Propositions F and I - Public Power

Voter Guide
November 1, 2001
This measure appeared on the November 2001 San Francisco ballot.
 

What it does

The most far-reaching measures on the November ballot have to do with power-Propositions B, F, H, and I. In order to better understand this complex, technical subject, SPUR retained John Nimmons, a respected expert on alternative energy, first to frame the issue by describing today's deregulated energy markets, second, to explain the differences between private power and each of the options for public power, and third, to explain Propositions I and F. Mr. Nimmons' full report to SPUR ("San Francisco's Public Power Options") can be found on the SPUR website, www.spur.org. The explanations below of Propositions I and F draw from Mr. Nimmons' full report. However, the evaluation and conclusions presented here are SPUR's alone.

These two ballot measures propose to move the city into the retail power business. Neither measure is in fact a vote on public power in general but rather are specific proposals on how to achieve public power.

Proposition I would establish a Municipal Utility District (MUD). (see sidebar) Its physical boundaries would include both San Francisco and Brisbane, but it would be a legally separate special purpose district. The MUD would be governed by a five-member, elected board of directors. (Candidates for the MUD Board are also on the ballot this November.) The specific actions and policies of the MUD would be determined by the Board, working within the guidelines of California's enabling legislation for municipal utility districts. However, the stated intentions of the proponents of the MUD proponents are to take over pieces of PG&E's electricity generation and distribution system, and to use the city's own Hetch Hetchy hydropower generation and distribution system to produce and sell power directly to customers in San Francisco. The state's enabling legislation would also allow the MUD to provide water, transportation, communications, garbage, and/or sewage services, should the Board elect to do so.

Proposition F would supplant the city's Public Utilities Commission, with a new Municipal Water and Power Agency (the "MWPA"). It would be governed by an elected, seven-member board of directors. Like the MUD proposal, the intent of the MWPA is to have a publicly owned and operated retail electricity utility. Unlike the MUD, however, the MWPA would be a quasi-independent branch of the city government, in some ways like the Airport or the Municipal Transportation Agency. It would, however, have an elected board, a structure much more akin to the San Francisco Unified School District. The MWPA measure also includes a set of PUC reforms intended to fix other perceived problems beyond the question of public power.

San Franciscans can vote for or against each proposition separately. If both were to pass, Proposition F contains provisions for resolving disputes between them, described later.

In addition, there are two other measures on the ballot that direct the existing Public Utilities Commission (or its successor) to do more to create renewable energy. Proposition B authorizes revenue bonds for city-owned solar energy, renewable energy, and energy conservation facilities. The city Charter requires voter approval for this type of revenue bond issuance. Proposition H is a very similar measure. Its approach is to change the city Charter to say that voter approval is no longer required to issue revenue bonds for renewable energy and energy conservation. If either or both of these measures pass, the Public Utilities Commission (or its successor) will be in a position to start investing in small scale, renewable energy-most likely solar panels or windmills-in locations around the city.

The Idea of Public Power

Throughout the entire history of the United States, there has been an active debate about the pros and cons of providing infrastructure services privately or publicly. The earliest roads and canals were sometimes built by towns, and sometimes by private companies who were issued a franchise to construct an improvement and charge a fee for access to it. For virtually every type of infrastructure today-highways, airports, ports, sewers, dams, trains, solid waste disposal-people argue about which kind of organization, public or private, is best suited to build, maintain, or operate the system.

We need to clarify the terms and values that lie behind this decision. Beyond the fact that a government agency owns it, what does it mean for a system of infrastructure to be "public"?

From an economists definition, "public goods" are distinguished from "private goods" (commodities and services exchanged in a market) by two basic characteristics:

It is either difficult or costly to exclude people from access and charge a fee for the good. For example, all people benefit from new signals at crosswalks and it is infeasible to charge people based on how many times they cross the street.

Public goods are "non-rivalrous," meaning that consumption of the good by one person does not preclude anyone else from consuming it. Once produced, the cost of providing the public good to an additional person is zero or minimal. One person benefiting from the new traffic signal does not make it any less helpful for the next person.

