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?

Eighteen months ago, San Francisco's voters passed a measure to strengthen the city's Sunshine Ordinance, which requires that most city government meetings and records be open to the public. The proposition to amend the sunshine law had been endorsed by many in San Francisco's "progressive" political circles, and was almost frantically championed by the alternative weekly newspaper the San Francisco Bay Guardian. The paper not only wrote story upon story and editorial after editorial about the benefits of the Sunshine Ordinance changes; the Bay Guardian and its publisher, Bruce B. Brugmann, contributed tens of thousands of dollars toward passage of the initiative, much of it via free or discounted advertising space.

Not long thereafter, the Bay Guardianand others of like ideological bent began focusing their resources on another goal: the creation of a municipal utility district, or MUD, that would, among other things, have the power to seize San Francisco's electrical system from its owner, the Pacific Gas & Electric Co., and to create the publicly owned electric utility that has been, for 30 years, almost a holy grail for the Guardian.

As was the case with the Sunshine Ordinance proposition, the Bay Guardianhas gone all out in support of the MUD, publishing dozens of news stories and opinion pieces even as the paper has donated tens of thousands of dollars in ad space to the political committee pushing the public power effort. In some ways, in fact, the sunshine and public power efforts are linked. In an editorial last June, the Bay Guardian claimed that the MUD would bring lower electric rates to San Francisco, "[a]nd none of this would be done in secret, since the MUD would be subject to the city's sunshine laws." Furthermore, the political committee created to support the Sunshine Ordinance proposition -- San Franciscans for Sunshine -- is being used to support public power, under the moniker San Franciscans for Sunshine aka Coalition for Lower Utility Bills, or CLUB.

The Potrero power plant needs improvements.
The Potrero power plant needs improvements.
The Potrero power plant needs improvements.
Anthony Pidgeon
The Potrero power plant needs improvements.
Anthony Pidgeon
Tom Ammiano, president of the Board of Supervisors, is in favor of the MUD.
Paul Trapani
Tom Ammiano, president of the Board of Supervisors, is in favor of the MUD.
The Hunters Point power plant is slated to go out of service soon.
Anthony Pidgeon
The Hunters Point power plant is slated to go out of service soon.
Supervisor Aaron Peskin questions whether San Francisco needs a MUD.
Anthony Pidgeon
Supervisor Aaron Peskin questions whether San Francisco needs a MUD.

The proponents of the public power MUD appear to be on a roll. Last August, the city's Board of Supervisors set up a Local Agency Formation Commission, or LAFCO, to investigate whether it would be a good idea to ask the voters of San Francisco and Brisbane to create the MUD. The LAFCO decided it would. An election to create the district has been set for November.

In a meeting early last month, the five-member LAFCO board -- composed of four San Francisco supervisors with close ties to the Guardian, and a chairman who is running for city attorney this fall, also with Guardian backing -- made another important decision. The board voted unanimously to exempt itself from obeying San Francisco's Sunshine Ordinance.


In the wake of the progressive sweep of the Board of Supervisors last fall, a vision of public power has been moving steadily forward. It's a vision that owes much to the Bay Guardian and its vitriolic, 32-year campaign against PG&E and its control of San Francisco's electric power franchise.

The five-member LAFCO board, which has already taken the steps needed to put the MUD on the November ballot, is chaired by Neil Eisenberg, a San Francisco attorney who announced his candidacy for city attorney in November after a Guardian editorial urged him to run for the post. The other commissioners -- Chris Daly, Sophie Maxwell, Jake McGoldrick, and Tom Ammiano -- are city supervisors whom the Bay Guardianendorsed in last fall's election, after writing that politicians who did not support the MUD would be "marked for political extinction." According to a recent Guardian story, all four of these supervisors "pledged in writing to the Bay Guardian before they were elected that they would support the MUD."

As they push for formation of a municipal utility district that would supply San Francisco with electric power, the self-described progressives who control the LAFCO have engaged in some notably nonprogressive tactics in regard to open meetings, open records, and public contracting.

Also, MUD supporters -- including LAFCO commissioners and the Bay Guardian's news pages -- have repeatedly made arguments in favor of the district that fly in the face of known facts.

And perhaps most important, LAFCO board members have refused, in apparent violation of state law, to undertake a study that would show whether a MUD-controlled electric utility is financially feasible. A wide range of energy experts consider the necessity for a feasibility study to be a given before embarking on municipalization of electrical service.

