San Francisco Bay Guardian, October 16, 1996
By Savannah Blackwell
Public-power advocates weren’t a bit surprised that Economic and Technical Analysis Group’s feasibility study seemed as if it had been written by the PG&E public-relations department.
In fact, the people who led the battle to force the city to contract for the study have repeatedly warned that ETAG is an unqualified, biased outfit that could never prepare a fair analysis of the benefits of public power.
“ETAG used fraudulent means to win the contract,” Joel Ventresca, a member of the technical review committee (TRC) that monitored the contract bids and chair of San Franciscans for Public Power, told Supervisors Angela Alioto and Sue Bierman at the Sept. 26 Select Committee on Municipal Public Power meeting. “We face an unqualified, politically connected, PG&E-friendly firm performing a contract they never should have been given.”
A Bay Guardian investigation into the history and outcome of the contract shows that:
The PUC’s May 28 decision to award the feasibility-study contract to ETAG marks the second time the PUC has given the contract to a PG&E-friendly firm. In November 1995 the commission awarded the contract to a company whose manager had worked for PG&E for 13 years (see “Fox Guards Henhouse?” 11/22/95).
On June 10 the Board of Supervisors passed a unanimous resolution urging Mayor Willie Brown to terminate the ETAG contract. ETAG’s connections to PG&E and the PUC’s decision to award the contract to ETAG instead of JWWA, the firm recommended by the technical review committee, spurred the resolution. But Brown failed to act on the board’s resolution, and on June 25 the PUC reiterated its support for ETAG.
At the time the PUC commissioners denied that PG&E had lobbied them. But PG&E lobbying reports covering activities from April 1 to June 30, 1996, on file with the city’s Ethics Commission, show that PG&E lobbyists Sam Lauter and Larry Simi contacted commissioners Victor Makras, Dennis Normandy, and Marion Otsea (as well as Mayor Brown) during that period. These are the three commissioners who spoke on behalf of ETAG shortly before they voted to award the contract to the firm at the PUC’s May 28 meeting.
Asked about the lobbying records, Otsea told the Bay Guardian she had received a phone call from a PG&E lobbyist about the contract award, but that she had told the caller she would not discuss the issue. Normandy denied having any contact with PG&E lobbyists during that time. Makras did not return Bay Guardian phone calls. Neither did Simi and Lauter.
Over the past two months Larry Klein, general manager of Hetch Hetchy Water and Power, has sought to delay delivering the feasibility study to the Board of Supervisors until after Alioto, who has pushed for three years to get a feasibility study conducted, has left office.
A municipalization feasibility study focuses on the direct acquisition of all or a portion of an investor-owned utility’s system. The PUC’s March 26 Request for Qualifications required all bidders to submit at least one prior municipalization feasibility study.
In a May 30 letter to the TRC, Klein (also a member of the TRC) wrote that the PUC chose ETAG over JWWA because “[ETAG] had done similar kinds of work for Chicago, Sacramento, Cleveland, and Memphis.”
Edward Bodmer, a Chicago economist and ETAG consultant, was described by Knecht at the May 6 TRC meeting as having done “the most comparable study” to what San Francisco theoretically hoped to achieve with its study.
But Bay Guardian checks show Bodmer never actually completed a municipalization feasibility study available for public perusal.
The city of Chicago released a report in July in which Bodmer is listed as a consultant. The report – submitted by Henry Henderson, commissioner of the city’s Department of the Environment – amounts to a five-year study of the existing franchise agreement with Commonwealth Edison, and investor-owned utility. It takes a close look at the utility’s performance under the franchise agreement and finds that the company has not upgraded it facilities as promised.
But it is not a municipalization study, a Chicago official said.
“The report has a slight bit of analysis of municipalization,” Jessica Feldman, assistant commissioner of Chicago’s Department of the Environment, told the Bay Guardian. “It wasn’t really a full-blown municipalization study, not by any stretch of the imagination.”
Asked about the report, Bodmer told the Bay Guardian, “I would call this related to municipalization.”
Where the report does address taking over Commonwealth Edison, an option the city still has under the franchise agreement signed in late 1991, it does not favor such a move.
