Thursday, February 25, 2010

Peter Darbee's Dog of an Initiative: 3 Tapeworms Eating Away at the Internal Logic of Prop. 16

On February 25, I had the privilege of testifying on Proposition 16 before the joint hearing of the California Senate Energy, Utilities and Telecommunications Committee and the California Assembly Utilities and Commerce Committee.  This is what I said:

Thank you for the opportunity to be heard in opposition to Proposition 16.  I delivered my first legislative testimony to your predecessor committees in 1975.  In the ensuing 35 years, beside spending two decades in the bond markets, I served as Executive Director of the California Energy Commission when Jerry Brown was Governor; as the Chairman of the California Power Exchange during our disastrous experience with incompetent market regulation; as a Board member of the CalISO when Governor Davis asserted the State's authority over that body; and as the attorney member of the California Energy Commission from 2002 to 2008.  I'm proud to say we licensed 26 power plants and one transmission line during my most recent tenure at the CEC.

I'm retired now, but spend much of my volunteer time as the Co-Chair of the American Council on Renewable Energy, prodding governments around the world to re-calibrate their energy policies in order to accelerate the pace of technological change.

Never, in all of that time or in any of those venues, have I seen political activity by a regulated utility so far outside the bounds of acceptable conduct as PG&E's sole sponsorship of the Constitutional Amendment politely referred to as Proposition 16.

I am mindful of the contempt for the legislative process, reliance on deceptive wording, and resort to strong-arm tactics that are manifest in PG&E's campaign.  But today I want to take Proposition 16 at face value, and focus your attention on three tapeworms that eat away at the internal logic of the measure itself.

Tapeworm #1 is the elimination of customer choice.  Who among us in today's economy doesn't recognize that fewer choices mean higher prices?  That's true of any commodity.  Yet Proposition 16 actually wants to restrict the ability of electricity consumers to buy from anyone other than for-profit monopolies.  Has California ever faced a greater need to bring competitive pressures downward on the price of electricity?  But PG&E wants to lock its monopoly advantage into the State Constitution.

Tapeworm #2 is the mystery of where all this campaign money is coming from.  PG&E says it will spend up to $35 million, and insists all of that money will come from its shareholders.  You and I know that every nickel that passes through PG&E's books comes from its captive customers -- its regulated utility is the only business PG&E has!  The CPUC determines what PG&E's cost of capital should be in order to provide for investment in needed infrastructure.  But it sure doesn't set that rate at a level calculated to provide a $35 million slush fund for sole-sponsored political adventurism.  It ought to be illegal to take ratepayer money and use it politically against ratepayer interests.  If PG&E's making an excessive return, it ought to give the money back.

Tapeworm #3 is a serious drafting error in the "grandfather clause" of Proposition 16.  The authors attempted to exempt existing municipal utilities operating within their current territories, but they used an outmoded and unworkable "sole provider" definition.  That means that within the existing 48 munis, every new connection -- every new home buyer, every new business -- would be subject to an election requiring the approval of two-thirds of the voters.  That's the kind of drafting mistake the legislative committee process is designed to prevent.

Three tapeworms are enough to kill even the meanest dog, and you ought to do what you can to put this mongrel down.  Your colleagues in the Senate who signed onto the Steinberg letter in December had it right.  PG&E should acknowledge its mistake, abandon its campaign, and bring whatever grievance it thinks it has back to the Legislature for further consideration. 

Sunday, February 21, 2010

PG&E's Threat to Halt Marin Electricity Deliveries -- Does Peter Darbee Think He's CEO of Gazprom?

