The state legislation that shielded Southern California Edison and different utilities from legal responsibility for wildfires sparked by their tools got here with a catch: High utility executives can be pressured to take a pay reduce if their firm’s security report declined.
Edison’s security report 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 govt bonuses awarded for the 2024 12 months, it instructed California regulators in an April 1 report.
For Edison Worldwide staff, deliberate govt money bonuses have been reduce by 5%, and executives at Southern California Edison noticed their bonuses shrink by 3%, mentioned Sergey Trakhtenberg, a compensation specialist for the corporate.
However money bonuses for 4 of Edison’s high 5 executives really rose final 12 months, by as a lot as 17%, in keeping with a separate March report by Edison to federal regulators. Their long-term bonuses of inventory and choices, that are way more helpful and never tied to security, additionally rose.
Of the highest 5 executives, solely Pedro Pizarro, chief govt of Edison Worldwide, noticed his money bonus decline. He acquired a money bonus of 128% of his wage reasonably than the deliberate 135% due to the protection failures, the corporate mentioned, for complete compensation together with wage of $13.8 million.
The money bonuses elevated for the opposite high 4 executives regardless of the safety-related deductions due to how they carried out on different duties, mentioned Trakhtenberg, Edison’s director of complete rewards. He mentioned bonuses would have been larger have been it not for safety-related reductions.
“Compensation is structured to advertise security,” Trakhtenberg mentioned, calling it “the principle focus of the corporate.”
Shopper advocates say the truth that bonuses elevated despite the decline in security highlights a flaw in AB 1054, the 2019 legislation that decreased 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 fireplace damages in an effort to make sure that utilities wouldn’t be rendered bancrupt by having to bear billions of {dollars} in harm prices.
In return, the laws mentioned govt bonus plans for utilities needs to be “structured to advertise security as a precedence and to make sure public security and utility monetary stability.”
“All these supposed accountability measures that have been put into the invoice are turning out to be toothless,” mentioned Mark Toney, govt director of The Utility Reform Community, a client advocacy group in San Francisco.
“If executives aren’t feeling a big discount in wage when there’s a important enhance in wildfire security incidents,” Toney mentioned, “then the inducement is gone.”
One of many executives who acquired an elevated money bonus was Adam Umanoff, Edison’s common 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 decreased that bonus, Trakhtenberg mentioned. However Umanoff’s efficiency on different objectives “was considerably above goal” and thus elevated his money bonus to 101% of his wage,
So regardless of the protection failures, Umanoff acquired a money bonus of $717,000, or 19% larger than he was anticipated to obtain.
“In case you can simply make it up some other place,” Toney mentioned, “the inducement is gone.”
The utility just lately instructed 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 fireplace on Jan. 7, leading to 18 deaths and the destruction of 1000’s of properties and industrial buildings.
The reason for the blaze, which movies captured igniting beneath certainly one of Edison’s transmission towers, remains to be beneath investigation. Pizarro has mentioned the reenergization of an idle transmission line is now a number one principle of what sparked the lethal fireplace.
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 fireplace in Butte County, which was attributable to a Pacific Fuel & Electrical transmission line.
The wildfire destroyed the city of Paradise and killed 85 individuals, and the damages helped push PG&E out of business.
On the bill-signing ceremony, Gov. Gavin Newsom touted its language that mentioned utilities couldn’t entry the cash in a brand new state wildfire fund and cap their liabilities from a blaze attributable to their tools until they tied govt compensation to their security efficiency.
In April, Edison filed its obligatory annual security efficiency metrics report with the Public Utilities Fee because it seeks approval to boost buyer electrical charges by greater than 10% this 12 months.
Within the report, Edison mentioned that as a result of its security report worsened in 2024 on sure key metrics, its executives took “a complete deduction of 18 factors” on a 100-point scale utilized in figuring out bonuses.
“Security and compliance are foundational to SCE, and occasions resembling worker fatalities or critical accidents to the general public may end up in significant deduction or full elimination” of govt 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 client advocates making an attempt to find out if govt compensation plans genuinely adjust to AB 1054.
“With out seeing greenback figures, it’s unattainable to determine whether or not a utility’s incentive compensation plan is affordable,” 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 Instances 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 mentioned. However extra helpful are the long-term incentive bonuses, that are paid in shares of inventory and inventory choices and are primarily based on earnings.
The Utility Reform Community, which is often known 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 govt compensation to security.
“Good monetary efficiency doesn’t essentially imply that the utility prioritizes security,” TURN workers wrote within the letter.
Trakhtenberg disagreed, saying the corporate’s “long-term incentives are targeted on selling monetary stability.” A key a part of that’s the firm’s means “over the long run to securely ship dependable, reasonably priced energy,” he mentioned.
Trakhtenberg famous that the state Workplace of Vitality Infrastructure Security had permitted the corporate’s govt compensation plan in October, saying it met the necessities of AB 1054, in addition to yearly for the reason that company was established in July 2021.
The Instances requested the power 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, mentioned that the workplace had “no statutory authority … to audit govt compensation constructions.” He referred the reporter to Edison for data on how a lot govt compensation had really declined in greenback quantities due to the missed security objectives.
A committee of Edison board members determines what objectives will likely be tied to security, Trakhtenberg mentioned, and whether or not these objectives have been met.
Although 5 contractors died final 12 months whereas engaged on Edison’s electrical system, the committee didn’t embrace contractor security as a purpose, in keeping with the corporate’s paperwork.
And the committee mentioned the corporate met its purpose in defending the general public although three individuals died from its tools and there was a 27% enhance in deaths and critical accidents among the many public in comparison with the five-year common.
Trakhtenberg mentioned a lot of the critical accidents occurred to individuals committing theft or vandalism, which is why the committee mentioned the purpose had been met.
Edison has instructed regulators that if its tools begins a catastrophic wildfire, the committee might resolve to remove executives’ money bonuses.
However the firm’s paperwork present that it hasn’t eradicated and even decreased bonuses for the 2022 Fairview fireplace 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 hearth, saying certainly one of its conductors got here in touch with a telecommunications cable, creating sparks that fell into vegetation.
Trakhtenberg mentioned the board’s compensation committee reviewed the circumstances of the hearth that 12 months and located that the corporate had acted “prudently” in sustaining its tools. The committee determined to not scale back govt bonuses for the hearth, he mentioned.
In March, the Public Utilities Fee fined Edison $2.2 million for the hearth, saying it had violated 4 security laws, together with by failing to cooperate with investigators.
Trakhtenberg mentioned the compensation committee would rethink its choice to not penalize executives for the lethal fireplace 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 power security workplace has permitted the plans anyway. Toney mentioned he believes the accountability for reviewing the compensation plans and utilities’ wildfire security needs to be transferred again to the Public Utilities Fee, which had completed the work till 2021.
The power security workplace has guidelines that make the overview course of much less clear than it’s on the fee, he mentioned.
“The entire course of, we really feel is rigged closely in favor of utilities,” he mentioned.
