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MUD in Your Eye 

A small group wants to foist a municipal utility district on the city without evidence its version of "public power" will work. Demand evidence.

Wednesday, Apr 4 2001
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Watching Gov. Gray Davis, the Legislature, and the state's three major electric utilities go about "solving" the energy crisis has reminded me of a board game from my youth, the name of which escapes me but the object of which was to spend one's way into bankruptcy ahead of one's opponents. In just four moves, Davis et al. have taken a large lead in a new version of this game, hereby renamed "Power to the Poorhouse":

1) A few years ago, when the state insisted on instituting a half-baked program to deregulate the electricity market, California's three major utilities used their political influence in Sacramento to rig the program in (what they thought would be) their favor.

2) The rigging backfired, resulting in a situation in which energy suppliers could manipulate the power market, forcing utilities to pay far more for electricity than they were allowed to charge customers under the rigged price structure the utilities themselves had fashioned. The utilities lost billions.

3) The utilities, huge campaign contributors all, prevailed upon Davis and the Legislature to provide a bailout, now under way, that has the state dedicating billions of dollars of taxpayer money to buy electric power at high rates and sell it low. In effect, Davis et al. have transferred responsibility for a large part of the losses the utilities had fixed upon themselves to the state treasury -- that is, to you and me.

4) Because even the government of California cannot eat multibillion-dollar losses forever, the state Public Utilities Commission hiked electric rates by more than 40 percent, leaving consumers in the pleasant position of paying, through both their electric and tax bills, billions of dollars to keep the state's entire, half-baked electric deregulation program from imploding, for a while, until someone figures out a way to do something about electric power that won't bankrupt the utilities and cast Gray Davis and the entire Legislature into the dustbin of political history.

Let's be clear here: Nothing is clear here. The economics of California's electrical system is trapped in an untenable no man's land located somewhere between the lethargic predictability of state-regulated electrical monopolies and the less predictable but (in theory) more cost-effective system promised by a properly conceived open market. The current electric power regime is financially unsound. There continues to be a multibillion-dollar gap between what utilities (and now the state) pay to buy electricity on the wholesale market, and what can be charged to retail consumers. The situation cannot last.

But given the huge political and financial interests now competing to control our electric future, no sane bookie would give odds on how the current regime might change during the next year. Reregulation? Further deregulation? A year from now, will wholesale and retail power rates be higher, lower, the same? No one knows.

It is into this nearly perfect state of energy chaos that San Francisco will dive when it considers this fall whether to create a new governmental entity dedicated to supplying electricity to the city.


There is nothing revolutionary about the idea that a city would own and run an electric utility. Municipalities across America have operated such utilities for a long time. It is clear that government ownership of electrical service can, under the right conditions, be good for consumers. Los Angeles and Sacramento both have publicly owned electric systems, and citizens in those cities appear to be suffering less in the current energy crisis than the rest of us are. It is also clear that "public power" can be something less than a heavenly ideal. The corruption that made the movie Chinatown so compelling was, after all, a reflection of events related to Los Angeles' publicly owned water and electric utility.

In November, voters will decide whether to create a new governmental entity, called a municipal utility district (MUD), that would take control of electric service for the cities of San Francisco and Brisbane. Under ordinary conditions, this election would present voters with a policy choice to be debated, more or less, on merit.

The MUD proposition on November's ballot is, however, no ordinary policy proposal. It is -- oh, how to put this civilly? -- an unstudied ideological belief that a relatively small set of people would love to slide down San Francisco's collective throat, before San Francisco figures out what's been stuffed into its collective mouth.

The MUD proposal is in substantial part the brainchild of Bruce Brugmann and his San Francisco Bay Guardian, a weekly newspaper that for more than 30 years now has been railing about the malevolence of the Pacific Gas & Electric Co. Now, I have absolutely no problem with skepticism toward electric utilities, including PG&E; utilities do indeed have a natural tendency to capture governmental regulators and twist them to do the utilities' bidding, rather than the general public's. The utilities ought to be watched closely, and whacked -- hard -- when they misbehave.

Brugmann and his paper, however, have a sort of anti-PG&E mania, a propensity to see ghosts and conspiracies beneath every PG&E bed. Under normal conditions, this propensity is widely recognized as a relatively harmless fact of life in San Francisco. The Guardian had a "story" this week criticizing PG&E, you say? Well, did the sun rise in the east? Was fog spotted upon the Pacific?