According to this definition of public goods, most infrastructure does not qualify. It is easy to charge people a fee for access to it-thus we get bills for water, power, garbage, and telephone use-and in many cases there is a finite supply of the good so that if some people consume too much, other people won't have enough.

But, of course, the government supplies many things which are not technically public goods, in particular when society decides it wants something to be provided, but there is no profit to be made from it. Thus, the government supplies public education (which is excludable and rivalrous) because our culture values the idea that everyone, not just people able to afford private school, should have a chance at an education. Similarly, the government supplies public transit (also excludable and rivalrous) because the benefits of having an equitable, space-conserving way to move large numbers of people outweigh the costs.

Applying this discussion to the electricity industry, we can better understand the arguments for public power.

There is a clear public interest in ensuring that electricity is available at stable prices, both because modern life depends on electricity and because firms need to be able to predict energy costs accurately when making investment decisions.

The reality of the utility industry may diverge so markedly from theories of "perfect competition"-especially the high barriers to entry and the small pool of energy suppliers-that the market may always tend to be concentrated among a small number of firms, which allows firms to collude instead of compete. Thus, the efficiencies of a well-functioning market may never materialize among utilities.

From an environmental perspective, the market will have perverse outcomes because the energy supplies which cost the least to produce often have large externalized costs (costs which are borne by other people or by future generations, but are not reflected in the monetary price between buyer and seller). Because the true costs of fossil fuel production are not reflected in the monetary price to produce it, nonrenewable energy remains the preference of market-oriented energy producers. In the long run, the only way that renewable energy will replace fossil fuels is through public action: The government must either levy a high "carbon tax" on fossil fuels, require private companies to switch to renewables, or begin producing renewable energy itself. In all cases, the cost of energy to the consumer would increase.

An unregulated power producer cannot make a profit from demand management. In many cases, the best way to ensure an adequate supply of power is to reduce the demand, not to increase the supply. Private power producers have a fundamental disincentive to reduce demand for the product they sell. Demand management, as part of a comprehensive plan for ensuring an adequate supply of energy, can best be assured and/or carried out by the public sector.

There is no inherent reason to believe that either public power or private power will be significantly cheaper in the long run. There are examples of both well-run public and well-run private utilities in the country today, just as there are examples of poorly run utilities of both kinds. A survey of utility prices today will show that public utilities have cheaper prices on average. However, this is largely due to preferential treatment given by federally-funded hydropower systems like the Bonneville Power Administration. These federal hydropower are not likely to have excess power to sell, and a new public utility is unlikely to benefit from them. The ability to borrow money through tax-exempt bonds will also benefit public utilities by shifting tax burdens to others. But in terms of the actual efficiency of producing and distributing power, there is no inherent benefit one way of the other. A 1997 consultant study for the City of San Francisco estimated that the likely total savings to consumers from a publicly owned utility would be less than 5%.

There may be valid arguments in favor of public power. There are principled reasons to believe that public power would lead to more environmentally-sound outcomes and there may be pragmatic reasons to believe that in California today, the private power market cannot be made to work. But real lower costs is not a valid argument, nor is the idea that public power would solve the current energy crisis.

The real differences lie in the questions of institutional mission and accountability. Private companies are ultimately accountable to shareholders, while public agencies are ultimately accountable to voters. The question of public power hinges on whether one believes that this sector of the economy should be guided by the political process or the market.

Proposition I: The Municipal Utility District

The ballot language for this proposition consists of a single sentence: "Shall the San Francisco-Brisbane Municipal Utility District be created and established?"

The proposal is to create a municipal utility district whose physical boundaries would include the City and County of San Francisco and the City of Brisbane. The district would not function as part of, or be responsible to, either San Francisco or Brisbane city government; it would be a separate and independent legal entity whose structure, procedures, and powers are governed by state, not local law, and whose five-member governing body would be elected at large from five wards which would comprise the district.

Efforts to create public power have been underway in San Francisco since the Progressive Era. The contemporary movement has been led since the 1960s by the Bay Guardian. Blocked by an unreceptive Board of Supervisors during the 1990s, the Guardian pursued a different approach in 2000 by leading an effort to gather signatures in support of creating a MUD.

