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Sunday, May 6, 2001

Utility's Workers Watch Helplessly as Company Falls

Energy: Proud engineers and technicians, wincing as the firm is pilloried, blame deregulation rules. Firm was 'dragged into this kicking and screaming,' one says.

By NANCY CLEELAND, Times Staff Writer

There are hundreds of them at Southern California Edison--engineers and technicians hired a generation ago at the height of California's build-and-grow frenzy. Steady Eddies. Methodical thinkers. They designed massive things like nuclear reactors and gas-fired generators and kept electrons flowing over 50,000 square miles of territory. They did their jobs so well that no one ever noticed. For more than 100 years their precise, problem-solving nature defined Edison culture, and distinguished the company as one of the country's most highly regarded utilities. Then came deregulation, which eventually cut the financial guts out of Edison, creating a crisis solvable only by political consensus. For once the engineers were stumped. Mathematical logic no longer served. They lacked the intangibles--the finesse, the gifts of spin and horse-trading--to put their company back together. Today they draw up intricate plans to salvage the company, but the plans go nowhere with regulators and politicians. The world hates and blames Edison, and the engineers cannot understand why. They brandish the truth--Blame a flawed deregulation system, not us!--as if it might redeem them. Yet each week finds them more marginalized. Bewildered, some have been reduced to waiting, with nothing to do but watch their legacy disintegrate. It's a cruel way to end a career that was built on long-term planning and the power of rational thought. "I'd cry if I had any more emotion," says John Ballance, keeper of Edison's transmission and distribution grid for most of the last 32 years. He is a soft-spoken, church-volunteering grandfather with twinkling eyes and a navy blue cardigan. Mr. Rogers with a slide rule. He was hired in the late 1960s straight out of UC Berkeley, where he played clarinet in the marching band. Edison brought him back to his hometown. It was a dream job. Now 53, Ballance still gets excited thinking about the highlights: that hot early summer when he installed six temporary transformers in a weekend to avoid blackouts. That post-earthquake scramble when he guided crews to restore a substation that powered Ventura and Santa Barbara counties. Seven years later, he remembers every detail: 23 lines tripped at 4:17 a.m., all back up by 12:30 p.m. "It was a good day when you had a problem come up that wasn't anticipated but you had a contingency plan for it, and it worked," he says nostalgically. No one anticipated this: Edison on the verge of bankruptcy. And so far, none of the contingency plans has worked. By early January, Edison has had to pay so much money to power wholesalers that it owes several billion dollars and is bleeding nearly $20 million more a day. Each time a customer turns on a light or a computer or a hair dryer, the debt grows. Here's what passes for humor at utility headquarters in suburban Rosemead, 10 miles east of downtown Los Angeles: When you lose money on every kilowatt, you don't make it up in volume. Edison defaults on loans and suspends its dividends for the first time in its history. Creditors threaten to haul it into Bankruptcy Court. Budgets are slashed, and nearly 2,000 employees get pink slips. More than 100 executives work a week for free. "It's very depressing," says Donald Fellows, who once designed power plants and is now reduced to feeding numbers to the state commission that sets utility rates. "Most people go to work for a utility because they have high security needs. You don't find a lot of risk takers here." A large, balding man with a penchant for mirthful sarcasm and a tendency to answer questions by pulling out a calculator, Fellows becomes downright grumpy when talking about his current job: manager of revenues and tariffs. Pure frustration, he huffs. He spends far too much time in hearing rooms, listening to "self-serving drivel" from Edison's many critics and second-guessers, who seem to pass right over the numbers Fellows so meticulously gathers. In his view, state regulators micro-managed Edison into this mess, by forcing it to buy power on the volatile spot market. Wholesale prices exploded, from 3 to 30 cents a kilowatt. Now the people who made the rules are blaming Edison for letting it happen. And getting away with it. "You sit in those hearings and sometimes it's like Alice in Wonderland, the way things get twisted," he says. "You look around and wonder: Did I fall into a trapdoor?" He is just back from a Public Utilities Commission meeting in San Francisco, where he pleads Edison's case for a 30% rate hike. Nothing less will keep the utility solvent, he warns. Consumer advocates are hostile, suspicious. The commission compromises by raising rates about 10%. Edison's stock plunges, at one point losing half its value in a few hours of trading. Credit agencies downgrade its investment rating to just above junk status. Banks suspend corporate credit cards. Fellows, who put in 28 mostly good years at Edison, loses the bonus that was nearly half his salary last year. He looks at his worthless stock options and wonders whether he can still afford that early retirement in May, when he turns 55. And if so, should he take it? Is it right to walk away?

