Small Municipal Co. Enjoys Surplus

Friday, October 13th 2000, 12:00 am
By: News On 6

REDDING, Calif. (AP) — Happy tales are few in California's roiling electricity market, so here's one: A city utility opted to build up its power plants while other companies were getting rid of theirs, and now it sells its surplus for a tidy sum.

In a state where two huge private power companies are each losing perhaps $1 million an hour because of soaring wholesale prices for energy, Redding Electric Utility is looking prescient.

The utility's director, James Feider, carefully avoids any gloating. He prefers understatement: ``I think it's fair to say we're in pretty good shape.''

A 1996 deregulation law, backed largely by industrial ratepayers who wanted cost breaks and utilities who wanted out from under regulation, sought to open up California's electricity industry to competition.

The law obliged the state's three large investor-owned utilities to sell off their generation and buy power on the open market by March 2002. Two of those companies — Pacific Gas and Electric Co. and Southern California Edison — have absorbed $5 billion in losses since the spring because of skyrocketing wholesale prices and a rate freeze that prevents them from passing on those costs. They are pressing to have the freeze lifted.

The third company, San Diego Gas and Electric Co, which serves 1.2 million customers, earlier completed its transition to deregulation. Its rate freeze was lifted and it passed on the spikes in wholesale electric costs to its unhappy customers, whose bills doubled and tripled.

The same law gave the state's 30 public utilities a choice, allowing them until 2003 to decide whether to deregulate. As did others, Redding chose not to.

Because they hung on to their sources of generation or had long-term contracts, many of them have been spared the market turbulence that has afflicted their private counterparts.

But even compared with other municipal utilities, called ``munis,'' the $70 million-a-year Redding system fared well.

The utility's bosses — the elected members of the Redding City Council — approved a hefty surcharge to finance $300 million of improvements that included a new power plant.

``It was a significant risk,'' Feider said. When the surcharge was enacted in 1997, rates rose 23 percent, from 8 cents per kilowatt hour to about 10 cents per kilowatt hour.

``But our customers haven't been exposed to a 200 percent rate increase, like they had in San Diego,'' he said.

Now, Redding has more power than it needs, and is selling power at premium rates in the wholesale market — the same market that is bedeviling Pacific Gas and Electric Co. and Southern California Edison.

The surcharge will be lifted two years early in 2002, and bills sent to Redding's 40,000 homes and business are below the state average.

``It was the right decision, looking back on it, absolutely,'' said Patrick Keener, an executive at the Redding Electric Utility.

The key, Keener said, is that local politicians weren't swayed realized that supply was the critical factor driving cost.

``They realized you can't go into the free market if you don't have enough supply to handle the demand,'' Keener said.

The Redding utility is strategically located near Shasta and Kesswick dams and straddles north-south power links running from Oregon through California. It also has long-term power contracts with several entities across the West.

Its peak usage, measured in megawatts, is about 215. The utility takes has 300, so it can offer the excess to a sellers' market and fetch premium prices. At midyear, it had sold about $8 million dollars' worth to customers in California, Arizona, Washington and Nevada.

Among its customers is Sempra, the parent company of San Diego Gas and Electric.

The nation's largest public utility, the Los Angeles Department of Water and Power, also has sold excess power, but on a far larger scale: It has earned about $50 million in sales.

Redding is using its stable energy rates to lure new businesses. Texas-based Chatsworth Products, Inc., is already coming, and more are likely.

``That's a very key issue when we sit down to talk to people,'' Keener said.

Meanwhile, Wall Street, which has raised concerns about the stressed, investor-owned utilities, seems to like the munis.

Standard and Poor's CreditWeek Municipal noted last week that the municipal utilities ``continue to meet the goals of their competitive business strategies, while pressure is mounting on the investor-owned utilities.''