How SF can get $50 million a year from PG&E

Pub date June 22, 2010

EDITORIAL Sup. John Avalos, who chairs the Budget Committee, is looking for ways to bring another $100 million into the city’s coffers this year. There’s a hotel tax initiative headed for the fall ballot. He’s talking about an increase in the real-estate transfer tax for high-end properties. And he and his colleagues are looking into a tax on commercial rents.

Those are all valid ideas. But there’s another way the city can bring in as much as $50 million more a year — without raising anyone’s taxes. It just involves increasing the franchise fee Pacific Gas and Electric Co. pays to the city.

PG&E uses the city’s streets and rights-of-way to run its gas lines and electricity cables; the company doesn’t pay rent for that space. Instead, it pays an annual franchise fee to the city, a percentage of its gross sales. Other utilities pay, too — Comcast, for example, pays 5 percent of its gross to San Francisco every year for its cable-TV franchise.
PG&E pays 0.05 percent for electricity sales, and 1 percent for natural gas.

That deal was reached in 1939. The Board of Supervisors back then gave PG&E the lowest franchise fee in California, a pittance, a fraction of what other cities and counties charge — and the contract has no expiration date. It’s a perpetual deal, something highly unusual.

Sup. Ross Mirkarimi wants to open up the 72-year-old contract for renegotiation and raise the fee significantly. It seems like a perfectly reasonable idea — Berkeley charges PG&E 5 percent for electricity. San Diego charges 3.5 percent. If the city is desperately scrambling for money to close the budget gap, why are we leaving so many millions on the table?

The numbers are big. In 2008, according to the Controller’s Office, PG&E paid San Francisco $3.5 million for electricity sales and $3.16 million for gas. If the city raised both fees to the level that cable TV providers pay, the general fund would pick up another $50 million.

It seems crazy that a franchise deal signed seven decades ago, by a board that was in PG&E’s pocket, should tie the hands of elected officials today. Most legislative bodies have rules barring any laws that would tie the hands of future legislators forever.

It’s particularly ironic for this to happen in the only city in the United States that is mandated by federal law (the Raker Act) to run a public power system.

But according to City Attorney Dennis Herrera, raising the fee would be very difficult; California law allows perpetual utility franchises. If Herrera is right (and no city attorney has ever been willing to challenge PG&E on this), then the state Legislature needs to act.

One idea from Mirkarimi’s office: simply mandate that all perpetual utility franchises increase every year by the cost of living index, up to a maximum of, say, 5 percent. If all the years since 1939 were counted, the city would be at the max today.

An even simpler option: the state could outlaw perpetual franchise deals — something that should have been done years ago — and mandate that all existing deals expire on, say, Jan. 1, 2011. That would give San Francisco six months to negotiate a new deal with PG&E, and the money from that deal would save a lot of city services.

Both Assembly Member Tom Ammiano and state Sen. Mark Leno have expressed interest in a bill that would open up San Francisco’s franchise fee, and both told us that they’re looking into it. Leno already has a bill barring PG&E from using ratepayer money on political campaigns; potentially, a franchise fee amendment could be added to it. The deadline for introducing bills for this session has already passed, so it would be a little tricky to find a way to change state law in the next few months. But it’s worth a try: there’s never been a time when PG&E was less popular in Sacramento. The company violated its own agreement with the Legislature, promising to support the law authorizing local community choice aggregation systems then turned around and spent nearly $50 million to overturn it.

Leno and Ammiano should pursue a bill as soon as possible to get rid of one of the great scandals in city history, a sweetheart deal in 1939 that has saved PG&E billions and cost the city dearly.