Edison Loses Bid to Have Ratepayers Pay Fuel Tab

The California Public Utilities Commission on Tuesday refused to allow Southern California Edison to recover through its rates $48.3 million in fuel costs incurred in 1988 as a result of purchasing power from a cogeneration company that was then half-owned by an Edison subsidiary.

The decision came after the commission studied the contract Edison negotiated with Kern River Cogeneration Co., a 50-50 partnership between Getty Energy Co., which is now part of Texaco Producing Inc., and Southern Sierra Energy Co., still an Edison affiliate although no longer a direct subsidiary. KRCC owns an oil recovery cogeneration facility in the Kern River oil fields.

The commission said it concluded that Edison “had acted imprudently in the negotiation and execution of the contract” and disallowed a portion of the $297.8-million contract covering 1985 through 1987.

Edison said in a statement that the PUC decision was “extremely unfair and totally unjustified.” It said it would appeal.

The PUC has established a standard contract denoting acceptable prices and standard conditions prices under which regulated utilities could purchase power from cogeneration and renewable energy facilities. However, Edison and KRCC chose to negotiate a “nonstandard” contract under which Edison agreed to buy 170 megawatts of power annually from KRCC for 20 years. The commission said the cost could be recovered through rates only if the commission found a nonstandard contract to be “reasonable.”

In reviewing the KRCC contract, the commission said it did not fault Edison’s reasons for seeking the contract but said they did not justify a contract that “disregarded” PUC pricing policies, exposed Edison ratepayers to greater risk and “appeared in some instances to place KRCC’s interest ahead of those of its ratepayers, and had the potential for a conflict of interest.”

The commission cited the fact that the Edison negotiators were also officers of Southern Sierra Energy, with potentially conflicting obligations to ratepayers and the best interest of the subsidiary.

As part of its decision, the PUC said it would examine other similar contracts when the company seeks to recover fuel costs through rates, and it ordered Edison to limit future contracts with its affiliates to standard contracts or get prior approval of any nonstandard contract.