Edison Girds for Fight on DWP Strategy Move

Apparently outmaneuvered in its own backyard, Southern California Edison is using its political weight to try to block a soon-to-be-announced strategic alliance between the Los Angeles Department of Water and Power and an outside energy company.

Edison says it was unfairly left out of the race to be DWP’s partner. Top Los Angeles City Hall officials and others say Edison is merely trying to prevent the formation of a powerful new competitor.

The skirmish is only the first of many that are likely to be fought by power companies, customers, unions and politicians as DWP, the nation’s largest municipal utility, struggles to streamline itself and prepare for the brave new world of free-market energy competition, which starts next year. The stakes are huge for jobholders, ratepayers--and competitors like Edison.

The enactment of California’s electricity deregulation law in September means the state’s power monopolies will lose their exclusive claims on their customers by 2003 and will have to compete with outside energy companies on the basis of price and service, a prospect causing an enormous culture shift within the industry.

The upshot is that utilities across the country are struggling to adapt, in part with strategic alliances such as DWP is proposing. Some say the DWP is acting nimbly to line up a free-market partner, while Edison is behaving like an old-fashioned utility by wielding its political influence.

Says Michael C. Burke, senior vice president of New Energy Ventures, a marketing firm founded by former top Edison executive Michael Peevey:

“What Edison is doing is something they have done consistently for the last two years since it became clear the energy business was deregulating: Use politics and use the regulatory process to position yourself in the marketplace or to deposition your competition.”

And Edison’s intense lobbying efforts at Los Angeles City Hall seem to be meeting with success. City Council may vote today on a motion to delay the selection of DWP’s new partner--currently slated for next week--so that Edison’s case, and possibly other options, can be heard.

Mayor Richard Riordan says he now favors a new competition to consider a second partner for DWP to improve service and marketing within its local service area, but that he does not favor scrapping the naming of another strategic ally for DWP. He said his position is the result not of political pressure but of advice from his staff and outside consultants on how best to prepare the DWP for deregulation.

But Edison said it wants to be the city-owned utility’s primary ally if it is to have one at all. Just what form such an Edison-DWP partnership would take is unclear, although Edison said it is not suggesting a merger.

DWP’s search for a strategic ally is designed to link it with an entrepreneurial, nationwide energy manager whose financial and marketing expertise would help the utility cut costs and find an outside market for its excess power capacity, enough to light 1 million homes.

Next Tuesday, DWP General Manager William McCarley is due to recommend one of three finalists--Pacificorp of Portland, Ore.; Duke/Louis Dreyfus of Wilton, Conn.; or Enron Corp. of Houston. Informed sources agree that Duke/Louis Dreyfus has the inside track.

DWP launched the search under guidelines suggested by consultants Price Waterhouse and PSC Energy Corp., which advised the utility not to partner with a large public utility burdened with the same problems as DWP.

DWP’s criteria excluded Edison because of its high level of generation capacity and unprofitable assets, neither of which are of any use to the DWP. The competition specified that any utility with 7,000 megawatts of power generation or more could not apply, thereby excluding Edison and Pacific Gas & Electric of San Francisco.

Edison now insists the playing field was changed by the passage of the state deregulation bill. Edison since announced plans to sell all 12 of its California generating plants powered by fossil fuel, bringing it under the DWP’s 7,000-megawatt guideline.

Edison spokesman Tom Higgins said his utility now is the logical partner for DWP, given its knowledge of the Southern California energy market, its “geographic proximity and mutual interests.” Edison believes the entire selection process should start over, he said.

But high-level City Hall officials and some outsiders fault Edison for not acting sooner.

Riordan said he personally encouraged Edison last July to make concrete business proposals to the DWP, but that Edison failed to act.

Edison’s Higgins said the utility didn’t respond to the mayor’s offer because it never resigned itself to being left out of consideration to be DWP’s strategic partner. “There is no legitimate reason for us to have been excluded,” he said.

Now Edison’s critics say the utility is using late-inning delaying tactics because it is worried that it may be left in the cold by the DWP alliance and by the proposed merger of Southern California’s two other utility giants, the parent firms of Southern California Gas and San Diego Gas & Electric. That union, which Edison also opposes, was announced in October.

“I don’t know why Edison didn’t offer anything to the DWP long ago,” a top council aide said Monday.