South Gate Faces Static in Bid to Form Electric Utility

South Gate is trying to become the first Southland city in more than 50 years to buy out facilities of the Southern California Edison Co. and form its own publicly owned electric utility company.

The city has informed Edison that it intends to take over operations by Jan. 1, 1988.

Edison, whose territory covers about 50,000 square miles from Central California to Palm Springs and whose annual income is about $5.5 billion, compared to South Gate’s budget of about $14.5 million, opposes the move.

“This is a Goliath-and-David deal,” said Bruce Spragg, South Gate city administrator, in describing the city’s effort to form its own utility.

Breaking Away

A few cities in recent history have discussed breaking away from Edison but because of the high cost of purchasing the system and political resistance, none has been successful, observers say.

There are more than 30 publicly owned utilities statewide, with 10 in the Southern California area: Los Angeles, Vernon, Azusa, Banning, Burbank, Colton, Glendale, Pasadena, Riverside and Anaheim.

“It is a good business generally,” said Gordon Hoyt, general manager of the Anaheim Public Utilities Department. “You generally provide lower rates to your customers, but you can take lots of political heat getting started. Most of the time, councils don’t want the hassle.”

The Anaheim utility provides both water and electricity to the city’s population of 240,000, said Hoyt, who is past president of the American Public Power Assn., a national organization of publicly owned utilities.

Because Anaheim can buy power from a variety of sources, including Edison, the average rate today in the city is 9.8% less than it was in 1985, said Ray Merchant, a spokesman for the Anaheim utility.

But Anaheim, like most cities that operate their own facilities, started its system around the turn of the century and did not buy the franchise from Edison.

Vernon was the last Southland city to break away from Edison and form its own utility. That occurred in 1933.

‘Would Have Cost Millions’

Earlier, in 1922, the City of Los Angeles started purchasing some Edison facilities to form the giant Los Angeles Department of Water and Power.

In 1982, after a preliminary study, Palms Springs decided against buying Edison facilities “because it would have cost millions,” said Allen Smoot, the city’s director of transportation and energy.

In 1983, the city did construct two small co-generating plants that supply power to only municipal buildings, Smoot said.

South Gate officials claim that a city-owned utility could cut the cost of purchasing energy by buying wholesale rather than retail and then returning the savings to the city coffers. Officials also hope that they can lower the customer’s rates.

Lower Cost

Edison charges $30 million annually to its South Gate customers, but the city believes that it can lower the cost by buying the distribution system, City Atty. Bruce Boogaard said.

The city would buy the distribution system, continue purchasing power from Edison and other suppliers of power at wholesale prices and pass on the savings, Boogaard said.

City officials estimate that it could save anywhere from $600,000 to $4.3 million a year, just in the first year of operation, Boogaard said.

As a publicly owned utility, the city would be able to “shop around” for cheaper prices, and it would not have to make a profit for its stockholders as Edison does, Boogaard said.

He said there about 22 suppliers of electricity in the Western United States that the city could purchase power from at a cheaper price.

Edison opposes the takeover for several reasons, said David Ned Smith, a company division manager.

“We don’t think the city can provide lower rates,” he said. “We believe it will cost them more to run the system than it costs us to operate it, just because of our size and experience. We have been doing this for a 100 years.”

The city has signed a letter of intent to start purchasing power at a lower rate in 1988 from the Bonneville Power Administration, a branch of the federal Department of Energy that runs hydroelectric projects in the Pacific Northwest, Boogaard said.

However, the city must get Edison’s permission to transmit the energy through its lines into the city. The city must also purchase a substation near the city’s boundaries, which would allow it to distribute the power to its customers within the city, Boogaard said. Edison has not given permission to use its lines and said it has no intention of selling the substation.

Edison and the city are also millions of dollars apart on how much the 50 miles of power transmission and distribution lines that run through the seven-square-mile community are worth.

Old and Antiquated

The city says the distribution system is old and antiquated, much of it dating from the early 1940s, and is worth between $7 million and $10 million. Edison says the system has been updated as needed and the distribution system alone is worth $18 million.

The entire operation, including the the possible construction of a new substation to deliver power within the city, would cost an estimated $58 million, Edison said.

The South Gate City Council will vote Monday on whether to proceed with condemnation proceeding against the Edison property.

The council expects hundreds of residents and industrial and commercial businesses to attend the meeting. Some in the community of more 75,000 have expressed surprise and shock over the idea of the city forming its own electric utility.

Edison has gone directly to its more than 23,000 residential, industrial and commercial customers, asking them to oppose the city’s takeover attempt.

Edison has sent letters, both in Spanish and English, to its customers explaining the company’s position. The company has also sent stamped post cards to the customers, asking that they be returned to City Hall.

The cards, in part, say, “I oppose the takeover. . . .” They also say, “A takeover would raise utility bills. . . .”