The debate over executive compensation has found a new battleground in Sacramento, where Paul Lau, the CEO of the Sacramento Municipal Utility District (SMUD), earns nearly $1 million annually, a figure that has ignited intense scrutiny. This compensation pits the utility’s board, which defends the salary as a necessary business expense for attracting top talent, against a growing chorus of critics who see it as a profound misuse of public funds. As SMUD customers navigate a complex rate structure and brace for planned price hikes, the controversy raises a fundamental question about the nature of public service: When does a public servant’s paycheck cross the line from fair compensation to an abuse of the public’s trust? The situation in Sacramento serves as a microcosm of a larger national conversation about accountability, transparency, and the financial governance of the essential services that communities depend on.
The Case Against the Salary
A Symbol of Disconnect
At the core of the controversy is CEO Paul Lau’s substantial compensation package, which amounts to $981,991 when his $936,617 in wages is combined with over $45,000 in retirement and health benefits. While Lau is an undisputed industry veteran with 41 years of service at the utility, the nearly seven-figure salary is funded by a community-owned entity, making it a lightning rod for criticism. Watchdog groups and concerned officials argue that such a sum is difficult to justify for the leader of a public utility, regardless of the organization’s scale or the executive’s impressive resume. This level of remuneration is being framed by some as a potential “abuse of taxpayer funding,” a claim that resonates deeply with a public already skeptical of government spending. The argument extends beyond a single paycheck, suggesting that excessively high salaries in the public sector can erode public support for the very institutions they are meant to fund, including the retirement systems that sustain public employees. In this context, the CEO’s salary is not just a line item in a budget but a powerful symbol of a perceived disconnect between public sector leadership and the financial realities of the constituents they serve.
The debate also highlights a fundamental philosophical clash over the nature of public employment versus private enterprise. Critics contend that leadership roles in public utilities should be viewed through the lens of civil service, where the primary motivation is the community’s welfare rather than personal financial enrichment. The compensation for such a role, they argue, should reflect this ethos of public trust and stewardship. When a public utility CEO’s salary begins to resemble that of a corporate executive, it blurs the line between a community-owned resource and a for-profit corporation. This can lead to concerns that the utility’s decision-making process may prioritize business metrics and executive performance bonuses over its core mission of providing reliable and affordable power to its customers. The optics of a million-dollar salary, especially when juxtaposed with rising utility costs for ordinary families, can create a narrative of an elite, out-of-touch leadership class that is insulated from the financial consequences of its own policies, further fueling public resentment and distrust in the governance of essential services.
The Burden on the Ratepayer
The criticism of the CEO’s compensation is significantly amplified by SMUD’s controversial rate structure, which many customers feel places an undue financial burden on them. In 2019, the utility implemented a “time-of-day” system that charges substantially more for electricity during the peak hours of 5:00 p.m. to 8:00 p.m. This policy has been widely characterized as a form of punishment for working families, who often have no alternative but to perform essential household tasks like cooking, doing laundry, and running appliances during these high-cost hours. With peak rates potentially soaring by as much as 200% compared to off-peak times, the system can feel punitive rather than incentivizing. A SMUD analysis even projected that 57% of customers would see their bills increase if they failed to alter their energy consumption habits, a difficult feat for households with rigid work and school schedules. This policy has drawn fire from statewide customer advocacy groups, who note that such rate changes do not always result in significant energy conservation and can disproportionately harm families who lack the flexibility to shift their daily routines to off-peak hours.
The financial pressure on ratepayers is poised to intensify even further. SMUD has a series of planned rate increases on the horizon, with four separate hikes of 2.75% each scheduled through 2025. For the average residential customer, these cumulative increases are projected to add over $15 per month to their utility bill by the middle of 2025. This steady and predictable rise in household expenses makes the CEO’s nearly million-dollar compensation package a particularly difficult reality for the public to accept. Anecdotal reports from customers, including personal bill increases of as much as 38%, reinforce a powerful narrative of escalating costs. When residents feel they are being “gouged” by ever-increasing rates while the executive in charge receives a corporate-level salary, it fosters a sense of injustice. The situation creates a stark contrast: while families are asked to tighten their belts and adapt to more expensive and complex billing structures, the leadership appears to be rewarded handsomely, deepening the chasm between the utility and the community it is mandated to serve.
