Power to the People: California’s era of electricity deregulation begins Jan. 1, bringing consumers many choices, but also more than a little uncertainty

For now at least, utility deregulation is a nonevent for customers of Southern California’s six major municipal utilities. But for hundreds of employees of the city-owned power companies who are losing their jobs, it’s nothing short of catastrophic.

The 1996 state law that broke the monopolies of the three big investor-owned electric power companies and that is ushering in competition Jan. 1 gave the state’s 30 municipal utilities a two-year grace period to decide whether to open their service areas to competition. Assuming most decide to compete, they then have 10 years to blend into the competitive hurly-burly.

Although most public utilities will eventually let competitors into their territories, none in the Southland is rushing to throw open the gates. They are taking advantage of the grace period to trim their debt, cut overhead and learn as much as they can about the free market that begins unfolding next month.

That doesn’t mean “muni” customers will miss out on huge savings. On the contrary, residential ratepayers of the region’s six major munis--Los Angeles, Pasadena, Riverside, Glendale, Burbank and Anaheim--all enjoy lower electricity rates than do those of Southern California Edison and San Diego Gas & Electric. And they will keep that edge even after Edison and SDG&E; cut rates by 10% next month, as mandated by the new state law.

But competition is bad news indeed for many utility employees. Each city power company is furiously trimming overhead to become more competitive in the coming free market. The Los Angeles Department of Water & Power may cut as many as 2,000 jobs from its payroll if the City Council approves. Pasadena has already cut 100 positions, and Riverside has eliminated 60.

Cutting costs is as much an imperative for the city power companies as it is for the investor-owned ones. Although the munis don’t have the nuclear white elephants that Edison, Pacific Gas & Electric and SDG&E; have, all six are saddled with enormous debt related to the Intermountain Power Project, a $3.3-billion coal-burning power complex in Utah that all invested in during the late 1970s.

Over the next few years, they will try to pay off most, if not all, of their debt related to IPP so they can emerge lean and debt-free. Edison and SDG&E; also are working to pay off the bulk of their nuclear and alternative-energy-related commitments by 2002.

Despite certain advantages that come from insularity, most municipal utilities will join the competitive fray because they have no choice. Competition will ultimately bring lower power rates to surrounding areas, and munis will have to get their rates down as well to avoid a wholesale exodus of customers, especially big business users.

The loss of those big users could leave residential customers having to shoulder that enormous IPP debt, a scenario the munis and their politician bosses want desperately to avoid.

Following are summaries of the region’s main municipal utilities and their current stances on deregulation and direct access, the buzzwords for open competition among power suppliers.

Los Angeles Department of Water & Power: The issue of whether to open DWP’s service area to competition is not uppermost on General Manager David Freeman’s mind right now. He says he’s deferring that decision until the July 1999 deadline. Besides, what’s the hurry when DWP’s rates are 21% lower than those of neighbor and soon-to-be competitor Southern California Edison?

What Freeman is concentrating on is making DWP competitive in the next decade, when the real competition among power companies will begin. To accomplish that, he has proposed radical surgery on the nation’s largest municipal power company. Freeman has asked the City Council to approve his “action plan” that would give him authority to cut 2,000 of 7,000 power-related DWP jobs over the next four years, cut annual expenses by $400 million and eliminate $4 billion in debt.

Although DWP employees are in for some trying times, customers can expect stability. Freeman has promised to freeze electricity rates for DWP’s 1.3 million customers for the next four years and to cut better deals for large customers if the City Council approves.

Pasadena Water & Power: DWP is not the only Southern California utility undergoing a make-over. Pasadena, which expects to open up the city to power competition in January 2000, has already raised rates 15% across the board, cut 30% of its staff through layoffs and attrition and begun selling underused assets. A plan to build a $23-million office building was scrapped.

Faced with the burden of enormous debt, unproductive assets, high overhead and the specter of bankruptcy, Pasadena had little choice but to take drastic action, said Rufus Hightower, the utility’s general manager.

“Without taking these tough measures, the city would have paid a much higher price. We would have lost the utility,” Hightower said.

The City Council also voted to reduce the “transfer,” or share of gross electricity revenue that it pays annually to the city’s general fund, to $6 million from $8 million.

Glendale Public Service: The utility is still in the midst of public hearings to decide its future, but the staff has set a preliminary goal of opening the town to competition in January 2000, public works director Bernie Palk said.

