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<http://secure.scientech.com/images/spacer.gif<;=09 <http://secure.scient=
ech.com/images/spacer.gif<=09 <http://secure.scientech.com/_IA_TEST/Corner_TL.jpg<=09 <http://secure.s= cientech.com/images/spacer.gif<=09 <http://secure.scientech.com/_IA_TEST/C= orner_TR.jpg<=09 =09 <http://secure.scientech.com/rci/wsimages/ia_banner02.gif<=09=09 <http://secure.scientech.com/_IA_TEST/Corner_BL.jpg<=09=09 <http://secur= e.scientech.com/_IA_TEST/Corner_BR.jpg<=09 <http://secure.scientech.com/images/spacer.gif<;=09 <http://secure.sciente= ch.com/specialpages/Multi_Client.asp< <http://secure.scientech.com/images/spacer.gif<;=09 <http://secure.scient= ech.com/images/spacer.gif<=09 =09 <http://secure.scientech.com/rci/wsimages/will100border_copy.jpg< <http://secure.scientech.com/_IA_TEST/Corner_TL.jpg<=09=09 <http://secur= e.scientech.com/_IA_TEST/Corner_TR.jpg<=09 =09 <http://secure.scientech.com/images/spacer.gif<; <http://www.thestructu= regroup.com< <http://secure.scientech.com/images/spacer.gif<; <http://secure.scientech.= com/specialpages/Strategic_Planning.asp< <http://secure.scientech.com/ima= ges/spacer.gif< <http://secure.scientech.com/rci/details.asp?ProductID=3D90= 9< <http://secure.scientech.com/images/spacer.gif<;=09 <http://secure.scientech.com/_IA_TEST/Corner_BL.jpg<=09=09 <http://secur= e.scientech.com/_IA_TEST/Corner_BR.jpg<=09 November 6, 2001 Munipalization Vote in San Francisco May Set Precedent By Will McNamara Director, Electric Industry Analysis [News item from Associated Press] In the wake of this year's California pow= er woes, votes in the hometown of the state's largest utility will decide o= n Nov. 6 whether to initiate action to seize Pacific Gas & Electric Co.'s l= ocal electricity network and deliver power through a public agency.=20 Analysis: There is a lot riding on today's vote, and its outcome will undou= btedly have significant ramifications for California and other cities acros= s the country. Although the municipalization of an incumbent utility's elec= tric system is not a new concept-either nationally or in this particular ca= se-San Francisco is presently the largest city in which such efforts are be= ing considered. Given the relative success of other municipalized electric = systems in California (Los Angeles Department of Water and Power and Sacram= ento Municipal Utility District, for instance), along with the bad publicit= y that Pacific Gas & Electric Co. has encountered over the last year due to= the state's energy crisis and its own bankruptcy proceedings, today's vote= could very well be a victory for public power. The vote in and of itself w= ill not create a municipalized electric system in San Francisco. Pacific Ga= s & Electric Co. has already vowed to fight the takeover, and if the vote i= s a win for public power it will only lead to further lengthy and costly co= urt battles. However, the vote is significant because it illustrates what a= ppears to be a growing trend among cities that believe they can provide che= aper electric service than incumbent, for-profit utilities. In addition, th= e measure is just one more strike against the already beleaguered Pacific G= as & Electric Co., which is still navigating through bankruptcy proceedings= .=20 There are two measures related to the public power movement that are up for= vote in San Francisco today. First, Proposition I would create a San Franc= isco-Brisbane Municipal Utility District (MUD), an independent agency gover= ned by a five-member board that would provide electric service to San Franc= isco and Brisbane, Calif., a smaller city located to the south of the Bay A= rea. California law requires that two separate cities be included in order = for municipalization to take effect, and thus from the onset of the municip= alization discussions in this area San Francisco and Brisbane were grouped = together as one district. The second measure up for vote, known as Proposit= ion F, would create a Water and Power Agency in San Francisco only and reta= in ties to City Hall. This measure would not create a MUD and therefore wou= ld not need to include Brisbane to take effect. The agency would be governe= d by an elected seven-member board of directors and would replace the curre= nt jurisdictional oversight by the California Public Utilities Commission.= =20 An affirmative vote in either or both of the measures would not necessarily= mean an immediate effort to take over Pacific Gas & Electric's infrastruct= ure. In addition to the court appeals that would undoubtedly take place, in= the event of either measure being passed an elected board would have to su= bsequently vote whether or not to seize the utility's transmission and dist= ribution lines. If such a vote were approved, the MUD could use eminent dom= ain to take over the utility's assets.