Back On Track Rocked By Scandals A Decade Ago, Inland Power & Light Has Become A Role Model For Other Cooperatives

Ten years ago this week, Inland Power & Light Co. was a utility on the verge of a meltdown.

Lawsuits stemming from the 1987 wildfires that destroyed 22 homes in the Hangman Hills development still smoldered.

Other litigation associated with the Washington Public Power Supply System nuclear power plant construction debacle held the threat of multimilliondollar assessments.

And Inland was losing a running battle with the Pend Oreille County Public Utility District for new customers.

But those woes were trivial compared with the disarray created by the suspension and subsequent firing of General Manager Arnold Brauff, who later pleaded guilty to racketeering, conspiracy and fraud charges stemming from his management of Inland material and contracting subsidiaries.

Inland itself paid $1 million in fines to settle claims that Brauff illegally diverted federal loan funds.

And there was more.

But all that is history.

The board hired Richard Heitman in June 1988 to pick up the pieces. Today, the cracks are all but invisible.

The former math teacher has restored Inland’s reputation in the industry and, more importantly, among its 30,000 members. Surveys show 95 percent of members are happy with the service provided by their cooperative.

That wasn’t so in 1988.

“When I first started, I hated to answer the telephone,” said Heitman, who moved to Spokane from the Benton Rural Electric Cooperative in Prosser.

He also had worked at Lincoln Electric Cooperative in Davenport. In that community, Heitman said, he is now greeted like a hero because Inland’s 1995 merger with Lincoln slashed rates by 40 percent.

“We’ve made a lot of progress,” said Heitman, who credits the staff he inherited in 1988 and those added in the merger.

“They decided to make a marked distinction from the past,” said Aaron Jones, manager of the Washington Rural Electric Cooperative Association.

Jones, who wrote a history of Inland in 1977, said the cooperative’s size alone would give it influence. Excellent performance has magnified its stature.

“Inland is kind of a role model for other cooperatives,” Jones said.

Inland is the largest cooperative in the Northwest in membership and geographic size. If its far-flung service territory in Eastern Washington and slivers of North Idaho were a state, it would be about the size of Maryland.

But almost all of its members are residents or irrigators expensive to serve because they are strung out over 6,700 miles of wire.

Brauff’s answer to high costs was operating several subsidiaries intended to produce additional revenue.

Heitman’s was cutting costs.

Inland, Heitman says, had forgotten its reason for being - providing electricity to areas WWP declined to serve in the 1930s and ‘40s.

“We decided we’d better get back to the basics,” he said.

Heitman and his highly-praised staff have done that, and then some.

Inland’s revenues are about $31 million, tiny compared with the $1.3 billion of cross-town rival Washington Water Power Co. But recently WWP has asked Washington regulators for permission to lower some rates in response to successful bids by Inland for new customers in areas both utilities serve.

The regulators have balked.

Assistant General Manager Dave Clinton said the accounts Inland has won so far are relatively small, but any sale that spreads the cooperative’s fixed costs is helpful.

“We have a lot of unused capacity,” he said.

The victories are the payoff for 10 years of culture shock and problem-solving, Heitman and Clinton say.

One of the first messages Heitman had for his staff was “watch the pennies and the dollars will take care of themselves,” Clinton recalls.

In the months following Brauff’s departure, all of Inland’s subsidiaries were shut down and the accounts at its credit union were transferred to the Horizon Credit Union. Other lingering issues also were cleaned up:

The WPPSS lawsuit was resolved at little cost to Inland members.

The Pend Oreille County PUD paid Inland $4.1 million in 1991 for its assets in that county.

Inland was found not liable for damage from the Hangman Hills fire.

Meanwhile, Heitman and his staff were attacking expenses.

“We decided we’d turn over every rock,” he said.

A staff that once numbered more than 100 has been pared to 95, giving Inland one of the highest ratios of members to employees in the business, Heitman said.

Data-processing was assigned to an outside contractor. Even “Inland Country,” the cooperative’s membership publication, was cut to special editions only.

Lighter trucks were purchased to respond to situations where traditional line trucks were overkill. That reduces by half the cost of some service calls, Clinton said.

Heitman said the employees themselves have chipped in with lots of money-saving ideas.

The cooperative’s work force had split into cliques when he arrived, he said. Early employee meetings were subdued.

Now, Heitman said, there is a buzz of friendly conversation when workers get together.

“Of course, the real proof of everybody working together was ice storm,” he said.

Heitman was one of the executives who rotated shifts in the basement of Inland’s East Second headquarters while crews struggled to repair its tattered distribution system.

“You really find out a lot about people at two or three in the morning,” he said.

Heitman said he is proud so few people can serve so many, but operations and management costs represent only about half an Inland member’s bill. The rest is the cost of the electricity itself, all of which comes from the Bonneville Power Administration.

Inland has no generating capacity of its own.

Bonneville rates rose almost steadily during the 1980s and 1990s, from less than three-quarters of a cent in 1980 to almost three cents in 1995.

Inland cost-cutters were barely running fast enough to stay in place.

Finally, in October 1996, Bonneville reduced rates 13 percent. Inland responded with a 12 percent cut of its own.

Another rollback of about 7 percent is scheduled for April.

Heitman, who briefly became a candidate to replace former Bonneville Administrator Randy Hardy, said Inland considered buying power from other suppliers.

But he said he is confident the federal power-marketing agency will get its own costs down and survive competition brought on by deregulation of the electric utility industry.

“I think they will be around forever,” he said.

Heitman said Inland is advertising locally and on the West Side to heighten awareness of the cooperative and its rates.

“We want folks to be aware of us,” he said, adding that the ad campaigns have been modest.

John Rogers, regional vice president for the Cooperative Finance Corp., says Inland’s reputation is secure.

Heitman’s cost-control efforts are a model for the industry, he said, and Clinton has been an effective spokesman for cooperatives in Olympia.

Clinton also acted as interim general manager at the Columbia Rural Electric Association in Dayton when the incumbent died.

“That kind of leadership is pretty important,” said Rogers, who managed a cooperative himself for seven years.

Clinton said Inland officials would like to expand their relationship with members by offering services like the Internet or security devices.

The danger, he said, is losing the focus on basic service that caused Inland so much grief a decade ago. The cooperative has come too far to let that happen, he said.

“If we keep it up, it won’t be too long before the past is forgotten.”

, DataTimes ILLUSTRATION: Color Photo; Graphic: Inland Power & Light Company service area