Power outrage

PG&E’s Proposition 16 would protect thecompany from public-power rivals

PG&E’s Proposition 16 would make it nearly impossible for public-power agencies like SMUD to start up or to expand.

PG&E’s Proposition 16 would make it nearly impossible for public-power agencies like SMUD to start up or to expand.

In the television commercials for PG&E’s June ballot measure, Proposition 16, the narrator offers up a simple, alarming message:

“Local governments can spend unlimited public funds to go into the electricity business, and we don’t even have the right to vote on it,” a woman’s voice explains. “Whether government-run electricity is a good idea or not, voters should have the final say, because we’re paying the bills.”

Prop. 16, dubbed by its backers as the “Taxpayers Right to Vote Act,” would amend the California Constitution and impose many new restrictions on local public-power agencies.

It’s hard to argue against anyone’s “right to vote.” But PG&E leaves a lot of information out. Most significantly, Prop. 16 would protect the energy giant from public-power rivals, making it nearly impossible for municipal agencies, such as SMUD, to expand—or come into existence in the first place. What’s more, Prop. 16 critics call the measure “profoundly” misleading—and argue that it would negatively impact green-energy innovation.

The Prop. 16 ad doesn’t explain that local agencies already can’t spend “unlimited public funds” to provide electricity. It’s doesn’t explain that all of California’s local public-power agencies, such as SMUD, came into being because voters approved them. Or that publicly elected officials run these utilities.

It also doesn’t explain that Prop. 16’s sole financial backer is in fact PG&E, which has spent millions of dollars over the years defeating public-power efforts across the state—and had pledged to spend $35 million or more to pass Prop. 16.

“It’s an outrage,” said former California Energy Commission executive director John Geesman, a vocal critic of Prop. 16. He says the measure is really just PG&E’s attempt to “write its own business advantage into the state constitution.”

Prop. 16 would certainly make it much easier for PG&E to eliminate competition from new public-power initiatives. Under the ballot measure, any local government that wants to start up a public-power agency would have to get two-thirds voter approval in any new service area. And an existing public-power agency, such as SMUD, who wants to expand its territory would also have to win two-thirds approval in any new service area and in its existing territory.

And cities and counties that want to employ California’s “community choice aggregation” rules to buy wholesale electricity—in order to provide citizens with cheaper or greener power—would also need two-thirds approval from voters.

PG&E spokesman Andrew Souvall says that Prop. 16 is necessary. “It gives our customers more control over how public funds are being spent,” he argued.

But that’s not what PG&E CEO Peter Darbee told his shareholders at a meeting on March 1. There, he explained to investors that the measure was intended to keep PG&E from having to defend itself against repeated public-power efforts at the ballot box, citing PG&E’s ultimately successful $15 million campaign to stop SMUD from expanding into Yolo County in 2006.

“The idea was to diminish … having to spend millions and millions of shareholder dollars to defend [against public-power efforts] repeatedly,” Darbee explained. In other words—and contrary to the measure’s purported goal of spreading democracy—Darbee seems to be saying less democracy is better for shareholders.

“It was really a decision about could we greatly diminish this kind of activity for all going forward, rather than spending $10 [million] to $15 million a year of your money to invest in this,” he explained.

Geesman, who was executive director of the California Energy Commission under former-Gov. Jerry Brown, posted a transcript of Darbee’s speech on his blog, the PG&E Ballot Initiative Factsheet (http://pgandeballotinitiativefactsheet.blogspot.com). He also spent a couple decades as an investment banker before again serving as a CEC director under Govs. Gray Davis and Arnold Schwarzenegger, before retiring in 2008.

But PG&E’s Prop. 16 brought him out of retirement, and he’s been skewering the company and CEO Darbee on his blog all year, speaking out against the measure at every opportunity.

In testimony to the California state Legislature earlier this year, he blasted it. “Never in all of that time or in any of those venues have I seen political activity by a regulated utility so far outside the bounds of acceptable conduct,” he said.

