Note: This is part 2 of our series, San Francisco’s Electric Future. Part 1 provided a detailed accounting of city project delays and higher prices brought on by PG&E’s demands and tactics. Find the entire four-part series here.
When Pacific Gas and Electric (PG&E) filed for bankruptcy in January 2019, San Francisco officials saw an opportunity to take control of the city’s grid and realize a decades-long dream of public power.
At the time, cities, insurers, and wildfire victims were suing PG&E over the destruction resulting from deadly Northern California conflagrations. Ultimately, the company settled for $25.5 billion. But the giant utility rebuffed SF’s $2.5 billion offer for everything PG&E owns within city limits, calling it below the fair market value. They never made a counteroffer, and the true value of those assets was never established.
But thanks to San Francisco’s ongoing legal dispute with PG&E, we could soon take a big step toward having a dollar figure — an unprecedented step in SF’s fight to control its own grid. An independent state appraisal, requested by SF officials in 2021, is underway at the California Public Utilities Commision, which regulates PG&E.
Ultimately, the appraisal should put a big fat price tag on all the overhead wires, poles, underground cables, towers, substations, and other equipment that powers San Francisco. Under state law, PG&E has no choice but to participate.
So far, the two sides can’t even agree upon a formula to determine a dollar value, according to a recent CPUC draft ruling. SF and PG&E have until mid-May to comment on the draft.
Once a fanciful prospect, the dream of public power in SF now seems closer. Whether SF, deep in the economic doldrums due to a stunted pandemic recovery, can meet the price is one question. An even larger one is this: Can the city be the only electric company in town?
The experience the city already has as an electricity provider suggests managing public power long-term would take more than the flip of a switch.
From Hetch Hetchy to you
The San Francisco Public Utility Commission has run a power plant, a really big one, for more than a century. It’s up in the Sierras, where the city in 1923 dammed the Tuolumne River – now Hetch Hetchy Reservoir – as it flows out of Yosemite National Park.
The hydroelectric power runs downhill through SFPUC’s power lines, but not all the way to SF. As we explained in the first installment of this series, the city ran out of money and only reached the South Bay town of Newark, where PG&E had a substation.
They cut a deal. SFPUC would pay PG&E to transmit Hetch Hetchy power to municipal customers the rest of the way to SF at a reduced rate. PG&E, which generated power at plants like the ones now shuttered along SF’s bay shore, served residential and business customers at higher rates. (Today, those rates are 30 to 40 percent higher.)
So in that sense, SFPUC is an energy provider: Hetch Hetchy still powers city agencies, buildings, and services, from street lights to wastewater plants to the Moscone Center. SFPUC owns the infrastructure at an archipelago of sites, including parts of Treasure Island/Yerba Buena Island, Laguna Honda Hospital, and several housing developments. (See map.)
Then utility deregulation came along in the 1990s and helped SFPUC expand its role. It became a power broker with CleanPowerSF, which now serves the city with third-party clean energy. Today, CleanPowerSF has 385,000 SF customers. (CleanPowerSF is a community choice aggregator, or CCA, which deregulation created space for.)
Between CleanPowerSF and Hetch Hetchy, SFPUC provides about 75 percent of SF’s electricity. These days, PG&E’s main source of income in the city is the tolls it charges other providers — like SFPUC — to run power through its grid. It’s like a commercial landlord. The city pays PG&E “rent” so it can sell its electrical wares from the company’s infrastructure “storefront.”
According to SFPUC, the city pays the utility $60 million a year, and it’s getting more expensive. Last year, PG&E caused quite a stir, winning approval from the CPUC for an average rate hike of $33 per month for residential customers. In January, it announced it was raising rates 24 percent for CCAs like CleanPowerSF, according to the SFPUC.
These developments renewed the cry for SF public power. “Public power utilities have proven track records for providing safer, more reliable, and more affordable power than investor-owned utilities, “ SFPUC general manager Dennis Herrera wrote in an opinion piece last fall.
