Edison Mounts Full-Court Press for Cost-Recovery Legislation

By Published On: February 8, 2004

State Assembly speaker-elect Fabian Nu?ez (D-Los Angeles) is set to introduce legislation that would guarantee utilities? cost recovery for investments in generation. The bill, which would also establish a direct-access market for noncore customers, has been aggressively pushed by Southern California Edison. Nu?ez advanced a cost-recovery bill without direct-access provisions that failed to win passage last year. By its own accounts, Edison has in the past year pressed for legislation that would, among other things, require recovery in rates for ?reasonable? utility investments in generation. The utility?s controversial Mountainview project, which won California Public Utilities Commission approval in December and now faces Federal Energy Regulatory Commission review, could be a prime candidate for this treatment. The utility has also been ?telling anyone in Sacramento who will listen? that its customer base needs to be clearly defined to avoid investments that result in stranded costs, according to utility spokesperson Gil Alexander. A direct-access market would contribute to a stable customer base, he said. Direct access was a key provision of initial electric deregulation. In its first iteration, both large and small customers were able to contract with nonutility providers. In the current version, most envision that only large consumers will be able to contract for energy outside utilities. The term used for splitting the two kinds of customer access to outside providers is ?core-noncore.? In terms of key provisions, language in Nu?ez?s draft bill meshes closely with proposals Edison has circulated. For instance, the utility has called for the CPUC to ?establish and thereafter maintain rates to ensure the full recovery of and on reasonable utility investments, and the full cost of contracting with a third party including debt equivalence and collateral.? The draft legislation also addresses a primary Edison concern?capital markets. ?In order to attract sufficient capital to make investments in needed resources, there must be assurance that reasonable costs and investments, including a return of and on utility direct investments, and investments made by third parties under contract with a utility are recovered in rates,? reads the proposed language. Addressing direct access, the draft bill, like Edison?s plan, states that the noncore market should be composed of customers using more than 500 kV, and that these consumers can elect to take direct-access service through an energy service provider. In its current form, the legislation directs the CPUC to adopt regulations allowing this market to start by 2005. While Edison?s ideas have won favor with some state legislators, some of its provisions may not sit well with the new governor. Though he favors direct access for large consumers, Arnold Schwarzenegger?s stated preference for a free-market approach could clash with plans that rely heavily on regulated rates. ?If you read between the lines,? the bill amounts to a reregulation push by Edison, claimed a Schwarzenegger staffer. For their part, some independent power suppliers claim they could be squeezed out of the market if the bill passes. Even though Edison has said it wants cost recovery for contracts with third-party providers, utilities tend to favor their own generation resources, once they have them, asserted Brian Cragg, an attorney who represents several generators. Once a requirement is set in statute, it is even more difficult to change than CPUC regulations, noted Cragg wryly. Dan Eaton, chief of staff for speaker-elect Nu?ez, dismissed the notion that utilities would be handed an unfair advantage in terms of investment risk compared to independent power producers. These suppliers ?need to come to the table and work on [plans] that would benefit all Californians. We?re driven by public interest, not individual interest,? said Eaton. Nu?ez will be introducing the bill ?soon,? but the date has not been nailed down, according to the chief of staff. The bill contains some reregulation elements, added Eaton, but that?s ?not necessarily a bad idea,? given the failures of deregulation. ?We?re not going to let the robber barons take over energy markets in California again,? he stressed.

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