20. Assignment of Proceeding
Michael R. Peevey is the assigned Commissioner and Robert Barnett is the assigned Administrative Law Judge in this proceeding.
21. Explanation of Changes Made to the POD
Pursuant to Pub. Util. Code § 1701.2(a)
By law we are required to explain each of the changes made to the POD. (Pub. Util. Code § 1701.2(a).)
In reaching our decision, we have deviated from the administrative law judge's POD in two key respects. First, we conclude that the portion of SCE's 2003 to 2005 revenue requirement related to the utility's Results Sharing program that was affected by fraudulent data, and that SCE should refund, is $32,714,000, whereas the POD concluded that the amount that should be refunded is $76,663,200. We reached our conclusion by determining the portion of the 1999 and 2000 Results Sharing payouts that were based on fraudulent or unreliable customer satisfaction and health and safety data in the TDBU, CSBU, and Generation business units. We do not require any refund of the revenue requirement associated with the business units that did not have customer satisfaction or safety goals, and we do not require any refund of the revenue requirement associated with TDBU, CSBU, and Generation that was unrelated to customer satisfaction and health and safety. The POD, on the other hand, determined that the refund should be 40% of the entire Results Sharing forecast, where 40% is the portion of TDBU's Results Sharing payout in 2000 associated with customer satisfaction and health and safety.
Second, we order SCE to pay a fine of $30 million for violations of the Public Utilities Code, whereas the POD ordered a fine of $40 million. In reaching our conclusion we took into account the severity of SCE's violations, Commission precedent, and SCE's cooperation and concluded that $30 million is an appropriate fine.
1. On March 11, 2003, an SCE senior vice president received an anonymous letter alleging that planners were manipulating the customer satisfaction survey process by providing erroneous customer contact numbers to the survey company, and that this manipulation of data resulted in inaccurate customer survey results. The letter further asserted that management was aware of this misconduct.
2. On November 4, 2003, the senior vice president received a second anonymous letter alleging manipulation of customer contact data provided to the survey company. This letter made more serious allegations, asserting that SCE managers had implicitly directed planners to incorrectly enter customer contact telephone numbers or to use the telephone number of a friendly contact, rather than a primary contact. This second anonymous letter alleged that high-level directors and executives were aware of the misconduct.
3. On March 8, 2004, SCE voluntarily met with the Commission's General Counsel to notify the Commission of its initial findings and SCE's continuing investigation.
4. On March 15, 2004, SCE sent a letter to the Commission President Michael R. Peevey advising him of the ongoing investigation.
5. SCE produced three investigation reports and provided the reports to Commission staff as soon as they were completed. SCE's PBR Customer Satisfaction Investigation Report is dated June 25, 2004; SCE's PBR Illness and Injury Record Keeping Investigation Report is dated December 3, 2004; and SCE's PBR System Reliability Investigation Report is dated February 28, 2005.
6. SCE's planners perform the distribution engineering and design work for customer electrical needs. A service planner's typical duties include determining what is required for new or upgraded service, defining the needed materials and labor, and ensuring that both regulatory and electrical service requirements are met (including the applicable General Orders of the Commission, SCE standards, and local codes and ordinances). Planners act as the project managers for the design of customer electrical facilities, including providing status reports and clarifying issues that arise during the work.
7. Maritz Research (Maritz), an independent survey company, performed telephone surveys for SCE 10 months a year. Twice a month, after Maritz completed its quota of surveys it provided SCE with the survey responses, including a summary of scores, as well as a summary of actual comments made by customers.
8. Maritz asked SCE customers to rank the service they received from SCE on a scale from one to five-plus.
9. SCE Planners used various tactics to try and elicit positive surveys from customers including distributing collateral materials with slogans such as "5+ Customer Satisfaction"; advising customers that they may be surveyed and explaining the survey scale; telling customers that they hoped they had provided 5+ level of service and that they would receive a 5+ survey score; and indicating to customers that a score less than a 5 would not count, would be a failing score, or might lead to disciplinary action taken against the planner. These tactics are referred to as "selling" the survey.
10. SCE management approved of efforts in Planning to sell the survey.
11. SCE's management directed employees to aggressively sell the survey in ways that violated appropriate survey techniques. Employees accomplished this by requesting from the customer a 5 or 5+ survey result. SCE's management authorized planners to tell customers that any grade less than a 5 or a 5+ was a failure or did not count.
12. SCE management played a key role in selling the survey.
13. SCE's management required its planners to sell the survey at every point of contact with its customers. Planners were instructed to mention the 5+ survey score at each point of contact with customers.
