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To LAUSD: Don’t Take the Utilities’ Bait

Benjamin M. Reznik and Daniel W. Douglass, attorneys in Sherman Oaks, represent independent power marketers seeking to compete with utilities in California

The age-old adage most consumers figured out long ago is that the big print giveth and the little print taketh away. We all have seen advertisements proclaiming that a particular product is an incredible bargain. The bargain part is announced in a type size usually reserved for declarations of war; the clarification follows in minuscule print.

This tactic is clearly evident in the very cool offer made recently by three major Southern California utilities presenting themselves as the Energy Alliance: a plan to air condition 300 Los Angeles city schools over the next 15 months. The alliance is composed of the Los Angeles Department of Water and Power and Energy Pacific, a joint venture formed by the parent of Southern California Gas Co., Pacific Enterprises and its projected merger partner, Enova Corp.

Certainly children will benefit from a significant acceleration of the L.A. Unifed School District’s air conditioner installation schedule. However, the school district must see through the emotion-laden and transparent public relations barrage from the utilities and recognize that, just as there is no free lunch, neither is there free air conditioning.

The utilities are offering to put in air conditioning (without specifying the cost to LAUSD) in return for the exclusive right to serve the district’s electricity needs for several years. The timing of this offer is very convenient--for the utilities. Over the past three years, the California Public Utilities Commission and the Legislature have labored successfully to foster a new marketplace in which competition will lead to lower electricity prices beginning in January 1998. Concrete steps have been taken to reduce the market power of the state’s monopoly utilities in order to create a truly competitive environment.

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Beginning next year, independent electric power marketers will be bringing low-cost, reliable power into California. If the school district jumps now at the utilities’ offer, it will be missing a significant opportunity to achieve even greater savings once true competition comes to California.

The utilities are using the air conditioning offer as a public relations cover for their real intent, which is to lock in the school district’s electricity needs so that other, lower-priced suppliers will not have the opportunity to compete for this business. This is not good for taxpayers or the LAUSD, which could be giving up significant long-term electricity savings in return for short-term acceleration of its air conditioning schedule.

Furthermore, the advent of competition in the electricity industry is leading many utilities to attempt to compete in businesses that have been outside of their traditional scope but for which they may have unique competitive advantage because of their size and/or monopoly assets. The installation of air conditioning is certainly not a traditional business of the utilities. California has a vital and healthy air conditioning contractor industry that is perfectly capable of providing these installations within the time schedule promised by the utilities. In fact, the utilities will undoubtedly turn to them to provide these services. However, with the utilities serving as a middleman between LAUSD and the contractors, can anyone doubt that the bottom-line price will be higher than if the school district dealt directly with the contractors? The best solution would be for LAUSD to competitively bid both its air conditioning and its electricity requirements.

The lack of air conditioning in city schools has been a pressing issue for many years. Where were the utilities five, 10 or 20 years ago when L.A. schoolchildren suffered the same sweltering conditions? Certainly there were no such offers made when competition wasn’t about to pervade the hallowed halls of utility executives. There undoubtedly will be more such diversionary offers from utilities. But until the real competitive electricity prices are known, LAUSD and others should not take the bait.

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