Testimony of Ed Smeloff, Assistant General Manager, Power Policy of the San Francisco Public Utilities Commission in Support of SB 23 XX Testimony of Ed Smeloff | September 19, 2001 | SFBG News Good afternoon, I am Ed Smeloff, Assistant General Manager for Power Policy for the San Francisco Public Utilities Commission. I am here to offer the support of the City and County of San Francisco for SB 23xx. The SFPUC is the department of the City and County of San Francisco that is responsible for delivering water and water treatment services for the residents and businesses of San Francisco and for providing electric service to city agencies in San Francisco including the airport, the Muni Railway and public schools. The City and County of San Francisco supports SB23 xx because it eliminates an unnecessary obstacle to the formation of a public power agency in San Francisco. San Francisco is actively considering forming a public power agency for several reasons. They are 1) the need to control the development of incremental sources of power production and demand side management to assure future reliable electric service, 2) the need to modernize the electric distribution system in many parts of the city that suffer from unreliable and deteriorating service and 3) the need to promote the deployment of renewable energy technologies in and around San Francisco to local improve environmental quality. The restructuring of the electric power industry in California has made San Francisco particularly vulnerable to the abuse of market power by private power plant owners. San Francisco is at the end of transmission lines coming up the peninsula along Highway 101. As such San Francisco must obtain as much as 40 percent of its electricity from power plants located in the City. Those power plants are currently owned by just two companies, Mirant and PG. The PG power plants in San Francisco are over 40 years old and do not meet modern air quality standards. PG has signed an agreement with the Mayor of San Francisco to shut down these power plants as soon as alternative generation can be developed to assure adequate reliability. The only private sector entity proposing to build new power plants in San Francisco is Mirant, which could end up owning generation roughly equivalent to San FranciscoÕs peak demand for power. That situation is unacceptable to San Francisco since its businesses and residents would be subject to possible price gouging for years to come. To eliminate the opportunity for Mirant to price gouge San Francisco is exploring opportunities to develop distributed sources of power and energy efficiency that it could finance with tax exempt bonds that are available to public power entities. Much of the electric distribution system in San Francisco is quite old and needs to be modernized and in certain parts of the city place underground. Given PGÕs financial situation local elected officials lack confidence that PG can accomplish this modernization in a suitable time frame. In addition, electric service in San Francisco is deteriorating. Some small business customers have complained to the SFPUC that it has taken six months and longer to be hooked up to electric service, causing considerable financial damage to those businesses. Eliminating the rebuttable presumption obstacle will allow San Francisco to more quickly improve electric service reliability and promote economic development by allowing it to use tax exempt financing to modernize and undergound electric service. San Francisco is strongly committed to the development of renewable energy sources. This November there are two measures on the ballot that would provide access to funding for the development of renewable energy technologies in and around San Francisco. One measure would provide $100 million in tax exempt bonds for renewable energy technologies. Putting these small scale technologies in appropriate locations on the distribution grid can eliminate or defer significant costs to upgrading the distribution system. Eliminating an unnecessary obstacle to the formation of a local public power entity in San Francisco would allow for the optimal integration of those renewable energy technologies into the local distribution network in a timely manner. There are several misunderstandings in the CommitteeÕs staff analysis that need to be corrected. First of all, the staff states that rates for municipal utility district customers have traditionally been somewhat higher than for IOU customers. This is factually wrong. As my colleague Anthony Pescetti can corroborate, electric rates at the Sacramento Municipal Utility District have been historically 30 percent below the rates of PG. Similarly, rates of other public power entities like the Los Angeles Department of Water and Power, the Cities of Palo Alto, Santa Clara and Roseville and the Modesto and Turlock Irrigation Districts have historically been between 10 to 30 percent lower than the rates of investor owned utilities. Secondly, the committee staff analysis suggests that the elimination of rebuttable presumption for the condemnation of utility properties would result in the unaccountable taking of utility properties resulting in stranded costs for other ratepayers and disrupting the most efficient electric service configurations. This is incorrect. Nothing in this bill lessens the rights of an investor owned utility to obtain just and reasonable compensation for the utility assets that are taken by the public entity. The investor owned utility is still entitled to full judicial review of the valuation of its properties if it cannot reach an acceptable purchase price with the public entity condemning the property. Proper determination of the purchase price for the utility properties will take into account severance costs, that is the costs of any equipment such as transformers or power lines that must be abandoned or upgraded to maintain service for the investor owned utilities remaining customers. Legal precedent is quite clear that such costs must be paid for by the newly formed public power entity. Therefore, the implication that other utility ratepayers may be harmed by municipalization is simply wrong. Furthermore, SB 23xx guarantees that the cost of the contracts entered into by the Department of Water Resources will be fairly assigned to the customers of the newly formed public power agency. This protection clearly assures that there will be no shifting of the cost of power supplies as a result of the formation of a public power entity. What this bill does, is eliminate a needless obstacle that cities and other local jurisdictions face in the formation of a public power agency. This bill restores accountability and responsibility for planning for future energy needs to locally elected officials and assures that opportunities for price gouging from shortages of power or the abuse of market power are greatly reduced if not eliminated. Furthermore, this bill allows local entities to plan for the deployment of renewable and other advanced energy technologies in locations where they can be used most cost effectively. The City and County of San Francisco strongly encourages your support. [http://www.sfbg.com/searchit.html]