Guest Juice: Street Light Rate Realignment

By Published On: July 6, 2012

By Laura Norin and Scott Blaising A new player emerged in Southern California Edison’s general rate case to shed light on street light matters, bringing much-needed correction to the utility’s rates and practices. The newly formed Coalition for Affordable Street Lights (CASL) intervened in Edison’s rate design phase at the California Public Utilities Commission. Coalition members, led by the city of Moreno Valley, were motivated by a nearly 60 percent increase in the monthly service charges for Edison-owned street lights between 2006 and 2011. For Moreno Valley, with a population of 193,000, street light payments to Edison total about $1.5 million annually. Given the recent increases, fixed service charges now make up about 75 percent of these payments, with energy usage charges comprising a relatively small share of the bill. Unable to absorb the increases within its lighting district, Moreno Valley approached Edison to discuss options for reducing its street lighting bills. None panned out. Moreno Valley was told by Edison that turning off selected street lights would cost more in disconnection and reconnection fees than it would save in a year of energy payments. Converting to more efficient light emitting diode lighting was cost-prohibitive. Purchasing the street lights to gain control of their costs was not an option, Edison said. Proposition 218 generally requires increases to lighting district charges to be approved by the citizenry and property owners, so Moreno Valley turned to the public. Moreno Valley was rebuffed at the ballot box, leaving the city no choice but to begin subsidizing street light service from the general fund to the tune of more than $1 million annually. These large and ever-increasing payments to Edison created a significant financial burden for a city trying to maintain municipal services during a period of shrinking budgets. Moreno Valley reached out to other southern California cities and found that it was not alone in its concerns over Edison’s street light rates and operations. As a result, CASL was formed, with initial participation from the cities of Downey, Huntington Beach, Moreno Valley, Murrieta, Rancho Cucamonga, Torrance, Upland, and Yorba Linda.   The coalition embarked on an extensive effort to better align Edison’s street light rates with actual costs and to bring much-needed sunshine to the street light ratemaking process. CASL found that Edison’s street light service charges had not been exposed to meaningful light for well over a decade. As a result, the ratemaking model was outdated and appeared to be divorced from Edison’s actual costs. Edison’s methodology for calculating its service charges became a major focal point. Although not as problematic as seasonal affective disorder (winter blues), Edison’s street light rates were in a sad condition, needing a good dose of sunshine. CASL found that the marginal cost methodology that Edison used was based not on Edison’s actual costs but rather on a hypothetical scenario in which Edison replaced each and every one of its street lights every 35 years. In actuality, Edison had no such replacement program, and replaced street lights only as needed. It is not uncommon for Edison’s street lights to be 50 or 60 years old or even older. Also of concern was the so-called “wood pole allowance.”  Edison had been providing real estate developers a discount to offset the cost of installing new street lights. Cities were paying for this discount through their street light bills; however, the cities were largely unaware of the discount.   When CASL became aware of the practice, its members were insistent that the discount was an unacceptable transfer of public funds to private entities that must not continue. Edison was responsive to CASL’s concerns. Through the general rate case process, Edison and CASL were able to cooperatively address CASL’s concerns in a settlement agreement. Filed last week, the negotiated agreement will reduce service charges by 12 percent over the next three years compared with Edison’s original proposal. It will also go a long way toward rationalizing Edison’s street light rates and increasing transparency for street lighting costs in Edison’s service area. Major elements of the agreement are as follows: -Service charges will be assessed based on Edison’s actual costs over the past three years, and will remain fixed at this level until Edison’s next general rate case. -The wood pole allowance, provided to developers, will be eliminated. -Cities will be provided a credit to offset costs of Edison-owned lights that are non-operational. -Edison will begin to replace corroded street light poles in the city of Torrance (a major problem in this coastal city). Edison will provide an annual report to CASL on the amount of money authorized for street light replacements and Edison’s recorded expenditures for these activities. Quarterly, Edison also will provide reports regarding street light outages and repair times, and upon request Edison will provide geographical information system data that Edison has collected. In addition to these rate matters, Edison publicly announced a significant change in corporate policy. Edison stated that it is now willing to discuss the sale of street light facilities to interested cities. This is an about-face in longstanding policy for Edison, whose most recent street light sale was back in the 1970s and whose facilities have historically been “not for sale.” This new policy brings the opportunity for a realignment of street light ownership more consistent with other utilities in the state: currently, Edison owns about 90 percent of the street lights in its service area, compared to about 20 percent for the other two large investor-owned utilities. CASL’s experience is another reminder of the value of sunshine. The southern California cities, which are themselves subject to many open meeting and sunshine laws, shed light on Edison’s rates and practices, and in the process worked to rejuvenate street light ratemaking. So long street light blues. --Laura Norin is a Senior Project Manager at MRW & Associates; Scott Blaising is an attorney with Braun Blaising McLaughlin & Smith

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