Over 24,000 San Francisco and Brisbane residents signed petitions to place the MUD on the ballot, and the ballot process was initiated in June 2000. Pursuant to state law, the San Francisco Board of Supervisors created a Local Agency Formation Commission (LAFCO) to review the measure. It was placed on the ballot by the Board of Supervisors in February 2001.

What Would the MUD Do?

Although the ballot language is sparse, MUD proponents have described in various public forums their intention to create a public power agency which would become the electric service provider for San Francisco and Brisbane. To achieve this, they state that the MUD would exercise its power of eminent domain to condemn, take over and operate PG&E's existing transmission, distribution and/or generation facilities serving San Francisco and Brisbane customers.

The proponents have also said that they expect the MUD to review other types of utilities operating within the district for possible future takeovers, since state law authorizes MUDs to provide not only electricity and lighting, but also transportation, communications, heat, water, garbage and sewage service.

Although some of these proponents are now seeking election to the MUD's board of directors, it would ultimately be that elected board (which might or might not include the current proponents) that would establish MUD policy and oversee its implementation.

Would the MUD Yield Lower Electric Rates?

The MUD proposal placed on the November 6 ballot did not proceed from a feasibility study or other comprehensive legal, economic or financial analysis. In 1996, the City and County of San Francisco did sponsor a preliminary feasibility study of municipalization. The study's objectives were to determine whether or not the city and its residents were likely to benefit from municipalization and by how much, and whether any potential benefits would likely outweigh the costs and risks sufficiently to justify investment in a full feasibility study. Its key conclusions were that:

Any electric rate savings from municipalization most likely would be less than 5% compared to PG&E's rates;

The outcome of any rate comparison was dominated by a single factor: the cost of acquiring PG&E's local electric distribution system (the estimated value of which the report stated could range from about $300 million to well over $1 billion, with a base cost of about $800 million); and

Any savings would be due almost entirely to municipal avoidance of local, state, and federal income taxes, which privately-owned businesses like PG&E must pay. Of course, those taxes would have to be made up in other ways. PG&E, which paid San Francisco about $22 million in 2000-2001, is the city's largest single taxpayer.

A city-owned utility is probably more favorable than a MUD since, as discussed next, a MUD would have no entitlement to Hetch Hetchy hydropower, and likely would incur some startup costs that a city department might avoid.

Where Would a MUD Get Its Power?

In public forums, MUD proponents have stated that a MUD will provide power from Hetch Hetchy, the system of reservoirs, dams, hydroelectric plants, aqueducts, pipelines and transmission facilities operated by the city's Public Utilities Commission. The system provides drinking water for the city and several municipalities, as well as hydroelectric power for the city's municipal uses (e.g., city offices, Muni, SFO, etc.).

The heart of the Hetch Hetchy system is located on public lands, including Yosemite National Park, Stanislaus National Forest, and parts of Tuolomne, Stanislaus, San Joaquin and Alameda counties. These lands are owned and controlled by the federal government and subject to federal law. San Francisco has been able to develop and use Hetch Hetchy water and power because the U.S. Congress specifically granted it the right to do so in legislation known as the Raker Act of 1913.

Section 8 of the Raker Act expressly defines the "grantee" of these rights as the City and County of San Francisco and such other municipalities or water districts as might participate or succeed to these rights, with the City and County's consent or in accordance with California law. The proposed MUD would be a separate and distinct legal entity, not part of the City and

County of San Francisco, and therefore not legally entitled to Hetch Hetchy power without the City and County's consent, or possibly some state legislative authorization. At this point, it is unknown whether either would be forthcoming, or what conditions might be attached if they were.

In any case, hydroelectric power depends ultimately on the availability of water to power turbines. Hetch Hetchy's power output varies annually and seasonally. When its power plants can operate at their full capacity, their maximum production at a particular moment is about 380 megawatts (380,000 kilowatts). Their actual production over the course of any year, measured in "kilowatt-hours" (kWh) that reflect how users consume power, varies considerably. The San Francisco Public Utilities Commission reports that Hetch Hetchy production averages about 1.6 billion kWh annually. This compares to the electricity requirements of San Francisco and Brisbane customers now served by PG&E, roughly as follows (1999 figures):

Hetch Hetchy Output

If Hetch Hetchy power were to become available to the MUD, it could meet only about 40% of San Francisco and Brisbane's recent peak demand, and only about one-third of annual customer requirements in the two cities. The remaining 60% of peak demand and the remaining two thirds of annual electricity requirements would need to be met from other sources-i.e., from other generation the MUD would acquire or build, or from power the MUD would purchase from the open market. Thus, claims by some individuals that the MUD would close down the Hunters Point and Potrero power plants and provide for San Francisco's needs by using Hetch Hetchy power and "clean, environmentally sound" sources are spurious.

