Corona Battles Edison for Control of Energy City
Hopes to Use Eminent Domain to Win, But Power Company Vows to Fight
December 11, 2002 - Using a high-powered legal move, the city of Corona is fighting to take control of energy sources owned by Southern California Edison in hopes of launching its own power distribution system.
Corona officials have started eminent-domain proceedings to take over the utility giant's power poles, wires and electricity substations in the city.
City officials justify the move by saying Edison's high electricity prices and shoddy service have spurred an exodus of area businesses.
Edison, which recently rejected Corona's $70.2-million offer to purchase the utility giant's energy distribution sites, has vowed to fight tooth and nail against the move - the first time in 55 years that a California city has challenged a large power company for its entire energy supply.
David Van Iderstine, in-house counsel for Rosemead-based Southern California Edison, said Corona is headed for an uphill court battle.
He declined to identify the law firm that will defend Southern California Edison.
"Southern California Edison believes this proposed taking of our distribution system [that serves] Corona and nearby unincorporated areas of Riverside County isn't in the public interest," the attorney said.
He said the power lines and two substations Edison uses to deliver energy to its 37,000 customers in the Riverside County city of 132,000 "are not for sale."
"We will vigorously defend the court action," Van Iderstine said.
David L. Huard, counsel for Corona with Manatt, Phelps & Phillips in Los Angeles, said the city is on solid legal ground and will prevail.
"Corona determined that it wanted to municipalize its utility for three reasons. The first is cost, the second is local accountability and control and the third is safety and reliability," Huard said.
"We think that under all three of these reasons it's better to go as a municipal utility rather than to continue to get service from Edison," he added.
The suit, filed Dec. 3 in Riverside Superior Court, is expected to cast a spotlight on the efforts of many cities to "municipalize" or break away from big investor utility companies to provide power to their own residents and businesses. Sacramento was the last city to seize control of its entire energy supply through eminent domain, doing so in 1947.
Normally, lawyers say, eminent domain cases involve land seizures to build public facilities, as when a service station site becomes a library site. In such a case, a city's resolution in favor of the taking would be ample to show public interest if the monetary offer for the property were acceptable, Van Iderstine said. In the event that the offer wasn't accepted, a judge would decide how much the property is worth, Van Iderstine said.
But in a case of eminent domain involving a utility in which the "continued use is that of a utility," the presumption that the taking is in the public's best interest can be challenged, the Edison lawyer says.
If a judge decides the taking is legal, the case will go before a jury which will decide how much the property is worth, Van Iderstine added.
Eminent domain specialist John C. Murphy, a partner at Irvine's Nossaman, Guthner, Knox & Elliott, says there's a "less than 50 percent" chance that the city will succeed in its pursuit of a municipal utility.
"Many other municipalities have discussed going through with [a city-operated] utility over the years and haven't been successful," Murphy says.
"It will take pretty big convincing on the part of the city to persuade a court that [seizing Edison's power lines] is in the public's best interest," he says.
Corona, which straddles the 91 Freeway near the western edge of Riverside County, began looking into starting a municipal utility in the wake of the state's power crisis in 2000 and 2001, when wholesale energy rates soared and unpredictable rolling blackouts hit throughout California.
Corona's dispute with Edison arose in April 2001, when the City Council voted to form a municipal energy utility and announced plans to build a 65-megawatt power plant primarily to serve Golden Cheese Co. of California, a Corona-based business that makes cheddar, Monterey jack and other cheeses.
The project ended, however, when the California Department of Water Resources, another potential power customer, pulled out of the deal, according to court documents.
With only the existing power of Edison and no ability to build its own plant, Corona couldn't offer enough power to support the cheese company's operations. The city asked Edison to build a connection between the company and the utility's power grid. Edison declined, contending that the transaction would violate the Federal Power Act because it would serve only one customer.
Corona filed a complaint with the Federal Energy Regulatory Commission, which last month rebuffed Edison and held that the city's connection to the power company's lines would be "in the public interest." The commission ordered the parties to negotiate terms and conditions for making the connection.
Friction between the city and Edison increased last month when the energy company rejected Corona's $70.2 million offer. Edison officials said the offer was too low because the city's consultants didn't have access to the company's lines, substations and underground facilities to obtain an accurate appraisal.
The city based its Dec. 3 eminent domain suit on a feasibility study that listed among other benefits an average 15 percent cost savings for customers using a municipal utility.
Other cities have used eminent domain on a smaller scale to take over portions of utility service, Huard says, but not an entire municipal system since Sacramento in l947.
The reduced rates, the suit says, will help take the luster off other area cities that dangle lower utility costs to attract businesses.
Riverside, which operates its own utility, offers a 50 percent discount on electric rates for Corona businesses that relocate there, according to the lawsuit. Anaheim, another neighboring city with a municipal utility, also has "significantly lower" rates than Edison, the city's lawsuit states.
"Corona believes that municipalization is a necessary means by which to retain [businesses] and the jobs they bring to Corona," the filing says.
Edison officials call the city's legal maneuver a "costly and uneconomic gamble."
"A local government taking of [Edison's] facilities through eminent domain may be only a small portion of the total cost of turning these new facilities into a new, functional municipal utility system," company officials wrote in an analysis of Corona's impact study.
"This complex and expensive plan could saddle Corona residents, businesses and taxpayers with millions of dollars in debt without better rates or service," the study says.
A ruling on the case is expected in the next 12 to 18 months, lawyers say. The case has been assigned to Judge Michael Kaiser.
© 2002 The Daily Journal Corporation.
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