June 30, 2004 - From the May, 2001 issue

Municipally-Owned Utilities Regain Status Rick Cole Explains Why

In just six months, deregulation of California's electricity market has successfully undermined the future of the sixth largest economy in the world. Through the smoke of rolling blackouts and State surplus drain, however, a few champions have emerged, one clearly being public power. In the following MIR interview, Azusa City Manager Rick Cole champions the case for public power utilities, and cautions that the worst outcome would be for the Governor or the Legislature to impose a scheme that would put local public power utilities at a disadvantage. He maintains that public utilties like Azusa's continue to provide reliable power at affordable rates because they are driven by long-term customer care, not quarterly profits.

Rick Cole

As the energy crisis deepens, the effects are increasingly being felt even by the municipal utilities that had seemed exempt from energy shortages and fiscal meltdown. Early on, your City boasted in ads that the "lights are still on in Azusa." How is Azusa faring now?

Our Resource Manager Bob Tang has consistently been pessimistic-so last year he lined up additional reserve power for this summer at prices that seemed high then, but turned out to be a bargain. We have an adequate reserve to serve all of our customers through the end of 2002.

But frankly, we got a rude shock on March 19th. We had plenty of power that day, but it comes to us over Edison's lines. With about 15 minutes notice, Edison ordered us to "share the pain" by shedding electric load. We were forced into rolling blackouts. Fortunately we were able to implement alternatives for reducing load, so at least our customers were spared a second day of outages.

We immediately embarked on a crash program to double our reserve margin, because we're assuming Edison will be calling when they run short this summer. Our largest customers have signed up to shift production in advance. We're also going all out for conservation by City facilities and residential customers.

We have always recognized our stake in the larger economy. Despite our advantages, Azusa can't succeed if the communities around us are in crisis. We're committed to keep the lights on and to save our share for the rest of California.

How do you think public power is being judged? While Los Angeles and others got early media credit for not joining the deregulation frenzy, there has been criticism lately that public power entities cashed in on the misery.

We don't have legions of lobbyists, and we haven't launched ad blitzes like Edison. Frankly, public utility leaders are cautious. Most have chosen to take a low profile in the energy debate. But with so much at stake, we need to take a forceful stand that public power is the best way out of this crisis.

Public and private utilities co-existed for 100 years in California. Despite our battles, we kept each other honest. Then in 1996, the private utilities cut their deal in Sacramento and went for broke. Literally. They staked their future on a scheme that was supposed to lower rates and protect their profits. They even strong-armed the Legislature into financing it with ratepayer surcharges. Well, we all know the end to that story.

What we don't know is what happens in the sequel. I'm sympathetic to Governor Davis. The voters elected a cautious moderate who is suddenly confronted with a crisis that cries out for a bold response. Sooner or later he has to face the reality that unless the State owns the private utilities, the private utilities are going to end up owning the State. It's the old story. Guy owes you $100 bucks, you have leverage. Guy owes you $10 billion dollars, guess who has the leverage?

The Republicans claim that Davis' plan to buy the distribution system from the private utilities is the first step toward utility socialism in California.

That's what Republicans said 100 years ago when cities like Pasadena, Los Angeles and Azusa fought ferocious battles to keep Edison from becoming another octopus like the railroad monopoly. Today, rolling blackouts have the potential to bring rolling disaster to the economy and social fabric of California. In just six months, deregulation has undermined the future of the sixth largest economy in the world. California residents and businesses are going to spend tens of billions over the next 20 years to dig us out of this crisis.

Instead of buying their distribution system, we should be buying their stock. In justifying the plan to buy the distribution system at inflated prices, Senate Majority Leader John Burton says, "If I spend a dollar, I want a hot dog." Fine. But if we spend $20 billion or so, we should own the hot dog company. Especially if we plan on continuing to eat hot dogs.

Ten years ago, Azusa Light and Water bought a private water utility next door, doubling our customer base. Wall Street would have called it a "leveraged buy-out." In other words, you buy the hot dog company with debt you pay back with future hot dog sales. Since Californians will still be buying electricity, we'd be paying ourselves back, instead of Edison shareholders. Then if there are dividends, they can support California's parks, schools and universities.


Is California ready for such a bold plan? How about Wall Street?

California may not be ready today, but if we have the predicted 34 days of blackouts, public power may be the only alternative to lynching the entire Sacramento political class.

Wall Street? I don't pose as an expert on global financial markets. But I doubt whether ideology will stand in the way of financing a deal. If they lend money to the Philippines, I think there must be bankers to lend money to the State of California to avert an economic meltdown.

Do you think we'll see 34 days of blackouts?

Probably not. Americans are famous for blundering into crises, but we're unmatched in the world for working out of them. I see what we're doing in Azusa. March 19th was a wake-up call for us. For 100 hundred years, our utility people have been passionate about one thing: providing reliable, affordable power to customers. Our guys will climb poles in freezing rain to turn the power back on, so they hated throwing that switch. They're doing everything they can to ensure that we won't have to do it again. We may be ahead of the curve, but I don't think the rest of California will lag far behind.

The problem seems huge, but we just have to lower the peak-hot weekday afternoons when businesses run full blast and later when everyone goes home and turns on their air conditioners. If business and residents put their minds to it, this summer could be as anticlimactic as Y2K.

Then what?

Who can predict the next turn of this roller coaster? But over the long-term, clearly public power has the best potential to continue to serve our customers. The worst outcome would be for the Governor or the Legislature to impose some misguided scheme that would put local public power utilities at a disadvantage. We hope they learned from the deregulation fiasco, but when desperation runs high, who knows? That's why the case needs to be made for public power.

That case is simple: what would happen if in the dairy industry all the herds owned by corporate farms were riddled with foot and mouth disease and all the herds owned by family farms were healthy? Would you slaughter their herds too? No, you'd apply the lessons from the healthy farms. In the utility industry, the public power utilities continue to provide reliable power at affordable rates because we never lost sight of that goal. We're driven by long-term customer care, not quarterly profits. That's the lesson. That's the case for public power. And that's the choice for California.

Crises usually bring out both the best and the worst in human nature. Do you think there are any heroes in this one?

State Treasurer Phil Angelides is one. Unlike Kathleen Connell, he hasn't undercut his party's Governor, but he's been focused on California's financial health. For me, it's been our Utility Director Joe Hsu. After 18 years on the job, he's emerged as one of the ablest and brightest guides through the deregulation jungle. He doesn't have the flamboyance of David Freeman, but he's built one of the strongest balance sheets of any utility in the State. He's only raised electric rates once in his career, back in 1993. The other heroes are the business people we work with in Azusa. They want to do their part to get this crisis over with so they can go back to work, providing jobs and competing in the world marketplace. They've been champs.


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