The cost of acquiring or building generation would be in addition to the cost of acquiring PG&E's San Francisco distribution system, but we are not aware that the MUD proponents have analyzed, estimated or published any such generation costs. Nor is it apparent at this point what special experience, expertise, resources, sophistication or other advantages the MUD could bring to the complex task of purchasing electricity in competitive markets that could reduce its purchased power costs below those available to California's investor-owned utilities.

When Would MUD Service Begin, and How Would the System Be Maintained During Any Transition?

Voter approval of the MUD in November would be the first step in what is likely to be a lengthy process before any MUD services actually commence. To begin with, California Government Code Sections 56129-56130 provide that if part of the service area of a public utility such as PG&E, which furnishes gas or electric services, becomes part of the territory of a district authorized to provide those services, then the district shall not provide those services within the territory unless a majority of voters within the territory approves a ballot question which designates, among other things, that gas or electric service is to be furnished. The law requires that this question be submitted as a separate proposition.

The language placed on the November 6 ballot reads in its entirety: "Shall the San Francisco-Brisbane Municipal Utility District be created and established?" It does not designate the kind of service to be furnished, or state that the MUD will furnish gas or electric service. Whether or not the law requires such specificity in order to create a MUD, it clearly requires it before the MUD can actually furnish service in its territory. This means that if voters approve the November 6 ballot initiative, there will need to be a separate election to present the question of what kind(s) of service the MUD will provide.

Although MUD directors are to be elected at the same November 6 election, it will take time for a newly-created district to plan and raise financing for its activities; hire qualified and experienced staff; acquire generation, transmission and distribution facilities; establish power purchase capabilities; set up system operations and maintenance functions; and design and implement customer service and billing systems.

It took the Sacramento Municipal Utility District (SMUD) 12 years to get through litigation with PG&E, another 11 years to issue bonds, for a total of 23 years to begin providing service. Could it possibly be any less for San Francisco today? There is no reason to believe that PG&E would acquiesce in the effort to take assets central to its system. On the contrary, it is all but certain that the MUD would need to pursue eminent domain litigation to condemn PG&E's property for its own use. Under California law, eminent domain proceedings would be decided by a trial jury after months, or more likely years, of litigation. Whether that litigation would last for 12 years, as SMUD's did, or for a shorter or longer period, no one can say. Litigation uncertainties would be compounded by PG&E's pending bankruptcy litigation, and the Federal Bankruptcy Court's responsibility to protect, preserve and ensure the value of PG&E's assets for the benefit of its creditors. All that is certain in these circumstances is that the issues are difficult and complex, and will not be resolved quickly or cheaply.

Until they are resolved, it is legitimate to ask how the possibility of condemnation and the uncertainty of protracted litigation will impact investment in, and maintenance of, the utility assets used to serve San Francisco and Brisbane. Unless PG&E can be assured of recovering its costs through future rates, it is difficult to see what will induce it to make the investments needed to maintain these facilities or improve them to keep up with the area's demand growth. The state Public Utilities Commission would play an important role here, but at the very least would have a difficult task forcing investments and expenditures that the utility has no assurance of recovering.

Proposition F: Municipal Water & Power Agency Charter Amendment

Proposition F is a proposed amendment to the San Francisco city charter that would create a new agency to take over the city's Public Utilities Commission. The new Municipal Water and Power Authority (MWPA) would be responsible for building, managing, supervising, maintaining, extending, operating, use and control the city's water, water pollution control, and energy supplies and utilities, wherever located. It would also have authority over supplies, utilities and property, including financial and other assets related to water, water pollution control and energy that the city later acquires.

