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City to Study Takeover of Power Utility : Finances: 'Municipalization' of the Edison franchise could be an economic savior, but the costs could outweigh the benefits, a consultant says.

September 23, 1993|JEFF KRAMER | TIMES STAFF WRITER

CULVER CITY — Fearful that shrinking revenues could leave Culver City vulnerable to annexation by Los Angeles, the City Council this week agreed to explore the risky but potentially lucrative option of running its own power utility.

After listening to an expert in utility "municipalization" for about 45 minutes, the council ordered city staff to seek proposals for a feasibility study.

The study would include estimates of how much money the city could generate by going into the power business.

Monday night's vote was 4 to 0; Councilwoman Jozelle Smith was absent.

Although the decision could mark the beginning of a costly struggle by the city to take over Southern California Edison's 16,000-customer Culver City franchise, Mayor Mike Balkman took pains to downplay the significance of the vote.

"We're looking at the feasibility of a feasibility study," he cautioned.

Nonetheless, the council seemed impressed by a presentation by Kenneth J. Mellor, a consultant at R. W. Beck and Associates in Sacramento.

Mellor, making it clear from the start that he had no desire to sell Culver City on municipalization, emphasized some of the potential pitfalls of such a move. He said the process could take at least five years to complete, possibly much longer, and cost hundreds of thousands of dollars in consulting, legal and other fees.

Before any transfer could occur, the value of the franchise, including transformers, poles and other equipment, would have to be determined, either by agreement between the city and Southern California Edison Co. or, more likely, in court. Even then, the city might have to initiate eminent domain proceedings to acquire the system. In addition, it could expect additional costs associated with physically severing itself from Edison's grid.

As Edison officials sat discreetly in the audience, Mellor said the utility "will fight you politically, economically and, ultimately, they will fight you in the courts.

"Public power is big business," he added.

After the meeting, Tom Bryson, Edison's regional general manager, north coast region, was quick to lend credibility to Mellor's warning.

"Our system is not for sale," Bryson said in a phone interview. He added, "We feel we can operate that system as economically as any organization in the country, and probably more so."

Nevertheless, the City Council seemed intrigued by the potential payoff should it manage to wrest the franchise from the giant utility.

By acquiring ownership of its portion of the system, Culver City, rather than the state Public Utilities Commission, would set power rates. The city could then use that revenue to build equity in the system and to beef up its general fund, thereby providing an additional source of money to pay for schools, road maintenance, police, fire and other services.

Councilman Albert Vera, who is spearheading the municipalization drive, likened the investment of time and money needed to acquire the franchise to making a down payment on a house--tough medicine at the time but well worth it in the long run.

Councilman Steven Gourley agreed. Cuts in state aid to cities, he argued, have created a situation much like the 1920s, when Los Angeles seized control of Owens Valley water. As a consequence of that monopoly, many independent communities that lacked their own water supplies were forced to become part of Los Angeles.

In Gourley's view, communities could face the same fate unless they come up with their own revenue sources.

Like most cities throughout California, Culver City has been hit hard by the prolonged economic slump and dwindling state revenues. This year, the state reduced its allotment to cities and counties by $2.6 billion, which worked out to a $700,000 cut for Culver City.

During the past two years, Culver City has trimmed $7.4 million in programs and services, and nearly 50 city positions have been eliminated in the past three years.

A municipally owned utility in heavily industrial Vernon generates about $1.7 million a year for that city's general fund.

But few cities have had success in taking over utilities. Mellow said that of roughly 2,700 publicly owned utilities in the United States, only 25 to 30 are in California, and most of those came into existence 30 or 40 years ago. Recent efforts at municipalization in Chicago, New Orleans, San Diego and Pasadena have failed.

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