If the San Francisco controller and Board of Equalization are right, the actual value of PG&E's electricity distribution infrastructure is $595 million.
That could be a bit low or a bit high real estate appraisal is an inexact science but at least it's derived from a solid number. Even if you assume that the board's appraisers are off by a few tens of millions of dollars in either direction, the number PG&E has put forward is wrong by about 600 percent.
Rubin's letter to the city controller outlined how PG&E determined $4.18 billion as the system's worth by using "replacement cost new less depreciation" (RCNLD) as a measure. "California law specifically approves RCNLD as a method for valuing improvements to land, such as the electric facilities at issue here," Rubin wrote.
But appraisers disagree with Rubin. "The Code of Evidence section they are referring to mentions RCNLD as one of many pieces of evidence that can be considered in valuation cases," a veteran appraiser with knowledge of PG&E's system, who requested anonymity, told the Guardian.
Because PG&E is a regulated utility that passes all the capital costs of doing business onto customers, many valuators argue that the rates those customers pay (reflected in the BOE figures) indicate the true value of the system.
"The value is the value is the value," the appraiser said. "Both PG&E and the BOE agree that fair market value is approximately equal to rate base." That, in this case, would be about $600 million.
William Marcus, a lead economist on utility issues for JBS Energy with 29 years experience in the field, told us that the standard method employed by the BOE in valuing energy utilities is original cost less depreciation and deferred taxes. "I'm not going to tell you RCNLD is $4 billion because PG&E has been known to come up with very high values," Marcus said. Even the RCNLD value is "almost certainly a serious matter of controversy." Marcus, a Yolo County resident, witnessed the 2006 public power battle between the Sacramento Municipal Utility District and PG&E, and said, "There was almost a factor of four between what PG&E was saying and what SMUD was saying and they were both using RCNLD."
"A reviewing court might look at RCNLD but would also look at original cost," Marcus said. "So you've got a high end and a low end."
The city would pay an interest rate of between 4.5 to 5.5 percent on revenue bonds, according to Ken Bruce in the Board of Supervisors Budget Analyst's office. He pointed out that revenue bonds are repaid by dedicated revenue streams that are identified prior to the bond issuance, which can affect the interest rate. "It would be subject to a lot of scrutiny by rating agencies," he said. With this in mind, we used the high end in our analysis, and assumed annual payments at 5.5 percent. If the city buys the system at the price the Board of Equalization and Controller's Office estimates, and the bonds are repaid over 20 years, the annual cost would be $49.8 million.
CLEANER THAN PG&E
Prop. H sets ambitious standards for renewable energy but our analysis shows that a city agency could easily afford to increase dramatically its alternative energy portfolio.
Some public power utilities (like private utilities) still rely on dirty coal and large hydropower but this isn't true of public power in California. Of the five major public power utilities we surveyed, all except the Los Angeles Department of Water and Power are doing a better job at developing renewables than PG&E.
Just across the Bay, Alameda has enacted a very aggressive renewable-energy plan. "As we go forward, there's a chance we might be 100 percent renewable if the price is reasonable," Alan Hangar of Alameda Power and Telecom told us.