Fall 2012

 

Coalition of Cities Intervenes in Utility Street Light Case

By Scott Blaising & Laura Norin
Braun Blaising McLaughlin & Smith PC

Street lights are a highly visible municipal service that can enhance—or demean—the municipal image. In the Southern California Edison (“Edison”) utility service area, Edison owns the majority of the street lights, leaving local governments with little control over street light costs and upkeep.

Edison’s customers have faced street light rate increases of more than 60% over the past five years, with no upgrades to the services provided by Edison. Many cities are struggling to keep up with these rate increases and have been forced to make large and ever-increasing payments from the cities’ general funds. In addition, high rates from Edison and unsupportive rate structures have made lighting efficiency projects cost-prohibitive for many cities.

In response to these issues, the City of Moreno Valley led the charge to form the Coalition for Affordable Street Lights (“CASL”). Moreno Valley was joined in its initial effort by the cities of Huntington Beach, Torrance, Corona, Downey, Rancho Cucamonga, Upland, Redondo Beach and Yorba Linda. This coalition of cities embarked on a year-long effort in Edison’s most recent general rate case at California Public Utilities Commission to bring Edison’s street light rates in line with actual costs, force Edison to improve its maintenance of street lights, and bring much-needed transparency to the street light ratemaking process.

Edison’s rate case began in 2011 with a request by the utility for further annual increases to its street light rates. CASL embarked on a full-scale investigation and discovered that Edison street light ratemaking issues had not been thoroughly examined for some time, with current rates bearing little relation to Edison’s actual costs. CASL also exposed significant confusion within the utility with respect to information about its street light inventory and costs. This lack of transparency—even within the utility—was particularly alarming.

The “facilities charge” associated with street lights became a major focal point for CASL. The facilities charges are intended to cover the infrastructure costs of Edison-owned lights, and they make up about 75% of the costs for a utility-owned light. Edison had been developing this charge based on a scenario in which Edison replaced each of its street lights every 35 years, rather than on Edison’s actual replacement costs. In fact, Edison has no specific replacement program in place and replaces street lights only as needed. It is not uncommon for Edison’s street lights to be 50 or 60 years old or even older.

Also of primary concern was the so-called “developer’s allowance,” which is a discount Edison had been providing developers to offset the cost of installing new street lights. Unbeknownst to them, cities had been repaying Edison for the developers’ discount at a premium through the facilities charges. Neither the cities nor the developers had been informed of this subsidy, and Edison was unable to produce any meaningful documentation about it. Upon learning of it, CASL members were insistent that the subsidy was an unacceptable transfer of public funds to private entities that must cease immediately.

CASL presented these findings in three pieces of critical testimony in Edison’s rate case and also in discussions with key staff at the Public Utilities Commission and with the media. Edison responded to these efforts with an invitation to enter into discussions with CASL members about their concerns. After months of discussion, Edison and CASL reached an agreement that addresses many of CASL’s concerns. Among other provisions, going forward, street light facilities charges will be based on Edison’s actual costs, reducing facilities charges by more than 10% compared with Edison’s proposal. In addition, the developer’s allowance will be eliminated, and cities will no longer be charged for lights that are non-operational. Edison will also provide regular reports to CASL on street light replacement and maintenance activities and costs. This negotiated agreement will go a long way toward increasing transparency for street lighting costs for cities in Edison’s service area.

In a policy about-face, Edison also announced that it is now open to discussing with interested cities the possibility of street light sales, something Edison has not undertaken since the 1970s. Unlike the other utilities in California, Edison owns about 90% of the street lights in its service area. (San Diego Gas and Electric and Pacific Gas and Electric both own roughly 20% of the street lights in their service areas).

CASL member Huntington Beach already has begun preparations to purchase the street lights in its city from Edison, and other cities are expected to follow suit. In Huntington Beach, electricity bills for the 12,000 Edison-owned lights totaled more than $1.8 million in fiscal year 2010-2011, representing 41% of the City’s overall electricity costs and 22% of the City’s electricity usage. Huntington Beach expects that local control over street lights will save city funds, improve light quality and open the door for energy efficiency programs that have been cost-prohibitive under Edison ownership. In particular, Huntington Beach expects to reduce its annual utility budget by more than $200,000 per year to the General Fund after accounting for capital financing costs and street light upgrade and maintenance costs.

Edison’s street light rates were left unexamined for too long, with the result that cities have been overcharged for street light services and have been forced to subsidize other customers’ electricity costs as well as private development. CASL’s efforts have yielded lower street light rates and the ability to oversee Edison’s street light activities to ensure that funded maintenance is being performed and that cities are being charged only for services received. They have also yielded increased transparency and the elimination of an unwanted subsidy to private development. Encouraged by CASL’s success, more cities are now joining the group and exploring their options for local control over their street lights.

Future CASL efforts may include continuing to advocate for affordability, transparency, and flexibility for southern California cities. Still on the to-do list are obtaining additional means for cities to control their energy costs and ensuring that street light sales are offered on a fair basis. CASL will also continue to oversee Edison’s ratemaking activities to help ensure that cities are not required to cut back on other essential public services in order to pay their street lighting bills.