For example, Frank Salas, chief of staff for the Los Angeles Department of Water and Power, a publicly owned electric utility, says any city considering the creation of an electrical MUD "should do a comprehensive cost study before going to the voters for approval.

"The biggest thing you have to come up with is to show that it would cost the consumers less to buy out PG&E. It's got to be a study of fundamental questions, like market prices and infrastructure, so you will know how to pay for it, or if it's going to be reliable.

"It's a serious decision."


In a meeting early last month, attended by only a handful of onlookers, the board of the San Francisco Local Agency Formation Commission voted unanimously to avoid the stringent open records and open meetings dictates of the city's Sunshine Ordinance. The LAFCO board opted instead to operate under the Brown Act, a state law that the Bay Guardianhas long railed is insufficient to guarantee open government here.

At the same meeting, the commissioners also agreed to use an "informal" process of choosing the winners of $500,000 of contracts the LAFCO will soon let, meaning the LAFCO will not advertise "Requests for Proposals" as city and state agencies do, in hopes of ensuring that all who are qualified to compete for government work have the chance to apply. Rather, the commissioners will hire consultants from lists that the LAFCO itself draws up. In the end, the consultants who are hired may also be exempted, at the discretion of the chairman, from complying with financial disclosure requirements set out in the state's Conflict of Interest Code.

The LAFCO's moves to limit public scrutiny and relax controls on its contracting processes may well be technically legal. Neil Eisenberg says, for example, that the LAFCO, as a state-chartered entity, can operate legally under the Brown Act. Still, these moves run counter to years, and even decades, of advocacy for strict adherence to open government laws by the group's commissioners, and by the Bay Guardian. (In its account of the meeting, the Guardian did not mention the LAFCO's votes on the Sunshine Ordinance and contracting procedures.)

As the LAFCO has been working the edges of open government law, its commissioners and supporters have also been campaigning to gain voter approval for a public power MUD. That campaign -- which generally portrays PG&E as an enemy, and a publicly owned electric utility as an obviously worthy goal -- owes much to arguments repeated for years in the pages of the Bay Guardian. Those pro-public power arguments have gained at least some currency recently as a statewide crisis spawned by California's ill-planned jump into energy deregulation has caused semiregular blackouts and electric rate hikes.

Many of the arguments made by supporters of a municipal utility district to take over San Francisco's electric service are, however, based on demonstrably false premises.

Consider, for example, the Raker Act, a federal law the Bay Guardianhas visited so often, and at such length, as to become a San Francisco in-joke. MUD proponents -- particularly and vehemently the Bay Guardian-- claim, and claim again, that San Francisco has been violating the Raker Act for decades. These proponents contend the act, which governs use of electricity generated by city-owned powerhouses at the Hetch Hetchy reservoir in Yosemite National Park, requires San Francisco to be served only by a publicly owned electrical system. Failure to have a public power system, MUD proponents insist, is evidence of the octopuslike grip that Pacific Gas & Electric Co. has upon San Francisco's city government.

But the plain language of the Raker Act itself and experts who are familiar with the act (and have no stake in city politics) all agree: The city of San Francisco is not in violation of the Raker Act. Indeed, the Raker Act places restrictions on what San Francisco may and may not do with electricity generated via the Hetch Hetchy system. But the act simply does not require the city to expropriate private utilities, or to create a publicly owned utility to serve citizens with electrical power.

Then again, proponents contend that if voters choose to create it, a MUD could largely meet the energy needs of San Francisco citizens with cheap power produced by the city-owned hydroelectric plants at Hetch Hetchy. But engineering reports from Hetch Hetchy and other government studies show that, in a best-case scenario, Hetch Hetchy can produce just a third of the city's electric needs. A more probable case analysis puts Hetch Hetchy's share of city power needs in the 10 percent range. In either case, a MUD would need to build enormously expensive new plants inside the city limits, or to purchase huge amounts of electric power on California's volatile power market, to meet basic city needs.

Finally and most important, MUD supporters promise that the district would not only be able to reduce local electricity rates if it took over electric delivery from PG&E, but would also generate an annual profit of some $200 million for the city. But the claims of lower electric rates and huge profits are based, apparently, on belief and ideology, rather than reason and study.

The fact of the matter is that the Local Agency Formation Commission, created specifically to explore the feasibility of an electric municipal utility district here, has resolutely refused -- in contradiction to state law -- to conduct a financial feasibility study that would discover the costs and risks of a MUD-based public electric utility and, also, explore alternatives.

