Council to Consider POU Options and Implementation

public-powerIn December of 2013, the Davis City Council authorized the city manager and the city attorney “to initiate actions necessary to provide municipal electrical utility service to Davis residents.”

At their meeting on January 28, the council passed a resolution authorizing an additional $600,000 to implement the council’s directive.

Staff wrote, “In order to facilitate the financing, City staff recommends that an interfund loan be made from the City’s Wastewater Fund to the General Fund. Similar to other interfund loans recently executed by the City, this loan would accrue interest at 1.9%; however, it is being proposed that the balance would be paid back by the General Fund at that time financing for the proposed acquisition of electrical utility assets is secured. If the assets are not acquired, then payment could be paid annually over a term not to exceed 10 years.”

Now staffing is coming back to council looking for feedback on the implementation and workplan of this initiative.

Staff writes in their report for this week’s meeting, “It has been clarified that approval of this resolution does not in and of itself, authorize municipalization of electrical assets within the City limits. To the contrary, the resolution authorizes moving forward to proceed on the steps necessary for the council to consider and determine whether to move forward. Under the Council’s current direction, staff will report to council on status quarterly, and as necessary for further direction prior to any final decision on the acquisition of the PG&E assets.”

According to staff, they are still negotiating contracts on three parts of the $600,000 expenditure which includes a period of good faith meetings with PG&E.

Staff suggests $450,000 for due diligence on fair market value, case studies, determination of power portfolio, and community outreach.

At the same time, there have been concerns raised in the community on the timing and feasibility of doing the POU at this point.  It is possible that council will look to pull back on this initiative.

At the January 28 meeting, Chamber Executive Director Kemble Pope told council he put together a poll of chamber members that he threw together at the last minute, because he did not know this was on the radar until Friday.

The last item was, “The City of Davis is moving forward with plans to separate from Pacific Gas & Electric Company (PG&E) and has spent $400,000 over the past two years on this project. Tonight, they will vote to spend an additional $600,000 on consultants to create a workplan to create a municipally owned electricity enterprise. Total cost of purchasing PG&E’s assets is unknown. SHOULD THE CITY CONTINUE WITH THESE PLANS?”

Kemble Pope reported, 41% said they were unsure, “that they did not have enough information.”  Another 28% said no and there were only 32% that said yes.  “The community is not educated, they may support this project, but we don’t know,” he added.

PG&E also pushed back with their representative, Alicia Okelo-Odongo, who told the council, “We are committed to continuing to engage with the city, as conversations around the city’s evaluation of creating a publicly owned electric utility continuum.”

More pointedly, she warned, “Our facilities are not for sale.”

“If the city does decide to pursue this effort to acquire facilities we urge the council to take into serious consideration the cost and risk associated with such an effort,” she added.  She cited a 2006 study valuing PG&E facilities in all of Yolo County at $568 million.  “While a current detailed study has yet to be done, we anticipate that the value specific to Davis is higher than it was years ago.”

She also cited a report from December 10 that indicates “a far higher price to be paid if the city does go forward with acquiring PG&E’s lines.”  She added, “In addition, the report assumed that Davis while pursuing green power goals can buy power for less than the market price of power today.”

The Enterprise editorial from February 9 argued, “Public power would be good for Davis, but we have too much on our plate.”

The editorial writes, “Revisiting a long-held community goal, the Davis City Council is looking at the feasibility of a public utility to provide electricity to residents. Last attempted with 2006′s Measures H and I, which would have allowed Yolo County to join Sacramento’s publicly owned SMUD, backers see opportunities for long-term savings, local accountability and greener production methods in public power.”

However, they write that PG&E is the main obstacle to such a vision.  Our current provider, they write, “is in no mood to give up customers, and not inclined to sell the infrastructure a public provider would have to buy. In 2006, the utility spent heavily to prevent an exodus and, while the measures passed in Davis, it was able to convince Sacramento voters to reject the union. Davis was back at Square One.”

The paper argues that “conditions have changed in seven years.”  They reason, “Retiree pension and medical benefits costs are out of control. A recession has forced cuts to services and a drastically reduced city workforce. We have a massively expensive water project coming up, one whose rates are sure to be challenged at the ballot box, but will be hefty no matter what final form they take.”

They add, “Voters also will be asked to approve a sales tax in June to help close the budget deficit, as well as a parcel tax to fund roads and parks. If we ask taxpayers for too much, we may end up with nothing.”

They conclude, “Now is not the time to take on another huge project. We have too much on our plate as it is.”

They write, “Perhaps if the long-hoped ‘innovation park’ ever gets going and we start attracting high-tech businesses to town, the tax base will improve to the point where this is feasible. Or perhaps our economy will rebound enough to allow us the fiscal luxury of moving forward.”

In the wake of negative public views, council will have to decide for themselves if now is the right time to pursue this.

—David M. Greenwald reporting

About The Author

David Greenwald is the founder, editor, and executive director of the Davis Vanguard. He founded the Vanguard in 2006. David Greenwald moved to Davis in 1996 to attend Graduate School at UC Davis in Political Science. He lives in South Davis with his wife Cecilia Escamilla Greenwald and three children.

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  1. Ryan Kelly

    You’re right. The public is uneducated in this, so it is very difficult to have an opinion. All I know is that PG&E does sloppy work with little regard for its customers. An example is the weeklong power outage in North Davis a few Winters ago where they did little to nothing in the way of letting customers know what was going on.

