Edison-Proposed Plants May Test CPUC Affiliate Safeguards

By Published On: December 16, 2005

A plan by Edison International subsidiary Edison Mission Group to build two new power plants in Southern California Edison’s territory may present the first test of regulatory safeguards on affiliate transactions. All indications, including statements by the company, point to at least some power being destined for Southern California Edison, the regulated utility. “We would be very concerned about any affiliate deal unless it occurs through a competitive solicitation,” said Mike Florio, The Utility Reform Network senior staff attorney. “Even then, as part of the procurement review group, we would very carefully review the utility’s analysis to make sure that there was no favoritism.” He noted that “there are protections in place; we just haven’t seen how well they work yet.” The California Public Utilities Commission lifted its ban on long-term affiliate transactions late last year – putting the safeguards against self-dealing in place – but maintained the ban on short-term transactions by a 3-2 vote. In its decision, it said that California will need to consider “all available resources” for meeting its power needs “through an open and transparent solicitation process.” The ban must continue on short-term affiliate transactions, the majority added, “because the market moves too fast and there is too great a potential for abusive self-dealing, with little or no possibility of Commission oversight.” “I know a lot of people have conspiracy written all over this, but in this case it just doesn’t apply,” said Gary Ackerman, executive director of the Western Power Trading Forum, of which Edison Mission Energy is a member. There are numerous potential purchasers of output from the plants, he said, including San Diego Gas & Electric and several municipal utilities. Should any affiliate transaction arise, the CPUC’s decision mandates that it will have to be reviewed by a procurement review group, as are other power-procurement contracts, and also by an independent evaluator. That group, however, operates in secret. Two 500 MW peaker plants are slated for an unincorporated area of Riverside County, known as Romoland, and the City of Industry in eastern Los Angeles County. Both locations lie in the heart of the fast-growing inland part of Edison’s service territory. Each of the plants would have five high-efficiency 100 MW simple-cycle gas-fired GE turbines that could be started up within 10 minutes to meet peak loads. Edison Mission Energy, parent of Edison Mission Group, said the units will also have state-of-the-art air-pollution controls. The plants will “help replace less efficient fossil fuel generation resources retired because of age or cost of producing power,” Edison Mission Group told the California Energy Commission. It also told the commission that the need for the plant is based on power-demand forecasts by SCE. “The outlook from the CPUC and CEC about the need for power in the southern part of the state makes us think that there will be some requests for offers,” said Doug McFarlan, Edison Mission Energy spokesperson in Chicago. It is reasonable to assume that SCE may issue at least one of those RFOs, he said. However, he said that unless Edison Mission is able to enter long-term power-sales contracts, it will not build the plants. Any agreement with Edison would be covered by what he called “strict PUC and Federal Energy Regulatory Commission rules on affiliate transactions.”

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