Howard Allen’s Megavolt Merger : Gnawing SDG&E; into submission is only the latest success for Southern California Edison’s tenacious chairman. And he’s not done yet.
From the outset, last summer’s $2-billion bid by SCEcorp to take over San Diego Gas & Electric had the smell of inevitability about it. One reason was the single-mindedness of Howard P. Allen, the 63-year-old chairman, chief executive and president of SCEcorp, the parent of Southern California Edison.
“He’s a little bit like a pit bull,” said William Ahern, one of Allen’s antagonists as head of the public staff division at the California Public Utility Commission.
Allen finally gnawed SDG&E; into submission with Wednesday’s agreement by the San Diego utility to be acquired in a sweetened, $2.4-billion stock swap, subject to what is expected to be a lengthy regulatory review at the state and federal levels.
A one-time professor at Stanford Law School, Allen is credited with turning Edison--and then SCEcorp, the umbrella company he formed above it--into one of the country’s nimblest and most aggressive public utilities.
A string of record profits, successful diversification moves and blunt challenges to regulators have combined to set Edison apart from the sleepy stereotype of a utility company, making it something of a model for others struggling with today’s new competitive climate.
Nor is Allen done. Assuming that the SDG&E; takeover wins state and federal approval, he envisions an eventual move into Mexico to tap that reluctant nation’s plentiful oil and natural gas reserves to make electricity for Southern California.
And he says the unregulated businesses he has formed under SCEcorp’s Mission Group subsidiary could grow dramatically: “Ultimately my subsidiaries might be bigger than my utility . . . way down the line.”
It is the sort of agenda befitting a man variously described as colorful, strong-willed, aggressive, two-faced, funny, smart, egotistical and blunt. Allen demurs. Asked if he is the pit bull of utility executives, he laughs and says:
“Maybe those who appear to be the most aggressive are at the same time the most sensitive and thoughtful in their private deliberations. I have a tendency to be open, candid and brutally frank at times. But I’m quick to weigh other views and change my mind when called for.”
Allen’s July 26 offer for SDG&E; was first resisted by the San Diego utility, which already had an arrangement to merge with a smaller Tucson counterpart and was fiercely guarding its civic franchise. But Dan Pegg, a San Diego civic leader, says he saw the handwriting on the wall after meeting with Allen.
“He was a very personable fellow and was very persuasive in his arguments that SCE’s offer was the best one, but I also sensed that he is a real tough nut and that this SCE thing was not going to go away,” recalled Pegg, president of the city’s Economic Development Corp. “He’s the kind of fellow you wouldn’t want to be on the other side of.”
Matter of Morale
Edison has long nurtured a sense of corporate “family,” and the PUC’s Ahern says that Allen seems to instill loyalty among his 17,000 employees. “When you kick, they kick back,” he said.
But there is apparently a family feud going on. Unions representing 8,000 Edison workers have been picketing company offices for months, complaining of deep cuts in medical and other benefits as part of corporate cost-cutting efforts in the face of record earnings.
RaeSanborn, business manager of Local 47 of the International Brotherhood of Electrical Workers, said employee morale has plummeted under Allen. He has lately been immortalized on fake dollar bills, or “Howie bucks,” which his in-house critics have distributed to show their displeasure over the new benefits packages.
But what is bad news to workers often seems to be good news to the investment community. Among Edison’s many enthusiasts is Anne Prebensen, utility analyst at Donaldson, Lufkin & Jenrette in New York, who is especially complimentary about Allen’s establishment of Mission Energy, now the biggest independent power producer in the United States.
Could Reach 20%
With Mission Energy, Allen moved to turn a problem--state and federal requirements that utilities buy increasingly costly energy from independent firms--into a source of profits. He did this by creating his own independent subsidiary, out of the regulatory reach of the state PUC.
Mission Energy now owns or co-owns five big cogeneration projects in California, including major joint ventures with Texaco and Atlantic Richfield, that produce and sell electricity. It and SCEcorp’s land, financial and engineering subsidiaries--all outside regulators’ purview--contributed 6% of company profits last year. Allen has said that this could reach 20%.
Mission Energy takes business from the smaller, weaker independent power producers whose market was created by government efforts to foster an alternative-energy industry. At the same time, Allen has loudly blamed the expensive energy he must buy from the independent producers for the higher rates his company is charging customers for electricity.
Allen says he is trying to provide cheaper electricity to customers and a fair return to shareholders, within a distasteful market set up by the government. But the producers find his position disingenuous and blast him for talking out of both sides of his mouth.
Similar grumbles were heard when Allen made antitrust noise over a once-planned merger between SDG&E; and Tucson Electric Power, a utility that would almost fit in Edison’s pocket, while dismissing the antitrust implications of the far bigger San Diego-Edison union.
Analyst Prebensen and Allen’s peers say you can’t quarrel with success. They say Allen’s moves reflect a smarter path of diversification than was taken by some other utilities, which have moved into everything from banking to sporting goods with sometimes poor results.
“Other utilities have diversified, but Edison is one of the best at it,” Prebensen said.
Not the Same
Robert M. Ginn, the chairman of Cleveland Electric Illuminating Co., which started a mini-trend in 1986 by acquiring a Toledo, Ohio, utility, called Allen a leader of the industry and one of its best thinkers. In an unfamiliar plaudit for a utility executive, he also compliments Allen’s “offbeat sense of humor.”
In Los Angeles, analyst Steven MacNamara of Bateman Eichler, Hill Richards said:
“The old days, when a utility executive didn’t have to do anything but file for a rate increase every three years, are over. Today, if those companies can’t compete, they can’t survive. Edison and Pacific Gas & Electric (in San Francisco) are setting themselves up the best of any utility in the nation for the future, and all that stems from management. Howard Allen sets the tone of the company. They are aggressive and not afraid to take risks.”
President since 1980 and chairman and chief executive since 1984, Allen has overseen seven consecutive years of record profits, which hit $789 million last year on revenue of $5.5 billion. Though Edison has prospered from the region’s robust economic and population growth, it has also skirted pitfalls and financial debacles that have trapped other utilities, especially in the nuclear arena.
A native of Upland who took a pay cut from the Stanford law faculty to join Edison at $6,000 a year in 1954, Allen today lives in Claremont with his wife, Dixie. They have a grown daughter, Alisa.
Allen is also a fixture in civic and social affairs. He lists more than 70 awards, present and former club memberships and corporate directorships. They include prominent roles with the Los Angeles County Museum of Art, the National Conference of Christians and Jews, the Salvation Army and other groups. He helped organize the Los Angeles Olympics and belongs to the California Club, four country clubs, and the Bohemian and Union Pacific clubs in San Francisco.
Asked whether it is correct that his $750,000 in salary and bonus makes him the highest-paid utility executive in the nation, Allen said, “Actually, I think I’m second.”
