From: Robert Milbrodt
To: john.bencomo@yolocounty.org
Sent: Saturday, February 19, 2005 11:19 PM
Subject: SMUD annexation
John,
I appreciate your contacting me on this issue. If you haven't already gathered the tax info from SBE, I can do so over the next week. Just let me know.
Here are some questions that I think puts PG&E's position in perspective:
1) Has PG&E ever been neutral or supportive of municipalization?
2) Under what circumstances would PG&E support municipalization?
3) How many municipal utilities have sought annexation to PG&E?
The arguments thus far:
The cost is in excess of $500 million.
The final cost will be decided in court following condemnation proceedings. The value will be determined using the same methods and (for the most part) numbers employed by Beck. You can quibble over a lot of minor differences in the numbers but on balance those differences will even out. To suggest that Beck has understated the value by a factor of 5 is absurd, and there is absolutely no support for such a claim. The values in the Beck report are in line with the estimates put together for the City of Davis by 2 energy task forces. The City of Woodland was particularly offended that PG&E made such claims without any supporting documentation. >From what little PG&E has submitted, they are adding costs that are not allowed, double counting for
under grounding, etc. Bill Marcus submitted to the City of Woodland an excellent critique of PG&E's argument.
Rates will be 17-20% higher
Rates will be determined by the final acquisition cost. Let's just assume that PG&E's figures are correct. Please ask PG&E to explain the math that increases the mortgage 5 fold but only increases the mortgage payment by 17-20%.
SMUD won't be paying taxes or franchise fees to Yolo County's public agencies.
The energy savings to public agencies will more than offset what is received in property taxes and franchise fees. Even if this was not true, the savings to businesses and households is more than worth the difference--- not to mention all of the other benefits of public power.
I would ask the public agencies in the SMUD territory, especially in Folsom, to submit documentation of their actual savings and whether they think the tax and franchise fee trade-off has been worthwhile.
SMUD will provide inferior service.
PG&E does have a more rugged and rural service area. Nevertheless, SMUD provides superior service even when adjusting for the difference in territory. This is because SMUD has higher system standards and a higher standard for system reliability. The Beck report acknowledges this fact and estimates $25-27 million to bring the PG&E system up to SMUD standards.
When you have a lot of service calls (as does PG&E), it is usually because of an asset management policy to defer major repairs and replacements. When PG&E boasts of it's number of service calls and prompt response to outages... this is really admitting the necessity of their actions due to poor asset management.
Think of the county roads. We could choose a band-aid approach to go out and fill pot hole after pot hole, ala PG&E. Or, we could choose the cost effective long term approach and replace/repair the road bed that gives rise to the continuing pot holes, ala SMUD. I hope that's an analogy to which the Board of Supervisors can relate.
PG&E doesn't have a ready inventory of assets to share with Beck or the public agencies.
An incredible claim since this is the basis for the property taxes they pay.
Unincorporated areas of Yolo County are being left behind.
Yes, sadly, they are. The county could pledge to aggregate the unannexed electrical loads and negotiate long term energy contracts on behalf of the unannexed areas. The county could support formation of a PUD, or use of an irrigation district, to aggregate bulk purchasing on behalf of the unannexed areas. The county could pledge to work with SMUD towards future annexation of the balance of Yolo County. The county could pledge to support energy generation projects in the county that would produce comparable rate relief for the unannexed areas. The county could initiate a distributed generation program for the unannexed areas of the county. Let me know if you want more ideas. I don't intend to leave them behind. If the county doesn't initiate a program for them, I will.
SMUD is cherry picking.
If SMUD was taking West Sacramento and/or Woodland, I would agree. But, including Davis in the mix is not the best business decision. Davis has no industrial load, and very little commercial. The retail loads are not large in comparison, the university is not included, and Davis residents consume quite a bit less energy per meter than typical residential customers in this region. SMUD is willing to include Davis because it provides economies of scale, a better load profile, and I imagine good politics.
This is socialism.
No. This is democracy--just like a school board, a board of supervisors, a city council, or a special district is an exercise of democratic governance.
The strongest argument against annexation is DMUD.
Trouble is, PG&E opposed that effort as well. The concept behind DMUD was to aggregate the Davis electrical load, purchase power from SMUD, pay PG&E for transmission and invest the savings in locally owned, renewable, distributed generation--ultimately rendering the distribution system worthless. The telephone industry provides the DMUD model. Rather than purchasing the telephone system, contract for service while investing in cell phone technology. As the new system comes into place, you terminate the contract for the old system. History demonstrates a better chance of pursuing this strategy with SMUD then with PG&E.
Every public agency in Yolo County should require developers to dedicate all future utility assets to the appropriate public agency. As part of the remaining franchise agreements--- PG&E should be required to maintain those public assets. The public agencies would then receive a charge, collected on PG&E's billing, for the use of the public utility lines, gas & electric. This rate could be maintained by the PUC or by contract. This would reduce future acquisition costs for Spring Lake and Southport and perhaps Covell Village. If the annexation doesn't go through, those cities would have an added income stream. For the county, this policy could start a process for the unannexed areas of the county.
I've made this suggestion to the cities over the last 8 years but it's fallen on deaf ears. Perhaps your repeating the idea will have more force. Perhaps now that they are paying attention to this issue, they will be listening.
At bottom, PG&E is best situated to present a credible argument against annexation. They have all the data on assets, energy consumption, operating expenses, profit margins, etc, and they have had 8 years to prepare their case. In spite of this advantage, they have not been forthcoming with information and they have not managed to present a credible argument. If they can't make a credible argument, then I must conclude that one can't be made. Ironically, PG&E has unwittingly provided the strongest argument for going forward.
I encourage you to discuss this with Phil Marler, the assistant city manager for the city of Woodland. He has gone through the same review that you are now undertaking and can offer some valuable insights.
If there's anything that I can do: assist with contacts, bring in additional industry expertise, provide supporting documentation, help prepare a presentation--- please let me know.
Bob Milbrodt
758-9150
www.yolo4smud.org
http://www2.dcn.org/orgs/localpower/
American Public Power Association is the best resource www.appanet.org
(c) Copyright Coalition For Local Power
Tel: 530 757-6609
Fax: 530 758-3684
Last updated 2-28-2005