By Matthew Hirsch

As if San Francisco's budget deficit wasn't already bad enough, franchise fee payments that Pacific Gas and Electric Co. pays to the city declined by more than $930,000 last year – a 16 percent drop – according to recent figures obtained from the city Controller's Office.

The decline was due to lower natural gas use in the city, but it demonstrates a key problem: at a time when San Francisco ought to be raising the fee and bringing in many more millions, the revenue is dropping off.

Let's put this in perspective. PG&E, which emerged from bankruptcy last year with the help of a huge public bailout, reported corporate earnings of $4.5 billion at the end of 2004. Gas and electric sales in San Francisco accounted for nearly $800 million of PG&E sales revenues, contributing to the company's solid year-end performance.

In theory, the cities that deliver so much business to PG&E are supposed to share some of the rewards in the form of an annual franchise fee, which utilities pay for the privilege of tearing up the public streets and sidewalks. That money, in turn, is intended to provide a stable source of revenue for local governments.

Sup. Tom Ammiano, chair of the San Francisco Board of Supervisors' Budget Committee, says the dwindling franchise fee payments from PG&E present just one more reason why the city should raise the fee.

Ammiano has called for a public hearing at the May 13 Local Agency Formation Commission meeting to look at ways of bumping up the franchise fee, which is currently set at 1 percent of local gas sales and a half percent of local electric sales.

City Attorney Dennis Herrera, in a confidential memo obtained by the Bay Guardian, pointed to a number of legal hurdles the city would have to overcome if it seeks to hike the franchise fee. For starters, it would have to find a way around a 1939 contract that has no expiration date and no clear provision to let the city renegotiate the terms.

But the opinion makes no mention of the Raker Act – the 1913 law requiring the city to operate a public power system – and thus ignores the city's most powerful piece of legal and political leverage.

Ammiano says the city has already played the sucker for 66 years (since the PG&E franchise agreement was first signed). "There's a leak in the dam, and it needs to be plugged," Ammiano told the Bay Guardian.

If the supervisors go along with increasing the franchise fee, it would be a rare example of their asking big business to cough up its fair share during tough economic times, rather than forcing residents to choose between higher taxes and fewer public services.

By any standard, it would be hard to say PG&E is already paying its fair share. Two years ago San Francisco's franchise fee for electric service was just $3 million. San Jose, by comparison, got $13.5 million, and San Diego, in its agreement with San Diego Gas & Electric Co., claimed about $40 million.

San Francisco's electric franchise fee dropped to $2.8 million last year, but it was the gas payment that made the biggest difference. In 2003 the gas franchise fee was $2.8 million. Last year, because of declining natural gas usage, it was $760,000 less.

(We asked PG&E for a summary of its franchise fee payments for all cities, the same information the company supplied us last year, but at press time we still hadn't received the information.)

The franchise fee is just one way PG&E screws the city. San Francisco loses millions of dollars that are taken out of the local economy each year by high PG&E rates (see "The $620 Million Shakedown," 9/4/02).

But because PG&E would almost certainly challenge a franchise fee increase, Ammiano said it's going to be a hard sell at the Board of Supervisors.

"It would definitely be a daunting road with a price tag," he said.

One question the supervisors might want to consider: could the cost of a legal battle with PG&E be any higher than the amount of money the city is already losing because of its microscopic franchise fee?

The Local Agency Formation Commission holds a special meeting to discuss the PG&E franchise fee Fri/13, 2 p.m., City Hall, Room 263, 1 Dr. Carlton B. Goodlett Pl., S.F. Other items on the agenda include the PG&E valuation study and community-choice aggregation. For more information, go to www.sfgov.org/lafco.

E-mail Matthew Hirsch