PG&E Charges Up to Fight Off Rolling Customer Revolts.
Beginning this month - after almost a century of sole proprietorship of Marin County's electricity market - the Pacific Gas and Electric Company will face stiff competition from publicly purchased power. Advocates portray this development as a victory for consumers - good news for the planet and a boost for clean-energy development that may even lower energy bills. As County Supervisor Charles McGlashan, who has pushed for this for the better part of a decade, enthuses, "It seems almost too good to be true."
It's no surprise, of course, that PG&E has a different perspective. Less expected has been the fury of its response. Over the past year, the investor-owned utility, which has more customers than any other U.S. energy company, has mounted a bare-knuckled effort to maintain the status quo in Marin County. It has also pumped more than $28 million into a campaign for a statewide ballot initiative that, if passed next month, would change California's Constitution to make it much harder for other communities to follow Marin's example.
As Christopher Warner, PG&E's chief regulatory counsel, portrays it, Marin's venture - and an even more ambitious plan under consideration in San Francisco - will leave ratepayers at the mercy of inexperienced bureaucrats and a dangerously volatile energy market. As he puts it, "We're trying to protect our customers."
Today's power drama is the product of a healthy dose of nervy San Francisco Bay Area politics (see
"A Hundred Years of Controversy") and a lot of genuine worry over the looming risks of climate change hastened by greenhouse gas emissions from fossil fuels. However, this is not the first time, nor is Marin the first place, that PG&E has seen its monopoly challenged.
In 1923 - just 18 years after PG&E was born from a conglomeration of about two dozen water and power companies in northern and central California - residents in Sacramento County voted to switch to public power, forming the Sacramento Municipal Utility District (SMUD). A 23-year tug-of-war ensued, which PG&E ultimately lost. Over subsequent decades, more than a half-dozen other communities, mostly in northern California, also abandoned PG&E as their power provider. Among them were the city of Folsom, which annexed itself to SMUD in 1984, and the Bay Area towns of Pittsburg and Hercules, which set up municipal power agencies in the late 1990s and early 2000s, respectively.
Their reasons for doing so were compelling. Unlike big investor-owned utilities, married to fixed costs and increasingly obsolete facilities, local power agencies can - at least in theory - be as nimble and fickle as young debutantes, looking for the best deal available. (SMUD, for example, claims its customers enjoy rates about 27 percent below PG&E's.) Moreover, as nonprofit agencies, public electricity providers don't have to pay corporate income tax.
Still, start-up costs can be substantial, and for every community that has broken away from PG&E, many more have been dissuaded from doing so. Now, however, Marin County is poised to become the first in California to take advantage of an eight-year-old state law that forces investor-owned utilities to fully cooperate with local communities that want to aggregate power from other sources. The underlying concept - called community choice aggregation (CCA) - was first tried in Massachusetts in 1997, then adopted two years later in Ohio. It's an idea that PG&E naturally hates.
Yet back in 2002, when the California state legislature passed and the governor signed a CCA law, PG&E actually supported it. Why? The answer has everything to do with the crisis that the utility faced at the time.
Back then, the company had just declared bankruptcy after pursuing the promised benefits of energy deregulation for more than a decade. As part of that damaging experiment (remember Enron?), PG&E sold off most of its natural gas plants in California to buy power on the open market. Supply problems ensued; prices skyrocketed, and customers suffered rolling blackouts. PG&E ended up seeking bankruptcy protection in 2001 and looking like a prototype of AIG: too big to fail, but too greedy to trust. Meanwhile, the firm's reputation was still taking a hit after the villainous role it played the year before in Erin Brockovich,
the movie based on the true story of a toxic waste scandal and attempted cover-up in Hinkley, California.
As legislators worked on the community choice aggregation bill, PG&E negotiated the terms of an $8 billion bailout, to be paid by customers through higher rates over the coming years. Then, in January 2002, just when it seemed that the utility's public image could sink no lower, state Attorney General Bill Lockyer and San Francisco City Attorney Dennis Herrera sued its parent company, PG&E Corp., claiming it had defrauded ratepayers by siphoning off billions of dollars before its subsidiary filed for Chapter 11 (City and County of San Francisco v. PG&E Corp.,
433 F.3d 1115 (9th Cir.), cert denied 549 U.S. 882 (2006)). All of this boded extremely well for the CCA bill (AB 117), which Gov. Gray Davis signed the following September.
Still, some disparaged the measure as "public power lite," since under its provisions new local plans would continue to depend on the big utilities for energy transmission and billing. Also, it pertained only to electrical
power, not natural gas. And once a community "opted in" to a CCA, the agency would have to give potential customers four opportunities to "opt out." (See
Cal. Pub. Util. Code § 366.2 (c)(13)(A).)
