Hawaiian Electric CEO's bonus lacked incentive to cut wildfire risk, documents show

Portland General Electric Co

25/08/2023 12:00

By Tim McLaughlin and Tom Hals
       Aug 25 (Reuters) - Hawaiian Electric’s  HE.N  CEO
received an annual bonus last year tied to profit, worker safety
and bolstering the supply of renewable energy, but not linked
specifically to reducing wildfire risk, according to a Reuters
review of company disclosures.
        The state’s largest utility is being investigated over
its role in the blaze that killed more than 114 people on the
island of Maui earlier this month, the deadliest U.S. wildfire
in a century. The county of Maui on Thursday sued Hawaiian
Electric, accusing it of acting negligently by failing to shut
down electric equipment, which the county said started the fire.
  
    Now, some investors, regulators and power industry analysts
say pay incentives should be tied to cutting risk, a strategy
that could help prevent catastrophic wildfire losses nationwide.
    California utilities, which have also been blamed for deadly
wildfires, have done so, but they are alone.
    “It’s a principle of human nature that people and businesses
follow their incentives, so if we tie executive pay at many
levels of the organization, not just the CEO, to safety and
wildfire safety, then the organization will work harder to meet
those goals,” said consultant Alison Silverstein, a former
adviser to the U.S. Federal Energy Regulatory Commission.    
    No cause has been identified. A class-action lawsuit blames
the Honolulu-based utility company, alleging it failed to shut
off power lines despite warnings that high winds might blow them
down and spark wildfires.
    The utility declined to comment for this story.
    Hawaiian Electric CEO Shelee Kimura received a cash bonus in
2022 based on her performance against 10 measures including
profit and customer satisfaction. Wildfire risk mitigation was
not on the list, according to the utility’s pay disclosures.
    Kimura received 74%, or $337,500, of her potential bonus
award that year – her first as CEO - because she missed seven
out of 10 target goals, according to the disclosures.
    Wildfire risk had been a concern for several years before
the blaze ripped through Lahaina, a historic resort town in
Maui. 
    The Hawaii Wildfire Management Organization identified
Lahaina as a hotspot with recurring fire starts in 2018. "Dry!
Windy! Hot!", the report exclaimed in a description of Lahaina
and nearby areas. 
    U.S. electric utilities in other tinderbox states, including
Idaho, Oregon and Washington, have also not tied compensation to
the performance of utility executives charged with developing
wildfire mitigation plans, according to a Reuters examination of
their company pay disclosures. 
    California is the exception. Deadly conflagrations there in
recent years – including the Camp Fire blaze that killed 86
people in 2018 - have forced investor-owned electric utilities
to link wildfire mitigation efforts to executive pay.  
    San Diego Gas & Electric, a unit of Sempra  SRE.N , pegged
20% of target bonus payouts for 2023 to wildfire mitigation and
33% to other safety measures, according to a plan that received
preliminary state approval this month.
    Hard-hit PG&E  PCG.N  has spent $39 billion over the past
five years on improvements that include wildfire mitigation;
linked its CEO pay to fire preparation; and has seen its share
price soar nearly 40% in the past year from a low suffered in
wake of utility-caused fires in California. 
    “It’s tragic the lessons learned in California have not been
applied everywhere else,” said Michael Cerasoli, portfolio
manager of the TrueShares Eagle Global Renewable Energy Income
Fund.
    That California model, though relatively untested, should be
more broadly adopted at utilities as climate change intensifies
droughts and the frequency of severe windstorms in parts of the
country, according to eight experts and utility investors
interviewed by Reuters.
    “Hawaiian Electric focused on different issues other than
fire safety and has lost almost $3 billion in market
capitalization” since the Maui fire, said Michael Underhill,
chief investment officer at Capital Innovations.
    “If you want certain behavior from utility management you
need to incentivize those behaviors and get regulators to buy-in
to allow a reasonable return on those investments, which is also
good corporate governance,” he said. 
    TURN IT OFF
    To be sure, some CEOs without direct pay incentives for
wildfire management say they are working hard to prevent blazes.
    In Idaho, another state buffeted by severe wildfires this
year after an intense drought, the largest electric utility also
does not explicitly link executive pay to cutting wildfire risk,
according to its latest pay disclosure with the SEC. 
    But Idacorp  IDA.N  Chief Financial Officer Brian Buckham
recently described wildfire mitigation efforts as substantial:
caution is the rule during the dry season, when even the
undercarriage of a utility truck can ignite crackly sage brush. 
    “If the conditions are what we would call risky, we won't
even drive in there with our trucks,” Buckham said at an Aug. 16
investment conference.
    Idacorp declined to comment on its pay practices and how
they relate to wildfire mitigation. 
    Oregon’s big utility Portland General Electric Co  POR.N 
did not return messages seeking comment for this story. 
        Both states have significant fires now, according to
authorities.
    Larry Glazer, a co-founder of Boston’s Mayflower Advisors,
whose $4 billion in managed assets include utility holdings,
said U.S. electricity systems suffer from decades of massive
under investment. The issue is much bigger than Hawaiian
Electric, he said. 
    “You don’t want a wildfire disaster to be the catalyst for a
change in public policy,” said Glazer, who supports linking
executive pay to wildfire mitigation. “But that’s where we are.”

 (Reporting By Tim McLaughlin and Tom Hals; editing by Peter
Henderson, Noeleen Walder,  Rich Valdmanis and Marguerita Choy)
 ((peter.henderson@thomsonreuters.com; 323 251 4827;))