MUD money

A public power agency can cut rates by 20 percent - and still operate with a budget surplus.

Originally published October 10, 2001 A San Francisco public power agency could buy out Pacific Gas and Electric Co., cut residential electricity rates by 20 percent, dramatically reduce the city's reliance on fossil fuels - and still operate with a $18 million annual surplus, a Bay Guardian analysis shows. Our study's figures directly contradict the argument that's at the heart of PG&E's campaign against public power: they show that a municipal electrical system can be bought and run at no cost to the taxpayers - with plenty of money left over. Our figures are all taken from public sources and are consistent with the financial reports of other major public power agencies in the state. In fact, if anything, our figures are conservative; the real benefits are almost certainly higher. The financial issues are essentially the same for a municipal utility district and for a city power agency, so our figures would apply to either the MUD, which would be created under Measure I, or the Water and Power Agency, which would be created under Proposition F. Calcuutf8g the financial feasibility of a municipal utility district or city power agency in detail is a complex process. Consultants typically charge upward of $1 million for detailed feasibility studies that use all sorts of models and assumptions to come up with the sorts of figures you can take to the bank (or to Wall Street to sell bonds). So our analysis isn't anywhere near as detailed as what the MUD or the WPA will eventually have to produce. But we've covered all of the major revenues and costs; if we're missing anything, it won't radically change the bottom line. And it's safe to say that we haven't over<\h>estimated the financial viability of public power. The questions on the minds of most voters this fall are relatively simple: Can public power pay for itself? Will the MUD or the Water and Power Agency be a financial success? And our research shows that the answer is a resounding yes. We've run through two scenarios, a worst-case scenario and a best-case scenario. In each case, we've found, a San Francisco public power agency is more than financially viable. Our study is the rough equivalent of what a MUD's or WPA's annual energy report to the public would look like once the agency was up and running. In fact, we've pretty much followed the model of the Sacramento Municipal Utility District (SMUD) and the Los Angeles Department of Water and Power (LADWP), and we've relied on those two agencies' figures to estimate some of what the city's comparable costs would be. We've discussed our study with Ed Smeloff, the city's top energy expert, and while he couldn't verify our conclusions (since he hasn't run the numbers himself), he said that there were no major costs that we had ignored. The results are summarized in the two accompanying charts. Where's the money? Based on how other MUDs have been set up, the process in San Francisco would look something like this: The elected MUD (or WPA) directors would commission a detailed feasibility study outlining the financial future of the agency. Then they would begin negotiations with PG&E to buy the company's local transmission and distribution system. If PG&E wouldn't sell, the MUD or WPA would seize the system through the power of eminent domain. The agency would then issue revenue bonds to cover the cost of the acquisition and start-up, hire a staff, and go into the retail power business. Sales of electricity would bring in revenue that would cover operating costs and pay off the revenue bonds; any money left over at the end could be turned back to the city's General Fund, used to reduce rates, or used for conservation and environmental projects. So the first step in analyzing the finances of a MUD is to figure out how much revenue would be available each year. That's a relatively simple calculation.