Edison’s Municipal Neighbors Watch Closely

To Bill Carnahan, utilities director for the city of Riverside, the six small municipal electric systems in Southern California that coexist with Southern California Edison are “the hole in the doughnut.”

Put another way, Anaheim, Azusa, Riverside, Colton, Banning and Vernon, which operate their own municipal electrical systems, are “islands in the middle of Edison,” according to Peter Matt, a Washington, D.C.-based attorney whose firm represents most of the systems.

The analogies are probably appropriate because the utilities have fewer than 200,000 customers combined, while Edison has 3.8 million customers. It’s a shaky coexistence at best, marked by suspicions, recriminations and lawsuits.

Merger Effort Closely Watched

Consequently, the municipal systems are closely watching Edison’s proposed merger with SDG&E;, which would turn Edison into the nation’s largest electric utility with 4.8 million customers. Its service territory would stretch from Central California to the Mexican border.

The six municipalities are generally known as “resale” cities--systems that traditionally have purchased wholesale electric power from Edison and retailed it to their residential, commercial and industrial customers. Six years ago, for example, Riverside bought 90% of its electricity from Edison.

But Riverside now purchases just 10% of its power from Edison. The rest is produced by Edison’s competitors or at generation plants that Riverside owns along with other utilities.

Similarly, Anaheim, Azusa, Colton, Banning and Vernon have generally weaned themselves from dependence on Edison’s generating capacity. (The Los Angeles Department of Water and Power, the nation’s largest municipal system with 1.2 million customers, has never relied heavily upon Edison for power.)

“Our relationship with Edison (deteriorated) toward the end of the 1970s, when energy prices were increasing,” Carnahan said. “There was the feeling that Edison was trying to squeeze the little guys out by charging very high wholesale rates.”

Although the utilities have lessened their dependence on Edison for power, they remain heavily dependent on Edison because the Rosemead-based utility controls most of the transmission lines leading to Southern California, Matt said.

“We’ve built bridges (to reduce dependence) but we’re still islands in the middle of Edison,” Matt said.

1978 Antitrust Suit

In 1978, the municipal systems--except for Vernon--joined in an antitrust suit against Edison, claiming that the larger utility had unfairly restricted their access to a transmission line that links Southern California to the Pacific Northwest. Vernon subsequently filed a separate antitrust suit that echoes many of the same complaints.

The case was tried two years ago, but a federal District Court judge in Los Angeles has yet to render a decision. The municipalities are seeking $300 million in damages in the suit. Vernon’s antitrust suit seeks damages in excess of $150 million, according to the original complaint filed in 1983.

Edison believes that the municipal systems have had “reasonable” access to the transmission line, according to says Dave Barry, associate general counsel for Edison. Edison believes that service to its own customers would deteriorate if it were forced to turn over more access, Barry said.

The antitrust case remains important because “transmission is such a big part of the ballgame,” according to Jerry Jordon, executive director of the Sacramento-based California Municipal Utilities Assn., which represents about 30 municipal electric systems.

The antitrust suits are perhaps the most visible sign that relationships between Southern California Edison and the six municipal electric systems are rocky.

The municipals have been fighting Edison in court and in regulatory proceedings for as long as 20 years, according to Matt.

“We’ve challenged each and every rate hike since 1971,” Matt said. “We challenged them in 1971, 1973, 1974, 1976, 1979, 1981, 1982 and 1984. And, in each case, we reduced significantly or entirely the increases sought by Edison.”

Those rate challenges can involve staggering amounts of money: A Federal Energy Regulatory Commission (FERC) law judge has recommended that Edison refund as much as $175 million, including interest, for rate cases dating back to 1982 and 1984. Edison does not believe that the FERC will endorse the law judge’s recommendation, Barry said.

The utilities also are pressing the FERC to approve an additional $8-million refund for alleged “price squeezing” conducted by Edison during 1976, Matt said. That complaint arose because Edison’s industrial rates were lower than those charged to the municipal systems, Matt said.

Rate cases have consumed time and money on both sides. “It can be frustrating,” according to Carnahan, who just received an $800,000 check from Edison to complete a 1981 rate case.

Anaheim’s municipal system recently received $3 million from Edison to close a rate case that covered a six-month period in 1981 and 1982, according to Gordon Hoyt, general manager of Anaheim’s system.

Although the six municipal systems welcome the push for municipalization in San Diego, they are also trying to determine the ramifications of Edison’s proposed merger with SDG&E.;

For example, the municipals would share part of a new transmission line that Edison hopes to build between Southern California and coal-rich electric utilities in the Southwest. But state regulators believe that the new line might not be needed if Edison completes its merger with SDG&E; because the San Diego utility already has a similar line.

“A good portion of that proposed line benefits our utilities,” Jordon said. The merger “could have the effect of freezing us out of a needed line,” Jordon said.

In contrast, the municipals view a municipal system in San Diego as preferable because an independent SDG&E; would continue to serve as “an alternative for power supply and transmission,” Matt said. “Its disappearance would increase Edison’s already strong stranglehold on the municipals.”

The relationship between Edison and the municipals was further strained this past summer when Howard Allen, chairman of SCEcorp, Edison’s Rosemead-based parent company, acknowledged that Edison had studied the possibility of acquiring the municipal systems.

It was that same study that led Edison to seek a merger with SDG&E.;

Allen’s interest in acquiring additional utilities “got lot of attention among a lot of our members,” according to Jordon, whose organization represents 30 publicly owned systems in California.

“Mergers feed on each other,” Jordon said. “Once they start gobbling up people the size of SDG&E;, what’s to keep them from gobbling up” smaller companies?

“Howard Allen wants to pick off the investor-owned utilities one by one and then the municipals,” according to Hoyt. “But we’re not at all keen about being taken over.”

Anaheim and its sister utilities “have got to be a major thorn in (Edison’s) side,” Hoyt said. “If we win everything in our antitrust suit, you’re talking about something on the magnitude of $300 million.

“The dollars are very large. For Anaheim alone, with interest, we’ve got between $80 million and $90 million coming our way.”