Edison Expected to Freeze, Later Reduce Rates
Southern California Edison Co., positioning itself for a new era of competition, is expected to announce today that it will freeze rates through 1996 for 4 million customers and lower rates by 25% across-the-board by the year 2000.
Edison says the action will save its customers more than $500 million a year by decade’s end. The move is one early payoff from a wide-ranging deregulation of electric power across California that could mean consumers will be able to pick and choose who supplies their electricity.
The nation’s second-largest electric utility, Edison is cutting rates as a defensive measure to avoid losing its customers to new players that already include such out-of-state energy giants as Portland, Ore.-based Pacificorp, Louisville Gas & Electric and Enron Corp., all of which have plans on the drawing boards--or offices already in place--to do business in California.
“Customers want more choices . . . and in a competitive environment, we will have to offer more choices,” said John E. Bryson, Edison chairman and chief executive, on Monday. He said Edison “should not and cannot stand by and wait for what deregulation produces.”
The freeze affects Edison’s residential, small business and agricultural customers, whose rates had been scheduled to go up 2.5% in October. Without the freeze, an average Edison residential customer would have seen a monthly increase of $1.75, for a bill of $67.75. A barbershop now paying about $113 a month would have seen that rise to $115.83.
Edison’s plan to cut its systemwide rates over the next five years by 25%, adjusted for inflation, would save the utilities’ customers more than $500 million annually by the year 2000.
Edison also will announce a series of new customer services, ranging from a $50 payment if the utility doesn’t fix a non-storm-related power outage within four hours, to allowing the customer to choose when his electric bill is sent.
In all, the Edison moves “will preserve jobs and attract new companies to Southern California,” predicted Gary H. Hunt, executive vice president of the Irvine Co., a major Edison customer.
But for some customers, the savings could prove to be even greater as a retail marketplace for electricity develops, according to deregulation advocates.
With utility regulators worldwide looking over its shoulders, the California Public Utilities Commission--which announced two years ago that it will deregulate electric power--is expected to release soon a detailed plan for deregulating the state’s investor-owned electric utilities.
The Los Angeles Department of Water and Power and other municipal utilities have historically conformed to such policies and are already gearing up to do so.
The deregulation scenario is attracting not only major energy companies from across the country but also numerous smaller marketers, brokers and consultants who see business opportunities in crafting customized deals in a deregulated marketplace for electricity consumers.
For instance, even as Edison entered the fray, former Edison president Michael R. Peevey on Monday launched a new firm, New Energy Ventures Inc., with offices in Pasadena and San Francisco. The firm, affiliated with Tucson Electric Power Co., believes that it can find lower power costs for some big customers even before deregulation takes hold, though bigger savings will come as some form of retail market develops in California.
“Some California electricity consumers will be able to see as much as a 50% reduction in their current electricity bills,” Peevey said.
Since 1993, Pacific Gas & Electric Co., which serves Northern and Central California, has had a freeze on rates that it says it will extend through 1996. San Diego Gas & Electric Co. has no such rate freeze.
Peevey said utilities will not be able to serve many customers as well as independents can. An independent agent, Peevey said, could negotiate with a utility for a cut in rates, set up an independent power plant at a client’s manufacturing plant, or shop for a good deal among the many electricity suppliers expected to offer power from inside or outside California.
Most observers agree that late in this decade and on into the next century, large industrial power users will figure out ways to tap directly into cheaper wholesale power, said Steven M. Fetter, director of regulatory and governmental affairs at Fitch Investors Service Inc., in New York.
Smaller customers, meanwhile, might band together to make bulk purchases of electric power, using their collective clout to negotiate better prices, Fetter said.
Or big industrial users might shop for rates that change according to the fluctuating economies of their business. Edison has already forged such a deal with Tamco, in Rancho Cucamonga, which operates a steel mill. When Tamco’s profit margins are tight, Edison gives it a discount on power; when business is good, Tamco in effect repays the utility by paying a premium rate.
Other companies are closely watching California’s move to an electric marketplace.
“We’re in the business as soon as it’s available,” said Jennifer Modesett, director of marketing and communications at Enron Capital and Trade Resources, an affiliate of Enron Corp., a Houston-based energy giant. Enron is already marketing some electrical power on a wholesale basis out of its San Francisco office.
