PG&E contracts: an $80 million legacy

A story of corruption, waste, and raw political power that makes many of today's scandals look like cornflakes

EDITORIAL The San Francisco Board of Supervisors approved a modest item the other week described on the agenda as "Agreement to Implement a Term Sheet ... between the City and County of San Francisco ... and the Modesto Irrigation District." There wasn't much discussion, the action received no notice in the press, and few people outside the office of the Budget Analyst realize just how significant this scrap of legislation really is.

But the vote brought to a close (for now, anyway) one of the most rotten chapters in San Francisco history, a story of corruption, waste, and raw political power that makes many of today's scandals look like cornflakes. Since 1988, when the city attorney, the mayor, and the supervisors bowed down to Pacific Gas and Electric Co. and signed one of the worst deals in the city's history, San Francisco has lost more than $80 million.

And with public power back on the agenda and activists discussing the potential for a ballot measure in November 2008, it's worth reviewing a bit of the history. There are plenty of lessons.

The story goes back to 1983, when city staffers began negotiating a series of long-term contracts with PG&E and the Modesto and Turlock irrigation districts. San Francisco had an obligation under federal law to sell some of the electric power from its Hetch Hetchy dam to the two districts; PG&E would carry that power over its lines and guarantee its supply if low water kept the dam from generating at full capacity.

The negotiations were immensely complex and generated tens of thousands of pieces of paper. The city wanted to raise the bargain-basement rates it had been charging the districts; PG&E wanted to raise the rates it charged for transmitting the power.

Then a Central Valley congressional representative named Tony Coelho got involved. Coelho (who was later forced out of office in a scandal) started talking about the Raker Act — the federal law that gave San Francisco the right to build the dam but also required the city to create a public power system — and suddenly, official San Francisco freaked. If Coelho were to make too much noise about the feds enforcing the Raker Act, the city, which had been in violation of the law for 70 years, could have lost the dam.

So then-mayor Dianne Feinstein cut a backroom deal with Coelho: the city would be allowed to raise rates but had to sell almost all of its power (aside from basic municipal needs) to the districts. That, of course, would ensure that the city had little power left for a full-scale public power system. Feinstein promised that her staff would work out the final details of a 30-year contract.

The negotiations on that contract dragged on, however, as PG&E and the districts kept demanding more. The talks were conducted in secret, at PG&E headquarters. By 1987 city staffers were writing memos calling PG&E's demands "ridiculous" and "excessive" and stating that the proposed deals would "impose many risks on the city." The negotiations stalled — until Feinstein intervened, overruled her staff, and agreed hands down to the deal PG&E wanted. That was one of the last acts of her administration; Art Agnos was elected to replace her that November and took office in January 1988.

The contracts had to be approved by the Board of Supervisors, and (after the Guardian broke the story and denounced the deals) discussions were heated.