October 23, 2002

By Rachel Brahinsky

The Bay Area Economic Forum released a report last week that aims to dismiss the advantages of public power. But if the report reads like a Pacific Gas and Electric Co. flyer – and it does – there's a reason: the document was commissioned and partially funded by PG&E's campaign firm.

The BAEF report is already being used as a campaign tool to attack the November public power ballot measure, Proposition D. In an Oct. 18 San Francisco Examiner story, the San Francisco Planning and Urban Research Association lauded the report's findings, calling it a "cautionary message for voters." SPUR opposes Prop. D.

But when you take a hard look at the study, it doesn't hold up. Its conclusions are based on generalized data that don't necessarily apply to San Francisco. It doesn't actually provide much evidence against public power. And yet it's written as if it supports PG&E's anti-public power campaign.

The report claims costs for ratepayers won't go down with public power, saying "there is scant evidence at this point that lower consumer rates will be reliably achieved through municipalization of the San Francisco distribution system."

But that directly contradicts the experience of public power agencies nationwide. A recent study by the Sacramento-based firm R.W. Beck, which has extensive expertise in the field of utility economics, concluded that public power systems nationwide charge an average of 20 percent less than private power companies like PG&E.

A 1998 power system takeover by the Long Island Power Authority in New York reduced rates 20 percent and helped expand the Long Island economy by $10 billion, according to a study by Hofstra University economics professor Irwin Kellner (see "Supervisors Call for Rate-Hike Study," above).

And a 2001 study by the Bay Guardian showed that a San Francisco public power agency could buy out PG&E (even at an inflated rate), cut residential rates by 20 percent, reduce the city's need for fossil fuels, and still operate with an $18 million annual surplus (see "MUD Money," 10/21/01).

Prop. D would empower a reconstituted San Francisco Public Utilities Commission to take on the role of energy provider for the city, possibly replacing PG&E.

One of the BAEF report's major flaws is how it defines the measure, homing in on the fact that it would give the city the right to take over PG&E's system.

But it misses the point: Prop. D allows a takeover of PG&E's system only if a "credible cost-benefit analysis" proves rates will go down and if a majority of the San Francisco Board of Supervisors approves. Plus, the city controller must certify that public power rates will not be higher than PG&E's.

Another key problem with the report: it concedes there's no way to tell how much PG&E's system is worth, so it bases its conclusions on average costs for typical utilities nationwide. It barely acknowledges that San Francisco already owns a hydropower dam – an immensely valuable asset that has long been paid for and that could eventually provide as much as half the city's power needs.

Mike Bell, an R.W. Beck principal who recently completed a study on energy options for the San Francisco Local Agency Formation Commission, told us the BAEF report falls short. "I would suspect that what they've done from a technical standpoint can be defended," Bell told us. "But the question becomes: is it adequate to base a decision on?"

John Kelly, director of economics and research for the American Public Power Association, was even more direct. "The report relies on the self-serving, anti-economic, and cynical assumption that the citizens of San Francisco will have to pay 76 percent more, or greater, for the electric distribution system than they should, because PG&E will prevail in legal efforts to extract a monopoly price-premium," Kelly told us in an e-mail after reviewing the study. "There is not 'scant' evidence that consumer rates will be lower, as the report contends, there is 'convincing' evidence from government data and academic studies that this will be so."

The BAEF report's emphasis is no surprise, considering the source. BAEF president Sean Randolph told us lobbying firm Solem and Associates, which is running PG&E's anti-Prop. D campaign, commissioned the report and gave $35,000 to help pay for it. The firm handled a $25,000 payment to the BAEF for similar research on behalf of PG&E last year.

Randolph said that the $35,000 payment was "probably a minority of the total cost [of the report]," which he would not disclose, and that Solem and Associates "had no input on the content."