  • as the California Public Utilities Commission this Thursday gingerly takes up the question of PG&E's misconduct uh, aggressive behavior in Marin County, it would do well to remember that even the most tooth-and-claw visions of market capitalism require commitment to a rule of law.
  • commerce -- indeed, civilization -- simply doesn't function well in arenas dominated by brute force and lawlessness.
  • so PG&E's bellicose threats this month,  intended to stave off the formation in Marin County of a community choice program for renewable energy procurement -- though fruitless thus far -- rocked California's regulatory world.
  • the first couple of shots could be dismissed in today's scorched earth culture as macho trash talk coming from poorly supervised lawyers:  first, to sue the Marin Energy Authority on CEQA grounds if it proceeded, then to sue the Water District and the County itself if they guaranteed a start-up loan to the Authority.
  • this despite the clear requirements of the California Public Utilities Code Section 366.2 that electrical corporations like PG&E "cooperate fully" with the investigation, pursuit, or implementation of such programs.
  • but the final belligerence -- now apparently withdrawn, according to the San Francisco Chronicle --  bizarrely drew from the playbook used in Russia's cut-off of gas supplies to Ukraine:  just refuse to deliver electricity to the Marin Energy Authority.
  • physically, of course, it would be impossible to isolate the Marin Energy Authority's customers from the rest of Marin County -- or, for that matter, Marin County from the rest of Northern California -- but collateral damage to neighboring jurisdictions certainly didn't restrain Putin from shutting the valves in 2006, 2008 or 2009.
  • legally, such a move would probably violate the Federal Power Act and an array of Federal antitrust laws -- not to mention California's plaintiff-friendly, omnibus unfair competition statute, Business & Professions Code Section 17200.  
  • but none of that restrained Peter Darbee's leg breakers.  The Marin Independent Journal account of the County's approval of the loan guarantee starkly laid it out:
Marin County Counsel Patrick Faulkner told supervisors Tuesday that PG&E chief counsel Christopher Warner warned him that PG&E will refuse to sign an agreement with the Marin Energy Authority to distribute electricity to the authority's new customers. 
"He's made the same threat to Public Utilities Commission staff," said Stephen Roscow, a program and project supervisor with the commission.  "We told them they're not allowed to make that threat under the commission's tariffs."
  • what to make of Peter Darbee's seeming recantation of the delivery threat?  Not much. 
  • rather than executing some overarching plan, Darbee seems to rely on the improvisational instincts of all delinquents -- test the limits, locate the boundaries, shrink back when you hear the police sirens.  
  • that can substitute for strategy for awhile, as long as no one lays down the law, but the perpetrator is often so intoxicated with early success and uninhibited behavior that he fails to recognize the exponential growth in the risks he is taking.
  • which gets back to the CPUC's February 25 meeting and the mild, can't-we-all-just-get-along resolution drafted by its staff and now placed on its consent calendar.  
  • it will presumably be adopted without discussion, thereby depriving at least one utility CEO of the "teachable moment" that can sometimes only be administered by a trip to the woodshed.
  • but the degree to which Darbee is debasing his own regulatory and commercial environment is perhaps best captured by the contrast with his large utility counterpart, Southern California Edison.
  • as pointed out in the CPUC resolution, "Unlike PG&E, SCE states that it does not intend to market against the CCA program."
  • in the CPUC kabuki, maybe that's enough said.  But probably not.  Subtlety doesn't appear to be Peter Darbee's strong suit.

(photo credits:  Putin, Robert Amsterdam Deutsch; Darbee, Genesis Photo Agency)

Monday, February 15, 2010

What Do the California Realtors Know About Prop. 16 that the State Chamber of Commerce Doesn't?