It dismisses municipalization, reasoning that “two factors cast long shadows over the advisability of a City transition to wholesale purchaser status at this time – the potential impact on consumers’ economic benefits from ‘stranded cost’ penalties and the persistent difficulties of financing and implementing (in the face of likely litigation) a termination/acquisition initiative.”
Feldman said a team of consultants, of which Bodmer was a member (ETAG’s April 26 proposal refers to Bodmer as the “project leader”), looked at municipalization from 1989 until the franchise agreement was signed, but that nothing public was ever produced from the research. Bodmer, she said, provided “background information.”
“We don’t refer to what [the research] is…. There was no report issued,” Feldman said. “Timing and economics made renewing the franchise much more doable [than pursuing municipalization]. We never quantified the hassle factor, but we knew there would be numerous hassles. It would be very difficult to do, and there could be a very large amount of court stops.”
Asked to characterize Bodmer’s work, ETAG president Knecht called it a “secret municipalization study.” Bodmer told the Bay Guardian he had done a municipalization study, but that the documents were never made public. “We used it in negotiations,” he said.
Ventresca said work that is not made public should not count toward fulfilling the qualifications required for conducting San Francisco’s study.
“If they’re claiming Bodmer did a study, but no public documents were ever produced, then it’s not true [that they met the criteria],” Ventresca said.
The April 26 proposal does include several pages of charts and graphs that mention that the city of Chicago condemned Edison’s system and expressed interest in owning its own municipal utility system. But Bodmer’s name does not appear in the materials.
“Fragments do not make one copy of a report,” Ventresca said. “You don’t know when [these pages in the April 26 report] were produced or how they were produced…. I think it’s totally irrelevant.”
After the May 28 PUC meeting, TRC member Ventresca asked Knecht to show him copies of the firm’s municipalization studies.
Knecht later gave Ventresca a 1990 report that Knecht, while he was a vice president of a company called Spectrum Economics, conducted for Memphis Light, Gas, and Water Division, a municipally owned power provider established in 1939. The study analyzes future rates to be charged by of the Tennessee Valley Authority, from which Memphis buys power. But Ventresca says it is not a municipalization study.
Knecht also gave Ventresca a 1988 report Spectrum Economics conducted for SMUD, which was established as a municipally owned power provider in 1947. The study analyzes PG&E’s future rates and discusses the possibility of SMUD getting out of the public-power business. But it is not a municipalization study, Ventresca says.
Knecht told the Bay Guardian that ETAG had the necessary qualifications to perform the study.
“We said we hadn’t done a full-blown feasibility study,” Knecht said. “We had done various things on that, and various things that were related, all of which constitute the qualifications.”
Ventresca disputed that assertion. “It’s clear to me they did not meet the criteria,” he said.
One of the key questions asked of ETAG when the firm presented its proposal to the TRC on May 6 was whether the company had worked for PG&E. Knecht downplayed ETAG’s previous work for the utility company. He said ETAG had only performed $1,000 worth of work for PG&E in the last five years.
“We have worked for PG&E,” Knecht said on May 6. “But in the last five years, there’s one contract that totaled just over $1,000.”
But on June 4 – after the contract had been awarded – Knecht submitted a memo to Klein in which he disclosed that ETAG members had performed $140,000 worth of work for PG&E in the last 10 years.
Not in Cleveland
In the April 26 bid proposal, titled “Spectrum Experience with Other Municipally Owned Systems,” Knecht writes: “In working for municipal utility systems throughout the U.S., Spectrum consultants have brokered long- and short-term bulk power supply transactions between investor-owned utilities and municipally owned utility systems (Cleveland).”
At the May 6 TRC meeting at which the three bidding firms were interviewed, Bodmer said he had helped Cleveland Public Power get a long-term wholesale power deal.
“We brought the power to Cleveland,” Bodmer said.
But Cleveland Public Power manager of operations Jerry Salko and deputy commissioner Richard Barton both told the Bay Guardian that Bodmer has never contracted with the company to assist in negotiations.
“Power purchasing is done in-house by our manager of operations,” Barton told the Bay Guardian. “[Salko] didn’t recognize Bodmer.”