Part of the stated intent of Prop. F is to end PG&E's monopoly in San Francisco and revoke its franchise. It would add language to the city Charter declaring it city policy "to end Pacific Gas & Electric Company's monopoly in San Francisco, to revoke Pacific Gas & Electric Company's franchise, and to create a full-service public power system in the city to sell power directly to consumers."

As with the MUD, there is nothing that absolutely commits the city to public power; the actual actions of the MWPA would be subject to the decisions of a still-to-be-elected board of directors. But the Charter amendment directs the MWPA to initiate feasibility studies to determine the costs and benefits of providing public power to residents and businesses citywide. These studies would analyze the acquisition, construction and/or operation of generation and distribution facilities inside and outside the city, as well as community aggregation.

Within a year after Proposition F becomes effective, and consistent with the feasibility study results, the MWPA must implement a plan to provide residential and/or commercial electric service via generation, distribution or aggregation in the city, and to acquire or build generation and/or distribution capacity.

In addition, Prop. F clarifies the priorities of the new agency, providing something analogous to the Transit First policy as a guide to the city's water and power management goals. These goals include:

  • stable, affordable rates
  • robust, reliable service
  • disaster preparedness
  • resource management consistent with applicable laws
  • health and safety protection
  • integrated management of water, power, water pollution control and natural resources
  • conservation and efficiency programs to achieve 100 megawatts of demand reduction within three years
  • development of 100 megawatts of wind, solar, fuel cell and/or other alternative generation within 10 years
  • more efficient water use, reduced street flooding, and improved odor control from city facilities
  • construction, acquisition, and operation of facilities to provide energy to public and private users, and to permit closure of the Hunters Point power plant and clean-up of the Potrero power plant, and
  • preservation of bay uses and safeguarding of public health.

Although the MWPA would be a department of San Francisco city government, its seven-member board would be elected, not appointed. Unlike the board of the proposed MUD, MWPA directors would be elected by districts, not at large. The Board of Supervisors would establish these districts no later than November 7, 2001 (the day after the vote on the MWPA ballot initiative), and the MWPA's initial directors would be elected at the statewide primary election in March 2002. Beginning with the November 2003 municipal election, they would serve four-year terms. Members of the MUD board could serve on the MWPA board, but San Francisco's elected officials could not.

Financing

The MWPA could issue revenue bonds and other forms of indebtedness to be repaid from its revenues upon certification from the Controller and a two-thirds vote of its board, and without approval by the Board of Supervisors or the voters. Any single issuance over $100 million would be subject to referendum, but there is no limit on the number of issuances.

The Charter amendment directs the MWPA board to adopt annually a ten-year capital and long-range financial plan, a five-year business plan, and a two-year budget, each to provide specific information set forth in the proposed amendment, and each subject to public review and comment.

The MWPA would be prohibited from transferring money to the city's general fund for a period of five years. This is a compromise that partially addresses one of the most serious management problems in the city, namely the fact that instead of plowing revenues back into maintenance of the Hetch Hetchy system, the PUC is under constant political pressure to give money to the general fund. Many people have long believed that the city should permanently prohibit the transfer of funds from the PUC. Under pressure from public employee unions anxious to increase revenues to pay city employees, this idea was shortened to five years under Prop. F.

Where Would the MWPA Get Its Power?

Unlike an independent MUD, but like the city's Public Utilities Commission which it would replace, the MWPA could take advantage of San Francisco's legal entitlement to Hetch Hetchy water and power under the 1913 Raker Act. It would have the same access to and control over Hetch Hetchy water and electricity resources that the city historically has enjoyed, subject to the same Raker Act conditions (e.g., sales of surplus electricity to Modesto and Turlock irrigation districts, etc.). The Act does prohibit some electricity sales to private corporations and individuals, and their application in this context could be subject to differing interpretations.

In any event, the MWPA would be bound by the same Hetch Hetchy capacity limitations as a MUD, discussed earlier, and would need to pursue essentially the same options to acquire the roughly 60% of peak demand and two-thirds of annual electricity requirements that exceed Hetch Hetchy's capacity. As described earlier, those options include (1) other generation the MWPA would acquire or build, (2) power it would purchase from the same electricity markets where California's investor-owned utilities have had to acquire power for their customers, and/or (3) bilateral contracts with other generators also operating in those markets. As with the MUD, there is unlikely to be savings from the MWPA.

