937.

WHAT CUSTOMERS MAKE:
Meanwhile, the regions where the companies do business had median
incomes of $35,000 to $45,000 that year — substantially below the
national average of $50,233.
Baker, of Wolverine, did not respond to a request for confirmation of
or comment on his compensation for running Wolverine.
Stevenson, his predecessor, when contacted at his Colorado home,
refused an interview but denied receiving the additional $80,000. He
then refused to discuss the salary payment of $533,908 and threatened
to file a lawsuit if the details of his compensation were published.
The salaries for executives at electric cooperatives can vary widely
across the nation. According to a 2001 report from the National Rural
Electric Cooperative Association, there is growing interest at co-ops
in “flexible compensation” packages like Wolverine’s deferred plan for
its executives.
A check of other cooperative salaries shows that at Nebraska
Generation and Transmission Cooperative, a manager there was paid
$129,000 in 2007 with no contributions to a benefit package.
At Southern Montana Electric Generation and Transmission Cooperative,
a manager there was paid $147,000 plus $51,000 to a benefits package.
At one cooperative in Iowa, five managers were paid a total of $1
million in compensation in a single year; the president made nearly
$300,000.
A 2001 report about executive compensation in Management Quarterly
listed the median annual salary for a manager at a co-op at the time
as $97,428. The national rural co-ops report said determining
executive salary at co-ops should be a deliberate process carried out
by boards of directors, and pay should reflect the value individual
managers have on operations and the size of the customers the co-op
serves.
“There’s no single model of manager compensation,” Management
Quarterly stated. “This is especially true because of the growing
interest in flexible compensation ... Another complexity is the
possibility of public scrutiny.”

Investigative reporter Glenn Puit is a policy specialist at the
Michigan Land Use Institute. Reach him at glenn@mlui.org

View On Our Website