Dead Mud Walking

A ballot measure that would create a Municipal Utility District has so many legal flaws, it's all but DOA. In fact, passing the measure...

Energy consultant Emmitt James Simpson stood alone in front of the dais at San Francisco City Hall late last month, trying to save his $90,000 contract. Simpson had been hired in August to study the feasibility of public ownership of San Francisco's electric utility and to write an objective report on his findings. Staring down at the hapless consultant were his bosses, Neil Eisenberg and Jake McGoldrick, members of the Local Area Formation Commission, an entity charged with exploring public power options in the city.

Simpson began by apologizing for the poor quality of the draft report he had turned in a few days before. “It was a mishmash,” Simpson admitted. “I submitted garbage.” He handed his bosses a stack of documents: another draft. He assured them that this version was more competent than the previous ones. “It's not something to be ashamed of,” said Simpson softly.

Barely glancing at the paperwork, Eisenberg, the LAFCO chairman, informed Simpson that his services were no longer required, and that he should hand in his bill. Simpson, who charges $150 an hour, agreed to do so. “I am 90 percent done,” he said, implying that he would settle for $81,000.

It is unclear how much Simpson might eventually be paid for his work, and Eisenberg, who is running for city attorney in November on a pro-public power platform, characterizes the Simpson hiring and firing as a “glitch” in the movement to turn San Francisco and Brisbane into a single Municipal Utility District that would, among other things, control electrical distribution here. But when it comes to credibility and efficiency of the MUD movement, the bungled contract seems less the exception and more the rule.

The issue of whether or not to set up a MUD comes before local voters on Nov. 6. The LAFCO, composed of Eisenberg and members of the Board of Supervisors, is charged by state law with deciding whether or not a MUD is cost-effective before the matter goes to the voters. In one of its most significant acts, the LAFCO board hired Simpson — a fervent, public supporter of creating a San Francisco MUD — to provide an “impartial” evaluation of the risks and benefits of letting a MUD take over San Francisco's electric grid.

But it wasn't just his previously avowed support of the MUD — Simpson had testified before the LAFCO itself in favor of public power in San Francisco — that should have given the commission pause. Gloria Young, executive director of the LAFCO and clerk of the San Francisco Board of Supervisors, says she advised Eisenberg and McGoldrick not to hire Simpson because she had reviewed his study proposal and, in her opinion, it didn't meet the LAFCO's needs. The commissioners hired him anyway.

After checking up on Simpson's progress in mid-September, Young reported to the LAFCO board in this way: “There is significant information missing … several statements … lack any substance or coherency. … [N]umerous unsubstantiated statements and conclusions, and the overall tone of the analysis, strongly suggest a lack of objectivity.” On Sept. 18, Young formally recommended that the LAFCO fire Simpson, and he was eventually discharged.

Before a consultant is hired to replace him, the LAFCO commissioners might consider doing a simple background check on their job applicants. In May 1991, Emmitt James Simpson was convicted in Lassen County of defrauding the Lassen Municipal Utility District. According to court records, Simpson billed the Lassen MUD for work that he did not perform. As punishment, Simpson was put on probation for one year and ordered to pay $3,889 in restitution.

Simpson says he did not disclose this conviction to the LAFCO, nor was he asked about his record. Eisenberg says he was not aware of Simpson's conviction, and that it is not part of his job to do background checks.

The two public power measures on the November ballot would create two very different public power agencies. Measure I establishes a San Francisco-Brisbane Municipal Utility District, which would be operated by a five-member board of directors, also to be elected on Nov. 6. Once created, a MUD would have the authority to take over not just the local electric utility, currently run by the Pacific Gas & Electric Co., but also the water, sewer, telecommunications, gas, and garbage collection utilities. The MUD would be a separate governmental entity, funded by consumer payments for electricity and taxes. Proponents of the MUD have made it clear they would like the agency to seize the distribution lines of PG&E, and perhaps some in-city power plants, and create a MUD-owned utility that would provide electricity to San Franciscans. To date, almost no details on the cost or other impacts of such moves have been put forward.

Proposition F is a charter amendment, sponsored by Tom Ammiano, president of the Board of Supervisors. It would create a Municipal Water and Power Agency meant to replace the Public Utilities Commission and its members, who are appointed by the mayor, with a seven-member elected board. Like the MUD, the agency would be able to use the power of eminent domain to compel the sale of PG&E's citywide electrical facilities. (That system, which engineering studies describe as antiquated and in need of expensive improvements, would probably be priced, as is, at more than $1 billion.)

