Anaheim’s Power Play Paying Off in Crunch

While much of California scrounged for power this week, Anaheim Public Utilities, humming along on its own power, reported an excess.

Anaheim’s hardiness during a summer crunch that has shaken the power industry is an indicator that it will do well in the future, experts said. In fact, within two years, Anaheim’s electric energy bills could be the envy of Orange County.

State-mandated deregulation in 1996 of privately backed utilities has turned the business of providing electricity upside-down. In south Orange County, electric bills have more than doubled after early deregulation by San Diego Gas & Electric Co.

If trends of high demand and relatively little available energy continue, the same could happen to Southern California Edison Co.’s customers, across much of the county. In 2002, they will lose rate protections spelled out in the deregulation law.

But Anaheim Public Utilities general manager Edward Aghjayan predicts that his 125,000-plus customers will have nothing to worry about.

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“I think we’re in a great position,” said Aghjayan. Not only will Anaheim’s rates remain low, but customers will see a rate decrease in 2002, after the public utility has paid off its remaining $52 million in debt, he said. The utility has already paid off $260 million.

Anaheim’s readiness for a deregulated marketplace stems partially from the fact that it is a municipal utility. Deregulation required Southern California Edison, San Diego Gas & Electric and Pacific Gas & Electric Corp. to enter a competitive marketplace. The companies were required to sell off at least half their power plants, and many sold off far more. They now must buy all of their power from a cooperative called the California Power Exchange, which changes its prices daily.

Anaheim and other municipal utilities, on the other hand, can use all the power they own.

But that’s not the whole story. If deregulation had occurred 20 years ago, Anaheim would have been in the same fix as the investor-backed companies, buying from the Power Exchange. Until the mid-1970s, Anaheim had no means to generate power, instead buying it all from Southern California Edison. Frustrated by continual price increases, Anaheim and 10 other municipal utilities in Southern California decided to invest in their own power plants and transmission lines.

Two years ago, with electric energy prices extremely low, those investments in the coal-burning Intermountain Project in Utah and the San Onofre nuclear plant looked like costly financial albatrosses.

But now, hot weather, California’s booming economy and a paucity of new power plants have sent prices on the Power Exchange soaring. Prices from the Intermountain Project and San Onofre no longer look bad.

Another public utility, the Los Angeles Department of Water and Power, has greatly profited from its power plants, selling excesses to the Power Exchange. To a lesser extent, Anaheim has done the same, last week selling 50 megawatts of power to the exchange each day.

Alan Watts, general counsel for the Southern California Public Power Authority, the group of 11 public utilities that includes Anaheim, said they clearly made the right choice several years back.

“There’s chaos in the electric power industry. The fact that these folks have generation and don’t have to rely on the market is obviously a good decision.”

By owning power plants, Anaheim and the other municipal utilities can predict costs and charge regulated rates, said Robert Michaels, a professor of economics at Cal State Fullerton and an energy consultant for some power producers.

However, Michaels warned that should power grow cheaper, Anaheim could be stuck with costly plants. Southern California Edison officials, for one, insist that prices will stabilize with new plants being built and that their customers will not see higher rates.

But Bill Carnahan, head of the Southern California Public Power Authority, said ownership of the power generating plants are “one of the best hedges you can have.”