CPUC Building

The executive director of the CPUC's Wildfire Safety Division must find that executive compensation plans filed by investor-owned utilities comply with AB 1054 in order for safety certificates to be issued, but not all are happy with the plans.

Safety practices at investor-owned utilities in California were supposed to have a stronger link to the salaries of their top executives with the passage of AB 1054, wildfire-utility legislation that passed last year. But the plans filed by IOUs with the California Public Utilities Commission are not going over well with public advocacy groups, which say they don't meet the requirements of the new law and are too vague on safety.

Among many widely reported provisions, AB 1054 required incentive compensation structures for utilities to promote and ensure public safety and be based on measurable and enforceable metrics. The bill ordered limits on guaranteed cash compensation, with the primary portion required to be based on the metrics. Approval of the compensation structures is required from the CPUC's Wildfire Safety Division before a "safety certificate" is issued.

Southern California Edison and San Diego Gas & Electric filed their compensation structures with the CPUC in January, but drew strong protest from The Utility Reform Network and the California Environmental Justice Alliance.

The executive compensation plans "do not comply with the requirements of AB 1054 and should be rejected by the WSD," TURN said. The group also said stakeholders were given only nine days to review the plans, and that such a short time frame is not necessary since existing safety certificates will not expire until July.

"The process described in the letter submitted to the utilities is not transparent nor does it provide an opportunity for meaningful participation or accountability," TURN said. "The executive compensation plans were not submitted to the commission in any ongoing proceeding, nor were they presented via advice letter."

SCE's filing, signed by Senior Vice President of Regulatory Affairs and former CPUC member Carla Peterman, laid out the structure of the compensation, how it is determined, and how the program is aligned with CPUC requirements. SCE's Jan. 14 document requested approval of the compensation plans by Jan. 31.

SCE executives are eligible for annual incentive awards for achieving safety, operational, financial and strategic goals established at the beginning of each year, according to the filed plan. The utility's 2020 corporate performance scoring matrix includes goals such as worker safety, reducing public risk from utility infrastructure, reducing risk of catastrophic wildfires, and process improvements related to public-safety power shut-offs, among other operational and financial goals.

In light of wildfires in SCE's service territory, the utility decided that no annual incentive awards would be paid out to the CEO and president for 2018 but said that was not a reflection on their performance. It also reduced incentive compensation for other executives.

"Our compensation policies have been designed to discourage inappropriate risk-taking which further supports stability as emphasized by AB 1054 and helps ensure long-term viability and financial strength needed to effectively execute plans needed to support customer needs and California's policy objectives," the document says.

TURN said that both SCE's and SDG&E's plans fail to provide sufficient information, and do not precisely identify the data points required to assess whether they comply with AB 1054.

"The plans do not adequately prioritize safety and do not ensure public safety," TURN said. "Additionally, the metrics identified by the utilities are, to varying extents, not measurable or enforceable. The failure to identify appropriate metrics is especially alarming given the work that the CPUC has done in recent years to develop appropriate performance metrics for the utilities."

SCE's plan fails to show how the incentive structure promotes and ensures public safety as AB 2014 requires, according to CEJA.

"Rather than deny any compensation if certain events, such as a catastrophic wildfire occur, SCE merely has a committee balance a number of factors to determine the amount of the incentive. As SCE describes, the committee can 'exercise judgment and independently adjust' the incentives." This "unclear" decision-making process is unlikely to result in the type of safety priority intended under AB 1054, CEJA said.

SCE also did not include measurable and enforceable metrics that AB 1054 requires, but included vague metrics such as "reduce risk of public injury" and "reduce risk of catastrophic wildfire," according to CEJA. The group said it is unclear how those metrics could be enforced to result in a reduction of executive compensation, adding that the plans need to be revised.

CEJA said SDG&E's plan better conforms with AB 1054, but there are concerns it still doesn't prioritize safety. Only 10 percent of variable pay elements are wildfire-focused, with others being project-focused. Those elements should be more consistent with AB 1054 and based on performance, not whether measures have been completed, CEJA said. The group asked that the WSD require the plans to be revised to meet the core language and purpose of the statute.

The WSD's evaluation of the filings will indicate how seriously the state takes the link between safety and executive compensation, and exactly how tightly the purse strings might get pulled when it comes to utility-caused wildfires.