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CSUF was hit with power fines, too but it was insured

Like many others in Southern California Edison’s now-infamous “interruptible” program, California State University, Fullerton, got pummeled with fines for not reducing its electricity consumption during the power alerts that began plaguing the state in October.

Unlike other big users in Orange County, however, CSUF was insured against the loss,at least until its insurer, Boston-based Lexington Insurance Co., refused to renew and the policy lapsed at the end of the year.

“Because the insurers had a bad experience last year just like we did, no one is writing any more insurance policies to cover the sorts of penalties (interruptible) customers may be required to pay,” said William Barrett, the university’s vice president of administration.

Before that, however, the university piled up $977,000 in fines, nearly tapping out the $1 million policy. Penalties CSUF incurred in January are still pending.

Julie Puentes, vice president of public relations at the Orange County Business Council,which has been following the power crisis closely and lobbying state officials for relief,said she has not come across any other OC-based companies or institutions that took out insurance to protect themselves against the penalties.

The University of California, Irvine, Chapman University and Newport Beach chip maker Conexant Systems Inc.,all interruptible customers,said they were not insured against their penalties.

Officials at Lexington parent American International Group Inc., New York, declined to comment on the CSUF policy, citing confidentiality.

As a member of the so-called I-6 program for big electricity users since 1997, CSUF had agreed to operate at or below a severely reduced level of power consumption upon receiving an interrupt signal from Edison. In return, the university got electricity at a low year-round rate.

But university officials insist they signed up for the program with the understanding they would not be asked to power down during non-summer months. The university normally has only 4,000 students in the summer compared to 28,000 during the winter months.

“If we would’ve known there was a good chance of interrupt signals during the winter months, we would never have signed on,” Barrett said.

But Barrett said university officials in 1997 were sufficiently concerned about what could happen given deregulation of California’s electricity sector that they decided an insurance policy was necessary in case the institution was unable to get down to the interrupt-mandated service level during non-summer months.

This proved prudent. Starting in October, CSUF, Orange-based Chapman University and other educational institutions participating in I-6 received an unpleasant shock, being asked to reduce electricity demand during their peak periods,winter session months that included final exam periods.

“We were asked to shut down during final exams,” said Barrett, explaining why the university couldn’t cut back as ordered in the winter. “You can’t really operate an educational institution if it’s being asked to shut down during finals.”

Like many others in the I-6 program, the university in October tried to exercise its option to exit the program at year-end, but the state Public Utilities Commission suspended the opt-out clause for all I-6 customers and in doing so left them subject to fines for not reducing their power consumption.

The commission subsequently reversed itself, but left unresolved whether fines incurred in January and February would be assessed. The commission has directed Southern California Edison, San Francisco-based Pacific Gas & Electric and San Diego Gas & Electric to put the penalties those utilities assessed for 2001 into memorandum accounts. These penalties, most of which were incurred in January, cannot yet be billed to interruptible customers.

“We are optimistic the commission will waive those penalties,” said Barrett, who added that CSUF will not continue in the I-6 program as it is currently structured.

A commission draft proposal slated for review this week may allow educational institutions to continue in the I-6 program with the option to opt-out or realign their emergency-use levels. However, if they opt out now, they would have to pay the 2001 penalties. n

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