Full Title: Pollution Payday: Analysis of Executive Compensation and Incentives of the Largest U.S. Investor-Owned Utilities
Author(s): David Anderson, Matt Kasper, David Pomerantz, Kelly Roache, Alissa Jean Schafer, Joe Smyth, Daniel Tait, and Itai Vardi
Publisher(s): Energy Policy and Institute
Publication Date: September 22, 2020
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Description (excerpt):
While the coronavirus pandemic has devastated the U.S. economy, leaving millions of Americans struggling to afford their utility bills, the top executives for those utilities continue breaking their own records for executive compensation every year.
The Energy and Policy Institute analyzed the executive compensation policies and practices of 19 of the largest investor-owned electric utilities throughout the United States. In addition to identifying trends across utilities, this report provides company-level profiles on the executive compensation policies of each of the utilities included in our research. The authors found that CEO compensation at these 19 companies totaled over $764 million between 2017 and 2019, with the highest-paid CEO in the group, Southern Company’s Thomas A. Fanning, receiving nearly $28 million in 2019. The ratio of Duke Energy CEO Lynn J. Good’s pay to that of an average employee of her company reached 175:1 in 2017 – the highest of any utility for a single year in the same three-year period. Investor-owned utilities have argued publicly and to policymakers that they must continue disconnecting customers who have been unable to pay their electric or gas bills. If they don’t have the threat of disconnections, the companies say, they will have to raise rates on other customers to cover the arrearages of those who can’t pay.
But the data in this report show that investor-owned utilities have large pots of executive compensation from which they can draw before turning to rate increases. If Southern Company’s Fanning took just a 32% compensation cut from his 2019 amount – still leaving him with a compensation of $19 million – Southern could use the savings to immediately wipe out the debt of every single Georgia Power customer that was over 90 days in arrears on their bills as of the end of July 2020. Instead, Georgia Power disconnected 13,000 customers in July, starting when regulators allowed a state moratorium on disconnections to expire on July 14. (Of course, Southern could also choose to avoid both disconnecting customers and rate increase requests by tapping into a small percentage of the billions of dollars in corporate profits that it netted in 2019.)
Out-of-control executive pay is not unique to the utility sector. Theories of corporate compensation as “rent extraction” – enriching executives, rather than producing shareholder value – have gained traction, advanced by scholars like Lucian Arye Bebchuk and Jesse M. Fried, as income inequality has skyrocketed in America. But executive compensation at investor-owned utilities deserves extra attention for several reasons.