Sacramento’s municipal utility wildly overspends on executive pay, marketing & other fixed costs

Derek Cressman is a longtime government watchdog and Sacramento resident for the last 22 years. He is also a current candidate this fall for the SMUD Board.


If you live in Sacramento, you’ve probably seen the ads on billboards and social media purchased by local electrical utility SMUD and wondered, “Why does SMUD spend money on x-y-or-z good cause?” Why indeed. “We’re a community owned not-for-profit!” is SMUD’s confusing answer.

Consider that the City of Sacramento Department of Utilities is also a community-owned non-profit in the same sense as SMUD. So are our public libraries, police and fire departments, park services, and so on. But most public services don’t feel the need to toot their own horns quite as loudly as SMUD does. What’s going on? When you see a government entity spending $28 million annually on public relations campaigns telling you how great it is, it’s worth taking a closer look at the budget.


And a closer look reveals not the most flattering picture.


That’s because a recent study by the Solar Rights Alliance found that for every dollar SMUD spends, only 25 cents go to purchasing power or fuel to run its generation plants. The rest (75%) goes for fixed costs that don’t change no matter how much, or how little, electricity SMUD customers use. This is the highest ratio of fixed costs of any of the 29 California municipal utilities studied in the report. For comparison, Los Angeles Department of Water and Power (LADWP) spent 61% on fixed costs. The Sacramento suburb of Roseville spent 53%, and Alameda Municipal Power (which is already providing 100% carbon free power to its customers) spent just 47% on fixed costs.

Unlike most municipal utilities that buy power on the open market and distribute it to customers, SMUD has chosen to self-generate a lot of its own electricity. Sometimes this has worked well. Part of SMUD's fixed costs include wind turbines and giant solar arrays that produce power at little marginal cost once built. But SMUD has also spent hundreds of millions on fossil fuel investments that in hindsight weren’t so wise.


For instance, the Cosumnes Power Plant, which cost $610 million to build, was down for unplanned maintenance all summer and operating at diminished capacity during the last heat wave when we were at risk of roving blackouts. In 2019, SMUD abandoned a natural gas extraction facility in New Mexico at a loss of $52 million dollars. And SMUD has announced plans to shut down, or repurpose at additional expense, its entire fleet of methane power plants by 2030.


Other high fixed costs for SMUD include an $83 million renovation of its headquarters building. This is another investment that may have seemed like a good idea at the time, but the building now is grossly underutilized as the COVID pandemic showed SMUD it could operate effectively with most of its staff working remotely. But rather than adapt to a new world of reduced office space requirements, SMUD is doubling down on its real estate portfolio by opening a new multi-million dollar childcare facility, which only makes sense if employees are actually working from the office.


SMUD’s 2022 detailed budget also calls for $28 million in “Communications, Marketing, and Community Relations,” which comes to $43 per customer each year. A lot of laudable projects receive funding from this program, but one has to wonder if ratepayers should really have been tapped to pay $7 million for the naming rights to the new Museum of Science and Curiosity, or for signs in the airport and on light rail lines saying nothing more than “Clean power my city.”


Payroll and staffing are another major source of SMUD’s fixed costs. SMUD paid its general manager $705,120 in total compensation in 2019. That’s a higher compensation than any municipal utility tracked by Transparent California. This is also higher than the Governor of California, and much higher than the Sacramento County Executive, or the Sacramento City Manager, or the head of the Sacramento Public Utilities Department. It is also 36% higher than what the Los Angeles Department of Water & Power pays its head executive ($518,326) to oversee two public utility services and serve many more customers than SMUD. Plus the cost of living in Los Angeles is 22% higher than in Sacramento.


SMUD’s general manager salary is lower than CEO salaries at PGE and other investor-owned utilities, but a community-owned non-profit should be paying government wages instead of benchmarking itself against the private sector.


SMUD likes to boast that its rates are lower than PGE’s, and they are. But this is what ratepayers should expect after deciding decades ago to cherry pick a high density service territory that’s considerably cheaper to provide power to than PGE’s sprawling, rural customer base that requires significantly more expensive transmission infrastructure. What SMUD doesn’t like to brag about is that its regressive monthly infrastructure fee of $23 per customer is 130% higher than PGE’s $10 monthly minimum charge.


So if SMUD got serious about cutting its costs – and curbing its marketing ego – our overall utility bills could (and should be) be even lower than they are.



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