Fears of Continued High Rates Dog Edison, State Settlement
For City of Industry meat processor Frank Pocino, this month’s settlement between Southern California Edison and state regulators aimed at keeping the utility out of bankruptcy confirmed his worst fears.
In the past three months, Pocino said he has paid out nearly a quarter million dollars more in electricity bills than last summer. That’s a big hit, he said, considering his annual revenue in this low-profit business is about $35 million. He can pass on only a small portion of the increase to his customers, Pocino said.
“I can’t put up with the Edison bill the way things are right now,” Pocino said. “There is no way we can bear these higher costs through next year, let alone three or four years.”
Among Pocino’s options: joining forces with a Midwest competitor.
“I really want to stay in the area, which has been (the company’s) home for nearly 70 years,” Pocino said. “But with this electricity situation, it’s looking less and less likely that I can afford to do so.”
Pocino is far from alone. Throughout the Southland,and the state,thousands of businesses that were hit with sharply higher electricity rates earlier this summer now face the realization that those rates will be around to stay as a result of the settlement.
That settlement, concluded in secret and announced on Oct. 2, resulted from a lawsuit Edison filed last year against the state Public Utilities Commission after the commissioners denied an Edison request to raise.
The settlement still must be approved by a federal judge and even then might be challenged in court.
The deal allows Edison to pay down $2 billion in debt by maintaining the higher-than-market electricity rates its customers now pay, at least through the end of 2003.
In other words, if the market rate that Edison pays for electricity is about 4 cents per kilowatt hour, and the rate Edison charges its customers is 8 cents, the difference is applied to Edison’s debt.
(Another $1.2 billion in Edison debt would be paid down from money earmarked for shareholder dividend payments that the settlement has ordered be canceled.)
It was a virtually identical arrangement in the 1996 deregulation law that got Edison and the state’s two other investor-owned utilities into financial trouble. The utilities paid down more than $10 billion in past debts by being allowed to charge higher-than-market rates.
In the spring of 2000, though, tight electricity supplies forced wholesale spot market prices much higher than the mandated retail rate, causing each of the utilities to hemorrhage up to $1 billion a month before the state stepped in last January to buy power. (To guard against this now, the settlement allows for rates to go up if spot market prices spike.)
Last April, the state Public Utilities Commission ordered rate increases averaging 40% for all ratepayers but averaging 60% for major business customers, on the premise that large industrial users of electricity could better absorb the higher costs.
The settlement could not have come at a worse time for California businesses. A slowing economy has been plunged into recession by the Sept. 11 terrorist attacks. Meanwhile, other statewide business costs are rising, most notably a 50-cent hike in the minimum wage on Jan. 1 and another round of double-digit hikes in workers’ compensation premiums.
“The electricity rate hikes mandated by the Public Utilities Commission in June went up too much for large industry in California,” said Gino diCaro, a spokesman for the California Man-ufacturers & Technology Ass-ociation. “For many, these rates are not sustainable over a period of a year or more; their margins have shrunk tremendously already. There will be many companies that go out of business if there is not some relief.”
Orange Country businesses say they’re already feeling the fallout from higher electricity rates.
“Of course we are impacted,” said Nas-im Bangloria, owner of Santa Ana-based apparel producer Culver USA Inc.
Culver USA, which makes T-shirts and other apparel, has seen its power bill go up by as much as 40% since June, Bangloria said. Culver USA counts 15 to 20 employees and yearly sales of about $1 million. It’s one of many small apparel producers scattered across OC and the rest of the Southland.
“Everyone is being impacted,” Bangloria said. “From the dye houses to knitwear manufacturers.”
Many companies had hoped to escape the higher rates by signing a power contract with a third-party provider other than Edison. But, after months of speculation that the state would outlaw the ability of companies to sign up third-party contracts (a process known as “direct access”), the PUC finally did so last month. n
Fine is a staff writer with the Los Angeles Business Journal.
