A wildly inaccurate estimate of the cost of the Clean Energy Act
EDITORIAL Pacific Gas and Electric Co. will get a huge political windfall if the San Francisco Controller's Office moves forward with a wildly inaccurate estimate of the cost of the Clean Energy Act.
In an Aug. 7 letter sent to the Department of Elections, Controller Ben Rosenfeld wrote that the costs to the city of acquiring PG&E's local distribution facilities are "likely to be in the billions of dollars." That's a scary figure, the sort of information PG&E will use to attack the measure. In fact, the company is already sending around flyers calling this a multibillion-dollar proposal.
But it's completely untrue.
For starters, the Clean Energy Act never mandates that the city buy PG&E's facilities. The charter amendment, which is on the November ballot, sets aggressive goals for renewable energy and directs city officials to study the best way to achieve those goals. Since public power agencies around the country are leading the way on renewables and since PG&E has already said it can't meet even the state's weak clean energy mandates the city ought to be looking at taking over the business of selling retail power to residents and businesses. But buying out PG&E's old system might not be the best way to pursue public power.
But that's just one flaw in the controller's reasoning. Because even if San Francisco did buy out PG&E, there would be little or no cost to the city at all.
To understand that, you have to look at the realities of how the measure would work. The Clean Energy Act would authorize the city to issue revenue bonds to buy electric power facilities. Revenue bonds aren't backed by the taxpayers; they are paid off entirely through a dedicated income stream. So unless the city can prove in advance with a detailed study that buying out PG&E would bring in enough money to cover the costs, there's no way Wall Street would ever buy the bonds.
In other words, there is no possible scenario under which the Clean Energy Act could cost the city money. The opposite is almost certainly true: public power cities all over the United States make money often large amounts of money. And our figures have always shown that San Francisco would net millions, maybe hundreds of millions, in revenue from buying out PG&E.
We called Peg Stevenson in the Controller's Office to ask her about this, and she agreed with us: revenue bonds don't cost the city any money. Buying out PG&E with revenue bonds wouldn't cost the city any money. So why does the analysis say the measure could cost billions? "That's not how I expect people to read it," she said.
But that's exactly how people will read it. And it's grossly misleading.
PG&E is already on the attack, and costs will be a huge part of its campaign. In fact, in a July 24 letter to the controller, David Rubin, PG&E's director of service analysis, argues that the company's San Francisco system is worth $4.18 billion.
The letter states that PG&E "has not done an inventory of its system" in other words, the figures Rubin cites are just estimates. And the method PG&E uses to calculate the fair market value of the property is economically and legally dubious, at best.
PG&E insists that the only way to establish a price for the city to pay for a takeover is a method known as "replacement cost new less depreciation." The idea: the city would have to pay the price that it would cost today to replace all of PG&E's equipment, much of which is old and was purchased (and paid for by the ratepayers) long ago.
The state Board of Equalization, which sets the value of PG&E's property every year for tax purposes, doesn't use that method. The board bases its valuation on what's known as the rate base the amount of invested capital state regulators allow PG&E to earn a return on. By that standard, the system is worth less than a quarter of what PG&E is claiming (and when tax time rolls around, you can bet the utility isn't insisting that its property ought to be assessed at a higher value).
Stevenson said the Controller's Office might replace the term "in the billions of dollars" with a more specific figure. If that's the case, taking PG&E's word, and accepting the wildly inflated $4.18 billion figure, would be a clear violation of the public trust.
The Controller's Office needs to change its statement to reflect, at the very least, the fact that no city money is at risk and that there's a reasonable assumption that the end result of a public takeover of PG&E would be increased revenue. It should say: "The costs of purchasing or building energy facilities would be substantial but those costs would be covered entirely by the revenue from operating the facilities. The net cost to the city would, at worst, be minimal and the potential exists for the city to bring in significant new revenue to offset taxes and general fund expenses."
That, at least, is a true and accurate statement.
PS: The supervisors should hold hearings on the economics of this measure and demonstrate how lucrative public power is for cities and how cheap for ratepayers. Public power is cheaper. Two charts below (PDF) show how public power is consistently less expensive than PG&E's private power. The first one  looks at utilities in California; note that SMUD, the Sacramento Municipal Utility District, has significantly lower rates than PG&E. The second one , from the American Public Power Association, shows overall rates for public and private utilities state by state.
The relevant line shows public, private and co-op rates, average per kilowatt-hour. Note that public power in California is about one-third cheaper overall.
PPS: We've seen these shenanigans from the Controller's Office for years; see our 1982 story  (PDF) on how PG&E forced a misleading statement onto the ballot.