Edison Has Right to Pass Costs to Customers, Judge Rules
A Los Angeles federal judge ruled Monday that Southern California Edison has the right to pass on to consumers reasonable costs incurred in buying power on the wholesale market.
U.S. District Judge Ronald S.W. Lew upheld in principle Edison’s contention that the Federal Power Act trumps any state law freezing what the utility can charge.
“SCE is grateful for Judge Lew’s decision,” said company attorney Ronald L. Olson. “It validates our position that federal law requires all reasonable incurred costs be passed on to the consumer.”
Lew acted in a lawsuit that Edison filed in November against the state Public Utilities Commission.
Lawyers for the PUC, Los Angeles County and the Utility Reform Network (TURN), a consumer group, said Monday that Edison’s victory claims were premature.
They said the suit has many hurdles to clear and will almost certainly wind up in a federal appeals court.
Under the judge’s ruling, they noted, Edison still must show that it acted prudently when it bought power for its customers at a time when wholesale prices were spiraling out of sight.
“Were there less expensive alternatives that the company failed to take advantage of? This is a question that needs to be answered,” PUC attorney Harvey Y. Morris said after Monday’s hearing.
But Southern California Edison said it expects to prevail on that issue because it bought its power through the state’s Power Exchange and Independent System Operator, two nonprofits set up under California’s 1996 law deregulating electricity.
Edison’s lawsuit is a companion to one filed by Pacific Gas & Electric Co. in Northern California. The PG&E; case is set for a hearing later this month.
In addition to ruling that federal law governed, Lew rejected the PUC’s motion to throw out the case.
When it filed its suit in November, Edison said it had lost $2.64 billion--about 71% of the company’s equity value--in the previous five months because of its inability to pass along mounting electricity costs to customers.
The utility contended that it is entitled to recover those costs because they were incurred under tariffs approved by the Federal Energy Regulatory Commission. Under a long-standing legal principle, it argued, states must pass through to customers federally tariffed wholesale power rates.
Southern California Edison also charged that the PUC was violating the company’s due process and other constitutional rights. The PUC has denied those claims. The PUC is being supported by Los Angeles County and TURN, which have entered the case as friends-of-the-court in support of the state.
As a result of the 1996 deregulation, Edison sold off its power plants and began buying power through the exchanges on the open market. Architects of deregulation figured that the new system would generate competition among wholesalers and drive down the cost of power to utilities. Instead, prices rose tenfold. At the same time, the utilities’ retail rates were frozen at 1996 levels.
Last week, the PUC approved surcharges ranging from 7% to 15% for businesses and 9% for residential customers. However, Olson said Monday that the increase was still woefully insufficient.