In the wake of this year's energy crisis, the possibility of creating an agency to take over electric distribution (and, perhaps, generation) has gained great currency; pro-MUD coverage, for example, repeatedly fills the pages of the San Francisco Bay Guardian, an alternative weekly that has dwelled on the public power issue for decades and has publicly acknowledged a bias in favor of forming a MUD. But the Guardian — and, for that matter, the city's daily news organizations, which have provided far less reportage on the issue — has largely ignored apparently serious legal defects in both public power proposals. In fact, if it passes, the MUD is likely to be dead on arrival because of its legal deficiencies. And if it passes, it may very well drag Proposition F into the legal abyss with it; an attorney retained by PG&E says that legislative language meant to resolve control of public power if both measures win in November actually links Prop. F to the legally suspect MUD measure, making a protracted legal challenge to both likely. [page]

In short, even according to energy experts who favor the establishment of public power agencies, the electoral success of the MUD measure so beloved by certain long-standing public power proponents could actually end up delaying the advent of public power in San Francisco for years, perhaps decades.

The legal impediments to the creation of a MUD are many, but they have received little public discussion. The “Impartial Analysis” of the MUD proposal contained in the Voter Information Pamphlet published by the San Francisco Department of Elections contains scant information about the MUD. It does not mention that even if the MUD passes in November, the district will have to come back to the voters at some unknown date for permission to sell bonds and enter the electric power business. The analysis does not describe how the MUD will finance itself until that time, or how it will be able to pay lawyers to defend itself against a barrage of utility-company lawsuits almost certain to quickly follow a MUD victory in November.

And, perhaps most interesting, the official analysis does not mention that there is substantial debate among various government entities over how many votes are needed to pass the MUD measure.

When it comes to determining whether the MUD proposal has or has not passed, the city Elections Department will apparently take a pass. Tammy B. Haygood, director of the Department of Elections, says that she does not know how many votes it will take to approve or defeat the MUD. “That is not a determination we make,” Haygood says. “This is a unique election, governed by the [state] Public Utilities Code. It will take a legal determination to answer that question.” Haygood says she is waiting to hear from the City Attorney's Office on how to interpret the law, but “anyone that thinks that interpretation is incorrect can sue.” Besides, she says, her office will not actually decide if Measure I passes or fails. She will simply forward the vote tallies to the Board of Supervisors, which will certify the MUD as a winner or loser. In making its decision, the board will have plenty of vote-total schemes to choose from.

A spokesperson for San Francisco City Attorney Louise Renne, who is not running for re-election and is the bane of many MUD supporters, says the MUD needs a majority vote in both San Francisco and Brisbane to win. If Brisbane rejects Proposition I, by Renne's reasoning, the MUD is dead.

David Tom of the San Mateo County Registrar of Voters, which oversees Brisbane's elections, insists if Brisbane votes against the MUD, that negative vote will mean absolutely nothing. Brisbane will become part of the MUD if a majority of San Francisco voters approve the creation of the MUD, Tom says.

Harold Toppel, the city attorney of Brisbane, disagrees. He says that if Brisbane votes down the MUD, it cannot be included in the new district. San Francisco can have its MUD to itself, Toppel says, if a majority of San Francisco's voters approve it.

Attempting to settle the matter, Bion M. Gregory, the legislative counsel of California, wrote a legal opinion in March saying that if Brisbane votes against the MUD, San Francisco can still have a MUD, provided that the pro-MUD votes cast in San Francisco equal two-thirds of the combined number of voters in San Francisco and Brisbane.

And Joel Ventresca, chairman of the Coalition for Lower Utility Bills and MUD NOW, a pro-MUD campaign committee, and a candidate for the MUD board of directors, says he believes the outcome of the MUD vote will depend upon geography, not the number of votes. In Ventresca's eyes, a majority of voters residing on two-thirds of the land mass of San Francisco — as delineated by the square footage of precincts — will have to vote for the MUD measure for it to pass.

The utter confusion surrounding the voting issue is the stuff of lawsuits. But there is a lot of lawsuit stuffing around.

Last year, for example, PG&E notified the LAFCO that it had found a series of defects in the commission's MUD-forming methods. PG&E complained, among other things, that the petition to put the MUD on the ballot was incomplete; that the LAFCO was not correctly following the guidelines of state utility statutes; that the MUD could not be put to a vote until an environmental impact report is done (there still is nothing even remotely resembling an EIR for the district); and that the California Public Utilities Commission has to approve the creation of a MUD before it goes to the ballot.