So, in light of what the company was up against, PG&E could have fared a lot worse.
"They had a revolution on their hands back then," recalls a former administrative law judge for California's Public Utilities Commission, which regulates private power firms. The ALJ remembers watching protestors chanting at the CPUC meetings, and hearing legislators debate whether it was time to expropriate the utility's generators. Clearly, this was not a good time for PG&E to come across as intransigent.
But once the crisis passed, the utility quickly sought to reassert its iron grip on the market.
The first battleground was in central California. In 2006, the San Joaquin Valley Power Authority (SJVPA) mustered support from eleven cities, plus Kings County, to form a new power-purchasing agency. PG&E struck back with a no-holds-barred campaign, including mobilization of a local electrical workers' union and full-page ads in local newspapers, accusing the SJVPA of "making decisions in the dark" that "could commit local communities to billions of dollars of debt and power costs."
"They spent at least $3 million in marketing against us," recalls SJVPA spokeswoman Cristel Tufenkjian. By early 2007, two of the SJVPA's largest would-be customers - Fresno and Tulare County - dropped out.
The nascent CCA complained to the state PUC, alleging that PG&E had broken a procedural agreement with state authorities that limited its marketing activities (San Joaquin Valley Power Auth. v. PG&E,
07-06-025 (Calif. P.U.C., filed June 26, 2007)). PG&E settled the case a year later for $383,000. Finally, in June 2009, the SJVPA officially suspended its start-up effort after failing to secure a single signed contract. Tufenkjian says the agency had hoped to offer its members a 5 percent discount off prevailing retail electrical rates, but was unable to find an energy provider that could guarantee a long-term contract for that price.
PG&E fought a still bigger battle in 2006. This time, the utility spent $12.6 million to challenge a complicated trio of ballot initiatives in Sacramento and Yolo counties that would have allowed SMUD to annex part of Yolo, including three cities. (Not a bad investment considering that PG&E could have lost an estimated $179 million a year in revenue.) For the plan to go forward, all three measures needed to pass. To get its talking points across, PG&E mobilized a door-to-door, get-out-the-vote drive that included the CEO himself, Peter Darbee, and chief counsel Warner. Once again the utility prevailed. (Yolo voters narrowly passed one measure and rejected the other, while Sacramento voters, by a large margin, rejected the initiative requiring their approval for annexation.)
These defeats clearly took their toll on the CCA movement. But they weren't decisive enough to snuff it out altogether, and over the next few years, public officials in the Bay Area - including Berkeley, Emeryville, Oakland, Sonoma County, and San Francisco - continued to explore their options, as did Beverly Hills, San Luis Obispo, and West Hollywood. (Both Southern California Edison and San Diego Gas & Electric have been staying conspicuously on the sidelines of PG&E's ballot campaign.)
"A lot of other communities are just waiting to see if any of these attempts are successful," says Senior Assistant Attorney General Ken Alex, who, as head of the office's Environment Section, reviews compliance with environmental laws. Alex says he has received several recent complaints about PG&E's conduct regarding the CCA program, noting that because it was created by state law, "the AG's office has some responsibility to ensure the integrity of the process."
Of all the possible places to start a people's revolution against a big power company, tony Marin County may, at first, seem unlikely. This, after all, is the laid-back place that newspaper wags dubbed "Hottubistan" after a former resident named John Walker Lindh was caught on the wrong side of the war in Afghanistan.
But along with hot tubs, environmentalism sells well here, as suggested by the number of Toyota Priuses on the road. And local officials have clearly taken some measure of civic pride in championing the CCA effort. "We're the tip of the spear," declares Dawn Weisz, interim director of the Marin Energy Authority (MEA), the county's would-be new energy provider.
One chilly evening last winter, this rebellious spirit was on full display at a standing-room-only meeting in San Anselmo, a town in southern Marin with a population of about 12,000. After about an hour of impassioned speeches on the CCA option from residents both pro and con, San Anselmo Vice Mayor Ford Greene started making David and Goliath analogies. Then Megan Matson, who heads an activist group called Mainstreet Moms Organize or Bust, rolled out a six-foot cotton banner listing the names of CCA supporters. Among them were national groups like the Sierra Club and Greenpeace, plus a local ice cream parlor called Fairfax Scoop.
"The eyes of the world are on Marin County!" proclaimed another speaker, website designer Kiki La Porta, who is president of an organization called Sustainable Marin.
