A Ballot Battle Over Power Electrifies California Voters

ILLUSTRATION CREDIT: SUNPLUGGERS.COM

By Erin Milnes

Published June 5, 2010

On Tuesday, June 8, voters in California will help shape the future of public power and the state’s power market.

How will Prop. 16
affect solar and other
renewable energy? To read
our story, please click here.

If passed, Proposition 16 will amend the California constitution to require two-thirds voter approval before a public utility can provide service to new customers or territories, or before a local government can establish a community choice aggregator, or CCA, an energy-supply approach a bit like a buying co-op, in which municipalities group together to purchase electricity wholesale.

The two-thirds "super majority" requirement would make it harder – some say nearly impossible – for communities to leave their incumbent private utility and compete in the electricity market.

An underlying belief for many supporters of the measure is that private utilities are more trustworthy, or better regulated, than local governments.

"Local governments up and down the state are opposing Prop. 16 which should make you pause. Do they think that we should just trust them?" wrote Tony Krvaric, chairman of the San Diego County Republican Party, in an opinion article published in the San Diego Union-Tribune.

Critics of the measure have called it a misuse of the ballot initiative process by a special interest.

Michael R. Peevey, president of the California Public Utilities Commission, which regulates the state's three large private utility companies, and himself a former president of Southern California Edison Co., has been quoted as saying Proposition 16 embodies a "blatant misuse" of the election process. He presented that view as his own and not the official position of the commission, which is not commenting on the measure.

PHOTO CREDIT: ERIN MILNES /
SUNPLUGGERS.COM
If Proposition 16 passes, it would
require a two-thirds majority to
create a community-choice
aggregator over the incumbent
electricity provider.

In an opinion article published in the San Jose Mercury News, Mr. Peevey said, "Pure and simple, Proposition 16 is a clever, brazen, buzzword-driven effort by one company to manipulate the California Constitution to protect its current monopoly."

The company that has drawn such withering criticism is Pacific Gas & Electric, one of the nation’s largest private utilities and the electrical service provider to about one-third of California. PG&E Corp. (parent to the utility PG&E Co.) has already spent more than $46 million on the campaign.

Pacific Gas & Electric serves much of Northern and Central California, where the debate has been fierce.

The University of California, Berkeley, School of Law’s Center for Law, Energy & the Environment, has weighed in against the measure, saying, "An independent analysis of Proposition 16 finds that it would protect the monopoly status of investor-owned energy utilities and block the development of publicly-owned electric power companies, if passed by California voters."

Said Oakland City Council member Jean Quan: "It’s clear that they are trying to monopolize energy production and squeeze out competition."

"We are opposed to Proposition 16 on a good old market basis," Quan said. "We want more green energy and more competition."

PG&E has faced, and successfully fought, municipal inroads into its service territory before. It spent $11 million in 2006, breaking campaign spending records for a local measure, to oppose an expansion by the Sacramento Municipal Utility to Yolo County. The company spent $10 million in 2008 to fight a San Francisco ballot initiative to create a public electric utility.

Aaron Israel, chairman of the Energy Committee of the Sierra Club’s San Francisco Bay Chapter, says, "PG&E thought, ‘Why spend money to fight all these separate battles, why not go for the nuclear option and change the state constitution with Prop. 16?’ Only a simple majority, 51 percent, is needed to change the constitution, but they are asking for a two-thirds majority for formation of CCAs or expansion of a public utility. Two-thirds is an extremely high bar to pass anything. It gives one-third of the people the final say, in effect making them the majority."

Missteps by PG&E in presenting its case to the public have lit up the Internet.

Peter Darbee, president and chief executive of PG&E, has been roundly criticized for telling analysts and investors in a March 1 conference that in conceiving Proposition 16, following earlier attempts to establish competition in the utility's territory, "it was really a decision about could we greatly diminish this activity for all going forward rather than spending $10 to $15 million a year of your money" to fight the potential loss of customers to municipal utilities and CCAs. "It also occurred to us that people are not very pleased with the job the government is doing these days in general ... that was a second factor that drove it to us," he said.

Robin Swanson, a spokeswoman for Yes on 16, says the measure will ensure that voters have a say in how their local government spends money. Ms. Swanson, a Democratic strategist who says on her website that she established her communications firm "to wage campaigns for the progressive issues she cares about most," has found herself on the opposite side of many California liberals and progressives regarding Proposition 16.

"This is not about public power or not public power. It’s about giving people the right to vote," she said.

Most major newspapers in the state have published editorials opposing the ballot measure.

The Orange County Register, which serves a readership in what is perhaps the state's most politically conservative region, has endorsed it, acknowledging that it is flawed but warning that the current system enables local governments to raise electricity rates to counter their budget deficits.

