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Stephen Pickett is senior vice president and general counsel of Southern California Edison, a subsidiary company of Edison International. With roots in Southern California that reach back into the late 19th century, SCE provides electric power to more than 13 million people and businesses stretched across 50, 000 square miles. Pickett received his undergraduate degree in electrical engineering at California State University, Los Angeles, and his law degree from Southwestern University School of Law. He became general counsel at SCE in January 2000. Pickett was interviewed by Mark Thompson, a freelance journalist in Los Angeles. Mark Thompson: You joined Southern California Edison in 1978, which was two years before you graduated from law school. What brought you to the company at that time? Stephen Pickett: I ran out of money and I needed a job. Edison had jobs available at the time, and, quite honestly, I was looking for a temporary job to finish paying for law school. I got a job in one of the engineering departments. [Pickett moved over to SCE's legal department after graduating from law school.] Q: How large is the in-house legal staff? A: It’s grown during my tenure here from about 55 lawyers to a little more than 80, with another dozen or so, I believe, in our affiliated companies. Q: How do you decide what work stays in house and what gets sent to outside firms? A: We’ve discovered, especially over the last 10 years, that the company’s legal work generally can be done much more cost effectively with in-house lawyers. As a result, we staff our legal function to provide the bulk of the legal services that the company requires with in-house lawyers simply as a matter of economy. However, we do not try and staff the legal department so as to provide all of the company’s legal services for several reasons. The first is that it would be wasteful to staff up for the peak need only to have people being idle part of the time when our needs declined somewhat. Secondly, we might have a need for a particular area of expertise that may be required in a particular matter, ranging from the environment to transactional matters, mergers and acquisition work or bankruptcy or some other kind of specialty matter that we don’t handle everyday. And then, of course, there are the occasional big matters that we couldn’t possibly staff with in-house lawyers. Q: Does this philosophy of keeping as much work as possible in house represent a change from the past? Was there a time when you were farming out considerably more work? A: Yes, but that was at least 20 years ago. Up until perhaps about 15 years ago we were handling mostly the specialty work associated with an electrical utility. Most litigation and most transactional matters were going outside. But beginning in about the late 1980s or early 1990s, we began to see a trend among corporations generally where the legal profession was pricing itself out of business. We began a trend toward upgrading the quality and size of the law department both here and in our affiliated companies in order to do more of the work in house, which was largely as a matter of economics. Q: When you do have a highly specialized matter and need outside help, do you look for specialized boutique firms or do you go to a large firm with a department in that particular area? A: It varies from case to case. I have five firms that I regard as my strategic partner. What I expect from these firms is that they will keep themselves conflict free with regard to Edison and its affiliated companies. We negotiate with them, usually every two years, in terms of the quality and the quantity of resources that we want assigned to our matters. Two of them — Munger, Tolles & Olson and O’Melveny & Myers — are here in Los Angeles and three — Hogan & Hartson, Morgan, Lewis & Bockius and Steptoe & Johnson — are in Washington, D.C. I divide the work among them based on their areas of expertise and the matters that I’ve retained them for. If I have a really specialty matter, as we had several years ago in our financial crisis that followed on the California energy crisis, we will go to either a boutique firm or a major firm that provides the requisite expertise. Of course, you’re always looking for the best quality you can get in those sorts of matters. Q: What are some of the more highly specialized issues that you deal with? A: On a routine basis, Morgan, Lewis does work for us on matters related to nuclear regulation because we own the San Onofre nuclear station and have a minority interest in the Palo Verde nuclear station in Arizona. This is a very specialized field with a very limited number of practitioners. There are also a number of issues in electricity regulation at the federal level that are very specialized. Steptoe & Johnson does that work for us. In California the most specialized things that we do here, which don’t impact anyone but electric utilities, revolve around the regulatory practice before the California Public Utilities Commission. This is a bit of an arcane specialty that is limited to regulated utilities. Frankly, we do most of that work in house, with some assistance from Munger, Tolles and O’Melveny & Myers. Q: When you turn work over to one of those five firms or perhaps look for other firms, how difficult is it to avoid conflict issues? A: It’s increasingly difficult to find firms that are conflict free in the electricity business. There was a time 15 years ago when this was still a vertically integrated enterprise, and the amount of competition in it was relatively limited. But today, in an industry in which there are many competing players, particularly in the generation sector, the conflict issue is increasingly difficult. All of the major law firms will inevitably have conflicts periodically from their banking representations or their representations of other corporations, boards of directors and such. But one of the things that we insist upon in our strategic relationship with these firms is that they make a special effort to keep themselves conflict free with respect to all of the companies in our enterprise. And we are more stingy when it comes to conflict waivers with those law firms than we are with smaller firms or firms that are doing a smaller amount of business with us. Q: Since you are essentially guaranteeing those five firms what presumably amounts to a pretty good chunk of business, are you able to drive a hard bargain on price? A: Yes and no. I don’t guarantee them a specific quantity of business. But I think they know and we know that there is going to be a pretty significant volume of work going to them. I do ask for price discounts and for volume discounts. I ask for multi-year commitments on rates that these firms are going to charge us. But I could in some instances, I think, demand more than I get. I don’t sit here and pound the table and drive as hard a bargain as I feel I could at times. Q: How closely do you monitor billing from the firms? A: Intensely, intensely. In some cases I think the firms would say that we perhaps overdo it, that we’re too mechanistic and too bureaucratic about it. I have incentives in our fee agreements to receive bills in a timely matter so that we can review the bills while the matters are still fresh in our minds. Part of the bargain that I have with our outside firms is that we process their bills quickly, consistent with their having turned in bills that meet all of our written guidelines. We routinely turn back matters for further explanation. We routinely turn back matters because they have charged things to improper accounts. We’re very diligent about it because the company’s legal services, like all of our costs, wind up on our rate structure. We want to make sure we’re getting as good a deal as we can for our customers. Q: When it comes to hiring in-house attorneys, where do you recruit? Do you take people out of law school and groom them for the positions or do you hire from the law firms that you deal with on a regular basis? A: It’s a little of both. We’re focused on hiring at the junior end of the spectrum, from zero to five years’ experience. We’ve had a few people come to us directly out of law school. But typically we’ll hire people who have spent a year or two or three in one of the major firms and who have begun their basic training there. We’re also looking for top quality candidates with excellent academic credentials and with native smarts to be good lawyers and practice law effectively. When they arrive here, we put them through an intensive training program both in litigation and in regulation practices so that they get a well-rounded experience. Q: Any last words on the subject of working with outside counsel? A: I’m always amused when law firms are making a pitch to me and telling me how much better they are than their competition, which every single one of them does. That goes for my strategic firms as well as people who are looking for business. And I think what every law firm really fails to realize is that their biggest competition is my in-house department. We have taken a lot of bread-and-butter work that used to be handled outside almost exclusively and we have brought a lot of that work inside. We are doing it as well as, if not better than, the firms and we are doing it an awful lot cheaper. That’s the message that I think law firms need to get. And they need to be tailoring their product, both in terms of quality and cost, with that competition in mind.

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