Does SFPUC have a “proven track record”? As we’ll see later, there’s been no large-scale review of its power operations for two decades.
What Makes Public Power Work
About 2,000 U.S. municipalities across 49 states get electricity from public utilities, according to The American Public Power Association. The APPA says communities that succeed in launching a public utility have most of the following criteria. Where does San Francisco stand?
| APPA Criteria | Does SF meet it? | Why or why not? |
|---|---|---|
| Legal basis to form a public power system? | YES 😃 | It’s in the state constitution. |
| Critical mass of policymakers, business leaders, and a supportive population well-informed about public power benefits? | MAYBE 🤔 | Hard to say there’s “critical mass.” But in 2018, SF approved Prop A with a 77% vote to allow SFPUC to issue power bonds. |
| Cooperation of the existing utility? | NO ☹️ | PG&E has shown no indication it wants to sell. |
| Local officials with political will to see the process to completion? | MAYBE 🤔 | Mayor Breed and SFPUC general manager Dennis Herrera back the fight against PG&E. A new administration might change course. |
| Feasibility study to show sufficient savings from public power versus investor-owned utilities? | MAYBE 🤔 | SFPUC says its CleanPowerSF customers pay less than PG&E customers. But there hasn’t been a broad SFPUC review for 20 years. |
| Financial resources to start the utility, potentially with the backing of a local industry or wholesale power provider? | MAYBE 🤔 | SFPUC is already a wholesale provider, but SF is in a budget crisis. Without a PG&E buyout price, it’s hard to assess impact of debt financing. |
PG&E is pilloried for its rate hikes and role in disasters, but an essential utility under the influence of elected officials has its own potential pitfalls, says San Francisco State University professor Jason McDaniel, who closely follows local politics.
McDaniel cautions that calling public stewardship inherently good, in opposition to PG&E’s ownership, is a false dichotomy. PG&E does have to answer to the public, however imperfectly. And a publicly owned utility, says McDaniel, could be swayed by political motivated motivations – if, say, rate hikes come up during an election year: “Politicians face tough votes.”
Will a public utility run better or worse under public ownership? asks McDaniel. Will it be more or less financially stable? He points to City College of San Francisco, dealing with years of financial turmoil, as a cautionary tale.
SFPUC going from scattered sites to the only game in town would require competence in everything from billing to repairing downed power lines. Customers want reliability, no matter who is in charge.
The Kelly files
Residents are aware of recent City Hall corruption scandals, and might even know the sordid tale of Dennis Herrera’s predecessor, Harlan Kelly. Then-SFPUC general manager Kelly was charged with fraud and accepting bribes in 2020. Last month, he was sentenced to four years in prison and fined $10,000.
Unlike at other city agencies, however, l’affaire Kelly so far doesn’t seem to be more deeply rooted at SFPUC. In a recent report, the city controller said Kelly was the only employee involved. Among his acts of malfeasance, Kelly gave inside information to boost a procurement bid for a streetlight project from the now-disgraced expediter Walter Wong. (Wong’s bid still lost.)
“We find that the misuse of these procurement tools was caused by Kelly’s corrupt conduct rather than inadequate controls or complicit SFPUC employees,” the report says.
The controller’s report was focused; it had nothing to say about SFPUC’s operations. In fact, no city oversight agency has reviewed its power performance for two decades, practically a generation ago.
There have been outside evaluations, including an audit of its transmission operations and planning from the Western Electricity Coordinating Council that reviwed operations from 2020 to 2023 and found SFPUC to be in compliance with federal standards.
SFPUC acknowledges the enormity of taking over the grid. “We couldn’t do it overnight,” says Barbara Hale, SFPUC assistant general manager of the power enterprise. “I’d expect any sale would involve a transition period.”
(To be clear, the sale in question would only cover the electric side of PG&E, not the gas.)
Hale says the agency has field crews for the areas where it currently owns assets; to take over the city’s grid, SFPUC would need to staff up. In the PG&E offer, officials said they would recruit the utility’s engineers and field staff, and pledged to honor collective bargaining agreements.
