The state regulation that shielded Southern California Edison and different utilities from legal responsibility for wildfires sparked by their tools got here with a catch: Prime utility executives could be pressured to take a pay reduce if their firm’s security file declined.
Edison’s security file did decline final 12 months. The variety of fires sparked by its tools soared to 178, from 90 the 12 months earlier than and 39% above the five-year common.
Severe accidents suffered by staff jumped by 56% over the common. 5 contractors engaged on its electrical system died.
Because of that efficiency, the utility’s mum or dad firm, Edison Worldwide, reduce government bonuses awarded for the 2024 12 months, it informed California regulators in an April 1 report.
For Edison Worldwide staff, deliberate government money bonuses have been reduce by 5%, and executives at Southern California Edison noticed their bonuses shrink by 3%, stated Sergey Trakhtenberg, a compensation specialist for the corporate.
However money bonuses for 4 of Edison’s prime 5 executives really rose final 12 months, by as a lot as 17%, in line with a separate March report by Edison to federal regulators. Their long-term bonuses of inventory and choices, that are much more useful and never tied to security, additionally rose.
Of the highest 5 executives, solely Pedro Pizarro, chief government of Edison Worldwide, noticed his money bonus decline. He obtained a money bonus of 128% of his wage fairly than the deliberate 135% due to the protection failures, the corporate stated, for whole compensation together with wage of $13.8 million.
The money bonuses elevated for the opposite prime 4 executives regardless of the safety-related deductions due to how they carried out on different tasks, stated Trakhtenberg, Edison’s director of whole rewards. He stated bonuses would have been greater have been it not for safety-related reductions.
“Compensation is structured to promote safety,” Trakhtenberg stated, calling it “the main focus of the company.”
Client advocates say the truth that bonuses elevated despite the decline in security highlights a flaw in AB 1054, the 2019 regulation that lowered the legal responsibility of for-profit utility corporations like Edison for damaging wildfires ignited by their tools.
AB 1054 created a wildfire fund to pay for hearth damages in an effort to make sure that utilities wouldn’t be rendered bancrupt by having to bear billions of {dollars} in injury prices.
In return, the laws stated government bonus plans for utilities ought to be “structured to promote safety as a priority and to ensure public safety and utility financial stability.”
“All these supposed accountability measures that were put into the bill are turning out to be toothless,” stated Mark Toney, government director of The Utility Reform Community, a shopper advocacy group in San Francisco.
“If executives aren’t feeling a significant reduction in salary when there is a significant increase in wildfire safety incidents,” Toney stated, “then the incentive is gone.”
One of many executives who obtained an elevated money bonus was Adam Umanoff, Edison’s basic counsel.
Umanoff was anticipated to get 85% of his $706,000 wage, or $600,000, as a money bonus as his goal on the 12 months’s starting. The deduction for security failures lowered that bonus, Trakhtenberg stated. However Umanoff’s efficiency on different objectives “was significantly above target” and thus elevated his money bonus to 101% of his wage,
So regardless of the protection failures, Umanoff obtained a money bonus of $717,000, or 19% greater than he was anticipated to obtain.
“If you can just make it up somewhere else,” Toney stated, “the incentive is gone.”
The utility lately informed its traders that AB 1054 will defend it from potential liabilities of billions of {dollars} if its tools is discovered to have sparked the Eaton hearth on Jan. 7, leading to 18 deaths and the destruction of 1000’s of properties and business buildings.
The reason for the blaze, which movies captured igniting below considered one of Edison’s transmission towers, continues to be below investigation. Pizarro has stated the reenergization of an idle transmission line is now a number one concept of what sparked the lethal hearth.
The 2019 laws was handed in a matter of weeks to bolster the monetary well being of the state’s for-profit electrical corporations after the Camp hearth in Butte County, which was brought on by a Pacific Gasoline & Electrical transmission line.
The wildfire destroyed the city of Paradise and killed 85 individuals, and the damages helped push PG&E into chapter 11.
In April, Edison filed its obligatory annual security efficiency metrics report with the Public Utilities Fee because it seeks approval to lift buyer electrical charges by greater than 10% this 12 months.
Within the report, Edison stated that as a result of its security file worsened in 2024 on sure key metrics, its executives took “a total deduction of 18 points” on a 100-point scale utilized in figuring out bonuses.