The absence of such a study means that the MUD's sponsors cannot tell you what a MUD would cost to operate, what electric rates it would have to charge, whether those rates would be more or less than what is now paid, how much financial risk consumers and taxpayers would assume in regard to a public power system, or even if such a system could keep San Francisco reliably supplied with electricity. Without such a feasibility study, it is impossible to make even a reasonable guess about whether consumers would be better off with a private-sector electric utility, a MUD-based public power system, or another method of having the government provide citizens with electrical service.

In the context of California's energy crisis, some city officials have begun exploring public power alternatives to the MUD. These alternatives include a city-chartered electric utility that would take over PG&E's delivery system, or a city-run entity that would enter long-term electricity contracts on the open market, and deliver the power through PG&E lines.

LAFCO's commissioners and the Bay Guardian have treated these potential alternatives -- which are themselves forms of public power -- not as interesting possibilities to study, but as "legal technicalities," "obstacles," and even "pipe dreams."


In 1913, the United States Congress passed the Raker Act, which allowed San Francisco to dam the gorgeous Hetch Hetchy Valley in the Sierra Nevada mountains. Water piped from Hetch Hetchy reservoir sluices through turbines to generate electricity and then flows to San Francisco drinking taps 150 miles away. The electrons so generated follow a similar path.

Hetch Hetchy Water and Power is operated by the city's Public Utilities Commission. The Raker Act requires that the electricity generated by the Hetch Hetchy powerhouses must, as a first priority, serve the needs of city government. The next priority is to sell power to the irrigation districts of Modesto and Turlock, which are situated along the Tuolumne River, which trickles out of the Hetch Hetchy reservoir.

These Raker Act-mandated uses absorb most Hetch Hetchy electricity generated during the dry summer and fall seasons. During the wet season, however, the reservoir fills up, and the turbines spin full blast, generating "excess" electricity. Modesto and Turlock have first claim on buying that excess. After their needs are met, the Raker Act allows San Francisco to sell the remaining power.

The act forbids the city from ever selling, or giving, Hetch Hetchy electricity to a private individual or corporation for resale. In other words, a private entity may buy Hetch Hetchy power from the city for its own use. It cannot resell the power. If it does, the federal government can take Hetch Hetchy back.

The Hetch Hetchy public power system came on line in 1923. San Francisco quickly fell afoul of the Raker Act by agreeing to let PG&E sell Hetch Hetchy electricity. In 1937, the United States Department of the Interior sued, claiming that the city's contract with PG&E violated the Raker Act. The case was litigated all the way to the United States Supreme Court, which ruled, in 1940, that the contract was invalid because it broke the Raker Act's prohibition against the resale of Hetch Hetchy power by a private entity. The city and PG&E negotiated a new contract in 1945, which allowed PG&E to charge the city a "wheeling" fee for transmitting high-voltage Hetch Hetchy power from an East Bay substation to the city of San Francisco, which uses the power in municipal buildings and to run streetcars and trolleys.

As technology evolved, San Francisco's relationship with PG&E became increasingly complex and intertwined. The city engages in multiple energy transactions worth tens of millions of dollars with the utility company and private-sector customers. Public records show, however, that the city Public Utilities Commission scrupulously monitors sales to avoid selling Hetch Hetchy power to PG&E, or anyone else, for resale.

In 1969, the San Francisco Bay Guardian published its first "exposé" in regard to PG&E's electricity monopoly. The story, "How PG&E Robs S.F. of Cheap Power," was written by J.B. Neilands, a biochemistry professor at UC Berkeley. The article contained assertions that the Bay Guardian has repeated -- and repeated -- for 32 years. Neilands claimed that the Raker Act requires San Francisco to municipalize the distribution of all electric power in San Francisco; that is, Neilands said, the law requires the city to seize PG&E's distribution wires in the city and its power plants by the right of eminent domain. Neilands also said that the Raker Act requires the city to sell Hetch Hetchy power to its residents. And Neilands suggested that PG&E buys Hetch Hetchy power for resale.

During the last three decades, these accusations have been investigated, many times, by governmental authorities who found them to be essentially untrue. Some of those authorities had every reason to hope the city was violating the Raker Act.

