Delusions of Power

Is it smart to jump into the Bay Guardian's version of public power, without even studying whether it will save money?

These advantages assume, of course, that the publicly owned utility will operate at least as efficiently as a profit-driven corporation.

Even if a MUD-type system proves to be technically and financially feasible, there is at least one other major obstacle to making it happen, says Richard Geltman, general counsel to the American Public Power Association. MUDs are the "most difficult" path to public power, according to Geltman, because they are, typically, invitations to enormously expensive lawsuits mounted by private utility companies whose assets are being seized by the government. Such lawsuits have been known to tie up municipalization in court for as long as 15 years.

If San Francisco wants to have a public power system, however, buying out PG&E is not the only way to go.

Most government-owned power systems in the United States do not physically generate or deliver electricity. According to the American Public Power Association, the majority of municipal utilities serve fewer than 3,000 customers, with rates that average 18 percent lower than the private companies. And most public power utilities are "aggregators," i.e., they maximize economic clout by purchasing electricity in bulk for groups of customers. In the Bay Area, for instance, the Association of Bay Area Governments aggregates cheap power buys for 56 municipalities.

Aggregation became a money-saving tool when deregulation opened up the state's privately owned wires to all energy providers. Under what is called "direct access," San Francisco consumers can buy electricity from a variety of suppliers, paying only delivery charges to PG&E. Aggregators can enter into long-term contracts on behalf of millions of consumers. They can and do deliver electrons to consumers' wall sockets at a savings that ranges from 10 to 40 percent vs. retail electricity rates. On its Web site, the American Public Power Association says it "believes that aggregation of small-load customers is essential, and that municipalities and local governments ... are well suited for the job. [Aggregation creates] a more robust market and therefore lowers electricity costs for all consumers."

National consumer advocate Wenonah Hauter of Public Citizen, the consumer group formed by Ralph Nader, agrees. Hauter recommends the municipal aggregation route "because local governments are existing public institutions over which consumers have control." In addition to cheap rates, Hauter says, aggregators, which own no physical assets, avoid the headache of maintaining electric plants, poles, and wires. Billing can be left to the utilities, too. Local governments merely use the power of mass purchase to acquire electricity at low rates, and pass on the savings to consumers.

Laurie Parks, chief of the Hetch Hetchy system, says that she is prepared to become a bulk buyer of cheap energy on behalf of San Francisco residents at a moment's notice. Such a move could be made, Parks says, as soon as the Board of Supervisors voted to approve it. The city already trades in the forward energy market for municipal needs, Parks remarks. To buy for the entire city, Parks would have to hire more commodity traders, but that would be a relatively small cost.

And if studies showed that moving beyond aggregation is wise, the city seems better positioned than a MUD to do so.

For her part, Parks would prefer for the city to take over local distribution wires -- "for control," she says -- but, she notes, that move does not require the creation of a MUD. The Board of Supervisors could seize the PG&E wires in a condemnation process and, under one scenario, lease them back to the utility to pay off the acquisition cost. Or, because Hetch Hetchy Water and Power is already a municipal utility, its scope could be expanded through a city charter amendment to serve all of the city's electric energy needs; that service might, or might not, involve purchase of electric lines.

In fact, most public power experts interviewed for this article say that aggregation and gradual municipalization, overseen by the Board of Supervisors, would carry far less expense and risk than expropriation of PG&E's infrastructure by a MUD. But such alternatives have drawn the wrath of the those who are adamantly pushing a municipal utility district as a solution to San Francisco's energy problems. After Supervisor Tony Hall suggested studying the possibility of establishing a city-run utility two months ago, both the Bay Guardian and Eisenberg accused Hall of being a pawn of PG&E.

In 1995, the San Francisco Board of Supervisors hired an energy consulting firm to evaluate the feasibility of taking over PG&E's distribution system. The San Francisco Bay Guardian objected to the selection of this particular consultant, claiming that the company had performed work for PG&E and, therefore, had a conflict of interest. The Guardian said that the city should have hired the firm of J.W. Wilson & Associates. Indeed, Wilson, an economist specializing in electric utility matters, has impressive public power credentials, including service on several federal and state regulatory commissions during the past quarter-century.

In an interview for this article, Wilson directly refuted the claim, trumpeted by the Bay Guardian for more than 30 years, that the city of San Francisco is violating the Raker Act, and that the act requires the city to have a public power system. "The Raker Act," Wilson said, "does not require San Francisco to municipalize its electrical system. I looked into it a few years ago. The Raker Act would permit San Francisco to provide municipal service, but I am not aware of anything in the Raker Act that mandates municipalization; quite the contrary. The act does not say that there has to be a municipal utility district that serves all of San Francisco's electricity customers. Aggregation would be a good idea; any community can do it."

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