The measure’s other opponents are a diverse mix. There’s the consumer group The Utility Reform Network, and the environmental group the Sierra Club. But they’re joined by the California Association of Realtors and the California Farm Bureau, along with several local governments and public-power agencies, SMUD included. (Strangely, the city of Sacramento hasn’t weighed in yet, though the cities of Roseville, Davis and Lodi have all passed resolutions against Prop. 16.)

On the “yes” side, the measure has attracted the support of several business and anti-tax groups, most notably the California Chamber of Commerce and the California Taxpayers’ Association.

“We support taxpayers having more power over how their tax money is spent,” said David Kline, with the California Taxpayers’ Association. Kline, however, could not cite a particular case where the current law was abused, or where a local public-power agency was formed or expanded without a vote. “The problem is more of a future problem than a past problem,” he explained.

Likewise, Marc Burgat, vice president of government affairs with the California Chamber of Commerce, couldn’t name any specific cases where a public-power agency was formed or expanded without a vote. But he said that was beside the point.

“Generally, they do go to a vote. But nowhere in California law is that required,” he said. It’s up to the elected officials at the local level to decide on such elections. For example, when SMUD sought to expand into Yolo County in 2006, it was only required that Yolo ratepayers—those in the new service territory—vote on the expansion.

“When SMUD wanted to take Davis and West Sacramento, there was no guarantee that PG&E would have a say in that,” Burgat explained.

So, in the spring of 2006, PG&E put a separate measure on the ballot—and won, changing Sacramento County law to require voters in the existing service territory to vote on any future SMUD expansion. SMUD officials complained they already planned for dual elections, even though they knew it would be much more difficult to win that way. Over the course of that year, PG&E spent millions—$11 million on the fall elections alone, breaking local campaign-finance records—trying to convince voters that SMUD was mounting a risky and costly government takeover of a private business.

In the fall election, Yolo County voters barely turned down SMUD’s expansion bid, with a 50.6 percent “no” vote. In Sacramento County, where voters already enjoyed SMUD’s lower rates, the expansion was trounced 62 percent to 38 percent.

In many ways, Prop. 16 looks like PG&E’s anti-SMUD campaign on much a larger scale. “It sets everything in stone, rather than leaving it up to the local agency,” said Burgat, who argued that Prop. 16 would avoid much of the jockeying that happened in Sacramento.

With its two-thirds requirement, Prop. 16 tilts the playing field steeply in favor of the private utilities. But Burgat says a two-thirds vote is “pretty standard” when it comes to bonds, local sales taxes and the state budget.

And Burgat says the measure appeals to the “core values” of the chamber of commerce.

“We represent business. And business wants certainty. Business doesn’t want to compete with things that are subsidized by the taxpayer. We don’t think it’s appropriate to use taxpayer money to compete directly with private business,” he said.

In March, PG&E’s CEO Peter Darbee told company shareholders that Prop. 16 was about saving investor dollars.

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But, in fact, utilities like SMUD don’t use taxes to provide electricity; they use electricity rates.

The Utility Reform Network director Mindy Spatt says PG&E is trying to sell voters on a problem—higher taxes stemming from rampant government takeover of electric utilities—that doesn’t really exist.

“We have not heard one voter who feels disenfranchised by the current process,” Spatt said.

In fact, it’s just the opposite, argues Michael Boccadoro, a lobbyist with the Agricultural Energy Consumers Association, which represents farmers on state energy issues. “The local utilities are much better operated, and more efficient. The rates are substantially lower, and the service is much better. You don’t see CEOs making seven-figure salaries,” Boccadoro said.

According to The Associated Press, Darbee made $9.4 million in salary and bonuses last year. Officials at the Northern California Power Agency say that public utilities in this region have rates about 20 to 25 percent lower than PG&E’s.

Whereas public utilities like SMUD can only raise rates with a vote by their elected boards, PG&E’s rate increases are approved by the appointed California Public Utilities Commission, using formulas that guarantee a certain rate of return on the utility’s investment.

“If PG&E really feels strongly that people should be given a vote, maybe ratepayers should get to vote on PG&E rate increases,” Boccadoro complained.

