Potential Cost of Utility Sparks Dispute in Irvine

Sharp disagreement over the potential cost of a city-owned electric utility has emerged as the Irvine City Council votes tonight on whether to move forward with the project. The utility would serve the Irvine Co.’s massive new development on the city’s future north end.

A municipally owned utility could bring in more than $111 million over two decades for Irvine’s general fund, according to Astrum Utility Services, a Solana Beach consulting firm hired by several cities after the state’s energy crisis to examine whether they should provide electricity themselves.

But Southern California Edison, which stands to lose the business, says that the report contains errors.

The power company says its experts found that creating the “spot utility” could leave Irvine as much as $138 million in debt.

The council will vote tonight on three steps to move the process forward: taking $369,000 from the city’s rainy-day fund to pay additional consultants, lawyers’ fees and study costs; applying for interconnection as a municipal utility with Edison; and issuing a request for qualifications for contractors to handle day-to-day operations of the utility.

The Irvine Ranch Water District has expressed interest in assuming many of the billing, repair and other utility functions for the city, for a fee.

Total estimated costs of the utility over the next 25 years would be about $46 million, including construction of two substations, Astrum President Len Viejo said.

Part of the financing would come from issuing revenue bonds.

The city would not build its own power plant; instead, under California’s deregulation laws, Irvine would buy electricity on the open market and ship it to the area on state-owned and Edison lines.

Mayor Larry Agran said at least moving forward with the next steps is worthwhile.

“This is about keeping an important option open in a developing city such as ours, an option that could potentially dramatically assist in securing our energy future, and in providing a stream of revenue for services for our city,” he said.

Agran said the plan would be to provide electricity to new residents and businesses at about the same cost as current customers pay, while bringing additional revenue into city coffers. Those funds could be used for anything from the day-to-day costs of providing such services as police and fire protection to construction of the Great Park on the former El Toro Marine base.

Agran said he also never wants the city to face the specter of rolling blackouts that haunted much of California two summers ago.

Edison spokesman Paul Klein said, however, that creating a municipal utility would not guarantee that the city could avoid crippling blackouts.

While Anaheim, Los Angeles and other cities with longtime municipal utilities were not subject to the same steep spikes in energy costs during the crisis, they were on the list for possible blackouts because they are tied to the same statewide electric grid as every other city.

Edison spokeswoman Kim Scherer said the main flaw in Astrum’s study was that the firm had not adequately accounted for wildly fluctuating costs of generating electricity.

Most providers rely heavily on natural gas to create electricity, and gas costs have swung back and forth by 700% in recent years. Even a 10% increase in gas costs could jack up expenses by $26 million, she said.

Councilwoman Christina L. Shea said she was concerned about potentially enormous fiscal risks to the city, and that the analysis done by Astrum seemed “shallow.”

She and her staff also are concerned about fairness to new residents and businesses that might be subsidizing programs in other parts of the city.

But Astrum’s Viejo said his firm studied gas prices for 10 years, averaged them and included a potential 10% increase in the analysis.

“Our numbers are very detailed. There is no mystery as to where our numbers come from,” Viejo said.

He also said the City Council would control rates charged in the so-called Northern Sphere and could spend excess revenue as it chose.

Another concern is how quickly the city will be able to start a utility.

The Irvine Co. is scheduled to begin construction of 10 million square feet of office space as early as March and could be required to absorb electricity infrastructure costs.

Edison normally refunds such costs, but a city-owned utility might not be required to do so.

Edison said Irvine Co. executives had met with them to discuss the municipal utility and were concerned about both potential costs and having ready power for its upcoming projects.

“This is an idea that didn’t begin with us, so we’re trying to better understand what it is and how it would work to assure residents and businesses a reliable supply of power from a reliable system,” Irvine Co. spokesman John Christensen said Monday.

“Until we have more details, we really cannot take a position.”

But Viejo said electricity could be provided by next year, and that the cost of reimbursing the developer for infrastructure had been included in the initial study.