To date, the LAFCO has not corrected these alleged defects.

Although they have avoided speaking about it publicly, MUD proponents clearly are worried about lawsuits. Should the November MUD fail at the ballot box or be tied up with legal challenges, the LAFCO plans to put what it calls a “Shadow MUD” on the ballot in March 2002. The Shadow MUD is identical to the November MUD, except in technical details that ostensibly cure a few of the objections listed by PG&E.

Political consultant Jim Ross, who does anti-MUD lobbying on behalf of AT&T Corp. and Pacific Bell Corp., puts it bluntly: “If the MUD passes, the utility companies will tie it up in court for the next 10 years.”

Actually, legal action has already come to the MUD-formers.

Jim Sutton, a lawyer working for the Coalition for Affordable Public Services, a PG&E-funded campaign committee created to oppose public power, has filed a lawsuit in San Francisco Superior Court on behalf of Winchell Hayward, a city resident, against the LAFCO. The lawsuit claims that the LAFCO hired Simpson, the consultant who produced the “garbage” report, because he is biased in favor of the MUD, and that the hiring therefore constitutes an illegal use of public money. [page]

“This is a bald-faced attempt to promote the passage of the MUD measure with public funds, and constitutes unlawful interference by LAFCO and its members with the democratic election process,” Sutton claims. He says he is proceeding with the lawsuit — despite Simpson's termination — because Eisenberg has ordered Young to hire another energy consultant to finish Simpson's study. Sutton fears that the revamped report will also be biased and will become pro-MUD campaign propaganda.

And that's just PG&E's opening shot.

At some point over the last year, LAFCO member Tom Ammiano, who is also the president of the Board of Supervisors, apparently realized that the MUD would be born on death row. Working with a team of deputy city attorneys, Ammiano invented the Municipal Water and Power Agency.

Unlike the MUD, which is vague in form, the shape of the water and power agency is spelled out in the charter amendment. Ammiano's agency would subsume the apparatus of the city's Public Utilities Commission, which operates our water and sewage systems, as well as the municipal hydroelectric generators at Hetch Hetchy reservoir in Yosemite National Park. It could issue hundreds of millions of dollars in revenue bonds without needing approval by the Board of Supervisors or the voters, as is now required. The superagency would be able to set utility rates — which could be priced above or below prevailing rates — without needing approval by the supervisors, as is now required. The agency's board members would have to answer to the voters every four years.

The core supporters for both public power measures are firmly in the “progressive left” of San Francisco politics, and generally can be seen as allies; for that matter, the Municipal Water and Power Agency and the MUD are billed by public power campaigners, including Ammiano, as “companion” measures. But it seems likely that the electoral success of the legally suspect MUD would in fact threaten the viability of a Municipal Water and Power Agency.

That is to say: What will most likely happen if both Measure I and Proposition F win in November?

The language of the charter amendment speaks to the possibility of both measures passing. In that case, the MUD board would meet next summer with the board of the Municipal Water and Power Agency to decide which of the two organizations “is better equipped to deliver cost-effective electric utility service to residents and businesses within the shortest period of time.” The charter amendment does not specify any criteria for making this decision. (City officials who participated in drafting the charter amendment say that a previous version specified the criteria by which the two bodies would determine which one is “better.” At Ammiano's behest, the criteria were eliminated.)

The Municipal Water and Power Agency has several natural advantages in the contest for who gets to run the electric bureaucracy. The MUD will not control a penny until it sells revenue bonds; because it would take over the city's existing Public Utilities Commission, the new water and power agency would automatically control hundreds of millions of dollars a year in operating and capital funds. It would possess 1,000 employees and independent contractors, as well as in-house expertise in running an electrical utility.

If the two elected boards agree that the MUD can be in charge of providing electricity to consumers, then the water and power agency will continue to do exactly what the PUC does now: operate the drinking water and sewage systems and the Hetch Hetchy municipal electric power system. Presumably, the MUD would then move to take over PG&E's distribution system and, perhaps, the PG&E- and Mirant Corp.-owned power plants in the southeast sector of the city. San Francisco would have two public power companies, producing and distributing electricity in a cooperative or competitive way, and seeking to use many of the same financial, technical, and infrastructure resources.

