Edison's Pitch for Mountainview, the Movie

My boyfriend's teenage son wanted to know what "meritocracy" means. Realizing the gap between his hip-hop and my geezership, I tried a movie analogy, given his penchant for movies: "Look at this way. If a meritocracy existed, Adam Sandler would be cleaning urinals at the Academy Awards and Renee Zellweger would own Hollywood." If Oscars existed in the energy industry, Southern California Edison would get a nomination for sheer inventive chutzpah for its Mountainview project script. In these awards, mere cost-of-service is an energy cinema staple, but too well worn, like Sean Connery. In Edison's screenplay, however, we see a non-touchable utility affiliate character with Wall Street's Godfather blessing, like edgy Johnny Depp saving an otherwise predictable regulatory flick. For those of you who haven't heard of Edison's proposed Mountainview project, here is the basic plot: On July 21, Edison applied to the California Public Utilities Commission for a new generation facility near Redlands [A03-07-032] . Edison received an option on the California Energy Commission-approved 1,054 MW site from Intergen, a firm developed by Shell and Bechtel. If the deal goes through by November 30, Edison gets Mountainview with a fixed price, which the company doesn't seem to be revealing to anyone but intervenors. If Edison misses the November date, the price escalates though February. Edison, thus, is attempting to fast-track its proposal though the CPUC. The plot thickens. Edison wants to set up a subsidiary that would sell the utility power for 30 years. To accomplish this, it's asking for the commission's affiliate transaction rules to be waived. Any investment by Edison would be paid back through a traditional cost-of-service pass-through and accelerated capital cost recovery. Cost-of-service will have ratepayers paying Edison back for its investments in a traditional formula, like that of San Onofre Nuclear Generating Station. The payback, however, would be front-loaded, so the utility gets more revenue in the earlier years. If this unprecedented deal is preapproved by the CPUC as per Edison's plan, that would likely be the last CPUC oversight. Subsequently, it would be regulated only by the Federal Energy Regulatory Commission?somewhat along the lines of what Pacific Gas & Electric had been proposing for its controversial generation under the original bankruptcy reorganization plan. Edison claims that all this is in the public interest because it would reduce the cost of new generation for its customers. In Edison's script, the leading man's love interest is played by Wall Street financiers. Edison romances the skeptical paramour with promises of riding off into a secure and golden sunset. Edison has a heavy burden in the romantic chase part of the script. "The financial community is worried about cost recovery for a speculative project," Pedro Pizarro, Edison vice president of strategy and business development, explained. Wall Street has been burned by California utility promises and regulatory follow-through in the past. Thus, Edison is enticing it with the Mountainview deal?glittering as diamonds. And the financial community is (almost) hooked. Pizarro calls it an "extraordinary deal." Wall Street wouldn't have to worry about Dustin Hoffman in the shape of the CPUC crashing the altar to stop the Graduate nuptials in the name of public interest if Edison's script flies. The only character that would be able to endanger the romance would be FERC under the filed rate doctrine's authority. But if that were to occur, FERC could hardly find the right bus to get to the church on time. It's a good script for Edison. Those Wall Street sweethearts guarding the gates of capital would see an override of the CPUC's regulation as a partial solution to utility risk. "They like the structure of Mountainview," Jim Scilacci, Edison chief financial officer, remarked. Like a fundamentalist picket line outside a theater showing Martin Scorsese's Last Temptation of Christ, the opposition to the Mountainview deal is not just annoyed, but ballistic. But because Edison's movie is in, shall I say, preproduction, and because the deal will likely be recast and revised as it proceeds, Mountainview adversaries appear overwhelmed, underinformed, and outside the gates of decision making. While the opposition has been giving me an earful, they are deferring to what's on the record. On the record, so far, is this: "It's anticonsumer and anticompetitive," according to the Independent Energy Producers. Opponents' major critiques include: Affiliate rules: This issue gets two thumbs down from the opposition. "It should be a major concern if the first major commitment to a new power plant project by a utility was not under this commission's [the CPUC's] control," noted Scott Logan, Office of Ratepayer Advocates regulatory analyst. Reliability: There is no reason for approving this on the grounds of reliability, says ORA, but if projected power plants already sited by the California Energy Commission don't materialize, then utilities "could" be short on capacity. Cost-effectiveness: If not a necessity from a reliability standpoint, then Mountainview needs to be approved on cost-effectiveness basis, and opponents say that Edison has not made any analysis available. Like in the movies, there can be surprise endings. And focus groups have been known to persuade studios to change the finale after it's already written. A focus group, in the form of Edison's Procurement Review Group, was directed in a scoping memo from the commission September 16 to "examine the proposed level of ratepayer benefit and associated issues." The CPUC is taking the speed of the matter seriously, with a proposed decision due in mid-November and a final decision date of December 18. Note, though, that even if the CPUC makes a decision within its own time frame, and with the traditional end-of-year crush of decisions, it still doesn't fit into Edison's option for fixed price. And here's one possible surprise ending: The Utility Reform Network might just waltz in at the end and claim it's such a good deal the CPUC can't pass it up. Mike Florio, TURN senior attorney, is on the procurement review group, and he's seen the numbers. He's sworn to secrecy but says, "They're interesting enough to keep us from having a knee-jerk reaction." As for the teenager's understanding of meritocracies and movies, I don't think I got through to him. He doesn't want to be Johnny Depp, he wants to be president.

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Edison’s Pitch for Mountainview, the Movie

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