While the initial state regulatory approval is for a long-term power supply contract with an affiliate, Southern California Edison Co. also was authorized last Thursday to eventually own and operate the partially completed Mountainview Power Project near Redlands, CA.

Either way, the California Public Utilities Commission said it acted on an expedited basis to assure the plant — in a rapidly growing region 60 miles east of Los Angeles — will get built and to get it at a discount since its original developer, AES Corp., sold it at a considerable financial loss.

Immediately, the CPUC approved a purchase power contract that Edison will seek quick approval of from the Federal Energy Regulatory Commission, but it also offered two options longer term: (1) giving the utility a certificate now to complete the project as a utility-owned generation plant, or (2) go forward with the long-term contract but if the state legislature passes a bill allowing the current CPUC to bind future commissions to the capital cost recovery of the project, Edison will file with the state regulators to terminate the FERC-approved contract and acquire the project in utility rate base.

Under the first option, Edison retail customers “would reap even more benefits because the utility could exercise its option to purchase the power plant now — instead of waiting another several months for FERC to act,” a CPUC spokesperson said.

“My distinct preference is for Edison to build this plant as utility-owned generation, subject to cost-of-service ratemaking and the jurisdiction of this commission,” said Michael Peevey, CPUC president. “However, it is even more important to ensure that this plant gets built because of its incredibly low cost to ratepayers. Our decision ensures that the project goes forward.”

Immediately following the CPUC action last Thursday, the utility said it would submit its proposed long-term Mountainview power purchase agreement to FERC as soon as possible. It is seeking a FERC decision next month to allow the utility to exercise a purchase option before a Feb. 29, 2004 expiration date.

The utility said that if it gets timely federal approvals, it will exercise its options and complete construction of the 1,054 MW combined-cycle, natural gas-fired power plant, but that “timely action by FERC” is needed to exercise the purchase option. State officials and Edison previously have identified the need to site substantial new generating capacity in the state by 2006, a time they fear shortages could return to the state’s grid.

Noting that the utility has an opportunity to buy the partially constructed new power plant at a price “significantly” less than it would cost to start the project from scratch, Edison utility President Robert Foster said the CPUC approval “allows us to continue plans to build a new, clean, state-of-the-art power plant that would provide much-needed power to our customers. Furthermore, we would be able to deliver (the plant’s) output at stable, cost-based rates.”

John Bryson, the CEO of the utility’s parent company, Edison International, called the project “critical to meeting our commitment to ensure reliable power for our customers well into the future.” He lauded the CPUC for acting “decisively” on an accelerated basis since the utility brought the power plant deal to regulators last summer.

In taking its action, however, Peevey emphasized that the action was not a “model” for future utility power plant development projects. Edison has a preliminary agreement with Boston-base InterGen, a Shell-Bechtel joint venture, that now owns the plant development rights.

The action allows the financially recovering utility — recently upgraded to the lower rungs of investment-grade credit — to sign a 30-year purchase power contract with an affiliate, which for financing reasons would build, own and operate the plant. In essence, this project would mark the return of the California’s private-sector utilities to building new electric generation plants.

CPUC Commissioner Loretta Lynch unsuccessfully sponsored an alternate order to force the utility to seek legislation allowing the utility to assume the construction and operation of the plant near Redlands, CA, that originally was approved by the state energy commission for AES Corp., who later sold its development rights to InterGen. Edison still needs to gain federal regulatory approvals.

With the utility’s option to purchase the Mountainview expiring early next year, Edison convinced the regulators that it needed the state approval of the purchase power contract before year-end to keep the deal moving forward.

Peevey, who was the lead commissioner on the case and a one-time senior executive at Edison through the early 1990s, said he, too, preferred that the utility own and operate the plant, but in order to seize on the tightly-timed deal and get the power plant construction back on track, the regulators needed to act on contract with the affiliate.

“In approving this item, we are not establishing a model for future cases,” Peevey said. “This order is solely for this particular project at this time. There should not be a need to do anything similar for any California utility, including Edison, in the future.”

Edison and the CPUC expect the project to be reviewed next month by the Federal Energy Regulatory Commission to permit construction to resume later in the first quarter for a plant described as 10% completed. The Inland Empire of Riverside County in California is experiencing population growth at twice the statewide 2% average, Edison emphasized in pushing for expedited processing of its application by the state regulators.

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