Sunday, May 16, 2010

Prop. 16 Drafting Error Would Spew Pestilence Across 48 Real Estate Markets in California

If the Taliban set out to poison California's frail 2010 real estate market, it would be hard to come up with a better plan than simultaneously disrupting the electricity hook-ups of home buyers and new businesses in 48 different communities.

That's the likely outcome if Proposition 16 is adopted by the voters on June 8, due to sloppy drafting of the "grandfather clause" intended to exempt new customers within existing municipal utility service territories. 

Does it make any sense to subject every new customer account -- every home purchaser, every new or relocated business -- to a public election requiring a two-thirds majority approval before electricity can be turned on? 

To qualify for exemption from Prop. 16's election requirement, a municipal utility has to be the "sole provider" within its service territory.  Unfortunately, there doesn't seem to be a single one of the state's utilities that meets that standard -- no surprise, given the spread of solar systems, cogeneration projects, and direct access contracts, not to mention legacy accounts still served by for-profit utilities.

The result -- a viral infestation in each of these 48 communities, which include Los Angeles, Anaheim, Burbank, Cerritos, Glendale, Modesto, Moreno Valley, Pasadena, Rancho Cucamonga, Riverside, Sacramento, Santa Clara and a host of others.  

So it's no surprise that among the first organizations to oppose Prop. 16 was the California Association of Realtors.  Ditto for the California Manufacturers & Technology Association.  

More puzzling is the devil-may-care attitude brandished by a couple of the country club cronies PG&E CEO Peter Darbee has recruited as spokesmen for Prop. 16.  Both are nominally "CEOs" of their own organizations, but they're drawn more from the brandy-and-cigars class of political string-pullers than the type of  businessman who's ever had to meet a payroll or sell a product or service.

Darbee's been quarantined by his political consultants from talking about Prop. 16 ever since his spectacularly off-message admissions at an investor conference that, rather than promote voting on electricity choices, the true purpose of the initiative is to "diminish this activity for all going forward."  

Consequently, those "official spokesman" duties which have not been subsumed by repetitive bromides from the  anonymous actress in the tv spots have fallen to Allen Zaremberg of the State Chamber of Commerce and Jim Wunderman from the Bay Area Council.

Zaremberg, a lawyer and longtime Sacramento operative has addressed the draftsmanship controversy in several newspaper columns.  The sum total of his legal assessment (with editorial rejoinders in bold):
  • "Proposition 16 specifically exempts situations where publicly owned utilities extend service to new customers located within their exclusive geographic territories" (yes, but to qualify the utility needs to be a "sole provider")
  • "This is confirmed by the nonpartisan Legislative Analyst's analysis of Proposition 16" (but the Legislative Analyst doesn't perform a legal analysis)
  • "and by the measure's own findings and declarations" (which aren't put into the State Constitution, and can't override the "sole provider" restriction which Prop. 16 would insert in the Constitution). 
  • "Moreover, the opponents' argument is based on an absurd, almost laughable, interpretation that no court would ever accept" (generally, this line of reasoning is rarely tried even on television shows about lawyers).
Wunderman's lame response in a recent radio debate was nothing short of astonishing, given that his organization bills itself as comprised of "the CEO or top executive" from "more than 275 of the largest employers" in the Bay AreaHe participated in Public Radio's Forum program, moderated by the respected host of the California Report, Scott Shafer.  Confronted by Shafer -- at 33:45 on the above audio link -- about the real estate meltdown scenario attributed to  Prop. 16's sloppy drafting, Wunderman (a former chief-of-staff in the San Francisco Mayor's office) was cavalier:
Mr. Wunderman:  "Well, I've heard the discussion about it and it's a dispute and a, a lot times once these measures -- you know, assuming that the measure were to pass -- there will be some litigation in these areas to clarify what intent was and, and so forth.  So, you know, what tends to happen in these campaigns is you get into the law of unintended consequences and no matter what -- where an initiative comes, comes from -- the opposition says that there's some fatal flaw in the document on page 39 and, you know, if you read the fine print"
Scott Shafer, Forum moderator "and sometimes there is."
Mr. Wunderman:  "and sometimes there is and so I, you know, we didn't write this measure and I, you know, I can't speak to that."
Wunderman probably would have been wise to consult some of the Bay Area Council's Silicon Valley members before agreeing to saddle up as a spokesman for Prop. 16.  The technology industry is the cornerstone of the Bay Area economy and gets much of its electricity from the municipal utility operated by the City of Santa Clara, appropriately named Silicon Valley Power.  Despite (or perhaps because of) providing business customers with electricity 24 - 35% cheaper than PG&E (and residential customers 46% cheaper), Silicon Valley Power would be decimated by Prop. 16.

As the San Jose Business Journal reported about Prop. 16:
"We don't think it's needed, and we're concerned it could negatively impact the sustainability of Silicon Valley Power," said Steve Van Dorn, president of the Santa Clara Chamber of Commerce.  "We have received several legal opinions that if it passed, the addition of a large office building in our city would require us to get a two-thirds vote to provide it with electrical power."
It could affect the city's ability to provide power for business expansions, including those being pursued by Yahoo Inc. and Nvidia Corp., Van Dorn said.  He said he's surprised at the state chamber's support of the measure and has written a letter to its officials seeking an explanation.
"I don't understand it," Van Dorn said.  "It doesn't match the chamber's prior positions on supporting the free market.  We've had great success in our city with public power, and Prop. 16 will jeopardize it."
As Californians seem to be discovering, there is a long list of compelling reasons to vote NO on Prop. 16.  Dodging the widely distributed dose of economic ebola virus embedded in its dimwitted drafting must surely rank near the top.

(Photo credit:  Darbee, Genesis Photo Agency)

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