In the waning days of Ronald Reagan's presidency, for instance, U.S. Department of the Interior Secretary Donald Hodel became intent on tearing down the O'Shaughnessy Dam and returning the Hetch Hetchy Valley to the arms of Mother Nature. The Interior Department launched an investigation to determine if San Francisco was violating the Raker Act. Hodel clearly hoped to show the city had been violating the law, so Interior could seize the dam. But Hodel abandoned his quest after his investigating attorney -- Ralph W. Tarr, the solicitor for the Interior Department -- reported to him that "we find nothing in the City's contracts with PG&E or the irrigation districts that suggestions a violation of the prescriptions of the Raker Act."

This report, dated Nov. 10, 1988, noted that the federal government had repeatedly investigated the accusations of San Francisco's public power advocates and "expressly disagreed with the proposition that the Raker Act requires the city to construct and operate its own system for the sale and distribution of Hetch Hetchy power for the citizens of San Francisco rather than contracting with PG&E."

Tarr affirmed a finding issued in 1971 by a predecessor: "Although some of the sponsors of the [Raker Act] legislation may have hoped that the city would take over the distribution system of the Pacific Gas and Electric Company within the city limits and furnish retail electric power service to the citizenry, Congress did not write such a requirement into the Act."

Outside the halls of the Bay Guardian and its close adherents, the meaning of the Raker Act is not really a matter of dispute. A wide range of attorneys and economists who specialize in energy matters were contacted recently by SF Weekly; those who were familiar with the Raker Act said that San Francisco is not, to their knowledge, violating the act. They all were quite direct in stating that the act does not require the city to set up a publicly owned electrical utility.

Robert C. McDiarmid is a partner in the Washington, D.C.-based law firm Spiegel & McDiarmid, which specializes in representing public power utilities that find themselves at odds with private utility companies. McDiarmid is nationally recognized as a top legal expert in California public utility law. In an interview last week, McDiarmid said, "The Raker Act does not pertain to setting up a public power system for the entire city of San Francisco. There is not enough power in Hetch Hetchy to do that anyway. There are other ways to achieve public power in San Francisco than by relying on the Raker Act."

Nonetheless, the Bay Guardian has insisted for decades that the Raker Act, and the 1940 Supreme Court ruling invalidating the original PG&E contract with the city, command San Francisco to displace PG&E and operate its own public power distribution system using Hetch Hetchy power. In January of this year, for example, the Bay Guardian wrote: "San Francisco is the only U.S. city mandated by federal law to run a public power system. ... For 87 years PG&E has maintained an illegal monopoly over the city's electric business."

Such is the power of repetition that even the New York Timesreported in January, "As the San Francisco Bay Guardian has noted in a series of articles, the city is violating the Raker Act requiring it to create a low cost public power system."

Here are the Raker Act realities, as pointed out by court documents, government officials, and private-sector experts: A resale contract between the city and PG&E violated the Raker Act from 1925 to 1940. The Supreme Court invalidated that contract. A new contract that met the dictates of the act was entered. The Supreme Court never ruled that the city must set up a public power distribution system. The court did note that the Raker Act requires that the city own and operate the Hetch Hetchy water and electrical system -- which it does. Neither the Raker Act nor the court prohibited PG&E, or anyone else, from selling non-Hetch-Hetchy-generated electricity in San Francisco.

In a telephone interview, Brugmann maintained his position that the city is violating the Raker Act, without presenting documentary evidence showing that this is so. He did, however, accuse SF Weekly "of standing with PG&E in the middle of an energy crisis."


As the California energy crisis deepens, San Francisco residents and city officials have become understandably interested in the possibilities of public power. There are, after all, many electric utilities across the country that are owned by municipalities. There is little doubt that many publicly owned utilities deliver electricity more cheaply than their private-sector counterparts. And even though the Raker Act does not mandate public power in San Francisco, the city clearly is allowed to pursue ownership of its electrical utility.

At the moment, the issue of public power in San Francisco is dominated by the LAFCO and its MUD proposal.

The MUD surfaced last spring when a lobbying group called Coalition for Lower Utility Bills -- A Project of San Franciscans for Sunshine collected 24,000 signatures on a petition that read in its entirety: "In the opinion of the petitioners, public interest or necessity demands the creation and maintenance of a municipal utility district with the same exterior boundaries as the City and County of San Francisco and the City of Brisbane." CLUB included Brisbane in the petition (against the wishes of the Brisbane City Council) because state law says that two public agencies must be involved when a MUD is formed.

