Utilities Forge Ties With Minority, Women’s Firms

Deco Utility Supply Corp., a minority-owned company, has been selling utility equipment to San Diego Gas & Electric for more than 10 years. But the firm remains a strong supporter of the utility’s ongoing attempt to find more minority- and women-owned suppliers.

When SDG&E; supports locally owned business, “it is going to help the local businesses grow,” said Deco President Mario Puga. “And that is good for the local economy.”

SDG&E;’s attempt to uncover more women- and minority-owned business enterprises, or WMBEs, is driven in part by the state Public Utilities Commission’s demand that 20% of utilities’ outside services and goods be purchased from minority- and women-owned firms.

But SDG&E; also views purchases from minority- and women-owned firms as making good business sense, because those firms eventually will become larger customers for SDG&E;’s gas and electricity, said SDG&E; Vice President Margot Kyd. In agreements signed during 1988, SDG&E; and the state’s other publicly traded utilities agreed to purchase 5% of certain goods and services from women and 15% from minorities. The levels are stated as “goals” in PUC regulations and there is no penalty should a utility fail to reach the goals.

SDG&E; is on its way toward meeting the state’s suggested purchase levels, Kyd said.

Fourteen percent of the utility’s purchases, excluding some items, such as bulk power purchased from other utilities, involve minority firms, while 9% involve women-owned businesses. MWBE purchases totaled slightly more than $40 million during 1991, Kyd said.

SDG&E;’s MWBE purchases are in stark contrast to the mid-1980s, when less than 10% of SDG&E;’s purchases involved WMBEs.

While utilities attempt to verify that MWBE firms are indeed owned and operated by minorities and women, the PUC has set in motion a somewhat controversial verification process that is operated by a utility-funded clearinghouse.

Some owners of San Diego-based MWBE suppliers have refused to seek verification, claiming that the verification process is too intrusive, according to Anita Valencia, who runs SDG&E;’S minority and women purchasing program. The utility is urging companies to comply with the data requests, Valencia said.

So far, 130 of SDG&E;’S minority- and women-owned suppliers have been verified under the state’s guidelines. SDG&E; is free to do business with firms that aren’t verified by the state but the utility can’t credit purchases from those firms toward its minority- and women-owned purchasing goals.

The clearinghouse was created after utility officials and owners of qualified WMBE firms complained that some businesses that were doing business with utilities were actually front operations for companies not owned by women or minorities.

But the clearinghouse hasn’t uncovered evidence of a dramatic number of fraud cases, according to Angelica Martinez, assistant project director of the clearinghouse that is operated by Cordoba Corp., a privately held, Los Angeles-based company.

Martinez acknowledged that some firms view the screening process as too intrusive. But she maintained that most owners of women- and minority-owned firms agree that screening is needed to ensure that front companies aren’t stealing business from truly qualified firms.

Very few cases of outright fraud have been uncovered--largely because firms that are knowingly engaged in fraud aren’t likely to subject themselves to scrutiny by the clearinghouse, Martinez said. Firms that suspect they won’t pass close scrutiny probably “drop out” of the process, Martinez said.

Cordoba has cleared 5,481 vendors statewide to do business with the state’s gas and electric utilities and telephone companies. That list was culled from 38,145 firms that began the certification process.

Thousands of firms elected not to provide adequate documentation and were dropped from the verification process, Martinez said. Thousands more were firms that had been included on utilities’ WMBE mailing lists but, in reality, were either defunct or were no longer doing business with utilities.

Slightly more than 600 firms have been denied verification, mainly because they failed to provide adequate information about ownership and management roles, Martinez said. About 150 subsequently provided additional information that led Cordoba to reverse its initial rulings, Martinez said.

Only three companies have asked the PUC to reverse Cordoba’s rulings. One decision was reversed, one was sustained and one appeal is pending.

Many of the cases in which Cordoba declined to verify a firm’s status involve family-owned businesses where a wife or matriarch supposedly has a key management and ownership role, Martinez said. Often, the clearinghouse is unable to verify that a woman plays an integral management role, Martinez said.

The clearinghouse also has uncovered companies where a minority or woman employee of a larger firm creates a “spin-off” that never grows to the point where it can exist without strong financial support from the larger company.

“It is often interlocking to the point where the company applying for MWBE status doesn’t really have control of its business destiny,” Martinez said. “It is not truly independent from its mentor.”