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Edison Offers to Slap Its Own Wrist

Sinners have a natural impulse to regard simple restitution as the proper penalty for their offenses. The burglar offers to return the gilt candlesticks, the shoplifter the handbag, the con man his victim’s life savings.

All’s well -- no need for anything so unpleasant as a fine or, God forbid, prison.

In that vein, Southern California Edison, having revealed that it gave falsified data to the California Public Utilities Commission to claim more than $49 million in performance bonuses -- cash effectively picked from its customers’ pockets -- is offering to return the money.

The unit of Rosemead-based Edison International asserts that the matter should end there, especially given that the company was proactive in bringing the matter to the PUC’s and the public’s attention.

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“We reported our problems, we investigated, we found it, we disclosed it,” says Steven Pickett, Edison’s general counsel, who ran the company’s internal inquiry. He warns that imposing a stiff penalty might create a disincentive to other companies to come clean.

So, is restitution enough?

Edison’s “problems” grew out of a system the PUC implemented in 1997 to induce the utility to meet several operational goals. Each year, the company could receive a bonus of as much as $10 million by scoring well on customer satisfaction surveys, $36 million by cutting the frequency and duration of blackouts and $5 million by holding employee injuries below a certain threshold. Edison could also be penalized for poor performance in each category.

The arrangement is controversial. Many PUC staff members dislike it, partially for reasons that are now obvious.

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“Customer satisfaction and employee safety are matters that any company should want to achieve without a reward,” says Robert Cagen, a PUC attorney who is looking into Edison’s data. Besides, he adds, the system “creates perverse incentives, like the incentive to falsify.”

In Edison’s case, the company disclosed last month that its system to measure injuries was so flawed that it couldn’t document the safety improvements it had been claiming for seven years.

That followed a more embarrassing admission in March, when Edison revealed that some staff members had manipulated records so that a survey firm couldn’t track down people who might give the utility low marks for customer satisfaction. Instead, they steered the firm toward friends whom they knew would provide top ratings.

The company now proposes to return the entire $35 million it claimed for worker safety, along with $14.2 million of its $48 million in bonuses for high customer satisfaction. (It based the latter rebate largely on the finding that the data fudging occurred in only one of the four

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departments covered by the surveys; therefore, the repayment should be about 25% of the total.)

“There’s a significant penalty in giving up a reward that should have been earned,” Pickett says. “It’s a big hit to the company.”

A couple of flaws in this argument stand out. First, it doesn’t seem like a big hit. The proposed $49.2-million repayment comes to seven-hundredths of 1% of the $73.5 billion in revenue that Edison’s parent recorded over the last seven years -- not exactly a blow likely to attract much shareholder attention.

Nor does Edison’s proposal address the management lapses exposed by the scandal. In its internal report on the customer satisfaction numbers, the company blamed the misconduct on supervisory turmoil in the guilty department, as well as on the crushing workload imposed on its members.

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But this sounds like more than a departmental failing: One would think the point of “performance-based” rate making is to ensure, among other things, that top management maintains appropriate staffing levels and avoids supervisory merry-go-rounds.

Finally, mere restitution would hardly drill home the deeper significance of the situation.

Almost all of the information the PUC uses in its work comes from the companies it oversees. The agency’s rulemaking is an enormous edifice built upon the foundation of what PUC Commissioner Geoffrey F. Brown calls “regulatory trust.”

That’s why Rule 1 of the PUC code states that any person transacting business before the commission is assumed to be promising “never to mislead ... by an artifice or false statement of fact or law.” A Rule 1 violation is the worst offense anyone can commit at the PUC, and Edison looks guilty.

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The PUC hasn’t yet placed Edison on its agenda and its staff is still gearing up its own probe. Still, there are hints that the commission won’t let the company skate as easily as it would like.

“There is a sanction for misleading the commission,” Brown says. Consumer groups, meanwhile, have asked for an investigation of how far tacit approval of the cooked numbers reached up the chain of command.

In an internal e-mail after the March disclosure, Edison International Chairman John E. Bryson lectured employees that the affair was a reminder that bad behavior has “far-reaching” consequences.

Yet if Bryson considers simple restitution of $49 million, along with the disciplining of a few low-level workers and supervisors, to be a “far-reaching” consequence of what could be viewed as corporate fraud, one has to wonder if he’s fully alive to the gravity of the case.

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What if the PUC slapped Edison with a fine big enough to spur shareholders to hold Bryson and his executive team

directly accountable for the damage to the company’s credibility? Now that would be a far-reaching consequence.

Golden State appears every Monday and Thursday. You

can reach Michael Hiltzik at

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golden.state@latimes.com.


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