"Municipal utilities may have a better track record in service and rates, but there's no guarantee that difference will continue," the newspaper said. "There is, however, a distinct threat that financially strapped elected officials could use electricity rate increases to backfill government budgets. Increasing electricity rates is easier than raising new taxes, which generally require two-thirds vote of the people. So, too, should the government's entry into the lucrative electricity business."

In Los Angeles, just north of Orange County, a proposal this spring to raise electric rates and establish an incentive fund to promote solar energy adoption became mired, in part, over the issue of transferring $73.5 million from the municipal utility to the cash-starved city's coffers.

The Los Angeles Daily News ran an editorial supporting the measure, saying although a simple majority vote would be preferable, "If a public agency has a rock solid plan that will save people money and give them better or cleaner power service, they won't have a problem getting 66 percent of the vote."

Opponents dispute the assertion that Proposition 16 would enhance voters' rights.

Said Mr. Israel: "That Prop. 16 is increasing democracy is a false argument. It states that the public should be able to vote directly on how they get their power, but Prop. 16 will ensure the continuation of the status quo. And the status quo is that San Francisco has a 15-year contract with PGE that is approved by the board of supervisors, not voted on by the public."

John Geesman, a former member of the California Energy Commission and current member of the board of directors of the American Council on Renewable Energy – whose high-powered advisory board also includes a PG&E executive  – has been one of the most prominent opponents of Proposition 16. Mr. Geesman, an attorney, is a former investment banker and former member of the board of governors of the Independent System Operator, which oversees the operation of the California electricity grid.

He said that if passed, the proposition will "flip the rationale for a two-thirds majority precisely upside down."

"Votes on new taxes, bonded indebtedness, the state budget, even appropriations bills in the legislature, all require a two-thirds majority for one simple reason: to create an enduring bias against increased spending," he wrote in a recent post to a website he created to fight the proposition.

The reason local governments choose to enter the electricity business, he argues, is to reduce rates for their residents, not to generate revenue. "California's municipal utilities generally experience a 15-30% (sometimes more) cost savings compared to investor-owned utilities  –  primarily due to the ability to issue tax-free debt, the absence of dividend payments, and greatly reduced executive compensation."

Mr. Geesman said that Proposition 16 "puts the super-majority onus on" such efforts to save money and says that "current voting requirements have proven to be a reliable screen against unrealistic projections and bureaucratic wishful thinking. Among the 48 municipal utilities dispersed across the entire California landscape, there is not one single example of a white elephant."

Adding fuel to the fire among some opponents is that PG&E has requested approval from the California Public Utilities Commission for a $1.1 billion rate increase for 2011. The average customer's rates would rise an estimated 6.4 percent.

The state's three large private utilities are for-profit companies owned by investors and governed by a board and officers in a corporate structure. Their rates and how they provide electrical service are regulated by the utilities commission. The other two regulated utilities, Southern California Edison and San Diego Gas & Electric Co., have been steering clear of Proposition 16.

Voters have only indirect involvement in rate decisions by electing a governor, who appoints members of the utilities commission. If Proposition 16 passes, none of that will change.

Municipal utilities also can provide the full range of electricity services to customers – running the grid, managing the billing, and buying or generating the electricity.

CCAs provide more limited services. In the community-choice aggregation program, created by Assembly Bill 117 in 2002, a municipality or group of municipalities buys electricity in an open market. Reasons for creating such an entity may include increasing local control, increasing the percentage of renewable power, and providing better customer service.

Under a CCA program, the municipality continues to use the private utility’s transmission, maintenance, and billing services, and the private utility continues to earn revenue from those services, but the CCA purchases the electricity. Its jurisdiction includes setting rates, determining the percentage of renewable energy in the mix, and, for solar owners, managing any feed-in tariff and net metering programs.

Both municipal utilities and CCAs are nonprofit entities owned by the community. They are governed by boards of directors, which set their terms of service, including rates. They are not regulated by the state utilities commission.

Currently, local governments can create a CCA with a simple majority vote by elected officials. State law requires lengthy reviews, public hearings and CPUC authorization of the implementation plan. Residents’ only direct voting involvement in the formation of a CCA is in the form of electing the local officials who decide whether to create it.

According to a paper published by the Center for Law, Energy & the Environment at Berkeley, if an existing municipal utility wants to expand its service area into a city, a majority of that city’s voters must approve the decision (with two-thirds voter approval required if the city is to assume debt in the process) in addition to the utility’s board. However, no vote of the public is generally required within the existing service territory of the utility. A public hearing is usually required.

To establish a new municipal utility, a local government must hold an election and obtain voter approval in a simple majority. The new utility is governed by an elected board of directors, which may issue bonds subject to two-thirds voter approval.

Proposition 16 would change those rules. To expand its service area, a public utility would have to put the matter to a vote in both the existing municipalities and the new ones, with a two-thirds majority required to pass, whether or not any debt were involved.

