In his most recent opinion piece Mr. Phelps makes lots of accusations about Orange County Power Authority (OCPA), but provides few actual facts. Let’s start with the most basic one:
Every subscriber has the choice to either use OCPA or to use Southern California Edison (SCE). No one is forced to use OCPA, so anyone who doesn’t want to use OCPA can simply opt out. What consumer wouldn’t want to have a choice rather than being forced to use the services of a monopoly? Especially when that alternative provider can offer services that are simply not available from the monopoly. Especially when that monopoly charges amongst the highest rates in the entire country.
Mr Phelps then states that his opposition to OCPA is based on his claim that generation is the riskiest part of delivering electricity. What he ignores is that neither SCE nor OCPA generates any electricity. Both SCE and OCPA buy power from power generation businesses. OCPA simply just offers more consumer choice on how that power is generated. And, recent data shows that clean energy generation, such as wind and solar, which OPCA promotes, is actually cheaper than fossil fuel generation.
His next assertion is that nothing was disclosed about Huntington Beach’s departure from OCPA, but he conveniently ignores that the topic was discussed in detail in this very forum. He ignores that over 80% of both residents and businesses in Huntington Beach had chosen OCPA, and that the decision to depart was not the community’s choice – it was made by the HB city council without input from residents. Mr. Phelps celebrated that decision. It seems odd to celebrate taking choice away from over 80% of the people being served without even soliciting their input.
Mr. Phelps accuses OCPA of overcharging ratepayers to the tune of approximately $90 million, but he provides no support for that assertion. I could make the same statement about SCE and the other investor-owned electric utilities, but I don’t. Because the facts are that, though utility rates have tripled over the last 20 years, while demand has remained flat, those charges aren’t illegal overcharges. Rather, they are evidence that the California Public Utilities Commission (CPUC) is not doing its job protecting consumers, and the utilities are taking full advantage of that failure.
Why have utility rates nearly doubled or tripled while demand stayed flat? It is because of the way those utilities are regulated. They are guaranteed an 8-10% profit on the expenses that they can justify for transmission and distribution lines. So, what does a business intent on maximizing shareholder value do? They justify as much spending on transmission and distribution lines as they possibly can, guaranteeing themselves that 8-10% profit. The bigger the expense, the bigger the profit.
And that’s exactly what the data shows – the investor-owned electric utilities tripled their investment in transmission and distribution projects over the last twenty years while demand remained flat. And the utilities self-approve about 60% of those projects. So, the question here is who is the CPUC working for: the citizens or the utilities? Evidence suggests the latter.
I will also note that the federal acquisition regulations explicitly prohibit this type of contract (cost plus percentage of cost) for contracts not involving experimental technology or research. That prohibition exists because such contracts incentivize the contractor to spend as much as they can, since increased cost means increased profit. So why does the CPUC persist in using this type of contract with the electric utilities when I think we can all agree that utilities that have been operating for over 100 years are neither experimental technology nor research projects?
It would be far more beneficial to the public if the CPUC changed the profit structure of the electric utility regulation from cost plus percentage of the costs to one that rewarded reliability, efficiency, cost effectiveness, and safety. Wouldn’t we all be better off if utilities were rewarded for not having blackouts, not causing fires, minimizing pollution, and keeping rates as low as possible?
The question that has come to mind after reading Mr. Phelps’ repeated and unsubstantiated attacks on OCPA remains: Why is he so opposed to OCPA? A clue to that question can be found in the bio that he posted with his article:
Jim Phelps is a former power contractor and utility rate analyst. He served four years helping implement energy reporting legislation for the California Energy Commission, codified by the California Public Utilities Commission. Mr. Phelps is currently contributing to the Commission’s new Rulemaking for Power Source Disclosure Proposals on Hourly & Annual Accounting.
As you can see, Mr. Phelps is a contributor to the very system of ineffective CPUC regulation that has allowed our electricity rates to triple over the last twenty years. I will let the reader draw their own conclusions about his motivation for attacking the OCPA.
Percentage of rate increase attributable to utility transmission line spending
David Rynerson is a retired systems engineer with an economics background. He resides in Huntington Beach, CA.
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