Panicked Retirees Flood Firm With Calls The winter passes in a painful fog of uncertainty across the bland 1970s-era Edison complex, home to 4,000 engineers, lawyers, managers and clerks. Employees keep their heads down, but they cannot escape the crisis. It jumps out from the cafeteria entrance, where a posting advertises brown-bag sessions on resume writing and interview techniques. It startles them every evening at 5, when a too-loud recorded voice warns that power will soon be cut to emergency levels. Television crews camp outside, lining up for live shots every few hours. Employees pray for other breaking news, anything to take them off the front page for a while. Managers cut budgets, look for expendable jobs. Public relations spokesmen set up a SWAT team to deal with all the calls. Jo Ann Goddard, parent company Edison International's vice president for investor relations, fields calls from dozens of panicked retirees. One 80-year-old man, who lost a fourth of his income when dividends were suspended, calls every week for an update. He always takes time to ask how she's holding up. Pam Bass, Southern California Edison's vice president for customer relations, takes flak from angry business owners in the state-regulated "interruptibles" program, which was designed to handle rare emergencies. For weeks now, the businesses have had to shut down several hours a day. Some have lost millions and laid off entire shifts. As the company's value dives, it takes down children's college funds, vacation dreams, early starts on retirement. Yet many engineers are even more troubled by the steep erosion of service. Ballance is close to tears as he guts his construction budget, canceling orders and contracts that were eagerly placed just six months earlier. This was going to be a big year, a chance to fix Edison's aging collection of poles, substations and wires. He hesitates, scarcely believing what he is about to say: "We're knowingly taking on risk. . . . If we get extreme temperatures this summer, only a few pockets out could cause serious problems." Through his office window, he looks out on a trail of hulking transmission towers marching toward the horizon, a solid, sturdy bit of evidence that Edison is still the proud source of power for Southern California. What he doesn't know is that the lines themselves will soon be caught up in the energy debacle.

