Situation in Middle East won't have a major impact on how Edison produces electricity; alternative sources are twice as costly as gas, oil.

Situation in Middle East won't have major impact on how Edison produces electricity

Alternative sources are twice as costly as gas, oil

Although oil prices have risen to roughly $28 a barrel, up $8 a barrel since the Iraqi invasion of Kuwait, officials at Southern California Edison Co. said the fallout is not likely to spur greater use of alternative energy sources.

Natural gas is the most likely short-term substitute if oil prices continue skyward. In fact, oil supplied only about 4 percent of Edison's fuel needs last year. Natural gas stood at 24 percent and alternative sources supplied 25 percent.

Wind, solar, geothermal and other renewable sources of energy are far more expensive per kilowatt-hour than oil or natural gas, said Tom Besich, contracts manager for the Rosemead-based utility with 4 million customers in Southern and Central California.

"We generally use the cheapest sources," said Besich.

Producing a kilowatt of electricity for an hour by burning oil or gas costs Edison about 3.5 cents. It pays about 7 cents for energy generated with alternative means.

Many of Edison's oil-fired power generators are equipped to burn natural gas.

"They do have fuel switchability," said Paul Salazar, a securities analyst with Crowell, Weedon & Co. of Los Angeles. "The only effect (on alternative energy) would come if oil prices were to pull natural gas prices up with them" because of more demand for gas, he continued. "Ultimately, it's going to be a supply-demand effect" over many years.

In the short-term, however, "We'll burn as much natural gas as we can get," said Besich.

Only 29 percent of Edison's generation comes from oil and gas. The remainder is from nuclear, coal, hydroelectric and other sources.

About 25 percent is alternative, generally from independent producers under contract. The alternative sources are usually operating at full capacity, so more juice cannot be drawn from them in a pinch, said Besich.

One example is the $230 million solar plant built in the Mojave Desert by Luz International Ltd. of West Los Angeles. Its costs over the next 30 years will run on average about 8 cents. The 7 cents Edison currently pays Luz, however, makes sense to Luz investors, thanks to a hefty federal tax credit.

The 7 cents is not fixed. Edison adjusts its payments quarterly in relationship to what it would cost the $6.5 billion (operating revenues) utility to produce the electricity itself.

Luz and a host of independents secured contracts with the Rosemead-based utility in the early and middle 1980s for 20 or 30 years under a federal law that mandated purchase of alternative energy. That has caused Edison to pay dearly for alternative energy supplies, said Crowell, Weedon's Salazar.

"So many of those contracts were locked in during a different era," Salazar remarked, "when everyone thought oil was going to $60 or $80 a barrel." Edison has effectively paid a rate similar to what its own generation would have cost using, say, $70-a-barrel oil.

The scene has changed. Since December, new offerings to alternative suppliers were knocked down to about 3.5 cents, reflecting the oil glut of recent years.

"At three-and-a-half cents, I don't think you'll get many people walking through the door" proposing new alternative projects, said Flanagan. "When you start getting up to 5 cents, 6 cents -- yeah."

No big-scale wind or solar projects have been proposed lately, said Besich. Most new offerings come from co-generation, in which a manufacturing plant, for instance, produces electricity for itself from waste heat. Utilities in California are required to pay such co-generators for not drawing electricity from the utilities' capacity.

The 1978 federal Public Utility Regulatory Policies Act, aimed at encouraging development of alternative and renewable energy sources, required utilities to purchase electricity from qualifying non-utility producers. This power has generally been more expensive than fossil fuels, which enjoy long-established development and delivery systems and various tax breaks.

"I know the Edison people are not happy they have to buy this (alternative) power because they could generate it or buy it from another utility for less," said Salazar.

About 13 percent of Edison's power was purchased from other utilities last year.

The cheapest source is hydroelectric. River water costs nothing, but in the fourth year of the California drought, it now comprises only 4 percent of Edison's generation. Next is nuclear and coal, at 1 cent a kilowatt-hour, according to Besich.

PHOTO : Sunlight to electricity: Luz Corp.'s Solar Electric Generating System in the Mohave Desert