The Official Justification
Defending the Compensation
In a comprehensive rebuttal, SMUD’s Board of Directors offers a robust, multi-point defense of the CEO’s salary, beginning with the assertion that the compensation is entirely performance-based. The board points to Lau’s successful leadership as the driving force behind the utility’s strong performance metrics. Under his guidance, SMUD maintains electricity rates that are consistently among the lowest in California and are more than 50% lower than those of the neighboring private utility, Pacific Gas & Electric (PG&E). This difference, they calculate, saves the Sacramento community an estimated $1.9 billion annually. Furthermore, the board cites SMUD’s consistently high customer satisfaction ratings and its established reputation as a regional and national leader in the transition to clean energy, with an ambitious goal of achieving a zero-carbon energy portfolio by 2030. From this viewpoint, the salary is not an expenditure but an investment in leadership that yields tangible financial and environmental benefits for the entire community.
The board also frames the compensation as a pragmatic necessity dictated by market realities. In order to attract and retain executive talent capable of managing a complex, $2 billion public utility with a workforce of 2,400 employees, SMUD must offer a competitive salary. The pool of qualified candidates for such a demanding role is limited, and these individuals are sought after by other large public and private utilities across the country. The board contends that while Lau’s salary is above the median for comparable positions, it is nowhere near the top tier and is dwarfed by the compensation packages in the private sector. They draw a sharp contrast with the CEO of PG&E, whose annual compensation has been reported to be over $50 million, positioning Lau’s salary as fair market value for a dedicated and highly effective public servant. Finally, they place the figure in budgetary context, noting that the CEO’s salary constitutes an infinitesimally small fraction—approximately 0.0005—of SMUD’s overall multi-billion dollar budget, arguing that its impact on customer rates is negligible.
Rationalizing the Rate Structure
SMUD’s leadership directly refutes the characterization of its rate structure as a “punishment,” clarifying that the utility employs “time-of-day” rates, not “tiered” rates. This system is not designed to be punitive but is instead engineered to align the price customers pay for electricity with the actual cost of generating or acquiring that power at different times of the day. Energy is significantly more expensive to produce during periods of high demand, such as late afternoons and early evenings. The goal of the time-of-day structure is to create a clear financial incentive for customers to shift their energy consumption to off-peak hours, when power is cheaper and often sourced from cleaner, renewable energy like solar. By sending accurate price signals, the utility empowers customers to make informed choices that can lower their bills while simultaneously contributing to a more stable and sustainable energy grid. This approach is presented as a rational, data-driven tool for modern energy management, not an arbitrary penalty.
This strategy, the board asserts, yields benefits that extend far beyond individual households. By encouraging a reduction in energy demand during peak hours, SMUD can alleviate stress on both the local and statewide electrical grids, which is crucial for preventing blackouts and enhancing overall reliability, especially during extreme weather events. A flatter demand curve allows the utility to operate more efficiently, rely less on expensive and often carbon-intensive “peaker” power plants, and better integrate renewable energy sources into the grid. Moreover, by reducing its own peak demand, SMUD can sometimes generate revenue by selling excess power back to the state grid, a financial benefit that is ultimately passed on to all ratepayers. The board insists that the rate structure was carefully designed to be “revenue neutral” on an annual basis, meaning it was not intended to increase the utility’s overall income. They maintain that many customers have successfully lowered their bills by making small, strategic adjustments to their daily energy usage, demonstrating that the system can work to the advantage of both the consumer and the community.
A Divisive Dialogue on Public Value
The sharp divide over the SMUD CEO’s compensation package and the utility’s rate structure brought to light the inherent tension between operating a major public utility as a competitive, market-driven enterprise and fulfilling its core mission as a community-owned service. The official justifications from the SMUD board hinged on performance metrics, market competitiveness, and the complex realities of modern grid management. These arguments portrayed the high salary as a strategic investment in top-tier talent, necessary to deliver lower rates, reliable service, and leadership in clean energy. In contrast, critics viewed the same facts through a lens of public trust and accountability, seeing a nearly million-dollar salary as fundamentally misaligned with the principles of public service, especially when ratepayers faced rising costs and confusing billing systems. This clash of philosophies underscored a broader challenge for public entities nationwide: how to balance the need for skilled leadership with the expectation of fiscal responsibility. The debate ultimately left the community to weigh whether the tangible benefits of the current leadership justified a compensation level that many found difficult to reconcile with the ethos of a public utility.