An Odd Sense of Hope and Mission Along with nail-biting anxiety, January brings an odd sense of hope and mission to Edison headquarters. State and federal legislators are finally paying attention, trying to understand what happened. Auditors are going through the books. Gov. Gray Davis says he will consider a state plan to rescue California's private utilities, but with a daunting pair of parameters--no utility bankruptcies and no rate increases. Edison must analyze hundreds of contract, rate and transmission-cost variables--months of work--within a couple of days. At last the problem solvers have something to sink their teeth into. "I've seen this time and again over the 21 years I've worked here," says an optimistic Charles Basham, who runs Edison's internal Web site and considers himself its unofficial historian. "We work best in a crisis." Corridors that thread past gray cubicles and into wood-paneled executive offices are strangely silent. No gossip around the water coolers. No shrieks of exasperation. Just lots of conference calls and long nights with cold pizza and coffee. Alan J. Fohrer, who helped design the San Onofre nuclear plant, has come back to help. These days he runs Irvine-based Edison Mission Energy, a fast-growing, unregulated sister company to Southern California Edison that owns and operates generating plants around the world. Fohrer's wife is out of town. At dawn he dashes home to Arcadia to wake his kids before they notice he's gone, make their lunches and get them off to school. Then he rushes back for another day of calculations. After 36 hours, Fohrer wears a tentative smile. There is a way--if a series of events falls perfectly in line--to pay off Edison's debts without raising rates. "We have an opportunity," says the 50-year-old executive, laying out all the little pieces. "But we have to move quickly. The problem gets bigger every day." Weeks pass. Fohrer's plan becomes moot because state legislative proposals keep adding demands: Edison must hand over a chunk of company stock. Or all of its prized hydroelectric system. Or its valuable transmission lines. These ideas come and go, almost whimsically, without ever taking solid form. The urgency that once distracted Edison employees dissolves into a numbing sense of powerlessness. Fohrer--intense, serious, focused, a veteran of the 1990s deregulation debate, when he says most of his ideas were ignored--struggles for words to describe his frustration, then finally sputters, "This is silly." He graduated from USC in 1973 with a degree in civil engineering. He dreamed of designing huge, complex structures like oil refineries, and talked to all the major international firms. Then Edison courted him, and Fohrer was charmed. Edison was at the tail end of a five-year hiring binge, ramping up to design and build dozens of new power plants for the fast-growing state. The expansion didn't last long. Inflation hit, raising the cost of construction. The Arab oil embargo struck, straining supplies and making conservation look like a good idea. The Three Mile Island nuclear plant leaked radiation, setting off a fierce antinuclear backlash. Edison built only two generators after 1973. None of that compares to the current mess, says John L. Jurewitz, an economist and Edison's manager of regulatory policy. Like many veterans, he knows precisely when it started: April 1994, when the PUC announced that it was moving to an open retail market. "Starting at that point," Jurewitz says, "we were in damage control mode." Edison executives worked with state legislators to fashion the 1996 state law that became the framework for restructuring. But Ballance, Fohrer, Jurewitz and others directly involved in those talks insist that what they lobbied for was a far cry from what was implemented. They want the world to know that, as Fellows puts it, "the utility was dragged into this kicking and screaming." They highlight passages and fax reports and letters dating back to 1993. But the old papers are dense and complicated. Southern California Edison--big, familiar, accessible--continues to be a target. The engineers shout at the television. They cringe at the morning newspaper. They riffle through their files to find the old documents that will prove their point. But by then it's too late. The media, the politicians, the public have moved from one oversimplified idea to the next. And those consumer advocates! "How do they get coverage so easy just because they sound good?" asks Danny Haberern, an engineer who lost his Illinois railroad job when the line went bankrupt, then fled to a "safe," regulated utility. He's now district supervisor in Edison's Montebello center. "I don't get it." Edison is getting bundles of hate mail. Edison is the butt of shock radio programs. Edison employees are being snubbed at their children's basketball games. It's not our fault, they say, a little too desperately. We never wanted to sell our power plants. We asked for long-term contracts four years ago. We pleaded for a rate hike in December. When we ran the system, it never failed. Facing the new market, Edison slashed its staff through a series of layoffs and voluntary retirements in the mid-1990s. In 1998, to comply with deregulation, it sold 12 gas-fired power plants and bought the electricity back through a state-supervised market where prices fluctuate daily. Other retailers are invited to jump in and compete, but retail competition never materializes in force, and prices do not drop, they soar. By last December, it is clear that the market is dysfunctional. Under the deregulation law, Edison cannot respond by raising rates. By the end of the year, the utility is out of cash and comes within a filament of cutting power to customers. Back in the old days, John Ballance could make a troubled generator continue running if the grid needed juice. He could get on the phone and tell the manager, "You'll just have to hang on for a few hours, until we get past the peak." And it would happen. Now those same plants go offline whenever the new owners say, and all the begging in the world won't bring them back. In February an international energy firm, PA Management Group, names Edison the most reliable utility in the Western region, based on 1999 figures. The veterans chuckle. They know it will be many years before Edison is lauded for reliability again. They try not to think about it, gathered in the cafeteria, graying heads bent over the tortilla soup. "It used to be something to be proud of, to work for the utility," says John R. Fielder, 56, a senior vice president for regulation, who once directed Edison's information technology team. "There was an ethic and an attitude, being good citizens, financially healthy, part of the communities we serve," he says. "Now people don't understand. They wonder, 'How did you let this happen? Who's going to get fired?' It's just destroying the whole fabric of the place." Ballance leaves for a long-planned family vacation, to visit his new grandchild in Massachusetts. "I wonder if I'll have a job to come back to," he says. He checks the Internet for news every morning and night, and draws a blank. It's only after his return that Ballance learns the state will buy Edison's transmission grid--half of his job--in exchange for a "bailout." The federal government won't let it happen, he says. Besides, it makes no sense. "I fail to see what the state or customers are going to actually get for all of this," Ballance says, hours after Gov. Gray Davis announces a tentative deal for the wires in late February. "I just don't understand the rationale, when it seems to me that there's a fairly simple solution, and that is to raise the rates of electricity." In March, saturated with frustration, Fellows decides to take that early retirement. He will move to central Oregon with his wife, his mother and his 28-year-old paraplegic son. He will play golf and try to forget about California's new, deregulated world. "It's hard," he says. "You almost feel like you're abandoning the place. I've wrestled with that for a while. But my wife wants to go, and I've come to the conclusion that I'm probably not indispensable after all." He stays around long enough to watch California's other struggling utility, Pacific Gas & Electric, file for bankruptcy protection. It happens April 6, a Friday. On Saturday, members of Fellows' staff work through the night, gathering numbers for a final deal with the state, which Davis unveils with great fanfare Monday. Already disengaged, watching from an emotional distance, Fellows pronounces the deal DOA; the Legislature won't approve it. His voice is uncharacteristically unburdened. This is no longer his problem.

