New steps for public power
LAFCO to look into a buyer's co-op – and a comprehensive city energy study.

By Savannah Blackwell

EFFORTS TO CREATE a public power system in San Francisco moved into a new phase this week with the Local Agency Formation Commission preparing to hire consultants to study the costs and benefits of various plans to put the city in the retail electricity business.

Among the options under discussion: moving the city toward "community aggregation," which involves the creation of a city-run buying pool that would purchase power in bulk from Pacific Gas and Electric Co. and other energy suppliers and sell it over PG&E's lines. That can be done without another difficult and expensive ballot battle.

Community aggregation – authorized under a 2002 state law by former assemblymember Carole Migden (D-San Francisco) – would leave PG&E in control of the local power grid, and some public power advocates say the city should approach such a plan as only a step toward creating a full municipal power agency. "While this is a very important step," Sup. Tom Ammiano told us, "it's not the total picture in terms of the kind of public power we envisioned in Propositions D and F. We will be working toward that goal."

Ammiano said he plans to ask LAFCO at the panel's Dec. 20 meeting to hire consultants for two energy studies: one to look at the benefits and risks of community aggregation and another to consider broader options for the city's energy future. The broader study, he said, would examine such things as the full cost of buying out PG&E's infrastructure and the benefits to the city of owning the grid.

The aggregation study has to be done reasonably quickly. The city can apply in July 2003 for as much as $12 million in state money to be used for renewable energy. And if San Francisco has an aggregation program ready to go by late summer or early fall, it could avoid paying additional severance fees to PG&E.

As an aggregator, the city would organize residents, city agencies, institutions, and businesses in a purchasing pool. The city's existing public power agency, Hetch Hetchy Water and Power, would buy power from PG&E or other providers and resell it to local customers, paying PG&E a fee for delivering it over its lines.

Under Migden's A.B. 117, PG&E would be required to lease space on its transmission lines to the city. Currently, the city pays PG&E to use its wires to deliver power to local government agencies.

One immediate benefit: San Franciscans would almost certainly see their power rates drop, and the city would begin to set up the infrastructure to operate a full-scale public power agency. If aggregation were successful, it would demonstrate the city's ability to run a retail utility.

The operation could also bring in some badly needed cash for the city: selling power is a profitable business. Indeed, a 2001 Bay Guardian study found that the city could cut residential rates by 20 percent and still make million of dollars a year (see "MUD Money," 10/10/01).

More customers

Aggregation would also allow HHWP to increase its number of customers – and that would ease the way for the city to develop green energy projects, a move that was approved by voters in November 2001 with the passage of Propositions B and H.

Those measures called for the city to issue bonds to pay for solar panels on government buildings and private homes and businesses.

But city officials have run into a hurdle: unless HHWP's power division gets a good rating from bond agencies, the city can't sell bonds to cover the solar power projects.

Since HHWP only serves government agencies and doesn't have a large enough customer base for its officials to convince financial backers it could cover the debt incurred from the issuance of solar bonds.

Public power advocates say aggregation would help the city move a few steps toward energy independence. "Achieving public power in San Francisco is a two-front quest," said Ross Mirkarimi, who ran the public power ballot campaign this fall. "On one front is the ballot fight that cements conversion, and on the other front are the enabling mechanisms passed through the Board of Supervisors and LAFCO that give public power life. Both fronts need to be aggressively fortified."

A LAFCO study detailing how much it would cost to buy out PG&E and what benefits the city would gain from municipalizing the local utility would be crucial to a future ballot campaign. PG&E spent almost $3 million defeating Proposition D, this year's public power measure, and the lack of a full-fledged study demonstrating the benefits of public power left advocates vulnerable to PG&E's duplicitous claims against the measure.

LAFCO has already taken the first step: A preliminary study it commissioned from R.W. Beck and Associates found that as long as PG&E is the city's only energy supplier, San Francisco faces major blackouts and is stuck with "unreliable, inefficient, and environmentally unfriendly" sources of power (see "Powering Ahead," 8/21/02).

In fact, a California Energy Commission report released in February 2002 cited San Francisco as the state's most blackout-prone city. The blackout of 1998 – blamed on faulty work by PG&E – cost the local economy $400 million.

Shutting down a dirty plant

Meanwhile, the San Francisco Board of Supervisors has approved a green energy plan that will cover the city's electricity needs over the next years. At its Dec. 9 meeting the board unanimously voted to adopt the electricity resource plan put together by the San Francisco Public Utilities Commission and the city's Department of the Environment.

The plan, authored largely by the city's chief energy expert Ed Smeloff, calls for the construction of wind and solar projects to provide 200 megawatts of electricity, as well as new, natural gas-fired plants that would produce 250 megawatts (see "Powering Ahead," 8/21/02).

The plan would make sure the city has enough power to meet its residents' and businesses' needs over the next 10 years. It would allow the city to greatly reduce reliance on the Hunters Point power plant by 2005, and shutter it by 2006 (see "Public Power Moves Forward," 3/20/02). In addition, it would make Mirant Corp.'s planned expansion of the Potrero Hill plant unnecessary.

Prop. D would have allowed the city to issue revenue bonds that to pay for the construction of new, cleaner plants. But it looks like the City Attorney's Office has figured out another way to get the facilities built: through a legal settlement with one of the corporations the city has accused of manipulating the energy market.

At the Board of Supervisors' Dec. 9 meeting, Sup. Sophie Maxwell asked her colleagues to approve the City Attorney's Office's settlement with Williams Energy Co., one of the defendants accused of gaming the energy market in the 2001 suit. Under the settlement terms, Williams would give the city four of its 50-megawatt power plants, which could be turned on quickly to generate power at peak periods. In addition, Williams is providing the city with roughly $13 million to pay for the cost of studies on where to site the plants. With the addition of those plants to the city's supply, the Hunters Point plant could be shut down, Smeloff told us.

At the urging of Sup. Matt Gonzalez, the board decided to put off a decision until its members can discuss the matter further in a closed session Dec. 16. Gonzalez had some questions as to whether the city is getting the best deal possible. Of concern: the city must find locations for the power plants by the end of 2003 or the state will be authorized to purchase them for $2.5 million apiece. Williams estimates each is worth about $15 million.

In a 6-2 vote the board also approved a contract that will make it possible for the city to cover any additional costs it runs up installing the plants. The agreement, which is between the city and the state's Department of Water Resources, guarantees that power from the four new plants will be bought by the state. That will allow the city to earn revenue to pay for needed environmental studies.

"This is a package of items that will bring us clean, renewable energy," Maxwell said. "This legislation is part of the city's strategy for shutting down the Hunters Point plant, which is one of the oldest and most polluting in the entire state." The plant is located in Maxwell's district and is considered a contributor to the high rates of asthma and other illnesses in Bayview-Hunters Point.

The city must move quickly. The state's Clean Air Act requires PG&E to retrofit the aging Hunters Point plant in 2005. Upgrading the plant is expected to cost between $15 million and $20 million. If PG&E puts that kind of cash into improving the facility, it will of course pass that cost on to its customers to spread out the impact of improvement costs. State regulators would have to make sure the plant generates revenue over a lengthy period of time. And that means it's unlikely they would allow the plant to be shut down anytime in the near future.

E-mail Savannah Blackwell at savannah_blackwell@sfbg.com.