PROFILE/young/1stjc/mark2nd

DOUGLAS YOUNG Staff Reporter

Stephen Frank is president and chief operating officer of Edison International, parent company of Southern California Edison Southern California’s largest electric utility.

Edison International is also parent to a host of other companies, including Edison Source, a wholesale electricity marketer, and Edison Capital Corp., which finances energy and infrastructure projects.

California will deregulate its power industry beginning in 1998, which has created a number of challenges for Edison. Primary among those is the competition with other utilities both in and out of state for California customers.

To better position itself for the deregulated marketplace, Edison wanted to be part of a power marketing alliance being pursued by the Department of Water and Power the electric utility in the City of L.A.

However, the DWP ruled out Edison as a potential partner, saying the company has so much generating capacity in California that it would not be a good complement to the DWP, which also has extensive generating capacity in the state.

Q: You obviously feel you were unfairly ruled out of the DWP’s alliance bidding process. Have you submitted any proposals to the DWP to date?

A: We have not submitted specific ones, although we have had numerous meetings with them and their people to explore a variety of things. It isn’t that we feel we were unfairly excluded from the process. We were excluded from the process.

The process and the RFP (request for proposals) that was put out had a very specific exclusion in it that only applied to us and Pacific Gas & Electric. That is an exclusion of any company having generation capability in California of more than 7,000 megawatts. There are only two companies that fit that mold, so to suggest that it was other than to specifically exclude us

Q: You’ve had numerous talks with the DWP since the original request for proposals. What’s been the result of those talks?

A: They’re ongoing at this point. I really don’t want to get into the process because the process is still in the works. We believe that we are prepared to make a very specific broad-ranging and comprehensive alliance proposal.

Q: You seem to feel the DWP commissioners and (General Manager) Bill McCarley have been stonewalling you, because you’re using other channels such as the mayor and L.A. City Council to get the DWP’s attention. Do you have any idea why that is?

A: I’d say you have to talk to them. But I wouldn’t say stonewalling is the right word. I have had a number of discussions with Bill (McCarley) over a long period of time and we continue to have what I hope are fruitful discussions with their staff over the kinds of things we might be able to do. But the fact is a process had been established that excluded us and they believed it was appropriate to continue with that process.

Q: Can you tell us a little bit about your behind-the-scenes efforts? How much are you spending to lobby the L.A. city government?

A: We’re not spending any significant amount of money. Are we talking to all of those who might be part of the process? Sure. But the majority of the conversation continues to be with DWP itself. They’re the people who would be our partners were we to form an alliance. So we’re not spending huge amounts of money to lobby anything.

Q: Why is Edison so interested in a DWP alliance?

A: It just seems like a very natural one where we can take the strengths of both companies operating in roughly the same market dealing with a very similar kind of customer base. Taking our two entities and forming an alliance to better serve that combined customer base just seems to be a very logical approach.

Q: One concern from the DWP was that you were too similar to them to make a good alliance partner. Do you think that’s true?

A: I don’t really think that’s the case. We are similar in many respects and we have many similar challenges, but the kinds of technical skills we bring to the table and the preparation we have done for the competitive environment up to this point suggests we could get together and form an alliance that does a job for their customers and ours.

Q: You would have access to the DWP’s customers in an alliance, but what would be in it for them?

A: My view of an alliance is that both parties benefit. I think that we also are a bit farther down the line in expanding our systems capabilities, which of course is a significant investment.

I think we have something to learn from each other in many of the things we do on a day to day basis where we can improve service to those customers.

So I wouldn’t think this is an attempt for us to find a way to access DWP’s customers and not have any benefit for DWP. It has to be a win-win situation, and I believe we can create one.

Q: Outside the DWP alliance, does Edison have a more broad-based strategy for forming alliances and/or mergers with other electric utilities in the United States?

A: There have been a number of mergers announced in the electric utility industry across the country. The vast majority of those announced have been geared to getting the critical mass necessary to be successful in the marketplace of the future.

The fact is that with our size, that critical mass is not the issue to us that it is to many. If you look at all the mergers that have been announced within the electric utility industry up to this point, none have resulted in a combined company that approaches our size.

Q: So you don’t see any mergers in Edison’s future?

A: I wouldn’t discount it, but we believe that the future is more likely to see us forming alliances with others than it is to be a tremendously active player in mergers and acquisitions.

Q: Looking at the bigger picture, what parts of Edison’s business will change when the industry becomes deregulated?

A: The generation part of our business is the one that will undergo the greatest change. It’s the generation side of the business which will become competitive, so our customers in the future will have the opportunity to make a decision as to whether they buy power that is generated by Southern California Edison or by other producers.

Q: Geographically, is Southern California Edison going to move into markets outside Southern California or will you concentrate on retaining customers here first and worry about expanding later?

A: We’ll do both. We are already looking well outside Southern California. Edison Mission Energy already has interests in a wide variety of places both inside and outside the United States, including power plants in Australia, the United Kingdom, Virginia, New York and in Florida.