In an unprecedented strategy likely to be repeated around the country as states deregulate their electric utilities, Southern California Edison Co. won permission Wednesday to speed up the payoff of its investment in two nuclear power facilities. The move is intended to strengthen the company's financial posture amid looming competition.
The state Public Utilities Commission--overturning the recommendations of consumer advocates and its own staff--will allow Edison to increase capital recovery from ratepayers for its San Onofre and Palo Verde nuclear generating stations by $75 million a year, effective immediately.
"It's a very smart move, and over time it will help the utility be more competitive," said Edward J. Tirello Jr., a senior vice president and utilities analyst with NatWest Securities in New York.
Analysts and utility officials predict this shift will bring stable or even lower rates for all customers, while some consumer advocates argue that rates will go up.
In the 4-1 vote, Commissioner Jessie Knight dissented, saying he does not consider the speed-up a "good or fair way to recover the sunk costs of Edison's nuclear investment." He argued that it could provide a poor incentive for cost control of nuclear plants and could make other parts of Edison's operations less competitive under deregulation.
Knight agreed with the PUC's Division of Ratepayer Advocates, which presented an alternative to the Edison proposal using different incentives to lower nuclear power plants' costs. The division also argues that shareholders as well as ratepayers should bear the cost of deregulation.
Edison wants to pay off the plants more quickly to lower their cost of producing power, making them more competitive with other utilities and independent power producers in a new electricity marketplace the PUC hopes to create in 1996.
Edison argued that some of its largest industrial customers could choose at that time to bypass the utility to buy cheaper electricity elsewhere, leaving smaller commercial and residential ratepayers to pay off an even larger share of these investments.
The move also lessens the chance that under any deregulation plan adopted by the PUC, shareholders would be asked to pick up part of the cost of nuclear plants or other assets that could prove uneconomical in a competitive arena.
The PUC has proposed that ratepayers alone pay such transition costs, but that plan faces strong opposition from a variety of critics and could be amended before final PUC approval.
These uncertainties have made many stock market analysts and investors nervous, pummeling utility stocks.
The Dow Jones utility stock index has plunged 28% from its peak last fall, reflecting higher interest rates and worries about the fallout from utility deregulation.
In a parallel request approved Wednesday, Edison will slow down the pay-back of investment in other business units--transmission and distribution--by $75 million a year. This is designed to keep consumers' rates from going up.
Consumer groups strongly opposed the requests, contending that Edison is simply trying to get ratepayers to shoulder more short-term costs from what is becoming the riskiest side of the utility business--expensive nuclear generation--and less of the transmission side, which is less risky. While ratepayers, under previous PUC decisions, are paying for these investments now, the burden of high-cost units of the utility affects shareholders' stock prices and dividends.
Indeed, many analysts expect Edison to lower its current dividend in June.
The utility is "in a sense shifting the risk of operating those plants from their stock payers to their ratepayers," said Audrie Krause, executive director of Toward Utility Rate Normalization, a consumer advocacy group in San Francisco, " . . . the risk being that over time they are going to have to spend more and more money to keep them operating safely."
Krause accused the commission of protecting Edison from the consequences of its expensive foray into nuclear power and predicted higher electric bills for ratepayers because of the decision.
Edison estimates that early depreciation will reduce bills to all classes of ratepayers by $5 million a year and $39 million over the long term. Analysts predicted little or no effect on residential utility bills.
SCEcorp shares inched up 12.5 cents to $14 on the New York Stock Exchange on Wednesday, before the news was announced.