“Safety and compliance are foundational to SCE, and events such as employee fatalities or serious injuries to the public can result in meaningful deduction or full elimination” of government incentive compensation, the corporate wrote.
Edison didn’t clarify within the report what an 18-point deduction meant to executives in precise greenback phrases, one other level of frustration with shopper advocates making an attempt to find out if government compensation plans genuinely adjust to AB 1054.
“Without seeing dollar figures, it is impossible to ascertain whether a utility’s incentive compensation plan is reasonable,” the Public Advocates Workplace on the state Public Utilities Fee wrote in a 2022 letter to wildfire security regulators.
To attempt to decide how a lot the missed security objectives really impacted the compensation of Edison executives final 12 months, The Occasions checked out a separate federal securities report Edison filed for traders referred to as the proxy assertion.
In that March report, Edison detailed how the vast majority of its compensation to executives relies on its revenue and inventory value appreciation, and never security.
Security helps decide about 50% of the money bonuses paid to executives annually, the report stated. However extra useful are the long-term incentive bonuses, that are paid in shares of inventory and inventory choices and are based mostly on earnings.
The Utility Reform Community, which is also referred to as TURN, pointed to these inventory bonuses in a 2021 letter to regulators the place it questioned whether or not Edison and the state’s different two huge for-profit utilities have been really tying government compensation to security.
“Good financial performance does not necessarily mean that the utility prioritizes safety,” TURN workers wrote within the letter.
Trakhtenberg disagreed, saying the corporate’s “long-term incentives are focused on promoting financial stability.” A key a part of that’s the firm’s potential “over the long term to safely deliver reliable, affordable power,” he stated.
Trakhtenberg famous that the state Workplace of Power Infrastructure Security had authorized the corporate’s government compensation plan in October, saying it met the necessities of AB 1054, in addition to yearly because the company was established in July 2021.
The Occasions requested the vitality security workplace if it audited the utilities’ compensation experiences or tried to find out how a lot cash Edison executives misplaced due to the protection failures.
Sandy Cooney, a spokesman for the company, stated that the workplace had “no statutory authority … to audit executive compensation structures.” He referred the reporter to Edison for data on how a lot government compensation had really declined in greenback quantities due to the missed security objectives.
A committee of Edison board members determines what objectives might be tied to security, Trakhtenberg stated, and whether or not these objectives have been met.
Regardless that 5 contractors died final 12 months whereas engaged on Edison’s electrical system, the committee didn’t embrace contractor security as a objective, in line with the corporate’s paperwork.
And the committee stated the corporate met its objective in defending the general public regardless that three individuals died from its tools and there was a 27% improve in deaths and critical accidents among the many public in comparison with the five-year common.
Trakhtenberg stated a lot of the critical accidents occurred to individuals committing theft or vandalism, which is why the committee stated the objective had been met.
Edison has informed regulators that if its tools begins a catastrophic wildfire, the committee might determine to eradicate executives’ money bonuses.
However the firm’s paperwork present that it hasn’t eradicated and even lowered bonuses for the 2022 Fairview hearth in Riverside County, which killed two individuals, destroyed 22 properties and burned 28,000 acres.
In 2023, investigators blamed Edison’s tools for igniting the fireplace, saying considered one of its conductors got here in touch with a telecommunications cable, creating sparks that fell into vegetation.
Trakhtenberg stated the board’s compensation committee reviewed the circumstances of the fireplace that 12 months and located that the corporate had acted “prudently” in sustaining its tools. The committee determined to not scale back government bonuses for the fireplace, he stated.
In March, the Public Utilities Fee fined Edison $2.2 million for the fireplace, saying it had violated 4 security laws, together with by failing to cooperate with investigators.
Trakhtenberg stated the compensation committee would rethink its determination to not penalize executives for the lethal hearth at its subsequent assembly.
TURN has repeatedly requested regulators to not approve Edison’s compensation plans, detailing how its committee has “undue discretion” in setting objectives after which figuring out whether or not they have been met.
However the vitality security workplace has authorized the plans anyway. Toney stated he believes the accountability for reviewing the compensation plans and utilities’ wildfire security ought to be transferred again to the Public Utilities Fee, which had achieved the work till 2021.
The vitality security workplace has guidelines that make the evaluation course of much less clear than it’s on the fee, he stated.
“The whole process, we feel is rigged heavily in favor of utilities,” he stated.
