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. 

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)