  • answer:  that you'd better read the damn thing closely.
  • that may explain why the statewide California Association of Realtors last week took a formal position against the PG&E-sponsored initiative, while some months ago -- before it even qualified for the ballot -- the gullible State Chamber endorsed it.
  • but the drafting error, a failure to clearly define what constitutes the "new customer" that triggers an election with a 2/3's vote requirement -- which strikes terror into the heart of every realtor with a listing or a buyer in any of the 48 affected communities -- is probably an even bigger threat to new or relocating businesses in those same locales. Analysis of wording flaws here and here.
  • business columnist Michael Hiltzik, writing in the Los Angeles Times and referencing this blog, conjures up the scenario of PG&E filing suit to prevent the connection of such new homebuyers within a municipal utility jurisdiction.
  • maybe, but a more likely risk -- especially for businesses -- is the easily recognized California vigilante persona, now equipped with a right enshrined in the California Constitution (assuming Prop. 16 passes), going to court to demand his/her right to a vote of the people before a new chain outlet, or a grocery that sells meat, or a convenience store that sells cigarettes, etc. is allowed to get its electricity turned on. 
  • in a dire time when common sense screams out the importance of improving California's business climate, along comes Peter Darbee -- CEO of the San Francisco utility, PG&E -- exporting his local civil war against public power to a statewide platform and paying no heed to the collateral damage. 
    • how does this stuff happen?  It happens when the CEO of a monopoly utility, accountable to no one and oblivious to the competitive pressures other businesses face, gets careless with the way his political consultants unilaterally draft a proposed Constitutional Amendment.
    • the text wasn't adequately vetted, because it never went through a single legislative committee or public hearing.  
    • Darbee used his monopoly's money -- and guess where that came from -- to bring it straight to the voters, dressed up as a phony taxpayer protection measure.
    • and why is it a Constitutional Amendment rather than just a statutory measure that could be cleaned up later by the Legislature?
    • to make it extremely difficult to change -- that will take another ballot measure, or the courts invalidating it. 
    • Darbee seems to place the same faith in the people's representatives as he does in his customers -- actually, he considers them "ratepayers" -- sticking with his monopoly if they are ever given any other choices.
    • isn't the State Chamber of Commerce supposed to protect California businesses from this sort of fiasco?
    • Darbee appears to still be a member-in-good-standing with the California Chamber, despite the national uproar caused when he stormed out of the U.S. Chamber in a transparent bid to curry favor in Obamaland over climate politics.
    • the late Republican conservative state senator H. L. Richardson scandalized the Sacramento of a quainter day with his memoir, So What Makes You Think We Read the Bills? 
    • ok, CalChamber, there are a lot of bills and some of them get pretty long.  But at least read the full text of a four-page Constitutional Amendment -- and carefully think it through -- before you trip over yourself endorsing it for one of your cronies. 

    (photo credit:  Darbee, Genesis Photo Agency)

    Sunday, February 7, 2010

    Prop. 16's Sloppy Drafting May Slow Home Sales in LA, Anaheim, Riverside, and 45 Other Locales

    • a failure to define "new customers" in PG&E's ballot measure would make any new account in existing municipal utility territories subject to the two-thirds majority public election process.
    • the oversight stems from the drafters' mistaken presumption that the existing municipal utilities are the sole providers of electricity to retail end-use customers within their service territories. 
    • the grandfather provision, which attempts to exempt current operations within existing municipal utility service territories, only applies if the local government is "the sole electric delivery service provider within those boundaries."
    • but "electric delivery service" is defined to mean transmission, distribution, or "sale of electric power to retail end-use customers."
    • which sets up a test that is impossible to meet, given the changes that have happened throughout California since the glory days of the vertically integrated utility monopoly model.
    • many solar systems being installed today use a Power Purchase Agreement, where the customer actually buys his electricity from the company owning the equipment.  PG&E should have known this, having just invested $60 million in a company which employs this technique.
    • larger customers (like chain store outlets, restaurant franchises, and colleges) often have direct access contracts with private providers.
    • other customers (like schools, hospitals, and office buildings) rely on cogeneration systems that are owned by third parties who sell the electricity to the customers.
    • with no reliable data base recording the location of this growing swarm of alternative business arrangements for the sale of electricity, how does one conclusively prove -- in court, where these disputes will end up -- that the municipal utility is the sole provider
    • and it's an immaculate conception standard -- one solar spermatozoa shows up and you're legally pregnant.
    • so how do you sell a house or open a new business, if it requires a new electricity account and triggers the need for an election and a two-thirds majority approval?
    I don't know.  Ask PG&E CEO Peter Darbee (pictured above).  It doesn't appear that he thought of it. 

    (photo credit:  Darbee, Genesis Photo Agency)