Bodmer was hesitant to discuss work he did in Cleveland.
“I’d rather not talk about that one,” he said. But he did say that he had worked for Energy Exchange of Chicago in connection with a transaction in Cleveland.
The Bay Guardian then asked Salko about Energy Exchange. He said he had dealt with the firm, but that it had not worked for Cleveland Public Power. Rather, it had worked for the company on the other side of the deal.
“[Energy Exchange] was working for East Kentucky Power Cooperative. We negotiated with them to buy power form East Kentucky [in 1993],” Salko said. “They didn’t work for us.”
According to ETAG’s April 26 proposal, “staff of Spectrum Economics has completed municipalization studies for the city of Chicago, Illinois, and has worked on behalf of a number of municipal utility systems throughout the nation.”
In the May 6 proposal, ETAG identifies Bodmer as “Senior Economist, Spectrum Economics Inc.” Forms submitted to the Human Rights Commission and presented in the April 26 proposal list Bodmer as an “employee” of Spectrum Economics.
Richard Carlson, chair of Spectrum Economics in Palo Alto, where Knecht was formerly vice president, said he had never heard of Bodmer but suggested the Bay Guardian call a firm using the Spectrum name in Kansas City, Kan., that a former Palo Alto employee started. “I hope [Knecht] didn’t use our name in his proposal,” Carlson told the Bay Guardian.
A spokesperson for the Spectrum Economics in Kansas City, who asked not to be identified, described Bodmer as an independent contractor. He’s not the senior economist here,” he said.
Bodmer admitted that he is not a Spectrum Economics employee.
“I do independent consulting with them,” Bodmer told the Bay Guardian. “It is not an employee relationship.”
Asked why he was referred to as Senior Economist, Bodmer replied, “That’s what I would bill out as – an economist.”
Ventresca said ETAG’s descriptions of Bodmer’s professional affiliations were misleading.
“The way it was presented, we would conclude that it was a staff position,” Ventresca told the Bay Guardian. “That’s fraudulent.”
At the May 6 TRC meeting Ventresca asked if ETAG had ever done work that had resulted in a successful municipalization. Knecht responded by referring to SMUD’s 1988 condemnation of the PG&E-owned electric distribution and transmission facilities in Folsom-Cordova.
But Knecht was not working for public power. He was working for PG&E. He was hired for $20,000 by PG&E to value the facilities condemned by SMUD. He came up with a high figure - $36 million, three times more than the $11.1 million selling price PG&E and SMUD settled on, according to SMUD. (Court records say the settlement was actually $13 million.)
Frederick Girard, SMUD’s attorney, made a motion stating that Knecht’s method was invalid and resulted in an inflated figure. Girard’s motion, obtained by the Bay Guardian from court records in Sacramento, stated that Knecht had included in his analysis PG&E property that SMUD was not condemning as well as income PG&E would likely make from the facility in the future. That wasn’t proper, Girard told the Bay Guardian.
“Future earnings are just speculation…. [Knecht] included in some of his estimates inflation at more than double what occurred,” he said. In addition, “[Knecht] was including everything in their whole damn system, and then somehow attributing a portion of those costs to Folsom-Cordova. I don’t think you can do that.”
Asked about the case, Knecht defended his work. “[Valuations] inherently involve the projection of future results,” he told the Bay Guardian. He said it was proper to include values for properties other than those SMUD had condemned because the reduction in value to operations connected to Folsom-Cordova should be considered.
When told that Knecht was working on a municipalization feasibility study for San Francisco, Girard said, “It seems [San Francisco] should get someone else. You may get a pretty inflated figure.”
At the May 6 TRC meeting Knecht claimed that ETAG had worked for a ratepayers advocacy group called Toward Utility Rate Normalization (TURN).
But Eugene Coyle, a senior economist at TURN and the TRC, said that was not true.
“I raised this point at the [PUC’s June 11] meeting,” Coyle told the Bay Guardian. “I pointed out that ETAG had never done any work for us…. They clearly stretched their resumés.”
