Dec 19 - McClatchy-Tribune Business News Formerly Knight Ridder/Tribune Business News - Dave Flessner Chattanooga Times/Free Press, Tenn.

A $1.6 million severance package given to a top Tennessee Valley Authority executive after only three years on the job is an "egregious Golden parachute" that taints the utility's image, U.S. Rep. Zach Wamp said Monday.

But TVA officials defended the unprecedented payments to ousted Chief Financial Officer Michael Rescoe as a contractual necessity in a changing and competitive market.

Mr. Rescoe, who was hired in 2003 to direct TVA's finances, was awarded a contract in April 2004 that guaranteed he would be paid two years of salary and bonuses if a new TVA chief executive reduced or eliminated his job. For his three years of work at TVA before he was asked to leave the agency on, Mr. Rescoe will end up receiving nearly $4 million in salary, bonuses, outside income and severance pay.

"Paying that much money to someone who is not even staying at TVA leaves a very sour taste in the mouth of ratepayers who were hit with two rate increases from TVA in the past year," Rep. Wamp, R-Tenn., said. "TVA needs to be competitive with other utilities, but it also needs to recognize that it is a special, quasi-government agency with a unique mission."

Mr. Rescoe left TVA in November to become chief financial officer at Travelport Ltd., just one month after Tom Kilgore was promoted to chief executive and asked Mr. Rescoe to step down. "The situation we're in now is unfortunate," former TVA Chairman Glenn McCullough said Monday. "But that is how the contract with Mr. Rescoe was structured. You have to pay a competitive compensation package to ensure you have the best people running a $9 billiona-year corporation like TVA."

Even with the severance pay and three years of bonuses and deferred compensation, Mr. Rescoe still earned at least 20 percent less than the average pay for chief financial officers at comparablesized energy companies and utilities, according to compensation consultants Towers Perrin.

"I think it's important to recognize that all of our senior managers at TVA earn less than the average for similar investorowned utilities," said Skila Harris, a TVA director who chairs the board's human resources committee responsible for compensation.

Ms. Harris said she does not expect TVA to provide contract protections for other TVA executives in the future similar to that provided to Mr. Rescoe.

"This was a unique time in TVA's history because we knew we were undergoing a change in governance that would bring new leadership to TVA," she said.

Mr. Rescoe could not be reached for comment Monday.

TVA provided a similar, though smaller, severance guarantee for Mr. Kilgore should he have been demoted during TVA's change in governance during the past year. Mr. Kilgore was hired as TVA's president and chief operating officer in 2005. At the time, Congress had approved a new governing structure for TVA, but President Bush had not yet appointed a new board.

The new board ultimately selected Mr. Kilgore to be TVA's first chief executive. He was paid $1.6 million in the past year. Mr. Kilgore would have received one year's salary and bonuses as severance pay if another CEO was picked at TVA and he was no longer president.

The terms of the executive contracts were disclosed Friday in TVA's first-ever Form 10-K corporate disclosure report to the Securities and Exchange Commission.

U.S. Sen. Lamar Alexander, RTenn., the chairman of the TVA Congressional Caucus, said Monday he hopes such disclosures will ensure more transparent agreements with TVA executives.

"It would be much better if compensation arrangements for the top TVA executives were public when they were made, and under the new legislation enacted by Congress they will be," Sen. Alexander said. "The new legislation permits TVA's top officials to be compensated in a straightforward way and in the same way that executives in privately owned utilities are compensated."

E-mail Dave Flessner at dflessner@timesfreepress.com