=20 Ultimately at stake is a battle over Pacific Gas & Electric's 4.7 million c= ustomers and its transmission system, which has been appraised between $750= million and $1 billion (the utility claims that its system is worth $1.5 b= illion). Both sides have argued decidedly different platforms. The pro-muni= effort in San Francisco / Brisbane has been led by Bruce Brugmann, the pub= lisher of the Bay Guardian newspaper and City Supervisors Angela Alioto and= Tom Ammiano. The proponents of the muni measure argue that a utility distr= ict operating as a nonprofit public entity would be more beneficial to city= residents than a dividend-paying division of a major energy firm. It has b= een repeatedly noted by the pro-muni forces that Pacific Gas & Electric Co.= charges the third-highest electric rates in the United States. In addition= , the proponents point to already-established municipalized districts in Ca= lifornia such as LADWP and SMUD, which they claim have protected customers = from increasingly volatile prices for electricity. The other tenets of the = pro-muni argument are that public power would lead to better accountability= to customers and more emphasis on renewable energy.=20 The movement against the muni effort is obviously led by Pacific Gas & Elec= tric Co., but also includes officials from AT&T and Pacific Telesis Group, = which together contributed about $250,000 to the opposition effort. Apparen= tly, local communications companies fear that a successful municipalization= effort of Pacific Gas & Electric Co. would lead to similar takeover measur= es in the phone industry. The basic argument against the public power movem= ent is that the plan is unrealistic. Specifically, opponents say, the MUD f= ormed by San Francisco and Brisbane would be ill-equipped to handle the com= plex electricity infrastructure that Pacific Gas & Electric has effectively= managed for years, and that a city-run bureaucracy would not be able to co= mpete with big league energy players. In addition, the new MUD would have t= o purchase Pacific Gas & Electric's transmission assets and also buy wholes= ale power without the benefit of long-term contracts, which represent two h= efty investments that would end up costing consumers in the long run. It is= true that the city of San Francisco owns the dam at Hetch Hetchy reservoir= , which powers street lights and city offices with hydropower. However, the= reservoir is reportedly in great need for maintenance and may require addi= tional capital for upgrades. Thus, in order to serve Pacific Gas & Electric= 's 4.7 million customers, the MUD would have to buy most of its power on th= e wholesale market.=20 This is actually one of several important points that may not have been tak= en into full consideration by the pro-muni forces. Already-established MUDs= in California such as LADWP and SMUD, and those in other states, have alre= ady established lucrative contracts to obtain federal power at cheap rates = through 2004. There is a good chance that a San Francisco / Brisbane MUD wo= uld not have the same opportunity to secure the same rates at this juncture= . Thus, without the benefit of long-term contracts, the San Francisco / Bri= sbane MUD could be exposed to the volatile wholesale market or be forced to= invest in the construction of expensive power plants. Often, such costs ge= t overlooked when a city is planning to municipalize. In fact, it has been = reported that the pro-muni side in this particular case did not conduct any= feasibility study in advance of its campaign, and thus could very well be = unaware of these associated costs. However, S. David Freeman, who previousl= y managed LADWP and was recently appointed chairman of the new California C= onsumer Power and Conservation Financing Authority, went on record stating = that his organization could assist a public power agency in San Francisco b= y selling it low-cost electricity produced by plants financed by the author= ity.=20 As noted, Pacific Gas & Electric Co. intends to fight the municipalization = effort, and in fact has fought in City Hall and in court for decades to der= ail such efforts in San Francisco. However, in contrast with past battles, = the issue has become more intensely politicized over the last year as San F= ranciscans faced rolling blackouts and Pacific Gas & Electric Co. went bank= rupt. The utility recently received cash support from its parent PG&E Corp.= , which reportedly spent about $1 million in an advertising campaign urging= citizens to vote against the public power initiative. This financial suppo= rt has been helpful, considering that Pacific Gas & Electric Co. is current= ly in bankruptcy proceedings and has little capital to front its own defens= e against the muni effort. Consequently, if voters pass the measures on Nov= . 6, PG&E Corp. will undoubtedly launch a lengthy court battle that will ke= ep the issue in litigation for years. In addition to the court appeals, it = would most likely take the newly formed MUD years to gather the capital nee= ded to front a purchase of Pacific Gas & Electric's T&D assets.