To a visitor from, say, Hoboken or Des Moines, all this passion may have seemed a tad misplaced. After all, compared to the coal-fired, greenhouse-gas-belching utilities in most parts of the country, California's PG&E has a squeaky-clean image. Newsweek
last year ranked it the greenest utility in America. And Vanity Fair
went so far as to christen CEO Darbee an "eco-warrior."
But PG&E's critics contend that it isn't nearly as green as it purports to be. While the company boasts that 52 percent of the energy it delivers is produced without greenhouse-gas emissions, nearly half of that "clean" power comes from its nuclear plant at Diablo Canyon; much of the rest derives from a series of hydroelectric dams, which are not universally seen as benign sources of power. Moreover, critics note that even though PG&E has contracts in place to technically comply with a state directive to offer 20 percent certified renewable energy, not all of those sources are expected to be online by the target date of December 31, 2010. Strictly renewable sources constitute only 14 percent of its current portfolio.
Can the Marin Energy Authority do better? Of course it can, say the plan's strongest advocates. But even within environmental circles, both doubts and dissents have been expressed.
Earlier, the MEA had raised hopes that it would hit the ground running with renewable energy by building new sources within the county. But in February the agency instead signed a five-year contract with Shell Energy North America - a name that's not ordinarily associated with environmental virtue - to offer its customers both a "light green" and a "deep green" option. On the light side, for rates roughly the same as PG&E's, 25 percent of customers' electricity would come from renewable sources. And for a few more dollars a month, deep green customers could get electricity that's 100 percent renewable.
"I remember how, when they started, they'd have slide shows about solar panels and windmills," complains a disappointed Sue Kateley, who is executive director of the California Solar Energy Industries Association. "All we've heard since then are a lot of nonbinding statements, and we find their commitment to distributed local power, frankly, lacking."
MEA leaders respond that they still intend to build local power that will in time replace what's purchased from Shell, but at the outset they want to avoid exposing ratepayers to too much risk. "Shell is a safe supplier," observes MEA chair McGlashan. "Plus," he adds, "they have ten times more wind assets than we would need for Marin's entire electric load."
It's one thing to disappoint eco-activists, but what may ultimately determine the viability of the Marin plan is cost, even with Shell in the mix. Three of the county's largest cities - Novato, Larkspur, and Corte Madera-have so far declined to join the plan because of cost uncertainties. And tiny Ross, which is one of the county's most affluent enclaves, initially signed up, then backed out. (San Rafael, the county seat and its largest city, remains on board.)
Threats of a fiscal catastrophe were the dominant theme of a blistering report last December by Marin County's Civil Grand Jury - a judicially appointed citizens watchdog panel. It urged local officials to "pull the plug" on the CCA plan. "Citizens of Marin are being led down a costly and extremely risky path not yet traveled by any other community in California," said the 23-page report, which cited the MEA's short-term plan to borrow $6.4 million for start-up and working capital, and its long-term intention to borrow $475 million to build and operate solar and wind farms and geothermal energy plants. The jurors argued that ratepayers would be on the hook for those costs, which could force rates way up if large numbers of customers opted out of the program. The report also warned that taxpayers could be left holding the bag in the event of a default.
McGlashan himself acknowledges that rates would indeed rise if large numbers of customers opted out of MEA, but he maintains it would take "a more than 80 percent opt-out rate to make anyone at MEA worry" - and that scenario is highly unlikely, he says. Moreover, he points out, the county would be protected from risk under the same "firewall" laws that govern water districts (see
Cal. Gov. Code § 6507). "People who are not [rate-paying customers] of the agency cannot be charged the liabilities from any mistakes made by the district," he asserts. "So all who opt out would be free of MEA liabilities."
Shaking his head in frustration, McGlashan goes on to label the grand jury's report a "hit job," and notes that its main themes bear a striking resemblance to the "deliberate misinformation" that PG&E officials have been circulating over the past several months. "The most frustrating thing about this whole enterprise," he says, "is the interminable time we've spent answering the same question" about financial liability.
Doggedly countering the MEA's complaints on behalf of PG&E is consultant Joe Nation, a former state assemblyman from San Rafael who has showed up at most of the key public hearings. As the battle in Marin heated up, however, Nation changed the way he introduced himself. Rather than identifying himself as a consultant for PG&E, he now says he works for something called the Common Sense Coalition - which, as Nation somewhat reluctantly acknowledges, is entirely funded by PG&E.
In February the coalition mailed out a pair of outsize, multicolor pamphlets to Marin households. "Politicians are pushing a new government-run energy scheme ... that will automatically switch your electric service and enroll you, unless you proactively opt out," the pamphlets warn; fine print on the back acknowledges that Pacific Gas and Electric had something to do with these mailings.
