Power as a Lure for Business

Two years after California’s energy crisis reached a peak in the summer of 2001, a move among many cities -- particularly in the fast-growing Inland Empire -- to set up municipal electric utilities is focusing on plans to offer cheap city power on vacant land to lure businesses.

Moreno Valley, Rancho Cucamonga, Irvine and others are looking into providing power to new development.

“In this wacky state economy, other cities are using this as a business-attraction tool,” said Mike Naggar, a Temecula councilman who plans to ask his city next year to consider starting its own electric utility. “Frankly, it may come to the point where we have to do this to stay competitive.”

The plans aren’t as ambitious as they once were, but if even a portion of them succeed, a patchwork of locally controlled utilities will dot the Inland Empire within a few years.

Each city will have to contract with power brokers or generators to buy electricity in bulk for resale to customers.

“This is a concept that is radically different,” said Charley Wilson, a spokesman for Southern California Edison, a private utility that supplies power to much of the region.

In 2001, the energy crisis pushed up electricity bills for much of California.

In the sweltering Inland Empire and the Coachella Valley, a voracious appetite for power, aggravated by strong demand for air-conditioning, made the problem particularly acute.

In some areas, residential bills doubled, and business bills tripled or quadrupled.

But local officials noted that in cities that own electric utilities, such as Riverside, Anaheim and Los Angeles, bills did not increase. Even in normal times, customers in these cities paid less than their neighbors who received power from the large utilities.

Riverside’s municipal utility, which started in 1895, is often citied as an example of the benefits of a locally controlled utility.

Residential bills are typically 10% lower than Edison bills, and business bills are 25% less. The city also offers additional savings to lure business into the city -- 40% off the already discounted rate the first year and 20% the second year.

“We certainly use [cheap power] as a tool for economic development and have attracted some large companies that also provide good jobs in the city,” said Tom Evans, director of Riverside Public Utilities.

In return, the businesses “save, in some cases, millions of dollars.”

In the last two years, these savings have helped lure about a dozen businesses to the city. Additionally, the utility contributes about 9% of its revenue to the city’s general fund, typically $15 million to $16 million annually, Evans said.

After the power crisis, municipal leaders throughout the region saw these benefits and considered starting their own electric companies.

Corona tried to acquire Southern California Edison’s power lines by condemnation, forcing the sale of property for the public good, but gave up earlier this year after legal challenges by the utility caused delays and Sacramento regulators and legislators created new obstacles.

“It was just becoming too costly on all fronts,” said Beth Groves, assistant city manager.

So Corona and other cities turned to undeveloped land.

“The idea was that by starting by serving new development, you don’t have to condemn lines and you don’t have to go through a legal hassle,” said Jerry Jordan, executive director of the California Municipal Utilities Assn. in Sacramento.

But Edison officials say it’s not that simple. It will be impossible to replicate the success of municipal utilities created many decades ago, said Wilson.

“You will never see that kind of utility again,” he said. “They were created in a different era ... with a different set of economic, cultural and geographic circumstances.”

Wilson said that for the sake of reliability and economy, cities would have to assemble a diverse portfolio of energy sources.

They also might find it difficult to sign long-term contracts because they would represent comparatively few customers, he said.

“This is a small business start-up in a capital-intensive, volatile and ... highly dysfunctional industry,” he said.

“What they’re talking about is taking on the risks and obligations of purchasing power in the marketplace -- the same marketplace that nearly bankrupted Edison” and cost the state billions of dollars.

Wilson said city officials are being influenced by consultants who may not provide the whole story. He urged the officials to hire consultants with no financial stake in the answer to conduct financial analyses.

“At the end of the day it is their choice. They have the constitutional right to do this, and we do not have any argument with that,” he said. “But it’s a complex business.... And if you make a mistake, the consequences are severe, as the state has learned.”

California now has 36 municipal utilities. Proposals to add to that list have popped up across Southern California, most in Riverside and San Bernardino counties.

Across Southern California Edison’s territory, Corona, Chino, Chino Hills, Fontana, Indian Wells, Irvine, Moreno Valley, Ontario, Palm Desert, Rancho Cucamonga, Rancho Mirage, San Marcos, Temecula, Upland and Victorville have all considered starting up their own municipal utilities.

Many of those cities have abandoned the idea or put it on hold until stronger economic times, but a handful are moving forward. Palm Desert’s City Council voted Thursday to conduct a feasibility study. Late last month, Irvine leaders voted to continue spending city funds to study the matter; San Marcos decided to put the issue to the voters in the spring.

Among the cities most aggressively pursuing plans to sell electricity on vacant land is Moreno Valley, which could start powering new homes and businesses by the end of the year. Roughly half of the 48-square-mile city is undeveloped and will one day be filled with as many as 30,000 homes and countless businesses, said Tom Breitkreuz, the city’s enterprise services manager.

Developers will be required to lay power lines underground as they build their projects and deed them to the city. The city has already incorporated these requirements into about 75 projects underway, he said.

The city also has filed an interconnection application with Edison that lays out where the city proposes to take over the power that Edison brings to the area. Utility officials are reviewing it.

The city plans to charge residential customers the same rates Edison does to ensure equality across the city.

However, this proposal will eventually allow Moreno Valley to offer deep discounts to businesses, which officials hope will make the city more competitive in luring and retaining employers. Currently, “because we’re adjacent to Riverside ... we are at a disadvantage” in attracting business, Breitkreuz said.

Stores have even left the city because of the difference in the electricity rates, he said, citing the example of a Target store that, according to Riverside officials, is moving next door because the city offered it a six-figure annual electricity savings.

“That’s the type of incentive they can provide that we presently can’t,” he said. “What we’re trying to do is create a balance so we’re on parity with them.”