In July, Board of Supervisors President Tom Ammiano proposed that the supervisors put the MUD petition to the voters for the November 2000 election. That plan fell apart in August, when a Superior Court judge ruled that the MUD could not be voted on until it was studied and approved by a San Francisco Local Agency Formation Commission; such a LAFCO was then formed by city supervisors.

LAFCOs are creatures of a state law called the Cortese-Knox Act, written in 1985 to regulate urban sprawl. Ordinarily, a LAFCO is called into being to study the environmental impact of annexing new territory to a city, or to create special governmental entities, including municipal utility districts, which are generally formed to acquire and operate utility services. After study, the commissioners are to decide whether to approve or disapprove the formation of a new district. In the case of a MUD formed to generate or distribute electricity, state law requires that the district's voters also be consulted.

In their haste to put a MUD on the November 2001 ballot, the LAFCO commissioners decided not to commission their own study of the financial feasibility of a MUD-based public power system, or to ask the California Public Utilities Commission to review the feasibility of the project -- a review that apparently is required by state law. Nor did the commissioners order an environmental impact report, also apparently required by state law. In fact, to get the MUD on the ballot, the commissioners had to find a way to circumvent the Cortese-Knox Act, because that law requires that the aforementioned studies be completed before the LAFCO approves a MUD and sends it to the voters. (It almost goes without saying that the LAFCO did not conduct a study of the alternatives to forming a MUD.)

On Nov. 16, 2000, CLUB attorney Angela Alioto wrote a letter to the LAFCO declaring, "The general provisions of Cortese-Knox pertaining to district formation do not apply to the formation of a MUD." Alioto, a former city supervisor who has no official position with the LAFCO and whose legal specialty is discrimination law, opined that the very state laws that authorized the creation of the LAFCO do not govern its activities. To justify putting the MUD proposal on the ballot before a feasibility study was done, Alioto advised the LAFCO to rely on an outdated set of laws written in 1951, 34 years before the legislation authorizing LAFCOs was passed to update and supersede the older laws.

Citing Alioto's opinion, Eisenberg and his colleagues agreed to support the creation of the MUD before studying its feasibility, and recommended that it be placed on the November ballot. The city attorney of Brisbane, a PG&E official, and lawyers representing the PG&E-funded campaign committee formed to oppose the MUD initiative all wrote letters protesting the recommendation as premature. They said that the LAFCO's action broke various state laws that require objective studies and public hearings before the matter can be put on the ballot.

A new San Francisco Board of Supervisors, dominated by progressives supported by the Bay Guardian, quickly voted to put the MUD proposition on the ballot, and to establish five MUD wards, with a director to be elected from each; one ward includes the city of Brisbane. The supervisors appropriated $754,250, with which the LAFCO is to employ an executive director, hire consultants, pay stipends to commissioners, and fund a limited "sphere of influence" study sometime in the future. (A sphere of influence study is neither an environmental impact study nor a feasibility study; it mainly defines the geographic boundaries of a new district.)

In an odd twist, the municipal utility district voters will consider in November is not specifically charged with running a public power system. Whether by design or ignorance, this MUD would have the authority to take over every utility service in the city, including telephone, water, power, sewage, garbage, and the Municipal Railway. If approved, the MUD could, as far as utilities are concerned, be a government in parallel with the city. And if the MUD is approved, its supporters will owe a debt of gratitude to the San Francisco Bay Guardian, which has backed the CLUB public power campaign committee with some $67,000 of loans and free or discounted advertising, campaign reports on file at the San Francisco Ethics Commission say.


The American Public Power Association is a national trade association that represents 2,000 municipal electric utilities serving 40 million consumers. It sets the industry standards for public power providers. The trade group has drawn up common-sense guidelines for a feasibility study that municipalities considering the creation of publicly owned utilities could commission. The group says such a study would:

- Identify the city's electric load;

- Project costs and revenues;

- Identify wholesale power suppliers;

- Evaluate and appraise the existing distribution system;

- Evaluate financing alternatives;

- Estimate annual costs of operation and maintenance; and

- Evaluate support from business, community, and political leaders.

The San Francisco LAFCO has not drawn up guidelines for doing a feasibility study, much less commissioned one.

But even without the basic information a feasibility study would provide -- in a recent presentation to a citizen's group, Eisenberg, the LAFCO chairman, admitted he did not know how much electricity San Francisco uses -- public power advocates propose to meet most of the city's electricity requirements with Hetch Hetchy-generated power.