Meanwhile, another PG&E front group, Californians to Protect Our Right to Vote, is leading the statewide campaign for the June initiative - Proposition 16 - that many see as a CCA-killer. The text of the ballot measure was prepared and filed by Sacramento's Nielsen, Merksamer, Parrinello, Mueller & Naylor, which the Los Angeles Times
has described as "perhaps the most influential political law firm in the capital." As of mid-April, PG&E remained the sole contributor to the campaign.
If approved, Prop. 16 would amend the state's Constitution to prevent local governments from advancing new energy alternatives or extending the territories of existing authorities without approval by a two-thirds supermajority of local voters. Currently, no voter approval is required for such changes.
PG&E is obviously playing hardball here. But the company did recently back down from a threat to defy federal policy, as well as section 4 of the Community Choice Aggregation law, which obliges the utility to "cooperate fully" in the CCA process by making its transmission lines available to communities that purchase their electricity from multiple sources. (See
FERC Order No. 888 & 888-A (1997 WL 111594); and Cal. Pub. Util. Code § 366.2 (c)(9).) The threat came on February 4, when the San Francisco Chronicle
quoted PG&E spokeswoman Katie Romans as saying that the utility is "obligated to not deliver power" if it finds that the public agency in question isn't complying with the law. (Fellow spokesman Andrew Souvall explains that PG&E had several concerns at the time, including whether the MEA had sufficient resources to serve retail customers.) Yet later that month the MEA was able to secure the signatures of PG&E executives, effectively committing the utility to make its lines available. "We are pleased that they
are now complying with the law," MEA interim director Weisz said then.
As the June 8 election approaches, some wonder whether PG&E's tactics - especially its attempt to change the state Constitution - will foment a bigger backlash than the utility ever bargained for. The potential for this was underscored in March when a coalition of locally owned utilities, joined by the City and County of San Francisco, among others, sued to disqualify Prop. 16 from the ballot (Modesto Irrig. Dist. v. Bowen,
Sacramento Super. Ct. No. 2010-80000478). The suit alleges that the language of the initiative, titled the Taxpayers Right to Vote Act, is false and misrepresents the purpose of the measure.
In April the California Public Utilities Commission adopted a resolution aimed at PG&E that, among other things, bans utilities from offering special deals to communities that elect not to join a CCA. (Such a quid pro quo was alleged to have occurred last year between PG&E and the city of Novato.)
"This is a very populist issue," says state Senator Mark Leno of San Francisco. "What we're talking about here is one of the most powerful corporations in the state amending the state Constitution to limit competition. It's a monster out of control."
Leno and Senate President Pro Tem Darrell Steinberg sounded off to CEO Darbee in a fiercely critical open letter last December. "PG&E's willingness to use the initiative process to unwind a carefully negotiated statute that PG&E supported
lacks the mutual respect and honor that the Legislature expects from stakeholders in the legislative process," they wrote. "If PG&E has recanted its support for CCA, it has an obligation to seek those revisions in the Legislature."
Both the Los Angeles Times
and the Sacramento Bee
have published scathing critiques of Prop. 16. The Bee,
in a January editorial, branded the initiative a "power grab" that "enshrines unfair protections against competition for PG&E, one of the richest, most powerful corporations in the state, into the California Constitution."
Local politicians have assumed a new level of combativeness as well. At the request of the MEA's McGlashan, the Marin County District Attorney's office launched an inquiry into how the critical civil grand jury report was leaked to PG&E and the public several days before its scheduled release. And in San Francisco, City Attorney Herrera petitioned the state PUC for stricter regulations to keep utilities from abusing their "monopoly advantages ... to exploit consumers or frustrate the policy objectives of our state lawmakers." (San Francisco has a CCA plan on the table calling for at least 51 percent of its power to be renewable by 2017; bonds would be sold to finance a rapid buildup of wind and rooftop solar energy sources.)
And finally, both Leno and Weisz have told the state Attorney General's office about what Weisz calls PG&E's "legal bullying" - including, she says, a recent threat to sue to force the MEA to provide an environmental impact report before proceeding with its CCA plan.
Though an AG spokesman would not comment on whether an investigation of PG&E's tactics had been initiated, a deputy attorney general who spoke off the record indicated that the office is closely monitoring the company's campaign against the CCAs. "The Legislature thought it was a good thing," the deputy said, with obvious exasperation. "It would be nice if one of these could proceed and we could just see how it goes."
Katherine Ellison is a Pulitzer Prize?winning former foreign correspondent who lives in Marin County. Her forthcoming memoir,
Buzz: A Year of Paying Attention, will be published by Hyperion in October.