Will higher electric bills help pay executive bonuses?
The last time Southern California Edison asked for a rate increase, it overestimated its costs by half a billion dollars—and then funneled $140 million of that “savings” to executives and workers in the form of bonuses and other compensation.
At least that’s how the Division of Ratepayer Advocates tells it in documents filed with the California Public Utilities Commission.
Edison’s latest rate increase request is pending now before state regulators, and could raise residential bills some $8 a month. Consumer advocates fear that money will line executives’ pockets.
In 2009 and 2010, Edison’s actual costs ended up being $502.4 million less than it had predicted, the DRA wrote in a brief filed with state regulators. From that, Edison paid 593 executives, managers and other employees compensation that totaled $139.53 million. A big chunk of that, $24.36 million, went to executives alone, it said.
Edison says this is not an accurate characterization of what happened, and that the money went into maintaining the grid. Now Edison says it must boost rates so it can replace aging infrastructure and business systems, and accommodate load growth, among other things.
Part of Edison’s requested rate hike, says nonprofit consumer advocate TURN, will be used to pay:
- $26 million for executive bonuses,
- $1 billion for software over five years,
- $11 million for creating images of buildings and infrastructure,
- and $7 million for plug-in electric vehicle infrastructure.
“We want to be clear, this is money that is coming right out of customers’ pockets,” said Mindy Spatt, communications director for San Francisco-based TURN.
The debate over how much money Edison really needs to run its business has been raging since 2010, when Edison first opened this general rate case before the PUC—a ritual every three years.
The increases it wants state regulators to approve would take its revenue from $5.4 billion a year to about $6.3 billion for 2012, $6.9 billion for 2013, and $7.4 billion for 2014.
The way critics count it, that’s more than $4 billion in new funds for Edison over the three years. The DRA (an independent branch of the PUC whose charge is to fight for the little guy) and TURNsay that Edison is asking customers to pay far too much.
A decision was supposed to be reached earlier this year, but now isn’t expected until the end of 2012.
Edison On Defensive
Responding to the ratepayer advocate’s numbers on executive bonuses, Edison emailed a statement to The Watchdog saying DRA’s numbers are not a correct characterization of what happened.
Russ Worden, Edison’s director of the general rate case, said the DRA relied on preliminary and incomplete data, and that Edison put the extra money collected from consumers into its electric grid.
As for those bonuses, Worden says the company needs to stay competitive in order to hold onto qualified workers. A total compensation study presented by Edison in its brief to the PUC said that the company’s employee pay is “reasonable,” and that workers are paid at market price, he said.
Stock options and “long-term incentive programs” for executives are new features in the general rate case. Edison has been asking regulators to approve them since 2006, but so far, the answer has been “no.”
This time, Edison wants $19.8 million for long-term incentives, which include non-qualified stock options, restricted stock units and performance shares. All are awarded to executives or to managers immediately below them.
In its brief to state regulators, Edison says that executive compensation consists of base pay, pensions, benefits and short-term and long-term incentives. Of those, long-term incentives make up more than half of executives’ total pay, Edison wrote. And since customers already have to pay for the other parts of executive compensation, they should pay for the long-term incentives as well.
In the big picture, the rate increase will benefit the local economy by generating some 13,000 jobs as it upgrades infrastructure and branches out into new technologies, Edison said. About 10,000 of those will be non-utility jobs, Worden said.
TURN and the ratepayer advocate hope the PUC will continue to say no, given the tight budget most Americans find themselves on nowadays.
More Money, More Improvements
The $7 million TURN says will go toward building infrastructure for electric vehicles in Southern California will be largely for naught, as it isn’t needed and won’t be used, TURN said.
But Edison’s hands are tied by federal regulations, Worden said. Right now, the utility is working with the auto companies to build infrastructure for electric vehicles.
The $11 million TURN says Edison will spend creating images of buildings and infrastructure will actually be used to convert the utility’s paper maps of the electric grid to electronic ones, Worden said. This new virtual system will connect with GPS so Edison can respond to power outages faster.
What it is asking for is fair, Edison says, and if it gets what it wants, customers will continue to pay rates at or below the national average.
But comparing Edison’s rates to the national average just doesn’t cut it, the DRA says in its brief to the PUC: Edison’s residential customers actually pay more than the California average for energy.
Edison customers use less energy than the national average, something the company doesn’t factor in, which makes its cost measurements misleading, the ratepayer advocate writes.
As we said above, if Edison gets the increase it proposed, revenues will total $6.3 billion for 2012. About $3.7 billion of that—60 percent—would cover the cost of investments Edison has already made, and which are in the ground today. Those include transformers, meters, wiring, etc., Worden said.
Mark Pocta, program manager for the DRA, says that no matter how you paint it, the test year, 2012, is almost over and that is not good for the ratepayer.
The first year of every three-year period under the rate increase is designated as the “test year.” Normally, state regulators reach a decision by the beginning of the test year, so new rates can take effect. But now the test year is nearly over, and there is still no decision. That mean’s 2012′s increase will be charged in following years.
This sort of a delay is highly unusual, Potca said. ”It’s going to be a pretty sizable increase (on the ratepayer) because of all these things coming together,” Pocta said.