Utilities have no incentive to scrap pension plans

Utilities such as Edison that are for-profit companies represent a unique hybrid. Because of their natural monopolies they can pass along pension costs to customers without fear of losing business (unless people want to go without power).

While most other private companies have accepted that pension plans are unsustainable and have switched workers to 401(k) accounts, utilities face no such reckoning. As long as they can offload all financial risk to ratepayers, they can continue providing workers with pensions.

The big question that regulators and ratepayers should be asking at this point is whether recent market setbacks experienced by utility pensions represent an extraordinary circumstance, or whether they're a harbinger of financial squeezes to come.

If the answer is the latter, we should all be prepared for continuing rate hikes to allow utilities to keep their pension promises to workers.

"It would surprise me if these pensions were sustainable," said Patricia Wollan, a professor of finance at Rochester Institute of Technology who focuses on both pensions and utilities. "They're very expensive, and we keep living longer."

Dean, the Edison employee, told me that when he left the utility for a few years to try his hand at a software company, his salary rose by 25%. This illustrates, he said, how relatively low utility salaries are and why pensions are an important part of the compensation package.

That's undoubtedly true. But just because this is how utilities have operated in the past, is it how they should keep operating in the future?

Edison International, parent of Southern California Edison, reported net income of $510 million for its third quarter ended Sept. 30, a 27% jump over the year-earlier period. The company said its utility and its unregulated power-generation subsidiary "delivered solid earnings growth."

In December, Edison said it would raise its annual dividend payout to shareholders to $1.28 a share. The company reports its fourth-quarter earnings Feb. 28.

Seems to me this is a business that can handle employee compensation without exposing ratepayers to pension risks. If Edison and other utilities want to maintain pension plans, fine. Let them do it on their dime.

Chances are, though, they'd follow the lead of other private companies and transition workers to retirement accounts — either all employees or just new ones.

Ratepayers would still be on the hook for the higher salaries that would likely result. But I suspect this would be cheaper over the long haul than having to meet ever-growing pension obligations.

So how do we make such a change?

"Utilities have no incentive to change," Wollan said. "The only way there will be change is if ratepayers get angry."

This week, Gov. Jerry Brown appointed two new faces to the state Public Utilities Commission, including a prominent consumer advocate. Let them and their regulatory colleagues know how you feel by e-mailing public.advisor@cpuc.ca.gov.

David Lazarus' column runs Tuesdays and Fridays. He also can be seen daily on KTLA-TV Channel 5. Send your tips or feedback to david.lazarus@latimes.com

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