Advertisement

Challenge to Edison Generates Interest

Share
TIMES STAFF WRITER

Henry Taboada, in replacing a legend as city manager in Long Beach, promised that he would be bold and resourceful in finding money for the city.

For his first initiative, he picked a doozy. Why not buy out Southern California Edison’s nearly 100-year-old monopoly franchise in Long Beach, he suggested, and start a city-sponsored power company?

The proposal, unveiled with little notice just before Christmas, has rocked the energy world. Long Beach, in just a few weeks, has become the darling of multinational power companies scrambling for business under the new rules of electricity deregulation.

Advertisement

“It is incredible the kind of interest this has generated,” said a somewhat astounded Taboada, a 59-year-old administrator who was appointed city manager in December.

But why not? With 175,000 customers now generating roughly $250 million a year for Edison, Long Beach, the largest city served by the company, is a huge potential market, one that Edison wants to keep and hungry competitors want to rip away.

Developments are being watched carefully because industry leaders and other cities believe that if Long Beach ends the franchise agreement with Edison, other cities might be tempted to follow suit. Edison, with 4.3 million customers in Southern California, has exclusive franchise agreements with 25 other cities. Long Beach would be the first California city in more than 50 years to start its own electric utility.

“Long Beach has the distinction--and risks--of being something of a front-runner here,” said Donald Waldie, a public information officer for neighboring Lakewood. “Other cities I’m sure will watch carefully to see how the process works out.”

The most immediate benefit, say those urging Long Beach on, is that the city might reap an economic bonanza. It is uncertain how residential customers would fare, but city leaders say they want assurances that electric bills will not increase, and suggest that they could go down.

Long Beach’s first suitor--a partnership of Enron Corp. and Denver-based City Light and Power Inc., which manages Long Beach’s street lights--has already promised a franchise fee of $8 million more a year than the city now receives from Edison.

Advertisement

Under this scenario, one of several floating around City Hall, Long Beach would buy out Edison and set up a municipal power distribution system run by Enron and City Light.

But there seem to be as many variations as there are players, ranging from staying with Edison to setting up a public power company with no private partners.

Among those cozying up to city leaders is David Freeman, chief executive of the Los Angeles Department of Water and Power. With his country charm in full flower, Freeman praised Long Beach leaders at last Tuesday’s City Council meeting, saying he would welcome a partnership with Long Beach.

Having the nation’s “largest and most aggressive energy company as your next door neighbor” would make him uneasy, Freeman said. He figures it would just be a matter of time before Enron began casting hungry eyes on Los Angeles.

So he wasted no time in hauling down the Long Beach Freeway, talking up the benefits of the city forming a public power company without a private partner like Enron.

“I just felt a desire, if not an obligation, to tell the council, ‘You have an important decision to make. You shouldn’t just dance with the first person who asks you,’ ” Freeman said.

Advertisement

Even though the City Council has yet to hold its first public hearing, and appears months or perhaps a year away from a final decision, things are already getting nasty.

Government affairs specialists from some of the world’s biggest power companies have been swarming the council offices on the 14th floor of City Hall, where they find themselves bumping into each other in the ritual of big money chasing opportunity.

They come armed with arguments, pleas--and daggers for their rivals.

Just listen and you will hear, for example, that Edison has been taking hundreds of millions of dollars in profits out of Long Beach, while giving the city a relatively small return of 1.4%. You will be told that Enron has been linked to human rights violations at its power project in India. The DWP, you will be reminded, keeps residential electric rates relatively low by jacking up energy charges assessed to business and industry.

Triggering the competition is an escape clause in Long Beach’s 60-year exclusive contract with Edison, which was signed in 1971. Under the agreement, Long Beach can purchase Edison’s distribution system in the city and form a municipal electric utility similar to those operating in Los Angeles, Burbank, Glendale, Pasadena and Anaheim.

What alarmed many in Long Beach, and put Taboada on the hot seat, were his private negotiations with Enron and City Light.

Months of private meetings, without Edison participating, resulted in Taboada presenting the City Council with a letter of intent on Dec. 22 that would have given Enron and City Light an exclusive opportunity to compete for Edison’s distribution system.

Advertisement

After heated debate, the council opened the barn door and invited other power companies in by refusing to sign the exclusive agreement with Enron and City Light, which had already formed a corporate entity, Long Beach Power and Distribution Co.

Edison executives were left feeling betrayed by what was perceived as a backdoor attempt to take away their franchise.

“I don’t understand it,” said Bob Foster, an Edison vice president, who said he learned of the letter of intent just four days before the council vote. “It just is not right, it is simply not right.”

With so much at stake, Foster wonders why Taboada kept his talks with Enron and City Light secret. Foster said Long Beach should have contacted an independent third party to lead it through the process.

Taboada said one reason he was reluctant to open up the process was fear of Edison’s political and public relations muscle. “South Gate once considered municipalization. They were squashed like a bug before they even got off the ground,” he said.

Taboada concedes that he may have unnecessarily angered the council.

“I don’t think it was handled well,” said Councilman Jeffrey A. Kellogg, who blasted the new city manager for undertaking “an issue of this magnitude with little or no input from the council.”

Advertisement

Councilman H. Delano Roosevelt, however, sees nothing but good coming from the talks, figuring that the city stands to receive far more for its franchise than it gets now. “Whoever ends up with it, and it very well may be Edison, we win,” he said.

Whether Long Beach turns into a trendsetter remains to be seen.

One problem for other cities is that Long Beach is believed to be the only one with an escape clause with Edison. Other cities would have to go through a long and costly condemnation process.

“Many other cities have looked at it,” said Stu Wilson of the California Municipal Utilities Assn. in Sacramento. Every time there is dissatisfaction with service, prices charged by the utilities or the amount of the franchise fee, city officials raise the question of starting their own utility, Wilson said. But he said “there is a bit of risk in the business,” so few have jumped in.

Taboada for years was No. 2 man in Long Beach to James C. Hankla, the longtime city manager and wheeler-dealer extraordinaire who left last year to head the Alameda Corridor project after reshaping the city’s waterfront.

Although talks got underway while Hankla was still city manager, Taboada said the Edison contract was his baby all the way.

“When I interviewed with the council, I said my job is to bring you initiatives that will increase services, not taxes,” Taboada said. “I feel perfectly comfortable with this. It will bring new revenue to the city, maybe help lower the utility users tax.”

Advertisement
Advertisement