News

HONK IF YOU LOVE YOUR UTILITY

How does a debt-ridden electric company with some of the highest rates in the nation and a long rap sheet of safety violations transform itself into one of the country's top utilities?

Officials at Arizona Public Service Company have the answer: Issue a press release.

APS President and CEO Mark De Michele, who cut his teeth doing advertising and public relations for New York power companies, has put his background to work by launching the "Top Five by '95" campaign, which he claims will make APS one of the "highest ranking" investor-owned electric utilities in America by 1995.

In an APS press release last week--soon to be followed by a high-gloss "Top Five" advertising blitz-- De Michele trumpeted his plan to improve the beleaguered electric company's record in the areas of cost management, customer service, power-plant performance, safety and environmental responsiveness.

The impending public relations blitz earns nothing more than a Bronx cheer from Gary Yaquinto, the chief of the Arizona Corporation Commission's utilities section.

"If past behavior is any indication," says watchdog Yaquinto, "it is likely that the only real `top five' list APS will belong to by 1995 is a list of companies with the highest rates."

Yaquinto and others say that under the PR campaign APS has a hidden agenda of supporting a constitutional change that would diminish the strength of the Corporation Commission. Such a move could get sympathy from the Symington administration.

That's not what De Michele says he has in mind. Pressed for details about the PR campaign, he says only that the company has "created critical success indicators as part of an action plan," and will be "accumulating baseline data" in an effort to monitor progress.

"The details will become apparent as we go along," he adds.
"Details" aside, De Michele says he is "very optimistic." "I believe that in four years we will be able to look back after the completion of our plans and say we achieved our goals," he says.

It's hard to blame him for being confident. As one Corporation Commission staffer notes, "If a student grades his test paper himself, what do you suppose the grade will be?"

Yaquinto, a veteran of battles with APS over rate hikes, is more concerned with the real world than the PR world. "Slogans are nice," he says, "but it is going to take a little more to fix APS."

Six years ago, with revenue rolling in, APS boss Keith Turley decided to start rolling the dice. He formed a holding company called Pinnacle West Corporation and bought a savings and loan association, huge tracts of empty desert and even a uranium mine. He also bankrolled the dreams of pals like Circle K boss Karl Eller.

By 1989, with many of its projects tailspinning, Pinnacle West was hemorrhaging money. Turley was forced to jump, but he landed safely thanks to a golden parachute. The company now is run by Dick Snell, former Ramada Inn magnate.

Gone is the failed savings and loan, and the company has scaled back. Now more than ever, Pinnacle West leans on APS--which services 600,000 customers and produces annual revenues in excess of $1.5 billion--to pay the bills.

Speaking of paying bills, the utility's most recent request before the Corporation Commission is to boost its electric rates by at least 17 percent.

The extra revenue is needed not only to cover Pinnacle West's bad investments but to pay for the costly and error-prone Palo Verde Nuclear Generating Station, which has incurred millions of dollars in construction overruns and expensive safety violations.

Consumer advocates and Corporation Commission officials have charged that the plant's Unit Three reactor was a $1 billion mistake, and that Palo Verde isn't even needed.

Yaquinto admits that the company has begun restructuring--including widespread layoffs of employees--and has tightened its budget by up to $60 million during the past few years. But he says deep-seated public ill will toward the company can be eliminated only if APS makes a genuine effort to improve its performance.

"`Top Five' could be seen as just an attempt by Mr. De Michele to put a happy face on a bad situation without following through with actual improvements," Yaquinto says. "That could only make things worse for the company."

It would not the first time De Michele has played spin doctor for APS. In 1989, he earned kudos from Valley editorialists for offering a "rate reduction" of $447 million. What APS meant by a "rate reduction," however, was that the company would simply slice the sum out of its rate increase request for the coming year. So while still lobbying the Corporation Commission for a rate hike, APS got credit for cutting electric costs.

Now, Corporation Commission staffers say, De Michele has launched a direct attack at the rate-setting system, seeking to alter the makeup of the commission. They say he is lobbying the state's power brokers to support expanding the three-member panel to five (thus diluting the influence of certain anti-utility commission members) and making membership appointed rather than elected. That would give control over the commission to the traditionally pro-utility Republicans through Governor J. Fife Symington III.

Commission staff members say they are bracing for a possible referendum effort, sponsored by APS, that would make the changes part of the state constitution.

Asked about the possibility of a referendum campaign to alter the Corporation Commission, De Michele says, "I wouldn't know about that."

Symington spokesman Doug Cole says the governor "looks with favor on reevaluating" both the commission and the other public watchdog agency, the Residential Utility Consumer Office. "The governor is concerned about some of the hindrances to economic development put forth by the Corporation Commission," says Cole, adding that the governor is "studying" the idea of whether commissioners should be appointed.

The threat to the Corporation Commission is more than a rumor, says commissioner Renz Jennings. "The body language is out there," he says. "APS is posturing and would like to have a five-member commission with at least two members appointed."

The Corporation Commission was singled out for criticism during a recent Arizona Town Hall meeting of business leaders. Jennings notes the recent appearance of anticommission editorials in the Arizona Republic and says lobbying of legislators to change the commission has begun. "It has all the appearances of an orchestrated event," Jennings says.

Obviously, commission staffers are worried. "I think that APS has a much more sinister motive for all this public relations than just convincing everyone that they are improving the company," Yaquinto says. "They want to cripple the commission because it stands in the way of their rate demands.

"If that happens, it is the ratepayers, not just the commission, that would lose."

As one Corporation Commission staffer notes, "If a student grades his test paper himself, what do you suppose the grade will be?