Edison Timeline 1886: The forerunners of Southern California Edison, small independent power companies, bring electric lighting to Southern California. Dec. 1897: West Side Lighting Co., and Los Angeles Edison Electric Co. merge to form Edison Electric Co. of Los Angeles. Feb. 1899: The Santa Ana River line goes online, moving 33,000 volts a distance of 83 miles, the highest-voltage, longest transmission line in the country. 1901: Edison buys small, high-risk electric companies to create a stable regional system. July 1909: The company changes its name to Southern California Edison. 1911: The Public Utilities Commission is formed to regulate rates and monitor corporate finance, quality of service, consolidation and franchising. May 1917: Edison purchases the Pacific Light & Power Corp., including its huge hydroelectric plant at Big Creek, above, in the Sierra Nevada. The acquisition doubles Edison's assets. May 1922: Under pressure from local government, Edison sells Los Angeles distribution system to the Los Angeles City Council. 1933-38: Edison avoids large-scale layoffs during the Depression by lowering salaries for management and cutting the work week from six days to five. 1941: California's coastal regions are blacked out during parts of World War II. 1947-80: As Edison's service area grows by 1,000 people a week, the utility doubles output at Big Creek and builds 10 new power plants. 1957: Edison becomes the first investor-owned utility to generate non-military nuclear power, at Santa Susana Experimental Station. Jan. 1968: Edison powers up Unit One at the San Onofre Nuclear Generating Station, above, a joint project between Edison (80%) and San Diego Gas & Electric Co. (20%). Early 1970s: Edison abandons promotional advertising in favor of conservation messages. 1982: Edison begins operation of Solar One, the nation's first commercial solar-thermal plant. 1994: The Public Utilities Commission recommends retail competition in the electric utility industry. Edison stock plunges. Jan. 1996: Edison International is incorporated, with Southern California Edison as a subsidiary. Sept. 1996: California's Assembly Bill 1890, the framework for deregulation, becomes law. 1997: In compliance with deregulation, Southern California Edison sells 12 plants. March 1998: Deregulation of California's electric power industry takes effect. * * * About This Series

Times staff writer Nancy Cleeland spent three months inside Southern California Edison, watching the toll on the company's engineers, linemen and executives as they grappled with the state's electrical power crisis.

Today: Engineers, raised in a culture of logic, find their traditional formulas can't solve the politically charged power crisis.

Monday: Linemen, the field hands proud of their ability to restore customers' power, are stunned when a budget crisis forces them to leave some people in the dark.

Tuesday: The CEO of Edison's parent company had lived a charmed life in business and government--until now.

Copyright 2001 Los Angeles Times Fair Use for Educational and Research Purposes Only

-- Robert Riggs (rxr.999@worldnet.att.net), May 06, 2001