When Would the MWPA Begin Service?

The city's existing Public Utilities Commission already provides service to city-owned buildings and municipal facilities such as the municipal railway and the airport. The question here is when a new MWPA would begin service to non-city-owned facilities ­ i.e., to San Francisco residents and businesses.

Unlike a MUD, the MWPA might be able to use its existing Hetch Hetchy infrastructure to provide at least a portion of such services. Whether it actually could do so would depend initially on at least two key considerations: whether the federal Raker Act permits service to non-city-owned facilities, and whether Hetch Hetchy provides sufficient physical capacity for such service.

As noted earlier, the Raker Act does exclude from authorized municipal purposes some electricity sales to private corporations and individuals. However, those prohibitions could be subject to differing interpretations, and the courts have not yet been called upon to address their application to the MWPA's proposed residential and commercial services.

As to Hetch Hetchy's physical capacity to provide such services, its current capacity could satisfy about 40% of the total peak demand, and about one-third of annual customer requirements, that PG&E now meets in San Francisco. Since the remaining 60% of current peak demand and two-thirds annual electricity requirements would need to be met from other resources, the question becomes what would those resources be, and how long it would take the MWPA to acquire or build them. Without speculating about specific resources the MWPA might pursue, it is fair to say that the MWPA could purchase power from competitive markets sooner than it could acquire or build its own generation, transmission or distribution facilities.

If the MWPA chose to recommend eminent domain proceedings to acquire some or all of PG&E's San Francisco distribution and/or generation facilities (and the Board of Supervisors concurred), then it would likely confront the litigation delays, complexities and costs described earlier for the MUD, quite possibly over a multi-year period. For the MWPA as for a MUD, it is reasonable to ask how the uncertainty inherent in protracted litigation will impact PG&E's investment in, and maintenance of, the assets that now serve San Francisco citizens.

What Happens If Both the MUD and the MWPA Initiatives Pass?

Proposition F specifically provides for the possibility that voters could adopt both the MUD proposal and the MWPA on November 6, potentially creating two new agencies with competing mandates.

Should that occur, Proposition F directs the MWPA board to invite the MUD board to participate in public hearings to determine which entity is better equipped to deliver cost-effective electric service to residents and businesses within the shortest period of time. It further directs the MWPA board to seek an agreement with the MUD board that only one of the two entities would provide such service.

If the two boards cannot agree, as seems likely, then Proposition F would prohibit the MWPA from pursuing residential service or competing with the MUD to provide other electric services-unless a court restrains the MUD from doing so, or it fails to secure necessary state and local approvals or fulfill other statutory requirements. In other words, if both measures pass, the MUD could take precedence regardless of whether more voters favored the MUD or the MWPA.

Pros

The proponents of these measures are running a "yes-yes" campaign that promotes both measures:

  • Passage of either or both of these proposals will affirm the electorate's commitment to public power. Although the city already has the authority to go into the public power business through the existing PUC, it is feared that the PUC will not act unless it is forced to by a vote of the people.
  • A public power agency is more likely to promote conservation and "green power."
  • The energy industry in California is so troubled that a "normal" market is not likely to come into being. Therefore, for the sake of energy reliability, the voters need to take matters into their own hands.

Prop. F, the MWPA, has additional pros:

  • The five year prohibition on transferring money to the city's general fund will enable the agency to reinvest in deferred maintenance of San Francisco's water life-lines. Although most infrastructure experts would prefer to see this provision made permanent, five years is at least a start.
  • The MWPA's list of organizational priorities provides a clear departmental mission to which it can be held accountable.
  • The MWPA board members will not be elected until the March 2002 election, giving more of an opportunity for the electorate to ascertain their capability.
  • Because the MWPA is a department of the broader city government, rather than a wholly independent agency, it represents a more cautious approach.

