News Article

December 24, 2007
PG&E opposes power group
Valley cities, county try to form state's first public electricity cooperative.
By Marc Benjamin / The Fresno Bee

The state's first public electricity cooperative, poised to provide power to more than 115,000 customers across the Valley, has found itself under attack by the big guy on the block -- Pacific Gas & Electric Co.

PG&E is fighting the fledgling competitor with full-page newspaper ads and lobbying at city and county meetings, where the for-profit behemoth challenges the San Joaquin Valley Power Authority and its claim that customers will save money.

The utility has persuaded Tulare County and the city of Fresno to withdraw from the cooperative, leaving it with 12 members.

The authority has cried foul, accusing PG&E of breaking state rules by using customer funds to fight the effort. The state Public Utilities Commission is expected to consider the complaint next year.

"It's a fear-and-confusion campaign, rather than a constructive debate over issues we need to address," said David Orth, general manager of the Kings River Conservation District. The power authority says PG&E has used 5,000 employee hours to fight its cooperative.

PG&E counters that it is using only shareholder money in its campaign -- and that its goal is merely to educate the public about the issues.

"To ask questions is not marketing. It's helping to understand their proposal," said John Nelson, government relations director for PG&E in San Francisco.

With similar cooperatives budding elsewhere in the state -- in San Francisco, Marin County, Alameda County, Sonoma County and San Luis Obispo County -- the Public Utilities Commission is watching the Valley.

"We want to keep our fingers on the pulse of the process," Drew Cheney, an outreach officer with the commission, told the Selma City Council in October. "What happens here will ultimately be affecting the entire state."

The San Joaquin Valley Power Authority is the first in California to develop a local power program under 2002 legislation that enables communities to band together to buy and produce electricity to sell, presumably at lower rates than what PG&E charges.

The Fresno-based Kings River Conservation District oversees the power authority. Electric transmission and distribution would remain the responsibility of PG&E and Southern California Edison. Electricity that the district buys from suppliers and sells to the authority would be sent through the utilities' transmission and distribution lines.

Southern California Edison, which has about 21,000 Kings County customers moving to the power authority, has taken no position on the cooperative, said Charley Wilson, public affairs manager for the Rosemead-based utility.

The authority is to begin operating sometime in 2008. A key agreement with an energy supplier is expected to be discussed in the coming months. The Kings River Conservation District will consider a proposed seven-year energy services agreement with CitiGroup Energy Inc. of Houston.

Another part of the Valley plan includes building a natural-gas-fired power plant between Selma and Parlier. An application for the plant is under review by the state Energy Commission. That plant has played a key role in the debate.

Fresno City Council Members Henry T. Perea and Jerry Duncan oppose the power plant because of concerns about air quality. That contributed to the council's decision in July to pull out of the authority.

In October, the Selma City Council voted 3-2 to stay in the authority so that it would have a say in the power plant if the Energy Commission approves it next year.

But there are other issues as well. For example, the utility has accused the cooperative of not doing enough to keep the public informed about its plans. Cooperative organizers counter, however, that they have held dozens of public meetings.

The utility also has raised concerns about how difficult it would be for people to make a choice about who will serve as their energy supplier.

All residents and businesses in the communities that have joined the authority are automatically enrolled as authority customers. Customers will receive four notices -- two before the program starts and two after it begins -- allowing them to opt out without penalty.

Once they receive power through the authority, they can opt out every three years. If they opt out in between, there is a penalty.

Amounts will vary and have not been determined. Utilities did not oppose those rules when they were adopted in 2002.

Duncan said one reason he voted in July not to be part of the authority was because he thought customers should have a chance to vote to be in the program, rather than being included automatically.

"I didn't believe there was any choice for people," Duncan said. PG&E officials also support socalled "opt-in" rules, requiring customers to vote to be in the authority.

The cost of energy for authority customers also was a consideration, Duncan said.

"I didn't think they could produce electrical power any cheaper" than PG&E, he said.

Under its proposed agreement with CitiGroup Energy, the authority anticipates reducing the generation portion of electric bills by 5%&, an average of about $3.50 monthly per household.

In addition, authority officials want to cap electricity generation hikes at 2% a year, about half the jump PG&E has reported in recent years, they said. PG&E officials say their rates have risen between 1% and 1.9% each year over the last decade.

A key to the authority's success would be cost savings by industry, said Robert Ford, Clovis' power authority representative.

"For large users, the savings would be greater because they use more electricity than homeowners," he said.

This would enable Clovis to promote those rates to lure economic development, Ford said.

But PG&E officials doubt the authority can get lower rates.

"We are getting the best prices that the market can offer, and there is no reason to think CitiGroup can get a better price," PG&E's Nelson said.

But he said utility officials have not had a chance to fully evaluate CitiGroup Energy's proposal.

There are reasons to believe the authority would be able to charge less, however, one expert said.

By law, the authority would have some advantages over PG&E, said Howard Golub, a San Francisco-based attorney with the international law firm Nixon, Peabody.

For example, Golub said, rate structures would be set locally, and the authority could have lower financing costs for generation projects because public agencies do not need a shareholder return and do not pay high salaries for top brass.

"PG&E is not about to give up its return for shareholders," said Golub, who retired as PG&E's general counsel in 1994. "And executive compensation for PG&E is significantly higher than would be paid to a public official."

The authority also would have access to lower government financing interest rates, he said.

Yet electricity pricing in the coming years will not be predictable, Golub said.

"When both sides say they can read the future with perfect clarity, they are getting carried away," he said.

The reporter can be reached at mbenjamin@fresnobee.com or (559) 441-6166.