Follow up story:
San Francisco Bay Guardian, October 16, 1996
By Savannah Blackwell
A firm with ties to Pacific Gas and Electric Co. has finally finished its city-funded feasibility study on whether San Francisco should take over PG&E’s services and – not surprisingly, given its conflicts of interests – found that the savings to ratepayers would be minimal at best.
“We believe the most likely result is that savings would result from municipalization and that they would lie in the 0 to 5 percent range,” states the report, conducted by Economic and Technical Analysis Group of San Francisco and released Oct. 11 to members of the technical review committee (TRC), a group of advocates and experts, assembled by the Public Utilities Commission.
Public-power advocates, including two TRC members, aren’t surprised by the report’s findings. They blasted the report as being biased against public power.
“My impression is that it’s aimed at explaining why municipalization won’t work,” said Eugene Coyle, a senior economist at Toward Utility Rate Normalization, a San Francisco ratepayers-advocacy group. “It’s really quite an unbalanced report…. It’s rather disappointing.”
Joel Ventresca, chair of San Franciscans for Public Power and a TRC member, described the report as favorable to PG&E.
“This study is of, by, and for PG&E,” Ventresca said. “PG&E should pay for it. The city should refuse to pay for this, because it is consistently biased against public power and consistently supportive of the investor-owned utility industry.”
In analyzing the report, Ventresca and Coyle found that:
The report states, “Our figures show that … munis are no more efficient in delivering electric energy to ratepayers, and they may be on average slights less efficient.”
Coyle disagrees. “This study doesn’t reflect any of the material [published on the subject], which shows that municipal systems are efficient,” he said. “That’s clearly not what the recent academic reports are saying.”
In comparing public-power rates with those of investor-owned utilities, Knecht asserts that the rates of municipally owned systems should be adjusted to reflect that they are exempt from paying taxes and can borrow money in different ways than investor-owned utilities.
“[ETAG] adjusts those figures to take away the advantages of public-power systems,” Coyle said. “That’s not proper.”
For example, in a comparison of retail electric rates between Sacramento Municipal Utility District and PG&E, the report asserts that Sacramento’s actual retail rate is 7.537 cents per kilowatt hour. The figure is then adjusted to 10.478 cents per kilowatt hour, a rate slightly higher than PG&E’s 10.466 cents per kilowatt hour.
But elsewhere in the report, ETAG includes a page that compares PG&E’s rates with municipally owned systems in California and shows that PG&E’s rates are higher than those of the municipal systems.
“We made it clear that muni rates were lower overall,” Knecht said. “I think it would be a misreading if somebody says the report doesn’t recognize that fact and tries to cover it up.”
Knecht defended the adjustments as a way to “see the muni operation and the investor-owned utility operation on a comparable basis.”
“We were trying to discern where [municipally-owned systems] savings come from,” he said.
According to 1994 data from the American Public Power Association, residential customers of public-power utilities paid rates that were on average 24 percent below those paid by customers of investor-owned systems.
“All the statistics were skewed to make it look like public-power systems have higher rates or were inefficient,” Ventresca said. “They were trying to make public power look bad.”
The study asserts that California’s investor-owned utilities base their rates on the actual cost of delivering power to customers, whether they are residents or big businesses.
“I think that’s false,” Coyle said. The difference in PG&E’s costs of serving businesses and residents “is not as much as the rate difference,” he added.
ETAG’s report suggests that municipal rates are skewed to favor small customers. “An argument can be made that most muni rates involve direct subsidy of small customers by large ones,” the study says.
“That statement is a real reflection of bias against municipalization,” Coyle said.
Knecht disagreed with Coyle’s conclusion. “I think [the report’s assertion is] accurate and fair,” Knecht said. “Some people would look at [public power’s cheaper rates for residents] as a plus for municipalization.”
The report suggests that municipalities don’t run services well and that the inefficiencies that have plagued Muni reflect the difficulties the city would face in running electrical services.
The report praises PG&E: “Current PG&E levels for those [operating] costs may be lean due to its workforce reductions and other cost-saving methods in recent years.”
“That’s a factual matter,” Knecht said. “It’s something [PG&E] has done recently…. Right now they’re somehow lean and mean.” And as for the comments on the railway system, Knecht said that “other people already made that point.”