14. Planners were told that some of the techniques approved by management for selling customers on completing service surveys with a 5+ rating were:
a. If you are meeting with the customer who is going to be surveyed, tell them the survey is about the planners service and that anything less than a 5/5+ is the same as a zero. This should be explained at the beginning and again at the completion of the project.
b. Find the right person to put on the work order. Negotiate with the customer.
c. If there is any question that the customer is not going to give a 5/5+, do not put him on the work order.
d. With meter orders, which do not require a customer contact telephone number, some planners deliberately removed or failed to input customer contact information into the appropriate customer contact field.
e. Some planners entered letters in the customer contact field instead of numbers.
f. Some planners scrambled the digits of a customer contact number or entered random digits in the customer contact field.
g. Some planners transposed the last digits of a customer contact number. Several employees who engaged in this practice marked a transposed contact number by entering a "99" or "98" in the extension field.
h. Some planners substituted an unrelated telephone number for legitimate customer contact information. Several employees who engaged in this practice utilized a 5+ Customer List, inserted their own cell, office, or home telephone number, or inserted the contact information of other SCE employees or their own family members.
15. Planners knew the criteria which would cause Maritz to reject a number and they used that knowledge extensively.
16. Data manipulation and falsification were pervasive throughout the Design Organization and most, if not all, district offices. The evidence is overwhelming that management knew of the manipulation and falsification.
17. The number of planners prior to the 1996 retirement offer is estimated to be about 250. While SCE only had 116 planners in 1997, the number climbed to 162 in 1998, 188 in 1999, and 207 in 2000. Following a dip to 175 planners in the energy crisis year of 2001, Planning staffing levels increased steadily to 202 in 2002, 288 in 2003, and 296 in 2004.
18. During the period 1997-2003, senior management knew or should have known:
a. In 1996 SCE's retirement program caused massive personnel cuts of experienced planners.
b. In 1997 SCE had a minimal training program to replace the large numbers of planners who retired.
c. From 1997 through 2003 SCE hired technically unqualified planners primarily for their communication skills.
d. Planning offices during the period 1997-2003 were understaffed with competent, experienced planners.
e. During 2001, SCE and its customers suffered through the California electric crisis, with SCE experiencing a financial crisis. The financial crisis caused SCE to again cut costs (e.g., SCE stopped using contract planners).
f. During the period 1997-2003 many planners were improperly selling the survey.
g. During the period 1997-2003 many planners were improperly manipulating customer contact telephone numbers to prevent unfavorable comments.
h. During the period 1997-2003 survey results were rising to exceed benchmarks set based on pre-1996 standards when planner staffing was adequate and technically competent.
19. Management's emphasis on customer satisfaction survey results intended to convey to planners the message that falsification and manipulation of survey data was acceptable.
20. For seven years, some management actively encouraged employees to manipulate survey data, and senior management, who knew or should have known that the data was suspect, filed for, and received, PBR awards.
21. The data falsification and data manipulation that occurred in Planning had a material impact on the survey results, and thus, on PBR.
22. Customer satisfaction results increased by 20% to 30% during 1997-2000, from pre-1997 levels, and were higher than pre-1997 levels from 2001-2003, despite a 50% reduction in experienced planners in 1996; despite gradual increases of inexperienced planners from 1997 through 2001 (planners who were expected to learn on the job after a short training period); despite a substantial increase in business 1997-2003; and despite understaffing in numerous district offices.
23. The base level of performance was determined when SCE had a full complement of experienced planners. The evidence shows a 20%-30% increase in customer satisfaction after half of the experienced planners retired and were slowly replaced by inexperienced people handling an increased workload. The increase in customer satisfaction survey results was caused by employee falsification and manipulation encouraged by management.
24. With the personnel and workload problems endemic to SCE during the PBR period, the explanation for increased customer satisfaction scores is the widespread manipulation and fabrication of data.
25. From 1997 through 2003, SCE employees manipulated and skewed survey results, artificially inflated survey outcomes, and received PBR rewards. SCE had no legitimate reason to request customers for high survey scores. Maritz, the independent survey company, was solely responsible to explain the survey and its scale to customers it surveyed.
26. Selling the survey resulted in an upward bias in customer satisfaction survey results.
27. Dr. Morrison's field test, conducted in 2006, well after the events at issue, did not replicate the situation as it was in the years 1997-2003.
28. Both the Maritz survey and the Morrison survey are invalid: Maritz, because it is the result of SCE employees' manipulation and fabrication of data; and Morrison's, because it did not replicate the circumstances of 1997-2003.
29. There was no practical way to monitor meter readers to ensure they were properly recording every single positive, neutral, and negative customer contact. A meter reader who had a negative customer contact could keep that customer out of the pool of potential survey participants. Because of this limitation, SCE should refund the entire $2.4 million of the customer satisfaction rewards attributable to meter reading results.
