Proposition D - Energy

What it does

This Charter Amendment would make major changes to the San Francisco Public Utilities Commission (PUC). Most of the provisions are intended to promote renewable energy and smaller, decentralized power plants. Unfortunately, other measures were added that are not related to this main purpose--these include a provision to make it easier to take over PG&E's electrical distribution system without a vote of the people and a shift in power from the Mayor to the Board of Supevisors.

Why it is on the ballot

Prop D is the latest attempt to get San Francisco into the public power business. It differs from previous measures significantly, however, in that much of its focus is on enabling the city to build decentralized power generation facilities. The proponents were in a position to write a measure that would get the neutrality of PG&E. But old political ideologies die hard, and in the end, language was inserted into the measure that provides the ability, though not the mandate, to use revenue bonds to buy out PG&E's grid if the Controller certifies it will not result in higher rates for distributing electricity.

The City's Energy Plan, developed in response to the Energy crisis of the last few years, favors the construction of a larger number of small power plants instead of a few large plants. This approach, often called "distributed generation," appears to be is more efficient for several reasons:

• Electric systems need sufficient reserves or back-up capacity to assure reliability. Larger power plants need larger back-up power sources to keep the lights on when they shut down unexpectedly as they inevitably do. Also, smaller power plants may have the potential to be more flexible in their operation, if they can be started up quickly when power is needed and shut back down when it isn't.
• Smaller power plants might can more easily include cogeneration, where the waste heat is captured and used for other productive purposes. In order for the waste heat to be useful, it needs to be near potential users of the heat. This implies the need for a more decentralized network of small power plants.
• Locating power plants near to where the power is used minimizes the loss of power along the transmission lines.
• Finally, having multiple plants minimizes vulnerability to disruption from one plant being down, whether from accident or terrorism.

All over the world, a new paradigm that emphasizes distributed generation over centralized generation is emerging. One of the things that motivates the move to distributed generation in San Francisco is the desire by activists in the Bayview and Potrero to shut down the big power plants in their neighborhoods. In order to do this transmission capacity up the Peninsula must be increased, or distributed generation new in-city generation must be built, or both.

Pros

• As citizens, we should have the ability to control the way our electricity is produced. We don't just care about rates; we also care about the environmental and social impacts of our consumer decisions. Moving in the direction of public power is an important increase in the scope of our democratic process.
• The old model of large-scale, centralized power plants has proven problematic. Distributed generation is currently seen as the way of the future. This measure would give the PUC the tools it needs to create a network of distributed generation.

Cons

• The city government is too inefficient to effectively deliver services. While in theory public power might make sense, in the case of San Francisco , it does not make sense to expand the scope of government.
• This measure continues to beat the dead horse of grid acquisition. Instead of keeping the focus totally on generation, it drags in the old idea of buying PG&E's grid, which is guaranteed to bog this whole process down in pointless litigation.
• With all of San Francisco's financial needs, is acquisition of PG&E's grid really on priority?
• The issue of a PG&E takeover will effectively derail all the good provisions of this measure, while a protracted legal action ensues. PG&E's cooperation is necessary to pursue distributed generation, which is unlikely to occur in the midst of a colossal legal battle.

SPUR's analysis

Prop. D would make seven major changes to the governance, powers and duties of the PUC:

Governance

Today all five members are appointed by the mayor. Under Prop. D, the Commission would be expanded to seven members; the mayor would appoint three, the supervisors would appoint three, and the Controller would appoint one. However, the Board of Supervisors would be able to reject the mayor's appointments with a simple majority, giving them de-facto control over six of the appointments, similar to the way the supervisors now control the Planning Commission.

Revenue Bonding Authority

Prop D would allow the City to issue revenue bonds for energy-related purposes without going to the ballot. Revenue bonds are repaid by a specific revenue stream other than general taxes. In the case of the PUC, revenue bonds are paid by water, sewer, or energy fees based on how much of these public utilities people use.

Prop D would establish a Hetch Hetchy power division of the PUC with its own bond rating. It would give the PUC the ability to issue revenue bonds, with approval of the Board of Supervisors, for the following purposes:

1. Developing new energy facilities and energy efficiency projects
2. Repair and replacement of city owned energy facilities
3. Acquisition of energy facilities
4. Acquisition of PG&E's distribution grid.