Supervisor Angela Alioto, who pressed for the study as chair of the Board of Supervisors’ Select Committee on Municipal Power, pointed out that about 1,300 buildings in the city, most of which house government agencies, already efficiently receive public power from the Hetch Hetchy dam.
The report also raises the specter of job loss if PG&E is municipalized.
“If PG&E (one of S.F.’s largest employers) were to move its corporate offices to another city in response to S.F. electric municipalization, thousands of jobs would be lost to the city,” it states.
Knecht said that potential job loss should be a “serious consideration” in the public-power debate.
Ventresca found that the report relied on PG&E data and documents.
For example, in its assessment of what San Franciscans must pay to help bail out PG&E’s investments that are no longer economically beneficial to the company, the report states that the firm got a $2 billion figure from William Manheim, a PG&E lawyer. Knecht disputed the notion that he relied on PG&E’s information, without consulting with public-power experts.
“The only real contact we had with PG&E is that we put some data requests in to them,” Knecht said. “And we did contact the APPA, and the California Municipal Association.”
The report does not favor using Hetch Hetchy power to benefit San Francisco residents, Ventresca said.
“It does not appear that a municipal utility would have distinct advantages over the current structure in managing Hetch Hetchy to maximize economic benefits in the restructured marketplace,” the report states.
“That’s just ridiculous,” Ventresca said. “The power created by the dam is equivalent to the residential [power] needs of San Francisco.”
But Knecht said that is not the case. Knecht said he learned from data supplied by Hetch Hetchy staff that the dam would not be able to supply enough power for San Francisco residents, and that the city makes more money by selling the power Turlock and Modesto.
“[The city] is already getting something better for it,” Knecht said.
The report’s stance against bringing cheap hydroelectric power to San Francisco consumers ignores the intent of the 1913 Raker Act, which gave San Francisco the right to build the Hetch Hetchy dam only on the condition that the city provide electricity cheaply and directly to residents.
“There’s a major asset that San Francisco owns that could get us cheap, renewable energy, and these consultants say ‘Don’t use it,’” Ventresca said.
In analyzing different means to figure the cost of PG&E’s system and the resulting effects on rates from municipalization, the study lists five scenarios. They range from the city’s paying $315 million for PG&E’s operation, with a resulting 15 percent savings to ratepayers, to the city’s paying $1.2 billion, which would result in rates rising 15 percent.
ETAG slams the low-end estimate, saying the method used to arrive at the $315 million figure, which is the method favored by JWWA, is “erroneous” and “wrong.”
“This is unsound … and generally an erroneous practice,” the report states. Knecht said that Wilson’s method would not hold up in court and is therefore an “unlikely” scenario.
“That’s not what will happen in the real world,” Knecht said. “The chances of a court accepting that are very slim… [JWWA’s] analysis is just factually wrong.”
Knecht described public-power advocates as “hypersensitive,” and said that their criticisms were not issues that affected the report’s findings.
“Taken as a group, none of [their criticisms] makes a difference to the bottom line,” Knecht said. “They’re sort of nibbling around the edge.”
He said ETAG went to “great lengths” to find ways that the city could benefit from public power.
“We went so far as to even load up the muni advocates’ gun,” said Knecht, adding that the report recommended moving on to a full feasibility study. “I have trouble understanding how a report that concludes to go on the next step can be characterized as anti-municipal.”
Alioto, a longtime advocate of public power, condemned ETAG but found grounds to keep pushing for a full municipalization study.
“There’s absolutely no question that this study was doomed from the beginning once ETAG was picked. We knew that.
That’s what we’ve been fighting,” she said. “This survey has been done by a company with serious ties to PG&E. As such I believe it is quite an admission on their part that there’s any savings or benefit in converting to public power. So you can well imagine what the real benefit would have been had [the study] been done by an objective group of people.”
Added Alioto, “Coming from ETAG, this is an incentive to me to get the right people to do this at the full-fledged level…. There’s no doubt in my mind that should the city and county of San Francisco use its own power for the citizens, it would be a savings to the ratepayer and a huge amount of new money for the General Fund.” ■