The agency has about 2,300 employees, which includes its water and sewer divisions. Its power enterprise has 253 employees, 110 of whom work on electrical equipment in the city.
A judge recently said Sacramento’s fight for public power could help guide the current dispute in San Francisco. There’s a major caveat: Sacramento’s separation from PG&E went down 80 years ago.
SF says it will finance the takeover and operations by selling bonds, and it would pay off the debt with revenues from customer payments. Bond financing is a common practice for municipal agencies, but the amount at this scale could be unprecedented.
In its offer for PG&E’s assets, officials highlighted favorable credit ratings from S&P Global, meaning the agency is at a low risk for defaulting on financial obligations. In a rating last year, Fitch also said SFPUC’s power business had a “very strong financial profile.”
Sacramento’s footsteps?
San Francisco isn’t the first locality to pursue public power. Within PG&E’s vast service area, there are a dozen public utilities. Many cover small areas including Ukiah, Lodi, and Healdsburg, but there are a handful of big municipal providers, most notably in Sacramento.
In its recent draft ruling in the SF-PG&E dispute, the CPUC cited the Sacramento Municipal Utilities District (SMUD) as an example of how the city might separate from the utility. PG&E fought Sacramento’s efforts for two decades, and the dispute centered on “just compensation” for the utility’s assets. Ultimately, the CPUC determined Sacramento owed PG&E for its equipment, for damage due to the physical separation, and for its loss of customers. This formula could help guide the current dispute in San Francisco, according to the CPUC judge.
There’s a major caveat: this all went down 80 years ago. (Some of the equipment had been in use since 1895.)
Further north, Trinity County broke away from PG&E in the 1990s. The Trinity Public Utilities District has offered its customers lower electricity bills, but it’s also shouldered wildfire liabilities like PG&E.
If SF’s separation from PG&E ever happens, it will almost certainly be a messy divorce.
Custody battle
As noted, the two parties can’t even agree on the information needed to determine the value of PG&E’s San Francisco assets. Here’s one example of how messy it might get. The Martin Substation, just across the county line in Daly City, hosts eight power lines that run from the south into different parts of San Francisco.
PG&E lawyers said in a court filing that SF has no concrete plan to separate the substation’s equipment if there’s a custody battle. They argued the lack of a plan shows the city “has not done the work needed to crystallize its proposal sufficiently to justify the burden on the Commission and PG&E of participating in this premature proceeding.”
PG&E has used every tool to delay and stop government entities from making the switch.
rocklin, ca, city council member Bill Halldin
SFPUC disagrees with PG&E, and says it has publicly identified several options for separating the assets at Martin and determining their market value. SFPUC spokesperson Nancy Crowley told The Frisc that the agency would include more details in an upcoming response to the CPUC on May 13.
SFPUC seeks a “collaborative process with PG&E” that ensures “both utilities can operate their systems safely and securely, post separation,” Crowley wrote via email.
The dispute also includes people. Losing its customers in California’s fourth-largest city would be a major blow to PG&E. It’s also facing another potential Bay Area defection: the San Jose city council last fall voted to study a move to municipal power.
Other cities are watching. In SF’s fight to acquire PG&E’s assets, Bill Halldin, a city councilmember from Rocklin – near Sacramento – filed this public comment: “PG&E has used every tool to delay and stop government entities from making the switch.”
Halldin wrote that Rocklin and neighboring towns had looked into a move to public power, but PG&E had withheld information, preventing them from controlling their own “power destinies.” Other than a Central Valley agricultural district, Halldin wrote, “the City and County of San Francisco have been the most persistent in their efforts to make the switch.”
Update, 5/9/24: This story has been updated to include information about outside reviews of SFPUC’s performance; the number of SFPUC power enterprise employees; and SFPUC’s response to PG&E’s claims about a lack of a plan to separate assets.
Ayla Burnett contributed research to this story.
This series is supported by the Fund for Investigative Journalism.