1997 RISK MANAGEMENT HONOR ROLL: AUDITORS KEEP SRP IN COMPLIANCE WITH REGULATIONS

Managing environmental and workplace safety are two sides of the same coin at Salt River Project.

The utility's risk management department oversees SRP's Environmental, Health and Safety Audit Division, which is charged with ensuring the company complies with various government regulations while helping reduce potential exposures.

When William R. Powell assumed leadership of SRP's risk management department in 1991, the audit unit was part of SRP's Environmental Department. He put his stamp on it by folding it into the risk management department and expanding it to include health and safety audits.

Reporting to risk management gives the unit a greater degree of independence and objectivity than it had under environmental services, said Dave G. Sultana, the unit's supervisor. Under the Environmental Department, the unit essentially was auditing programs developed and managed within that division, he said.

The unit scrutinizes SRP compliance with regulations imposed by the U.S. Department of Transportation, Environmental Protection Agency, Occupational Safety and Health Administration, as well as SRP's own safety standards.

SRP's management of its exposures and regulatory compliance have earned it a spot in an EPA project to streamline regulation.

SRP is among 12 companies selected to participate in an Environmental Leadership Program advocated by President Clinton's administration.

The proposed EPA project aims to allow companies with proven compliance programs to police themselves so that governmental auditors can focus on other companies with lax compliance procedures.

To participate in the EPA program, SRP's Environmental, Health and Safety Audit Division developed and tested a system for self-certification by drawing on its own internal auditing standards and prior work with the EPA's National Enforcement Investigation Center, the Arizona Department of Environmental Quality and other government agencies.

Additionally, SRP has signed an agreement with other electric utilities to create an environmental audit pooling arrangement this year.

Under the Peer Review Program, the companies will make their auditors available to each other on a rotating basis and free of cost to audit each other's environmental programs for the EPA.

If the EPA's Leadership Program eventually receives a green light to continue, the Peer Review Program would allow the participant utility companies to spread their auditing costs, said William R. Powell, manager of SRP's risk management department.

Additionally, the electric utility industry's own pool of auditors would have more industry-specific expertise than do many outside consultants.

SRP already has used a similar pooled auditing arrangement to trim its oversight costs while reducing regulatory and civil liability exposures.

Three years ago, SRP formed a consortium with nine other utility companies in the West.

The purpose is to audit the landfill operators and vendors that dispose and recycle the utilities' wasteproducts such as oils, solvents, paints, batteries, mercury, asbestos and other contaminants.

"We have common interests, common wastes and common vendors," Mr. Sultana said, so pooling the auditing made sense and lowered costs.

"If we are sending our waste to a site that is not complying with regulations or they contaminate the air, land or water, because we used that site, we are in the chain of liability to remedy that exposure down the road," Mr. Powell noted.

SRP also has improved its own environmental auditing abilities while limiting staff costs. The four people in the Environmental, Health and Safety Audit Division can draw on a pool of employees with related expertise from throughout the company. They include employees from engineering, operations, safety and other departments who have been trained in government regulations and auditing techniques by the risk management department.

Which facilities and which programs will be audited and just how frequently are factors determined through risk assessment. That assessment weighs potential dangers to employees, the public and environment, as well as possible company liabilities and emerging regulations or current public interest issues.

"There is an enormous amount of knowledge that you have to constantly stay on top of," Mr. Sultana said, citing regulations, management systems and the diverse operations of the company. "We have everything from maintenance service centers to generating facilities to hydroelectric facilities to mines," he noted.

All the audits conclude with an executive briefing attended by the general manager of SRP and the manager of the particular facility. The utility's senior executives rarely miss a briefing, which demonstrates the company's belief that the audit program is a valuable risk management tool, Mr. Powell said.

The environmental audit unit also participates in the purchase, sale or lease of SRP's vast properties, evaluating them for potential liabilities, Mr. Sultana explained. Some properties could have hazardous materials left behind decades ago, in which case the unit coordinates other SRP staff in remediation efforts.

"Typically we're looking for hazardous materials, but sometimes it goes beyond that," he said. "We also look for radon or ground water contamination."

The unit also has a contractor oversight function, auditing the safety programs of construction contractors hired by SRP, Mr. Sultana said. That can be crucial in limiting SRP's liability exposures.

A contractor hired to install electrical lines could end up digging trenches throughout the city, and an accident involving them could reflect badly on SRP's image or bring plaintiffs' attorneys to the company's doorstep.

SRP's power plants and facilities also undergo OSHA compliance audits performed by the unit. For example, employees and supervisors working around hazardous materials are evaluated to assure they use required safety equipment, that they have been trained in mandated OSHA standards and have read OSHA advisories on handling the materials they work around.

"We will go in and talk to the employee and say, 'OK, can you explain to me what the hazards are with this chemical that you are using?' to test if they understand," Mr. Sultana said. "That's what we do at our facilities just as we would do with a contractor.'