30. All Phone Center employees were sent scripts where customers would be told the customer satisfaction score that SCE desired before the customers had been surveyed: Selling the survey in this manner is inappropriate and had an improper affect on the customer satisfaction measurements.
31. This record has sufficient evidence to determine the entire scope of PBR customer satisfaction awards. The issue has been thoroughly briefed by the parties.
32. SCE should refund $28.0 million with interest and forgo $20 million due to data falsification and manipulation of the customer satisfaction survey results. Because of extensive problems with SCE's survey process a full refund of all PBR rewards earned during this period is appropriate. It is reasonable to conclude that selling the survey, falsifying customer contact information, and employee discretion over choice of customer contacts had a substantial impact on customer satisfaction data and therefore affected all customer satisfaction awards.
33. The PBR Employee Health and Safety Incentive Mechanism standard was based on data collected from 1987-1993 for four categories of injury and illnesses incidents: (1) first aid incidents; (2) non-lost time, (3) restricted duty, and (4) lost time. These last three categories all constitute the California Division of Occupational Safety and Health (OSHA) recordable incidents. PBR awards for the Employee Health and Safety component is based on the sum of first aid incidents and OSHA recordable incidents.
34. SCE's health and safety PBR baseline was based on a recordkeeping process that did not capture all first aid incidents during the period from 1987-1993.
35. SCE's pre-PBR records for first aid incidents, from which the historical data were drawn to establish the PBR benchmark, were not comprehensive. This obstacle to accurate reporting of all first aid incidents carried over to the PBR mechanism. With the adoption of the PBR mechanism, SCE did not undertake the review of the existing system that might have revealed this flaw.
36. Accurately monitoring first aid data has a direct bearing on health and safety in the workplace. There is a relationship between near misses, first aid incidents, more serious injuries, and a fatality. Near misses, first aid incidents, and other data related to minor injuries are informative in terms of preventing major injuries; collecting data on such minor injuries improves health and safety outcomes.
37. In January 2000, SCE conducted a review of SONG's OSHA recordkeeping for 1999. In February 2000, it issued a draft report "finding that, out of approximately 100 internally reported injuries, 30 had been incorrectly classified for OSHA purposes. This number included 13 injuries that should have been classified as recordable, rather than non-recordable." A 30% misclassification is substantial.
38. Supervisors discouraged employees from reporting injuries and advised or tolerated the use of various methods to avoid reporting OSHA recordable incidents. Among the methods used to disguise injuries and avoid internal reporting were: employee self-treatment; treatment by personal physicians rather than the company doctor; timecard coding of lost time as sick days or vacation; etc.
39. SCE's failure to adequately collect first aid incidents and OSHA recordables significantly impacted the PBR health and safety results.
40. The PBR health and safety metric was based on first aid incident and OSHA recordable data that was not reliable; as a result, underreporting of first aid incidents occurred. This influenced both the setting of the benchmark and the results that were reported to the Commission. SCE has proposed to refund to ratepayers the $20 million it has collected for 1997-2000, with interest, and to withdraw its pending advice letter requests and forgo $15 million in health and safety rewards for 2001-2003.
41. For seven years during which time SCE collected or requested PBR health and safety awards, SCE's own internal auditors knew of problems with both first aid reporting and OSHA recordable reporting.
42. SCE should have known what was considered to be a first aid for the purposes of PBR. The regulations are explicit and are easily available. They should be known to any company official that needs to report OSHA recordables. That official must determine what is properly classified as first aid and what should be classified as an OSHA recordable in order to correctly report to OSHA.
43. SCE management knew about the problems with the collection of first aid data, but failed to implement timely changes to correct those problems, or modify the metric. Yet management continued to request and receive PBR awards.
44. SCE has an incentive pay plan called the Results Sharing program, established in 1995. This program links compensation to employees' annual job performance, business unit performance, and company performance. All full-time employees in the Transmission and Distribution Business Unit (TDBU), Customer Service Business Unit (CSBU), Generation, Shared Services, and IT business units are eligible to earn a cash bonus based on team (business unit or department) and SCE performance measured against stated goals. Included in the performance standards for Results Sharing were customer satisfaction performance and health and safety performance.
45. Decision 04-07-022 makes subject to refund "any affected revenue requirement" shown to be associated with the customer satisfaction data falsification investigation.
46. The Order Instituting Investigation specifies an investigation into PBR rates and other rates subject to refund, which includes the revenue requirement associated with Results Sharing.
47. The Commission relied upon SCE's 1999 and 2000 Results Sharing payouts to determine a forecast for 2003, 2004, and 2005, and the Commission authorized a revenue requirement for SCE based on this forecast.
