Edison Scam Was Broader Than Disclosed
A scheme that helped Southern California Edison hide poor service and win $28 million in bonuses by rigging customer surveys was carried out by far more employees and stretched higher into the management ranks than the utility has publicly disclosed.
When the Rosemead-based company went public March 15 with the fraud, it said only that “at least 12 employees” of the service planning department -- none of them managers -- falsified the phone numbers of unhappy customers to make sure they couldn’t be interviewed by customer satisfaction surveyors.
But Edison had admitted to regulators a week earlier that two supervisors had participated in the scam and that other managers “may have given the impression that such conduct would be tolerated,” according to a closed-door presentation the company made to the California Public Utilities Commission before the company issued its press release.
Moreover, current and former employees of the service planning department say the scam was pervasive, driven by chronic understaffing and intense pressure to doctor survey results so the utility wouldn’t incur service penalties and so bosses could pocket bonuses.
“Upper management knew about it, and they could have done something about it, and they didn’t,” said a person who spent years in the planning department but didn’t want to be identified.
The extent and circumstances of the deception raise questions about Edison’s staffing and service, about the reliability of data the utility gives to regulators and about the culpability of several layers of managers who employees say have been aware of the issue for years.
At the state PUC, which plans to launch an investigation into the scandal, Edison could be on the hook for millions of dollars in refunds and penalties. The company also could see its pending rate increases reduced. And the customer survey affair has cast doubt on the utility’s bonus policies and the state’s incentives to motivate regulated companies to provide good service -- an arrangement believed to have fueled the cheating at Edison.
“This falsification of data affects a number of different proceedings, proceedings that don’t exist yet and investigations and so on,” said Robert Cagen, a PUC attorney who wants the commission to make the pending Edison rate increases subject to refund if other problems are uncovered.
Edison’s rate plan, for example, leaves intact existing compensation and bonus plans, Cagen said. “We don’t want compensation that leads to this,” he said.
Officials at Southern California Edison, a subsidiary of Edison International, rebuffed detailed questions about the scam and the status of its probe.
“When the internal investigation is complete and after we have met with the CPUC, we will be able to answer additional questions about this matter,” spokesman Gil Alexander said.
The company said in its press release in March that it might have to return to ratepayers some or all of the $28 million it was awarded in customer satisfaction bonuses from 1997 to 2000 and might have to recalculate or abandon requests for an additional $20 million for 2001 through 2003.
But on Friday, in a meeting with regulators, Edison proposed instead returning $12 million, or 25% of the $48 million in past and pending bonuses. The utility argued that a $12-million refund would erase all its planning-related rewards.
The scam behind the bonuses was simple.
In one of the most common tactics, employees merely erased the phone numbers of dissatisfied customers from a database that was shared with the survey firm, Maritz Inc. The surveyors used the lists to randomly call and interview clients about the utility’s performance.
At other times, employees made customers unreachable by changing the area code, transposing digits or replacing real phone numbers with fake ones.
“People were playing with the numbers all the time,” said an employee in the planning department who didn’t want to be identified for fear of losing his job.
Such methods were so widespread that in one five-month period, 79% of one group’s customer phone numbers were invalid or otherwise unusable, according to a Maritz report obtained by The Times. Maritz sent the report to Edison supervisors in 2002.
Edison told regulators Friday that at least one-third of the phone numbers sent to Maritz from the planning department were invalid, compared with 4% to 5% in other divisions.
Inside the department, employees found it was not enough to eliminate potentially negative customers from the surveys. They also needed great scores from the customers who were interviewed.
To pull that off, some staff members would delete customers’ phone numbers and substitute their own. Or they would use the number of a co-worker, relative or customer they knew would give the company a glowing review, according to current and former employees of the planning department.
Under the PUC’s “performance-based rate-making” program, outside surveyors would ask customers to rate Edison’s service, on a scale of 1 to 5+, in four categories: planning, phone center, field delivery and business offices.
In the program’s early years, from 1997 to 2001, Edison could earn up to $10 million if it scored a 5 or 5+ with customers at least 68% of the time. Penalties of up to $10 million could be assessed if the top scores were received less than 60% of the time.
The hurdle for rewards was raised to 73% and penalties kicked in at 65% in 2002 and 2003. Similar PUC incentive programs were aimed at the utility’s employee safety record and the reliability of its electricity service, but Edison said it has found no evidence of fraud in those areas.
To underscore the importance of the performance rewards Edison established an internal bonus system that included variable payouts to executives, supervisors and managers that were based on meeting customer survey goals, among other things.
In the utility’s service planning department, which works with commercial and residential customers who need new or expanded electrical service, the survey became an obsession, according to people who were there when the program started.
“If you got anything less than a 5 or a 5+, it wasn’t good enough,” a former planning department employee said.
A banner at the company screamed “5+ IS A MUST” and monthly reports circulated throughout the department listing survey scores by district and by employee. A staff member who didn’t get a 5 or better from all his customers could be reprimanded, threatened or asked to write an “action plan” to improve his scores, current and former planning employees said.
Things got worse after the department was reorganized and experienced workers took early retirement. Smaller, less experienced staffs led to delays, mistakes and angry customers.
Repeat customers, like contractors, caught on fast.
A contractor would say, “Listen, you get a customer who’s not happy, give them my number and I’ll give you a good score,” said one of the former department employees. In return, those contractors asked employees to put work on their projects ahead of others.
At least two supervisors compiled a “5+ Customer List” that included customers who had given Edison top grades in the past or who had agreed to provide a favorable review, according to several former staffers. Employees were told to replace the phone numbers of unsatisfied customers with numbers from those lists.
In March 2003, an unidentified whistle-blower from the public affairs group sent a letter describing the survey gaming to a senior Edison executive. The utility launched an internal audit, which in June reported that although there was a high rate of invalid phone numbers, it was caused by “data input problems” and software issues rather than intentional gaming, according to Edison’s PUC presentation.
A second whistle-blower letter arrived five months later. It accused company officials of “dragging their feet” and claimed that executives “at the highest management level” of the department knew about the scam.
In March, the company told regulators that it had interviewed more than 200 people and had granted immunity from discipline to four people to get more information. On Friday, Edison told regulators that it couldn’t trace some methods used by employees to skew the surveys, but that it nonetheless had documented misconduct by 32 employees, and 70 others had been found to have “unexplained customer contact information.”
Insiders say the company fired three or four employees from the planning group. Edison assured the PUC on Friday that more discipline was imminent.
Said one former department staffer: “If you fire everybody who changed a number or made sure somebody didn’t get surveyed, you may lose 60% of your staff.”