The utility, which has 88,000 customers, has been preparing for competition for years, reducing its payroll through attrition and so far avoiding layoffs. “We knew we had to do it,” Palk said. The utility has raised rates by 4% twice in the last two years.

Riverside Public Utilities: Riverside will open its borders to “phased-in” competition starting in January 1999, pending City Council approval. The utility and its 90,000 customers might have set an earlier target date for citywide opening, but a new billing system will not be online for another two years, said Dave Wright, assistant director for finance and administration.

“Our largest customers will be phased in first,” giving business and industrial customers priority, Wright said. It may take two years for the rest of Riverside’s customer base to receive freedom of choice among power suppliers.

Wright said the city already approved one 2.85% rate increase this year and that another hike of 5% to 7% is likely over the next year. But Riverside isn’t too concerned about customer unrest: Residential rates will still be competitive with Edison’s after the hike.

To streamline, Riverside has cut 60 jobs, or 17% of its power payroll, over the last seven years, mainly through attrition.

Anaheim Public Utilities: Although a new policy is not yet set in stone, Anaheim is moving toward opening its service area to all power providers on Jan. 1, 2000, or earlier, according to Dale Tarkington, the city’s assistant general manager for electric services.

The utility, which serves 106,000 customers, has been restructuring for several years to prepare for deregulation, refinancing its debt when possible and reducing its payroll by 12% since 1990 to the current 400 jobs.

Except for the new public benefits fee of 2.5% that all utilities will soon start collecting, Anaheim has so far avoided raising rates, and it expects to avoid doing so in the future, Tarkington said.

Anaheim issued a public request for proposals in November to generate ideas on how it could reduce costs and risks, as well as how to develop new businesses. One possibility: linking its customer base with fiber-optic wire to sell entertainment and telecommunications services.

Burbank Public Service: Burbank, fully aware of the need to compete with neighboring utilities, will open its service area to competition in 2000 if the City Council accepts the utility staff’s recommendation.

General Manager Ron Stassi said the utility has reduced its payroll by 40 positions, or 14%, over the last 18 months through attrition and early-retirement offers. The council last week approved a 1% rate increase to fund public benefits; another rate increase of less than 10% is likely over the next year.

Stassi said the utility is holding off joining the free market as long as possible because it wants to see how it shakes out.

Southern California also includes smaller community-owned utilities such as those in Vernon, which has industrial customers almost exclusively; Colton, which serves a 16,500-customer district near San Bernardino; Banning, which runs an 8,824-meter utility near Palm Springs; Anza Electric Co-operative, a rural facility in eastern San Diego County; and Bear Valley Electric Service in the high desert east of Los Angeles, which has no outside distribution.

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How Munis Stack Up

Even with the 10% rate cut coming Jan.1, Southern California Edison residential customers will be paying significantly higher rates than residential customers of Southern California’s adjoining municipal utilities. However, Edison’s commercial and industrial customers, have a distinct rate advantage. A look at the rates of the region’s six largest municipal utilities and Edison, in cents per kilowatt-hour.

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Residential Commercial Industrial Burbank 9.59 9.95 9.53 Glendale 9.86 10.21 8.30 Pasadena 9.30 9.59 8.86 Los Angeles 9.84 9.07 8.18 Anaheim 9.83 10.57 8.44 Riverside 10.77 10.67 8.43 SoCal Edison 12.42 9.46 6.60

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Source: California Energy Commission

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L.A.-Area Municipal Utilities

The state’s power industry is dominated by the three investor-owned utilities, Southern California Edison, Pacific Gas & Electric and San Diego Gas & Electric, which serve 70% of the state’s electricity customers and which were prime supporters of the state’s electricity deregulation law that brings competition to those service areas on Jan. 1. But there are also 30 municipally owned utilities in the state, including companies that serve the cities of Los Angeles, Pasadena, Glendale, Anaheim, Burbank and Riverside. Although those cities have a two-year grace period before deciding whether to open up to competition, each is adjusting to the new competitive landscape.

1. Los Angeles Dept. of Water & Power

2. Burbank Public Service

3. Glendale Public Service

4. Pasadena Water & Power

5. Vernon Municipal Light

6. Azusa Light & Water

7. Anaheim Public Utility

8. Colton Electric Utility

9. Riverside Public Utilities

10. Anza Electric Cooperative

11. Bear Valley Electric Service

Source: California Energy Commission.