48. The tainted data that was used to determine whether SCE would receive a PBR penalty or reward under the customer satisfaction incentive mechanism was also used by SCE to determine Results Sharing payouts in 1999 and 2000 for the Transmission and Distribution Business Unit (TDBU) and Customer Service Business Unit (CSBU).
49. TDBU's, CSBU's, and the Generation Business Unit's portions of the Results Sharing bonuses in 1999 and 2000 relied on some of the same problematic health and safety data that was used to determine PBR rewards.
50. The Results Sharing customer satisfaction results for TDBU were determined by averaging three "areas of responsibility" and because data in one area was tainted in 1999 and 2000, TDBU's entire customer satisfaction Results Sharing results in 1999 and 2000 were tainted.
51. TDBU's share of the total Results Sharing amount authorized for test year 2003 was $24,536,000, and the rates went into effect May 22, 2003, so the pro rata portion of the revenue requirement for 2003 was $14,997,000.
52. In 2004 and 2005 TDBU's share of the total Results Sharing amount authorized was $24,536,000.
53. Between 30% and 40% of TDBU's Results Sharing program was attributable to customer satisfaction and health and safety in 1999 and 2000.
54. The portion of the TDBU revenue requirement attributable to customer satisfaction and safety, or 35% of the total, is $5,249,000, $8,588,000, and $8,588,000, for 2003, 2004, and 2005, respectively.
55. The Results Sharing customer satisfaction results for CSBU were determined by averaging several areas with customer satisfaction goals; and because data in one area was tainted in 1999 and 2000, CSBU's entire customer satisfaction Results Sharing results in 1999 and 2000 were tainted.
56. CSBU and Generation had safety goals for Results Sharing.
57. SCE's actual Results Sharing payouts in 1999 and 2000 for CSBU and Generation relied on SCE's unreliable OSHA recordable incident data.
58. SCE's actual Results Sharing payouts in 2003 to 2005 for customer satisfaction and health and safety for CSBU and Generation represent a reasonable proxy of the fraud that occurred in these areas in 1999 and 2000.
59. SCE's actual Results Sharing payouts in 2003 to 2005 for customer satisfaction and health and safety for CSBU and Generation were $10,290,000.
1. SCE violated Pub. Util. Code § 702 and D.96-09-092 because it failed to do those things necessary or proper to secure compliance therewith by all of its officers, agents, and employees.
2. SCE violated Pub. Util. Code § 451 because over a seven-year period it received PBR rewards and collected revenues for Results Sharing based on data known to management to be false or misleading.
3. SCE violated Pub. Util. Code § 581 because the reports and requests for rates submitted to the Commission regarding PBR and Results Sharing during the period 1997-2003 were based on false and misleading data.
4. SCE violated the Commission's Rules of Practice and Procedure Rule 1.1 because during the period 1997-2003 SCE management signed pleadings requesting PBR rewards of $83 million and Results Sharing awards of $32,714,000 based on false and misleading data, which did, in fact, mislead the Commission.
5. Results Sharing rates are within the scope of this OII and are subject to refund.
6. SCE shall refund:
Result Sharing Revenue Requirement $32,714,000
Customer Satisfaction PBR Rewards 28,000,000
Health & Safety PBR Rewards 20,000,000
Total: $80,714,000
7. SCE shall forgo:
Customer Satisfaction PBR Rewards $20,000,000
Health & Safety PBR Rewards 15,000,000
Total: $35,000,000
8. SCE shall pay a fine of $30,000,000.
9. SCE has been afforded due process of law.
IT IS ORDERED that:
1. Within 30 days of the effective date of this order Southern California Edison Company (SCE) shall submit a proposal to the Commission's Energy Division describing its method of refunding to its ratepayers within one year from the effective date of this order, the following, plus interest:
Result Sharing $32,714,000
Customer Satisfaction 28,000,000
Health & Safety 20,000,000
Total: $80,714,000
2. SCE shall forgo $20,000,000 in requested PBR rewards for customer satisfaction for the years 2001 to 2003 and shall forgo $15,000,000 in requested PBR rewards for health and safety for 2001 and 2002, not previously awarded to SCE.
3. Within 30 days from the effective date of this order SCE shall remit to the Commission's Fiscal Office at 505 Van Ness Avenue, Room 3000, San Francisco, 94102, a check for $30 million made payable to the State of California's General Fund. The number of this decision shall be shown on the face of the check.
4. Investigation 06-06-014 remains open.
This order is effective today.
Dated September 18, 2008, at San Francisco, California.
MICHAEL R. PEEVEY
President
DIAN M. GRUENEICH
JOHN A. BOHN
RACHELLE B. CHONG
TIMOTHY ALAN SIMON
Commissioners
************** PARTIES ************** |
Lynn Stanghellini |