Although the LAFCO is refusing to study the cost of municipalizing San Francisco's electric utility, during the past decade or so studies of the city's electric load needs and projections of costs related to municipalization have been performed several times: by city-hired consultants; by a team of utility company engineers and city and state officials; and by graduate students at the University of California. These studies, public documents, and interviews with a half-dozen experts who favor public power make it clear that: the Hetch Hetchy system can provide nowhere near the amount of power needed by San Francisco; taking over power supply and delivery for San Francisco would be both expensive and risky; and the city's existing electric delivery system has reliability problems that would be costly to fix.

MUD advocates have repeatedly claimed that once the electrical system is municipalized, Hetch Hetchy can generate 80 to 100 percent of San Francisco's electric needs. But Hetch Hetchy delivers just 120 megawatts of electricity to the city at any given time. (A megawatt is the amount of electricity consumed by approximately 1,000 homes.) During peak use, however, San Francisco consumes 950 megawatts of electricity. The peak load is expected to rise to 1,250 megawatts by 2009. Hetch Hetchy currently supplies about 13 percent of the city's load, and that electricity is reserved by the Raker Act for use by city agencies, including the Municipal Railway and San Francisco International Airport.

If it rained year-round, and if there were no Raker Act-mandated contracts with Modesto and Turlock, Hetch Hetchy, which is capable of generating 400 megawatts when water is available, could meet 32 percent of the city's projected peak load in 2009. Lacking miracles, though, Hetch Hetchy will only be able to meet about 10 percent of the 2009 peak load. And relatively little can be done to increase Hetch Hetchy's production. Studies have shown that due to watershed capacity, even a $100 million investment in Hetch Hetchy would produce only another 50 megawatts of capacity.

But Hetch Hetchy's lack of generating capacity does not appear to concern MUD proponents; they say a MUD could produce additional power by taking over two power plants located inside the city limits, near Potrero Hill and at Hunters Point. But such a takeover would be costly. PG&E's super-polluting Hunters Point plant is off line and due to be decommissioned. Right now, the owner of the Potrero plant, the Mirant Corp., plans to expand its production by 540 megawatts. But a spokesperson for Mirant said recently that the threat of seizure by a MUD would disincline his company to upgrade the Potrero plant, which has environmental problems and currently produces just 360 megawatts of power.

The upgrade planned by Mirant is estimated to cost $320 million. If the plant were seized by the MUD, that is $320 million the new district would have to raise, somehow.

Indeed, municipalizing the city's privately owned power system would carry an enormous price tag.

The centerpiece of the MUD supporters' plan involves using the power of eminent domain to seize the city's electrical distribution system from PG&E. Several studies, all done before 1996, valued this system of wires and poles at anywhere from $500 million to $1.4 billion. Such a seizure would almost certainly result in a lawsuit. The ultimate cost of purchasing the distribution system is difficult to estimate, but, with financing costs, it would certainly exceed a billion dollars.

Then again, some MUD proponents hope also to increase the public power system's capacity by condemning the Potrero and Hunters Point power plants and buying them at market value. Such a move would, according to studies by the California Energy Commission, probably end up costing the MUD $200 million for two plants that would immediately need a half-billion dollars in modernization improvements.

In other words, if voters created a MUD, and if the new public power entity sought to buy the power plants and the electric distribution system, the MUD would need to sell, at least, $1.2 billion, and perhaps well in excess of $2 billion, in revenue bonds that would need to be retired through charges to electric consumers.

And there are other capital costs awaiting a MUD-based public power system.

Last October, the California Independent System Operator, the state agency that operates the electrical grid, released a reliability study of San Francisco's power flow. "The study results indicate that without new transmission or generation facilities, system performance would be unacceptable [by 2009 and] subject to thermal overloads and multiple outages," wrote the ISO, which then suggested a range of remedies for the electrical system's deficiencies, each of which would cost in excess of $100 million.

The bottom-line feasibility problem for a San Francisco MUD is figuring out how to pay the operating and maintenance costs of serving the 334,000 residential and commercial electrical customers in San Francisco, who, in 1996, paid about $483 million to PG&E, while also covering the debt service associated with borrowing and then paying out at least $1 billion (and possibly far more) to purchase electric delivery and supply facilities from PG&E and other energy firms.