=20 Nevertheless, an affirmative vote on the muni issue could set a precedent f= or future votes and perhaps mark the dawn of a new era for public power. Ot= her California cities such as San Diego, San Jose and Davis are closely fol= lowing the outcome in San Francisco as they have also debated the issue of = municipalization. In addition, the Coachella Valley Association of Governme= nts, which includes the city of Palm Springs, Calif., began looking at the = feasibility of taking over Southern California Edison's distribution system= and forming a municipal utility last September. In fact, the municipalizat= ion effort has gained some momentum across the country over the last few ye= ars, along with the opening of competitive markets through deregulation. Cu= rrent reports indicate that there are about 2,000 public electric districts= , providing electric power to 40 million customers and accounting for 15 pe= rcent of the demand in the United States. It is important to note that the = majority of these public power districts were formed in the early 1900s.=20 The turnout for the vote in San Francisco could be a deciding factor. Altho= ugh the issue had been gaining momentum in the city earlier this year, the = events of Sept. 11 have turned the focus to more national events and made p= eople wary of change. Typically, voter turnout in the area is around 35 per= cent. A recent survey conducted by the opponents of the measure found that = 35 percent of those surveyed favored passage, 30 percent oppose it, and 35 = percent were undecided.=20 It is important to note that municipalization is not an issue that is only = facing California. After several years of discussions, lawsuits and negotia= tions, the city of Hermiston, Ore., voted to spend $8 million to purchase t= he facilities PacifiCorp has been using to serve 4,000 commercial and resid= ential customers. The city of Hermiston began serving customers on Oct. 1, = when a new contract with Bonneville Power Administration (BPA) took effect.= The federal power-marketing agency has already set aside 12 MW for the cit= y, after determining that Hermiston qualified as a new small public utility= eligible for preference power.=20 Hermiston, Ore., is the first city to complete a contested municipalization= of an incumbent utility's electric business in two decades (the last signi= ficant contested municipalization was completed in Massena, N.Y., in 1981).= Despite the fact that a growing number of U.S. cities have expressed inter= est in municipalizing their electric systems, for the most part such effort= s remain overwhelmingly unsuccessful when taken to court or a public ballot= . Despite the success of Hermiston, some 50 other municipalization efforts = have been terminated during the 30 years between 1970 and 2000. For instanc= e, the city of Wichita, Kansas, spent more than $300,000 in the past two ye= ars studying municipal power options. However, after the Kansas Corporation= Commission turned down Western Resources' proposed rate hike this summer, = the city put municipalization plans on hold. Thus, the eyes of the industry= will remain on the vote today in San Francisco for any indication that mun= icipalization efforts are gaining momentum and proving successful.=20 TOMORROW'S ISSUEALERT WILL INCLUDE THE OUTCOME OF THE MUNICIPALIZATION VOTE= IN SAN FRANCISCO.=20 An archive list of previous IssueAlert articles is available at www.scientech.com <http://secure.scientech.com/issuealert/<;=20 _____ =20 We encourage our readers to contact us with their comments. We look forward= to hearing from you. Nancy Spring <mailto:nspring@scientech.com< Reach thousands of utility analysts and decision makers every day. Your com= pany can schedule a sponsorship of IssueAlert by contacting Jane Pelz <mai= lto:jpelz@scientech.com<at 505.244.7650. Advertising opportunities are also= available on our Website.=20 _____ =20 Our staff is comprised of leading energy experts with diverse backgrounds i= n utility generation, transmission & distribution, retail markets, new tech= nologies, I/T, renewable energy, regulatory affairs, community relations an= d international issues. Contact consulting@scientech.com <http://consulting= @scientech.com< or call Nancy Spring at 505.244.7613.=20 _____ =20 SCIENTECH is pleased to provide you with your free, daily IssueAlert. Let u= s know if we can help you with in-depth analyses or any other SCIENTECH inf= ormation products. If you would like to refer colleagues to receive our fre= e, daily IssueAlert articles, please register directly on our site at secur= e.scientech.com/issuealert <http://secure.scientech.com/issuealert/<;.=20 If you no longer wish to receive this daily e-mail, and you are currently a= registered subscriber to IssueAlert via SCIENTECH's website, please visit = <http://secure.scientech.com/account/<; to unsubscribe. Otherwise, please se= nd an e-mail to to IssueAlert <mailto:IssueAlert@scientech.com<, with "Dele= te IA Subscription" in the subject line.=20 _____ =20 SCIENTECH's IssueAlert(SM) articles are compiled based on the independent a= nalysis of SCIENTECH consultants. The opinions expressed in SCIENTECH's Iss= ueAlerts are not intended to predict financial performance of companies dis= cussed, or to be the basis for investment decisions of any kind. SCIENTECH'= s sole purpose in publishing its IssueAlert articles is to offer an indepen= dent perspective regarding the key events occurring in the energy industry,= based on its long-standing reputation as an expert on energy issues.=20 Copyright 2001. SCIENTECH, Inc. All rights reserved. <http://infostore.consultrci.com/spacerdot.gif?IssueAlert=3D11/6/2001<;
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