But in the last year or so, San Francisco hasn't lived in normal conditions. An odd confluence of events has scrambled political power relationships: A dot-com explosion gentrified neighborhoods at fiber-optic speed, displacing and terrifying working-class residents. Mayor Willie Brown's imperious, ethics-challenged style of governance spawned broad voter revulsion against the invertebrate ciphers he backed as supervisorial candidates. A change in the city charter made candidates for the Board of Supervisors run in districts, rather than citywide. When the dust settled after last fall's election, a set of self-described progressives with no allegiance whatever to Willie Brown suddenly dominated the city's governing body.

As it happened, the Bay Guardian had endorsed many of these candidates. At the same time, the Bay Guardian was pushing the latest manifestation of its 30-year campaign for public power, the MUD, and many of these candidates signed onto the effort.

Last fall, the Board of Supervisors created a five-member Local Agency Formation Commission, or LAFCO, to investigate the advisability of forming a MUD. Four of the members are left-leaning supervisors backed by the Guardian; to no one's surprise, the LAFCO found a MUD to be a fine idea, and the Board of Supervisors put the MUD measure on the November ballot.

But there is an elephant-in-the-living-room-sized problem with the MUD proposal. As Peter Byrne explains in this week's issue, the LAFCO has not commissioned a study of the financial feasibility of the MUD. In fact, the LAFCO has gone out of its way not to study the costs and benefits of a MUD, or alternatives to it.

So if things stay as they are now, voters in San Francisco and Brisbane will decide this fall whether they want to create a new governmental entity that would raise and spend hundreds of millions or billions of dollars to seize control of local electrical service from PG&E -- but the decision will be made without the benefit of even basic financial information about this vast and potentially risky undertaking.

How much would the MUD have to pay PG&E for its power lines? Would the MUD also purchase power plants? If so, how much would they cost? After it borrows hundreds of millions or billions of dollars to purchase assets, would the MUD charge consumers lower, higher, or the same electric rates, when compared with other "public power" alternatives, and, yes, continued PG&E service?

If, within California's current, chaotic electric power market, a MUD could be shown, with hard facts, to have a high probability of cutting electric rates and ensuring power supplies for the future -- and that's a huge if -- hey, let's make ourselves a MUD (unless there's an alternative that's cheaper and safer). But a MUD that wound up raising rates to cover the enormous cost of acquiring power plants and power lines would be a disaster that hurts all consumers. The poorest among us -- the people who have no disposable income to throw at higher electric bills -- would hurt the most.

No sentient human should vote for the MUD measure until and unless a financial consultant with unimpeachable energy credentials completes a full feasibility study of the district, and all reasonable alternatives. Charging into the middle of California's chaotic energy market with an enormously complex, multibillion-dollar municipalization project is not a board game San Franciscans ought to play. Proposing such a project while refusing to provide the type of basic financial information most people want before buying an automobile is not "progressive" governance. It's risky, stupid, arrogant behavior.


Initially, I thought this column would focus significantly on the behavior of Brugmann and the Bay Guardian in regard to the MUD campaign. Records on file at the city's Ethics Commission show Brugmann, the Guardian's publisher, loaning tens of thousands of dollars, at zero interest, to the campaign committee pushing creation of the MUD. Those records show the Guardian donating tens of thousands of dollars in advertising space to the same committee. The Guardian mentioned the contributions in a story last summer, but since then, the paper's pages have repeatedly lavished praise on public power and the MUD, fulsomely and fawningly quoting representatives of the campaign committee, Coalition for Lower Utility Bills, with nary a mention that CLUB is financed almost wholly by Brugmann and the Guardian. To my mind, each story the Guardian does about the MUD campaign should disclose the financial relationship among the paper, its publisher, and CLUB; such disclosure would help readers realize that when the Guardian quotes representatives of CLUB, the paper is all but quoting itself. This failure to disclose seems to me a major ethical lapse.

But rather than fulminate at length, I decided to ask two simple questions, and let readers answer to, and for, themselves: 1) If San Francisco Chronicle Publisher John Oppedahl and the Hearst Corp., which owns the Chronicle, each committed tens of thousands of dollars toward the passage of a business-oriented ballot measure, and the Chron then failed to mention those campaign contributions in news or opinion pieces reflecting positively on the measure, what, pray tell, might we expect the San Francisco Bay Guardian to write? 2) Do you think anyone on the Guardian staff can define the word "hypocrisy"?

About The Author

John Mecklin

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