A real feasibility study would subtract total electric operating and maintenance costs for San Francisco (currently a PG&E trade secret) from the total revenue PG&E takes in from the city. The difference would be the amount of money available to service debt taken on to purchase the electric poles, lines, and plants. The amount of debt payments that could be made would set a definite ceiling on the amount of money a MUD could afford to borrow to purchase assets.

But nobody knows what that spending ceiling might be -- that is, no one knows whether a MUD would have a prayer of being able to acquire PG&E's assets in San Francisco -- because no feasibility study has been done.

Experience has shown that, given the right circumstances, a well-run municipal utility can provide electricity to consumers at lower rates than private utilities charge. That is to say, public utilities have inherent financial advantages over private electric providers, from a consumer's point of view. With public ownership, for example, profits are not distributed to shareholders, but passed along to consumers in the form of lower rates, or put back into the business. Municipal utilities do not pay income and property taxes. Some of their capital costs can be met via tax-free municipal bonds, which carry lower interest rates, and cost less to retire, than the debt instruments private firms must issue.

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."

Interviews with a score of public power experts and lawyers -- as well as a comprehensive investigation by the United States Department of the Interior a decade ago -- make it clear that the Raker Act does not require San Francisco to operate a citywide system of public power, and the city is not selling Hetch Hetchy electricity to private companies for resale.

These same public power professionals, who are not tied to private utility companies or San Francisco politics, say that the law and common sense dictate that a comprehensive feasibility study of costs and engineering realities should be done before a MUD, or any other form of public power, is put to the voters, or instituted in San Francisco.

Stu Wilson is the assistant executive director of the California Municipal Utilities Association, which protects the interests of publicly owned utilities. He says the simplest option for municipalizing electricity in San Francisco is to do it through existing city departments and the Board of Supervisors, rather than creating a new government such as a MUD. He suggests that aggregation is a good first step toward expanding public power; a MUD is not needed to do that. He questions the prudence of putting the MUD on the ballot before studying it.

On Monday, Supervisor Gavin Newsom circulated a draft amendment to the city charter, meant for inclusion on the November ballot. Newsom's proposed amendment, compiled with help from the City Attorney's Office, would replace the city Public Utilities Commission with a Power and Water Authority that would have a board of directors composed of four elected and five appointed members. If approved by voters, the authority board would be expected to quickly commission a public power feasibility study. The authority would also be governed by the Sunshine Ordinance, according to the draft amendment, which was not expected to come before the Board of Supervisors for official action immediately.

Although cautioning that it would be difficult to do a meaningful study of municipalization while California's electricity crisis rages, the experts agree that, if a publicly owned power system is the goal, creating a MUD is not the only, or necessarily the best, way for San Francisco to achieve it. They note that a MUD will probably take many years to put in place and most likely be significantly more expensive and cumbersome than a municipal utility governed by the city's existing administrative structure, which already buys electricity in bulk on behalf of Hetch Hetchy's customers.

Not every San Franciscan, of course, acknowledges such expert views.


On a cold, rainy night in North Beach, a dozen neighbors gathered at a preschool to hear Supervisor Aaron Peskin introduce Neil Eisenberg, chairman of San Francisco's Local Agency Formation Commission. Peskin sprinkled his introduction with some not-too-subtle caveats. "The MUD may not be the best possible vehicle for public power," he said. "It has problems with legal viability, cost, and how long it will take to put in place." He talked briefly about alternatives, before yielding the floor to the LAFCO chairman.

Eisenberg rose slowly. "We can no longer afford to debate this issue," he said. "Aaron's 'alternatives' are a pipe dream."

During the next few minutes, Eisenberg told the audience that the public power movement intends to seize all of PG&E's San Francisco system. He said that Hetch Hetchy's turbines can meet most of San Francisco's electrical demand; that rates will fall 10 percent under an electric system run by a municipal utility district; and that a MUD will make hundreds of millions in profits each year. He provided no documentary evidence for these assertions.

Before he walked back into the rain, he accused City Attorney Louise Renne of failing to enforce the Raker Act, even though "the Bay Guardian has raised this issue every week for 32 years."

Indeed, the Guardianhas repeatedly accused Renne of falling down on the Raker Act job, and repeatedly called for her to issue an opinion on whether the city is violating the act. In February, Renne sent a letter to city supervisors, informing them that, in her opinion, San Francisco is in compliance with the Raker Act.

The Guardian subsequently wrote a story about the letter. The story had a headline that called Renne's opinion "bogus."

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