Cons

Most of the con arguments apply equally to both Props. I and F:

  • The current energy crisis is about supply (generation), not distribution. However, both measures before the voters focus on taking over the distribution system. This will not address the crisis.
  • The City of San Francisco already has the authority to take over utility services. By creating new, independent or quasi-independent agencies, these measures will reduce democratic accountability: instead of being governed by the Mayor and Board of Supervisors, they will be governed by a whole new set of politicians, who will inevitably run in lower profile elections, and will therefore not be as well known by the electorate.
  • It is not likely that these public agencies will be able to provide cheaper power. For the most part, they will either need to buy it on the open market or build new generating facilities, and there is no reason to believe that a public agency can do either of these things more cheaply than a private company. What's more, many of the stated goals of the measures-in particular those pertaining to renewable energy-could lead to an increase in rates. While this increase may be justified on public policy grounds, reduced retail prices is not a reason to vote for the measures.
  • A major overlap-and turf battle-will emerge if both MUD and MWPA pass, promising to result in terrific political theater and terrible public policy.

There are also some problems specific to the MUD:

  • The LAFCO was required to prepare studies in order to determine the need for a MUD. Instead, the LAFCO had the measure placed on the ballot without performing the studies. The electorate is "voting blind," with no information on the impacts of this measure. In addition, the legality of the LAFCO process is likely to be challenged if the MUD passes, resulting in additional uncertainty and expense for power customers.
  • The MUD board will be selected in the November 6 election, and there is little opportunity for the voters to ascertain whether these individuals have the expertise to manage such a massive enterprise.
  • The Hetch Hetchy system supplies all the water for San Francisco (and much of the Peninsula), in addition to generating electricity for city purposes. If Hetch Hetchy is taken over by a MUD, and the mandate changes to focus on providing power, the city's water system could be endangered. Instead of the careful balancing act that currently defines the PUC's infrastructure management decisions, the agency would be under severe pressure to maximize power production.

The MWPA has its own unique problems:

  • Local government already has a difficult time providing services. The MWPA would be subject to all the pressures and inefficiencies built into the city's civil service system. And the politically popular move of charging reduced rates to residents would remove a powerful incentive to conservation.
  • The MWPA's board of directors would represent specific districts. While we believe electing a board of directors is the wrong way to go in the first place, the district-based system is particularly inappropriate for a city-wide (in fact, region-wide) infrastructure system. There is simply no rationale for this choice other than the superficial "trendiness" of the idea.

SPUR's analysis

We must acknowledge the serious problems with the status quo, and there are many good arguments for moving in the direction of public power. In particular, it is expected that there would be environmental benefits to placing the utility system under public control.

However, we believe that as drafted, both measures are so seriously flawed as to be unworkable. They are unlikely to result in agencies that are capable of effectively running a utility. The MUD, in particular, will lack the expertise or resources to be effective. Both proposals are likely to result in decades of protracted litigation. And both would politicize the management of infrastructure by establishing elected boards. When faced with two bad choices-governance by political patronage appointments or governance by zealots elected in low profile elections-it's hard to say which is worse. But SPUR takes the principled stand that this kind of infrastructure requires true expertise and that there is a greater risk in politicizing the governance of our infrastructure.

Both measures play on voter frustration with California's power crisis, but neither will do anything to solve it. Any benefits of public power are something that would be reaped by future generations, not by rate payers in the foreseeable future. In addition, the goal of reducing the environmental impacts is contrary to the goal of cheaper rates, and on this score the proponents have been disingenuous: almost every measure to reduce environmental impacts will lead to higher power rates. This is probably the right direction for our society to move, but it is simple demagoguery to promise cheaper rates and increased environmental protection, at least for the foreseeable future.

If the city wants to get into the public power business, there is nothing preventing the existing PUC from doing it, and there never has been. The responsible way to move in that direction is much more gradual than either Props. I or F suggest. Over time, the PUC should begin introducing distributed generation-small-scale arrays of solar panels, windmills, or fuel cells-around the city. If they are indeed cost effective, the PUC could begin to sell power on the open market. In this way, the PUC could begin to develop a more secure energy future for the city, while still paying attention to the basic market test of cost-effectiveness.

For this reason, SPUR recommends a yes vote on Propositions B and H-two measures which do precisely the right thing: direct the PUC to begin producing renewable energy. (These measures are further explained below.) Propositions B and H represent a responsible and incremental way to expand the city's role in producing and selling electricity.

SPUR recommends a "No" vote on both Propositions I and F.