WHEN LONG BEACH was looking for money to solve its budget crisis last year, city officials went to an obvious source: the franchise agreement with the local private utility, Southern California Edison. Long Beach's agreement not only allows the city to collect 2 percent of the utility's gross sales, it also contains a clause that would make it relatively easy for Long Beach to municipalize and take over SCE's transmission facilities.

As Matthew Hirsch reports on page 13, Long Beach officials didn't have to do much more than mention the prospect of municipalization before SCE started making juicy offers. In the end, the city got a 10-story building worth tens of millions of dollars and a few more big concessions that helped cover the budget gap.

San Francisco is also in a perfect position to get huge concessions from its local utility, Pacific Gas and Electric Co. Not only is there considerable political support for public power – San Francisco is the only city in the country with a federal mandate to run its own power system. The city owns a hydropower dam that could and would be the lynchpin of that system.

But that hasn't happened. Not during the budget crisis, or the one before that, or the one before that. For 65 years, San Francisco has ignored its powerful leverage and allowed PG&E to get away with a scandalously low franchise fee. It was, and is, a metaphor for how PG&E's political control at City Hall has defied all logic and financial sense and corrupted generations of politicians.

Now, finally, thanks to Sup. Tom Ammiano, there's some real talk of raising the franchise fee. While they're at it, city officials should renegotiate the entire deal to eliminate some of the lingering barriers to public power.

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Franchise agreements give a private company the right to use public property to deliver a service. PG&E, Comcast, and SBC all have their lines and cables either above or below city streets, using public rights-of-way. In exchange for the valuable use of that property, the companies pay the city a percentage of annual sales. In the case of Comcast, it's 5 percent, and the deal expires (and thus can be renegotiated) every 25 years.

PG&E, on the other hand, pays only one half of 1 percent for electric sales and 1 percent for gas – and the deal, signed in 1939, continues in perpetuity.

San Francisco charges a lower gas and electric fee than any other large city in California. San Diego, for example, charges its local utility 3 percent (six times what San Francisco charges). San Jose charges 2 percent.

There are huge amounts of cash on the line. Raising the fee to 5 percent for both gas and electricity would bring in $38 million a year – wiping out more than a third of the entire budget deficit. Over the past 20 years, the low franchise fee has cost San Francisco roughly half a billion dollars.

But there are all sorts of other things that could be in the franchise agreement that would be good for the city. San Diego got San Diego Gas and Electric to agree to underground all its wires in the next 20 years. San Francisco should also add a formal procedure for monitoring and resolving billing disputes, a notification process for planned outages, a reasonable schedule and plan for street repairs, and an arrangement to allow the city to lay its own fiber-optic communication cables – at PG&E's expense – next to the underground power lines.

Then there's the big one. Long Beach's franchise provides that the city can at any time embark on a procedure to create a public power system – and if SCE refuses to sell the city its transmission and distribution facilities at a reasonable price, the matter is sent to a panel of independent arbitrators who set a price for the system. At that point, SCE has to sell it.

That language dramatically changes the potential cost and time frame for municipalization – because it eliminates the utility's ability to tie up any condemnation proceeding in court. And it prevents the utility from demanding some outrageous and unjustifiable price for a takeover.

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PG&E has always claimed that the 1939 deal can't be changed. But Oakland, which has a similar perpetual franchise agreement, is suing to break it, on the grounds that no city council has the right to tie the hands of future councils forever. That case is now before the state Court of Appeal. The supervisors should ask City Attorney Dennis Herrera to immediately notify PG&E that the city is going to file its own lawsuit challenging the franchise fee.

PG&E has always had immense political power at City Hall, but that's on the wane. Ammiano's proposal to reopen the franchise fee has considerable support on the board, and the city employee unions are strongly behind it. Every other group that cares about preserving essential city services (particularly the groups that opposed Mayor Gavin Newsom's tax measures in November) ought to come on board with this campaign. There aren't many ways that the city can get nearly $40 million a year without raising taxes or putting an additional burden on residents and small businesses. San Franciscans shouldn't tolerate anything less than an aggressive, all-out move to make PG&E finally pay a tiny bit of its fair share.

P.S. PG&E's high electric rates are costing the local economy some $620 million a year (see "The $620 Million Shakedown," 9/4/02). That's one of the big reasons that the local economy has been hit so hard by the recession and that it's taken so long to climb out of it. The money PG&E sucks out of the economy has a huge impact not only on the cost of doing business (and thus on employment) but also reduces the city's sales tax revenue. There's extensive evidence that a public power system would not only bring in revenue but also improve the local business climate. Sup. Chris Daly held a public hearing on this more than two years ago and asked the city controller to do a study on the issue. We're still waiting to see it. Budget cuts always seem to get the fast track at City Hall (the mayor's layoff notices take effect Jan. 15 – and laying off city workers does serious damage to the local economy). The supervisors should demand that the controller pay as much attention, and move as quickly, on a source of hundreds of millions of dollars.