The first three ideas are widely viewed as good, even essential, tools for the PUC to efficiently build and maintain distributed generation facilities. The last item is the source of the greatest controversy in this measure. Most proponents of renewable energy and distributed generation believe that buying PG&E's grid is unnecessary. The rest of the measure focuses correctly on getting the PUC to build distributed generation and promote energy efficiency. However, this provision was inserted into an otherwise well-focused measure for purely ideological reasons.

What is particularly disturbing is that the decision whether or not to take over PG&E's grid would be made far too easy under Prop D. With most other revenue bonds, a resolution of the board is required, plus signature of the mayor. Prop D is specifically written to require only a motion by the board, which does not require the mayor's signature. Furthermore, a motion cannot be referended by the public.

Contract and Joint Powers Agreements

This measure would give the PUC the authority to enter into long term contracts for energy related services subject to the approval of the Board of Supervisors. It would also allow the PUC to enter into joint powers agreements with other public agencies. These provisions would give the PUC more flexibility in putting together a portfolio of energy resources to meet San Francisco's long term energy needs. In some instances, it might be more efficient to contract for the purchase of power rather than building new power supplies. Contracting for power could provide more diversity in the set of resources being used to meet the city's electricity needs and move risk away from the city and onto independent power producers.

The provision to establish joint power agencies could be used to jointly develop facilities that could provide benefits for several parties. An example could be the development of a cogeneration power plant with the University of California at the new Mission Bay campus.

Selling Power Retail

Ultimately, Prop. D would put the PUC in the business of selling power directly to residents and businesses in San Francisco. It is expected that the State will adopt legislation that allows cities and counties to become the default providers of energy if decided through local ordinance. Individual rate payers would still have the ability to opt out and choose other power providers on the open market. Prop. D does not actually require the PUC to become the default retailer of energy in San Francisco, but it enables it, and this is clearly the intent behind the measure

Siting of Power Facilities

Prop. D would direct the PUC to use "environmental justice" guidelines in the siting of energy generation facilities. The intent here would be to distribute power plants all over the city rather than concentrating them in the southeast corner of the city. To give this provision teeth, Prop. D would prohibit the PUC from locating power plants in southeast San Francisco unless an independent expert certifies that the new power plant would decrease air pollution (by being more efficient as well as having more advanced pollution reduction technology). In the rest of the city, in order to site a power plant an independent expert would have to certify that the plant would not increase air pollution.

The PUC would then have to develop specific generation proposals. However, one wonders if NIMBY opposition to new power plants might not emerge as an insurmountable barrier. Prop. D would not streamline the approval process for siting power plants; it would just strengthen the hand of one neighborhood to keep out power plants. Unless the process for siting power plants is actually made easier, distributed generation will fail in San Francisco, and we will be stuck with large power plants, either inside the city or outside.

Rate setting

Prop D would establish a rate-setting process for power that includes extensive rate studies, independent rate consultants, and protections designed to keep rates low.

In addition, it would set up a Rate Fairness Board, consisting of representatives from the City Administrator, the Controller, the Mayor's Office of Public Finance, two residential customers, and two business customers. The Rate Fairness Board would be advisory only, but it is empowered to hold hearings, make reports, and issue rate recommendations to the PUC. It is likely that the Rate Fairness Board would have a high level of trust and be the real source of rate-setting.

This measure is an improvement over past public power measures. Instead of an elected board, it has an appointed board, albeit with a shift in power to the Supervisors. Instead of focusing on grid acquisition, it largely deals with the more relevant goals of adding distributed generation capacity. SPUR continues to believe that there may be good reasons for the City to go into the public power business. As an organization committed to good government, we believe government enterprises can be run efficiently. And in the case of energy, there are clearly many citizens who would like to have more democratic control over the way our energy is produced.

Unfortunately, this measure fails the critical tests of good government. Instead of sticking to the task at hand--namely, enabling the PUC to pursue the City's Energy Plan--Prop D regresses into the city's traditional useless fights. Because it changes the composition of the commission, Prop D is a power grab that would dilute the ability of future mayor's to govern the city. And it sets in motion an ill-conceived attempt to seize PG&E's distribution grid. For these reasons, SPUR must recommend a no vote.

SPUR recommends a "No" vote on Proposition D.