Background on AB 1054

In 2019, California enacted Assembly Bill 1054 to reduce the liability of utilities like Southern California Edison (SCE) for wildfire damage caused by their equipment. This law created a wildfire fund to support utilities financially, aiming to prevent insolvency due to potential fire-related costs.

A notable component of AB 1054 mandates that utility executive pay structures link compensation to safety performance. However, recent reports reveal troubling trends regarding safety incidents at Edison, raising questions about the effectiveness of this accountability measure.

Recent Safety Record

Southern California Edison reported a significant increase in fires initiated by its equipment, jumping from 90 fires in the previous year to 178 in the last year—a 39% rise compared to the five-year average. Alarmingly, serious injuries among employees grew by 56%, while five contractors tragically lost their lives during the same period.

Impact on Executive Compensation

In response to these safety concerns, Edison International announced reductions in executive bonuses. Specifically, planned bonuses for executives were cut by 3% at SCE and 5% at Edison International due to the diminished safety performance, as detailed in a report filed with California regulators.

Nonetheless, an analysis revealed that cash bonuses for four of the top five executives actually increased, with one executive’s bonus rising by as much as 17%. The only exception was Pedro Pizarro, CEO of Edison International, whose bonus was reduced slightly—from 135% to 128% of his salary, resulting in total compensation of $13.8 million.

Criticism from Consumer Advocates

Consumer advocacy groups argue these bonus structures undermine the intended safety accountability of AB 1054. Mark Toney, executive director of The Utility Reform Network, stated, “All these supposed accountability measures that were put into the bill are turning out to be toothless,” highlighting a disconnect between safety performance and executive compensation.

Compensation Structure and Reporting Challenges

Edison’s compensation plans are predominantly based on financial performance metrics rather than safety. While about 50% of cash bonuses are tied to safety, advocates raise concerns over the transparency of how executive compensation is aligned with safety improvements.

The lack of detailed reporting on the dollar impact of safety performance on compensation further complicates this issue. The state’s Public Utilities Commission has acknowledged its inability to audit these compensation structures effectively.

Future Implications and Conclusions

As Southern California Edison prepares to seek approval for a substantial rate increase, it must navigate scrutiny over its safety record and executive compensation practices. Stakeholders and regulators will need to ensure that the intended safety incentivization under AB 1054 is truly effective and proactive.

Given the recent catastrophic fires attributed to Edison’s equipment, accountability mechanisms remain a focal point for both public safety and utility financial stability, necessitating rigorous oversight and reform to ensure genuine alignment between compensation and safety outcomes.