Should both measures win, and the politicians on the two boards be unable to agree upon which body gets to run the electricity monopoly, the MUD wins by default, according to language contained in the charter amendment. The district then has until 2004 to meet all of the legal requirements necessary for it to become an electric utility, which includes producing environmental and cost feasibility studies and gaining voter approval to sell bonds. If the MUD fails to do so, the agency board has the option to take over the electricity mandate, or it can decide to leave the MUD alone.

Because of language contained in the charter amendment, the legal fates of the MUD and the water and power agency are intertwined.

If the MUD passes and the charter amendment loses, public power in San Francisco will almost certainly be sentenced to years of litigation. (In addition to the many apparent legal defects related to the MUD, an obvious source of prolonged litigation will be the debate over the exact value of the electrical system in the event of an attempted seizure by the MUD or the water and power agency.)

If the MUD and the charter amendment pass, the private electric utilities will very likely sue both, alleging, with no small amount of evidence in their favor, that the two measures are joined at the hip by the charter amendment, and are simply different aspects of a common, illegal act. (For that matter, the city and the MUD could sue each other if they fail to reach an agreement.)

“We are concerned that if both public power measures pass, we will be in uncharted territory,” says Sutton, the lawyer for the anti-MUD campaign committee. “The only way it can be resolved is by going to court.” [page]

Even if the MUD loses the election and the water and power agency wins, the Shadow MUD will probably be put on next spring's ballot, perhaps upstaging the agency, and almost certainly generating its own litigious enemies.

Jerry Jordan is the executive director of the California Municipal Utilities Association, based in Sacramento. His association represents the collective interest of the state's 31 public power agencies and two electricity MUDs. Jordan is familiar with San Francisco's public power wars. “It's much simpler to create a city-owned utility, because there is a synergy with existing resources,” he says.

By way of example, Jordan points out that PG&E lawsuits held up the Sacramento MUD for 23 years after it was approved by ballot measure in 1923. “It is hard to create a MUD,” Jordan observes tactfully.

Although you'd scarcely know it from news coverage to date, public power experts say that it is not necessary to create a MUD, nor a new water and power agency, to set up a public power system in San Francisco.

One of those experts, Theresa Mueller, a deputy city attorney with a national reputation as an expert in electric utility law, worked for several years as a staff attorney for The Utility Reform Network (TURN), a government watchdog organization. Mueller says the Board of Supervisors, using its existing powers, could set up a public power-retailing agency within 30 days, and such an agency would likely have no problem selling voter-approved revenue bonds to finance the purchase of PG&E's physical system.

A public power utility set up by the supervisors and the Public Utilities Commission could do everything that Ammiano's proposed agency, or the MUD, could do, including buying and selling wholesale and retail energy. And because this type of public power arrangement simply expands existing city programs and activities, it would be far less susceptible to successful court challenge than Ammiano's proposed water and power agency or the Bay Guardian's Holy Grail, the MUD.

Why, then, is a basically pro-public power Board of Supervisors not taking this path?

In the summer of 2000, the Coalition to Lower Utility Bills submitted a petition to form a MUD to the Board of Supervisors. It was signed by 24,000 residents of San Francisco and Brisbane. MUD supporters chose this circuitous grass-roots route to the ballot — which required the formation of the LAFCO — because a majority of city supervisors were, at that time, opposed to public power.

But then the political winds shifted sharply. A crop of “progressive,” pro-MUD supervisors was elected to office last fall, making the political strategy of promoting the MUD through citizen petition no longer necessary. After all, the supervisors have the authority to create a public power system themselves.

Instead of taking this relatively painless road to public power, the supervisors voted to put both the MUD and Ammiano's charter amendment on the same ballot, apparently for political reasons. If the supervisors created a power-retailing agency, it would be part of the city's executive branch, which means that the archfoe of the current board majority, Mayor Willie Brown, would have control.

Rather than give control of public power to Brown, the supervisors have opted to let voters decide between two ballot measures, without clarifying how many votes it will take for the MUD to pass, or what criteria will be used to choose between the MUD and the water and power agency if they both pass.

The result is that the MUD will, in all probability, be chained in lawsuits if the supervisors declare it a winner in November. Because of the linkage in legislative language, its “companion” measure, the water and power agency, is also likely to be paralyzed at birth by legal challenges. And because its strongest supporters will have helped to put it into that legal limbo, public power may remain, for many years, so near, and yet so far away.

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