Utilities and Competition

The Los Angeles Department of Water and Power heartily concurs with your June 12 editorial, “Powerful New Idea for Electric Power,” which urged the California Public Utilities Commission (CPUC) to proceed judiciously in determining how to advance its admirable goal of introducing competition into the electric utility industry while, at the same time, safeguarding important public policies embedded in the existing regulatory framework.

While the DWP, which serves all of Los Angeles, is overseen by the mayor and City Council, not the CPUC, we believe the CPUC’s proposed deregulation of the electric utility industry will ultimately have a profound effect on all of our 1.3 million customers. The CPUC’s proposal would permit large industrial customers to choose their supplier of electricity in the open marketplace beginning in 1996, with commercial customers following in 1998 and residential customers in 2002.

Following the Arab oil embargoes in the 1970s, California’s electric utilities were strongly encouraged by state and federal policies to “get off” oil and natural gas and build new out-of-state coal-fired generation, which would reduce air pollution in the Los Angeles Basin. After Los Angeles joined with Utah municipalities to build the large coal-fired Intermountain Generation Station in Utah, long-term supplies of natural gas were made available to electric utilities. Ironically, independent power producers using combined cycle natural gas generation are now poised to compete with us and other California utilities, promising our very large customers cheaper rates under the CPUC’s proposed deregulation.

These large customers make up a very large part of utility sales. In Los Angeles our largest 100 customers account for 25% of DWP’s revenue. If these sales are lost to independent power producers who build new and cheaper natural gas generation, the fixed cost of the city’s existing coal generation will have to be spread to remaining customers, thereby driving their rates higher.

Therein lies the major dilemma facing the CPUC as it wrestles with how to implement deregulation, because it is the residential customers who may be saddled with higher rates to offset the revenues lost from large customers.

ELDON A. COTTON

Assistant General Manager, DWP