In fact, PG&E has a $1 billion rate-increase package for 2011 pending before the California Public Utilities Commission right now.

“Every time a PG&E customer sees one of those Prop. 16 ads, they should remind themselves, ‘Oh, I’m paying for that [commercial],’” Spatt said.

PG&E is quick to say that the campaign war chest is really money that otherwise would have been paid to shareholders as profits, not money that would be used to invest in or operate the company. But some disagree.

“Realistically, every nickel that comes though PG&E’s books comes from its customers,” Geesman argued.

When a regulated utility decides it has tens of millions of dollars to spend on a ballot campaign, Geesman said, “It suggests something is seriously wrong with the way rates are set.”

Local governments and public-power agencies, on the other hand, are forbidden by law from spending money on political campaigns. The “No on Prop. 16” campaign has so far raised a piddling $40,000, compared to PG&E’s $28 million and counting.

So the locals have taken one of the few routes available to them:

They’re suing.

In mid-March, SMUD joined with the city and county of San Francisco, and several public-power agencies and rural irrigation districts, to file a lawsuit against the measure in Sacramento County Superior Court. The suit alleges that Prop. 16 backers “profoundly misled the citizens, who were induced to sign the petition to qualify it, and will mislead the voters who are asked to adopt it.”

Misled, the plaintiffs say, because Prop. 16 billed as a “control on taxes, borrowing, and public spending, while concealing that its true nature, purpose and effect is to protect PG&E from competition from public providers of electric service.”

Sacramento Superior Court Judge Lloyd Connelly will hold a hearing on May 5. SMUD’s top lawyer, Arlen Orchard, acknowledged that the suit would be tough to win, because courts are reluctant to remove measures from the ballot.

“I think this initiative is so patently misleading, there’s at least a reasonable chance” that the court would scotch the measure, Orchard said.

The deception continues. Last week, for example, the Prop. 16 campaign sent out mailers. “At a time of tight budgets and layoffs of police and firefighters,” it read, “voters should have the right to vote on anything that affects our pocketbook.”

But public-power agencies like SMUD have nothing to do with a city’s general funds, which finances services such as police and firefighters.

“The notion that taxes are being used to provide electricity is just untrue,” Orchard said. The California secretary of state already told the proponents that they couldn’t keep the words “Taxpayer’s Right to Vote Act” as their official title, instead giving the measure the much drier title: “Imposes New Two-thirds Majority Voter Approval Requirements for Local Public Electricity Providers.”

Orchard is scheduled to report to the SMUD board of directors on Thursday, April 15, on Prop. 16’s potential impact. The most obvious effect is that it will be much more difficult for SMUD to expand its service territory, though the utility has no current plans to expand.

Orchard says the more immediate impacts could be on innovation and development of green-energy projects. He says the ballot measure’s language is vague about whether public agencies like SMUD would need to get voter approval to try new things, such as helping establish “gas stations” for electric cars or certain kinds of solar-power generation.

“It creates a huge amount of uncertainty. And it will likely have a chilling effect on us,” Orchard explained.

He also says that the law, in some cases, would prevent a public utility from providing electricity to a new development project, or even a single rural customer on the edge of the utility’s service territory, without getting two-thirds voter approval.

He said it might be possible, for example, for a neighborhood group to use the law as a club against some project they don’t like. That’s part of the reason that the California Realtors Association has taken a “no” position on Prop. 16.

Prop. 16 backers say the law is clearly not intended to do such things, but Orchard said it could take years for the courts to sort out what the language exactly means.

“It could take years for the courts to sort it out,” he said.

Of course, many voters won’t have heard Orchard’s concerns, or know much about the measure, other than that it purports to protect their “right to vote.” The “no” side can’t afford television spots. And PG&E will be able to reach plenty of voters with its elegant, if misleading, argument that “voters should have the final say.”

Geesman isn’t sure it will work, though, even if PG&E ultimately spends $35 million or more. “Never underestimate the sense of smell of California voters,” he said. “They can smell a skunk a mile away.”