DTE executives enjoy incentive bonuses for performance

Oct. 15, 2024  PLYMOUTH VOICE

Plymouth Michigan News

Plymouth area residents weary of DTE’s baseless promises to improve electric reliability are now insulted by gluttonous executive bonuses despite customers suffering from some of the least reliable electricity in the country.

 An all-telling exposé published by MLive details how DTE and Consumers Energy leadership received annual incentive bonuses centered on reliability performance after independent auditors found wide-ranging problems with power grid infrastructure owned by the two utilities and confirmed a pattern of lengthily and widespread power outages.

Michigan utilities criticized for handing out executive bonuses while outages persisted

By: Lucas Smolcic Larson / MLive

During the same years an independent audit of Michigan’s two largest electric utilities faulted them for below-average service and glacial outage restoration times compared to peers in the Midwest, the power companies paid out bonuses to top executives based on that reliability track record.

Though the CEOs and other company officers at the top of DTE Energy and Consumers Energy didn’t receive the full payouts possible every year, utility critics say the companies set the bar too low with the incentives.

“Compensation paid to utility executives can offer a window into the utility’s priorities,” said Karlee Weinmann, a researcher with the Energy and Policy Institute, a national utility watchdog group.

“The fact that DTE and Consumers Energy leadership received bonuses centered around reliability when customers are experiencing outages and insufficient service raises legitimate questions about how serious these utilities are about solving the outage crisis in their service territories,” she said.

Each utility’s top brass receives annual incentive bonuses based on how their companies rank on a variety of predetermined factors, including company earnings, customer satisfaction and reliability performance.

For example, about $897,000 of DTE CEO Jerry Norcia’s nearly $10.3 million in 2023 compensation came from the yearly incentive plan, according to annual company filings with the U.S. Securities and Exchange Commission. Consumers paid out about $1.9 million in annual incentives as part of CEO Garrick Rochow’s $9.6 million in compensation that same year, filings show.

But some utility watchdogs take issue with the companies handing out tens of thousands as part of those bonuses based on reliability performance that lags behind peers in other states.

A recently-released “deep dive” audit of each utilities’ operations commissioned by Michigan regulators in 2022 in the aftermath of widespread outages and frustration with the companies put a spotlight on their worse-than-average performance.

Read more: Frailty of Michigan’s power grid revealed in ‘deep dive’ audit of DTE, Consumers Energy

Take the System Average Interruption Duration Index, or SAIDI, is a measure of how long an average customer experiences power interruptions in a year.

In 2023, both Consumers and DTE rated in the worst-performing quarter of utilities nationwide when major storm events were included in the data and only one step up, in the third quartile, when widespread blackout days were excluded, per the audit.

Yet the performance resulted in an 82.5% bonus payout for DTE executives and an 85% payout for Consumers leadership in 2023 on their reliability incentives based on SAIDI, their annual filings show.

DTE company leadership has missed out on incentives for performance on some reliability metrics, including SAIDI, in recent years, but the payouts issued are still revealing, advocates say.

“It is telling about the utilities’ priorities that they would offer incentives for achieving reliability performance that by the standard of any other state in the Midwest, and really the country in general, would be very poor,” said Amy Bandyk, executive director of the Citizens Utility Board of Michigan, a watchdog group for residential utility customers in the state.

In response to questions from MLive, both utilities issued statements underscoring their commitments to improving electric reliability. The state audit reflected favorably on aspects of those plans, while also raising concerns over their aggressiveness and massive investment levels involved.

DTE remains “laser-focused” on reducing power outages by 30% and cutting outage time in half by 2029, making progress via trimming trees, upgrading equipment, adding automation and rebuilding its grid, said DTE spokesperson Dan Miner.

“Incentive compensation is a proven tool to boost individual and organizational performance,” Miner said. “At DTE, we adhere to the best practices of maximizing the effectiveness of incentive compensation by benchmarking across our industry, selecting metrics that align to our top priorities and setting challenging targets.”

The incentives for DTE’s top executives are funded by shareholders, not customers, he noted.

“Consumers Energy employees, from our CEO to front line workers, all understand the importance of electric reliability for our customers,” said Consumers spokesperson Katie Carey, highlighting $9 billion in electric grid investment as part of the utility’s 2023 “reliability roadmap” to ensure no customer goes more than 24 hours without power.

The company’s compensation model follows a “transparent process” outlined in detail in regulatory filings, she added, and goals relating to customer experience, affordability, employee safety, company culture and environmental protections also factor into incentive pay.

But when it comes to the payouts for executives like chief financial officers and senior vice presidents, who earn seven-figure compensation, some utility advocates take issue with how the two companies structure the bonuses.

The thresholds that trigger the incentives based on reliability metrics that each company chose aren’t in line with what their customers and state regulators expect, Weinmann said, still falling over industry averages.

A MLive comparison of reliability incentives for executives offered by seven other U.S. utilities found DTE and Consumers set the most lax targets of the bunch.

“These chronic and lengthy outages have unfortunately become a fact of life in Michigan, but this is not a problem inherent to the utility industry,” Weinmann said. “In fact, it’s not a serious issue even in neighboring states.”

For some of the executives, the targets to receive the reliability-based bonuses have shifted upward over time.

DTE executives failed to meet company benchmarks for total outage duration by customer, measured by SAIDI, in 2022, with the utility’s 146-minute performance falling above the 137-minute threshold to trigger the bonus, according to SEC filings.

But the next year, DTE raised the threshold to 180 minutes. Though the utility performed worse that year, with a SAIDI of 157 minutes, the executives got an 82.5% payout, contributing to just over 4% of their total bonus in 2023, according to the filings.

The bonus is “shocking but not surprising,” said Brian Geiringer, executive director of Ann Arbor for Public Power, a group advocating for the creation of a municipal electric utility to take over for DTE in the city.

“It is in line with the financial philosophy by which DTE has operated for many years: ensure that shareholders and executives get payouts despite customers suffering from some of the least reliable electricity in the country,” he said. “The recent finding proves yet again why we cannot rely on for-profit companies to regulate themselves: they will always move the goalposts to ensure they’re still getting paid.”

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Link: Michigan utilities criticized for handing out executive bonuses while outages persisted

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