PG&E contracts: an $80 million legacy

EDITORIAL The San Francisco Board of Supervisors approved a modest item the other week described on the agenda as "Agreement to Implement a Term Sheet … between the City and County of San Francisco … and the Modesto Irrigation District." There wasn’t much discussion, the action received no notice in the press, and few people outside the office of the Budget Analyst realize just how significant this scrap of legislation really is.

But the vote brought to a close (for now, anyway) one of the most rotten chapters in San Francisco history, a story of corruption, waste, and raw political power that makes many of today’s scandals look like cornflakes. Since 1988, when the city attorney, the mayor, and the supervisors bowed down to Pacific Gas and Electric Co. and signed one of the worst deals in the city’s history, San Francisco has lost more than $80 million.

And with public power back on the agenda and activists discussing the potential for a ballot measure in November 2008, it’s worth reviewing a bit of the history. There are plenty of lessons.

The story goes back to 1983, when city staffers began negotiating a series of long-term contracts with PG&E and the Modesto and Turlock irrigation districts. San Francisco had an obligation under federal law to sell some of the electric power from its Hetch Hetchy dam to the two districts; PG&E would carry that power over its lines and guarantee its supply if low water kept the dam from generating at full capacity.

The negotiations were immensely complex and generated tens of thousands of pieces of paper. The city wanted to raise the bargain-basement rates it had been charging the districts; PG&E wanted to raise the rates it charged for transmitting the power.

Then a Central Valley congressional representative named Tony Coelho got involved. Coelho (who was later forced out of office in a scandal) started talking about the Raker Act — the federal law that gave San Francisco the right to build the dam but also required the city to create a public power system — and suddenly, official San Francisco freaked. If Coelho were to make too much noise about the feds enforcing the Raker Act, the city, which had been in violation of the law for 70 years, could have lost the dam.

So then-mayor Dianne Feinstein cut a backroom deal with Coelho: the city would be allowed to raise rates but had to sell almost all of its power (aside from basic municipal needs) to the districts. That, of course, would ensure that the city had little power left for a full-scale public power system. Feinstein promised that her staff would work out the final details of a 30-year contract.

The negotiations on that contract dragged on, however, as PG&E and the districts kept demanding more. The talks were conducted in secret, at PG&E headquarters. By 1987 city staffers were writing memos calling PG&E’s demands "ridiculous" and "excessive" and stating that the proposed deals would "impose many risks on the city." The negotiations stalled — until Feinstein intervened, overruled her staff, and agreed hands down to the deal PG&E wanted. That was one of the last acts of her administration; Art Agnos was elected to replace her that November and took office in January 1988.

The contracts had to be approved by the Board of Supervisors, and (after the Guardian broke the story and denounced the deals) discussions were heated. Budget analyst Harvey Rose took a hard look at the proposed contracts and, using strong and decisive language, told the board the deals were terrible for the city, would cost taxpayers a fortune, and should be rejected.

Right before the final vote we obtained public records that outlined Feinstein’s sellout — but the documents from the key negotiating period had somehow mysteriously disappeared.

Then a team of seven PG&E lobbyists descended on City Hall, and Louise Renne, a PG&E ally who was then the city attorney, privately advised the supervisors that they would be in legal trouble if they didn’t do PG&E’s bidding. The contracts were approved, with only Sups. Harry Britt and Richard Hongisto voting no. Our front-page headline of Feb. 24, 1988, told the story: "PG&E 8, SF 2." Although Agnos had run as a public power candidate, he buckled too and signed the contracts — without ever so much as searching for the missing records.

The Dec. 5, 2007, budget analyst’s report notes that the city lost between $2.5 million and $3 million per year on the deals — and during the two years of the energy crisis, when the true downside of what Feinstein, Renne, Agnos, and the Board of Supervisors did became apparent, the tab was $27 million. That’s a total of as much as $87 million of city money thrown away on sweetheart deals with PG&E and the two districts.

After the energy crisis — and after Renne left office — the current city attorney, Dennis Herrera, went to court to renegotiate the deals. The new agreements are much better and will save San Francisco millions. That’s what the board quietly approved this month.

But much of San Francisco’s power is still tied up for another 10 years, and huge damage has been done.

Meanwhile, PG&E is suing the city to keep public power out of the Ferry Building, is trying to corner the market on wave and tidal power in the bay and along the coast, is trying to undermine community choice aggregation, and remains an entrenched, illegal monopoly with far too much clout at City Hall.

The good news is that there’s real talk of a new public power push in San Francisco, and it can’t come too soon. And the lessons from the fiasco of 1988 can and should guide any future efforts.

For starters, nobody — no city attorney, no department head, no mayor — should ever again be allowed to negotiate with PG&E in secret. Any talks with the utility should be recorded and all documents and memos made public before any city agency votes on any contract or deal.

PG&E loves to argue that public power is an expensive proposition and that taxpayers will be on the hook for a lot of money to buy out or create a municipal power grid. But advocates can accurately point to the history of private power in San Francisco: dealing with PG&E has cost the city (and the taxpayers and the ratepayers) far more than the price of creating a municipal grid. The 1988 contracts are a particularly visible example. And 20 years later, the overall lesson is clear: as long as a private company is running the city’s energy policy, the public is going to get screwed.