    1. paul brady

      Are we also taking over the nat gas, or will this become a separate billing?

      For us in rather heavily treed Willowbank PG&E has done a great job! I recall the huge windstorm of a few years ago, when the PG&E asked permission to inspect the lines running along the back of the property. I asked and he told me he was from Monterrey and his buddy from Ukiah. Help from all over northern Cal soon restored power. I noticed in reports several days later that parts of SMUD’s areas in SAC were still out! What will DUD do in such a case?

      And how can the power be cheaper or greener. We now have about 25% nuclear – the greenest – and a large chunk of hydro as well as nuclear hydro where water at night is pumped via nuclear up to produce electricity during the next day. PG&E also has solar wind and geothermal. SMUD is cheap because they got in on the cheap Bonneville power – that is all taken now, and SMUD would not share it with us in the last proposal to join them.

      1. Matt Williams

        Paul, no thoughts have been expressed that would indicate that natural gas is being considered. That is broadly considered to be “a bridge too far.” Way, way too far.

        Regarding your other questions, there are four components of our current charges from PG&E that have the potential to provide savings opportunities for Davis:

        1) PG&E’s share holders are guaranteed a minimum rate of return by the rates set by the California Public Utility Commission (CPUC). I have it on very good authority (but haven’t confirmed it through my own research), that that guaranteed rate of return is 10% per year. In good years where the combination of revenues and costs produces a return in excess of 10%, PG&E retains that “surplus” rather than returning it to the rate payers as a rebate/credit.

        2) Davis ratepayers pay PG&E $4.3 million per year for the state-mandated Public Purpose Program (PPP) to include renewable resource energy technologies; energy efficiency; research, development and demonstration; and low-income programs. In large part because of the presence of PVUSA in Davis, almost all of that $4.3 million is spent by PG&E in community service areas other than Davis. Crating a POU would take control over the $4.3 million and ensure that it is spent 100% in Davis.

        3) Because of the presence of PVUSA Davis is exempted from having to pay PG&E a recurring multi-million dollar annual “exit fee” if it chooses to to go forward with a POU.

        4) If the POU issues Infrastructure Bonds in order to purchase the transmission lines and other facilities from PG&E, the annual payments to cover the debt service of those bonds will be tax deductible.

        Those are four areas of potential savings.

          1. Matt Williams

            pierce, in order to purchase the assets from PG&E (at an agreed upon price) the municipality that owns the utility will need to issue bonds (much like the Davis Water Utility will do) to raise the needed funds. One of the options would be to issue those bonds as infrastructure bonds with the debt service on said bonds being kept separate from the rates, and payable by the ratepayers on a proportional basis.

            It is my understanding from discussions about the surface water plant borrowing, that Infrastructure Bond interest payments are deductible, whereas simple water rate payments and electricity rate payments are not tax deductible for individuals. For businesses the expense of water and the expense of electricity reduce the business’ taxable bottom-line.

          2. Matt Williams

            One point of clarification regarding the way ratepayers would pay their proportional share of the annual Infrastructure Bond debt service … it would appear on the annual tax bill as a one-time payment … and the monthly electricity bill would be reduced by 1/12th of that annual amount.

            For the purposes of the tax deductability, it would be handled the same way as a house mortgage payment is handled. The principal repayment portion would not be tax deductible, but the interest portion would be. In the early years the deductible amount would be large and then decrease each year of the life of the bonds.

        1. hpierce

          Since El Macero, ‘old’ Willowbank, Binning Tract, etc. feed off the same grid as City, would they all pay for the same infrastructure acquisition costs in their rates?

  2. hpierce

    At a minimum, the next time PG&E’s franchise with the City comes up, terms for acquisition of PG&E’s infrastructure should be addressed in the event that the City either joins SMUD, or goes it alone. In any event, I believe this is NOT the time to go ‘head-long’into this concept.

  3. growth issue

    There’s many of us like myself that could go along with the project as long as we didn’t think it was all about going green. My concern is once we give the okay and the local liberals get their foot in the door it will be all about going green and any cost savings will be pushed to the back burner in favor of feel good environmental options that will come at a higher cost.

    1. Matt Williams

      G.I., I hear your concern. The best way to address that concern is to come up with ways to manage the implementation plan so that any green conversions have to be fiscally sound/wise and fiscally sustainable. In a prior thread I offered to sit down with over coffee and talk about your concerns in more detail. On Monday I got together with Jim Skeen and Janet Thatcher and Richard McCann to discuss their individual and collective concerns. If we approach this opportunity collaboratively, we will make a good consensus decision. For me, right now, the jury is out … actually that’s not right, we are stll taking testimony.

      1. growth issue

        Matt, CA already has green mandates. If Davis would abide by those mandates only and not try to push the envelope I think you’ll find you have much more support than you know. Now if it can be shown that green energy is indeed cheaper then we’d be stupid not to go in that direction, but so far that is far from the case. For me to sign on it would have to be written in contract that Davis would always opt for the cheapest source of energy and not the greenest. Otherwise, without it being in contract, I simply won’t be trusting that will be the case.

          1. Matt Williams

            Fair enough Frankly. As I said to G.I. that seems like a reasonable and attainable and fiscally responsible condition.

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