PHOTO CREDIT: ERIN MILNES / SUNPLUGGERS.COM
Pacific Gas & Electric is the nation’s largest
private utility and the electrical service
provider to about one-third of California.

It is unclear whether expanding public utility service to, say, a few new homes in an existing subdivision or a new big-box store in an existing mall would also be subject to such votes – the "new customers" that trigger such a vote are not defined in the ballot measure – but the California Association of Realtors is worried that it would. The group took a position against the measure in February.

The Proposition 16 fight has often been portrayed as David vs. Goliath.

The Yes on 16 campaign, almost entirely funded by PG&E, has spent $2.2 million to circulate petitions to get the initiative on the ballot, $9.6 million (through May 22) on political consultants and $22.3 million (through May 20) for radio and TV time. It has also purchased $1.36 million (through May 20) worth of endorsements from 33 "slate mailers" – voting literature that fills Californians' mailboxes in the weeks before an election.

The No on 16 campaigns (there are several separate organizations) have raised about $83,000. They have not purchased radio or TV time or newspaper advertising, although most major newspapers in the state have run editorials in opposition.

The No on 16 website lists a number of public officials and environmental, business, consumer protection, tax reform, energy policy and labor groups.

The Yes on 16 website does not list any endorsements from elected officials or governments but includes dozens of business groups, chambers of commerce, taxpayer groups, and conservative and anti-government political organizations. The Republican Party of Los Angeles County voted to oppose the initiative, as did the California Tax Reform Association. There are endorsements from a significant number of African-American organizations, including the California State Conference of the NAACP, as well as Asian and Hispanic business groups.

"Large public programs are always far more visionary – and far more expensive – than expected," said Willie L. Brown Jr., a former Democratic speaker of the State Assembly and ex-mayor of San Francisco, in an opinion article published in the Sacramento Bee. "Since the voters are paying for it, better to get their permission up front than make the decision blindly and have a mess on your hands that the taxpayer has to fix if it fails.

"Proposition 16 promotes transparency and ensures that the people have a voice when it comes to how public money is spent," Mr. Brown said.

On March 18, a consortium of public utilities filed a lawsuit to try to remove the initiative from the ballot.

The suit was rejected in Sacramento Superior Court on May 5, on the grounds that the plaintiffs had waited too long to file, saying, "The question is whether the title and summary of Proposition 16 adequately disclose its purpose – not the motivation of its sponsors."

State Attorney General Edmund G. Brown Jr.’s office had already decided that the original name of the initiative, and the one still used in the campaign’s literature, "The Taxpayers Right to Vote Act," could not be used on the ballot. The measure was renamed "Imposes New Two-Thirds Voter Approval Requirement for Local Public Electricity Providers."

According to Berkeley’s Center for Law, Energy & the Environment white paper, "Despite the proposition’s title, Proposition 16 does not have a direct effect on the taxing power of local governments or on the tax rates of citizens."

PHOTO CREDIT: ERIN MILNES / SUNPLUGGERS.COM
The debate over Proposition 16 has been
fierce in Northern California and has drawn
voices from many quarters, as shown by the
theater marquee, above.

Ms. Swanson, however, has said that it does affect taxpayers in that they "would get to choose" and ensure that they are not "left holding the bag" if public power plans go awry.

Campaign literature distributed by the Yes on 16 campaign has prompted heavy criticism.

One recent mailing showed a giant check for $2.5 billion made out to "Local Politicians" and signed "California Taxpayer."

The Yes on 16 website does not make any reference to the $2.5 billion figure. Dawn Weisz, interim director of the Marin Energy Authority, the state's only CCA now operating, said the $2.5 billion figure was "not grounded in any facts."

An earlier mailer featured an image of solar panels and a field of sunflowers, suggesting that the measure would benefit renewable energy. Some critics of the initiative claim that it would hinder the development of renewables. Ms. Swanson has said the proposition would have "no impact for renewable energy."

Some Californians think that the initiative process is not the ideal mechanism for enacting complex public policies.

An amendment passed by ballot measure is very difficult to repeal or fine-tune, with another public vote required to do so. In the white paper published by the UC Berkeley School of Law’s Center for Law, Energy & the Environment, the authors say that given this inflexibility, "Voters unsure about the desirability of Proposition 16 or the wisdom of all its provisions might prefer a statutory initiative, or even legislation, instead of modifying the state constitution."

Given the funding disparity between the for-and-against campaigns, some opponents have contended that passage of Proposition 16 would send a signal to other corporations that in California they can purchase constitutional amendments favorable to their business.

Whether Proposition 16 passes or fails, one element that many find alarming is that so few people in the state understand what it’s about: where their energy comes from.

"In reality there are only about 500 people that actively participate in the energy debate in California," said Mr. Geesman, the former Energy Commission member.

Mr. Israel lamented, "Most of California doesn’t understand what’s at stake."