As California scrambles furiously to find enough energy to meet its needs, city-owned utilities in Southern California are playing a significant but increasingly reluctant role in providing surplus electricity to bail out the state.
As Pacific Gas & Electric Co. and Southern California Edison’s financial situations continue to deteriorate, the city of Burbank is one of several municipalities with city-owned power plants that are considering halting sales to the Independent System Operator, the agency formed by deregulation to ensure the state’s supply of power meets demand.
The city is currently owed about $3.5 million for power supplied through Dec. 31 and has sold another $1.5 million this month. It has yet to be paid for the sales, and now fears that if Edison or PG & E; were to declare bankruptcy, the ISO would be unable to pay its own power bills.
“We are a government and we have an obligation to help the general welfare, but the ISO is a poor risk to sell power to,” said Fred Fletcher, assistant general manager of power for Burbank’s Department of Water and Power. “The question is, how high can that risk go before we are not being responsible to the Burbank community?”
The city is now consulting with financial advisers and attorneys to determine how it might fare if one or both of the utilities went into bankruptcy, he said.
Burbank, which has operated its own power utility since 1913, decided not to participate in the state’s 1996 plan to deregulate its energy industry.
The region’s largest municipal power company, the Los Angeles Department of Water and Power, is owed approximately $160 million, but has nonetheless decided to continue selling its surplus power to the ISO.
“We will continue to sell excess supplies to assist other areas of the state experiencing shortfalls,” said Dave Freeman, DWP’s general manager. “I’m cautiously optimistic that we will get paid in the long run by either the state or by the utility companies.”
An aide to Mayor Richard Riordan said it is important that Los Angeles continue to assist other cities in meeting their power needs, but warned that the nation’s second-largest city could only do so much.
“Our first responsibility is to the ratepayers of Los Angeles,” said Deputy Mayor Ben Austin. “That’s why the Mayor is moving very close to the position that we will not sell additional power without specific assurances that we will be paid back.”
Austin said the city is well positioned at this point to meet its energy needs, and that DWP customers would not experience any rate increases.
Currently, DWP customers pay some of the lowest electricity rates in Southern California. An average residential customer pays $52.17 a month, while PG & E; customers pay $62.04 and Edison customers pay the highest monthly average at $64.62.
“When times get tough, the munis do everything they can to help out,” said Bill Carnahan, executive director of the Southern California Public Power Authority, which assists the region’s 11 municipal power producers in building new plants and transmission capacity.
“We are not required to do it, but we certainly understand as part of the generating community that we need to do our part,” said Carnahan. “That is tempered by the fact they (the members) also have a fiduciary responsibility on behalf of their citizens to have a reasonable responsibility that they are going to get paid. That is causing them to be more selective on who they sell to.”
Indebted to Pasadena
Pasadena is also owed money by the ISO some $15 million but its situation is somewhat different than Burbank’s and L.A.’s since it is a member of the ISO grid, even though it owns its own power plants.
As a grid member, it must sell any extra power that it has when excess capacity on the grid dwindles to just 1.5 percent, prompting the calling of a Stage Three alert, said Eric Klinker, the city’s director of power supply.
But if the city voluntarily offers the power before the alert is called, that power can be sold for a higher rate. The city also is paid to have power generators on standby, but as an ISO member, Pasadena is billed pro-rata fees to pay for the ISO’s standby and daily power needs, he said. The net difference currently stands about $15 million.
“What makes the most sense economically is for us to sell most excess capacity to the ISO, but there are real costs associated with that, such as fuel costs,” Klinker said. “If we get paid nothing by the ISO, there are costs we cannot recover.”
Klinker said he is considering joining up with Burbank officials in their legal consultations to see where Pasadena would stand in case of a bankruptcy filing by the two investor-owned utilities.
Although Los Angeles Councilwoman Laura Chick acknowledged that the city is not being paid yet for the excess power it produces, she said it is important to send a message to Sacramento that Los Angeles will not isolate itself.
“The state wants and needs our excess power, but this is a business situation and we should get paid,” said Chick. “I would like to think of us being in the position of working together, instead of sending bill collectors to Sacramento.”
Councilman Nate Holden expressed outrage over the situation and called on the DWP to discontinue power sales until it is fully compensated for previous sales.
“We should not give it away for free,” said Holden. “We should be compensated for selling our surplus. I would prefer it if DWP would sell the surplus energy to prevent shortages in this general area.”
