Edison Pushes Cost Recovery Issue

By CMTA Staff

Capitol Update, Aug. 28, 2003 Share this on FacebookTweet thisEmail this to a friend

From the moment the Legislature convened the 2003 legislative session back in January, Southern California Edison has been looking to get legislative approval of language authorizing cost recovery for new, utility-built generation.

For much of the year, the utility pinned its hopes on Senate Bill 888 (Dunn), the controversial electric “re-regulation” bill. After several twists and turns, and a number of concessions by the bill’s author, Sen, Joseph Dunn, SB 888 failed passage in the Assembly Utilities and Commerce Committee.

While there is still a possibility the bill could come before the U&C Committee for another vote—it was “granted reconsideration,” a courtesy extended to many bills when they fail passage—the prospect of this happening appears increasingly unlikely for a number of reasons. First of all, the bill failed to garner a single vote when it was last before the committee. Furthermore, at the CMTA Energy Conference at Lake Tahoe last month, U&C Committee Chair Sarah Reyes (D-Fresno) noted that efforts to resurrect SB 888 would bear fruit only if the bill dealt with several thorny issues, including direct access, utility obligation to serve and cost recovery.

Undaunted by SB 888’s weak prospects for success, SCE is looking for another legislative vehicle with which to insert utility cost recovery language. There was considerable speculation last week that AB 653 (Nunez) might become the vehicle until the bill’s sponsor, the Planning and Conservation League, stepped in and voiced strong objections to such a move.

While there is no legislative vehicle—at least not yet—there is new legislative language. The draft language being floated by SCE includes legislative findings that “cost-based” rates are in the public interest and operative provisions requiring the California Public Utilities Commission to ensure that the utility’s costs of owning and operating power plants “including a reasonable return of and on investment in such facilities, are fully recovered for the life of the facility.”

Although the draft language permits the utilities to buy power from other sources, including merchant generators, for all practical purposes the cost recovery provisions are generous enough that utilities would be strongly motivated to build the generation themselves.

The draft language states the Legislature’s preference for cost-based rates but it is worth pointing out that just because rates, are cost-based does not mean they are the lowest rates available. California had cost based rates for many years prior to the enactment of AB 1890, the landmark electric restructuring law, and yet rates were among the highest in the nation.

Cost based rates are not necessarily in the public interest. The public interest is best served by a competitive bidding process for new capacity. Only through a competitive process can ratepayers be assured that they are getting the best and lowest prices for electricity.

If SCE is unable to find an author and legislative vehicle for its proposal before the Sept. 12 adjournment, this issue will likely be before the Legislature in some form or another when the 2004 session begins next January.
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