Proposed Annexation of Tiny Parcel May be Test Case for Utilities? Tug of War

By Published On: October 11, 2003

A major turf battle may be brewing over a small, undeveloped plot of land west of the state capital. The issue is not so much the piece of farmland but which utility?Pacific Gas & Electric or the Sacramento Municipal Utility District?will deliver electricity to property that will house Sacramento County?s sewage treatment project slated for West Sacramento. The Sacramento Regional County Sanitation District wants SMUD to supply electricity to its wastewater treatment facility in Yolo County. But that county is PG&E territory. The 10 MW pump station will be hooked up to another of the district?s large pumping plants being built in northern Sacramento, which will be powered by SMUD. Robert Shanks, sanitation district engineer, said his agency asked SMUD to annex the property in question to allow it to fuel Sacramento County?s sewage pumps because of ?significant benefits? to both agencies. According to a district feasibility study, having SMUD provide electricity to the pumping stations in both counties will allow for better coordination of the system, increase reliability and cost less. Currently there are no poles or wires at or near the unincorporated 10-acre parcel in West Sacramento. SMUD?s electrical infrastructure is closer in range but serving the plant would be its first foray into Yolo County. Industry experts expect the investor-owned utility to object if the SMUD board votes to annex the property and gets the requisite approval. ?PG&E will fight to keep its customers, they always do,? said economist Bill Marcus of JBS Energy. PG&E said it has not taken a formal position on the proposed pumping station annexation but is in communication with SMUD, according to Jann Taber, PG&E spokesperson. ?We have served West Sacramento for decades and intend to serve all of our customers into the future,? she added. The heart of the matter concerns the implications of a SMUD hookup on the other side of the Sacramento River. Yolo County and three of its cities?West Sacramento, Davis and Woodland?are exploring being annexed by SMUD to replace PG&E, which is sure to be a major battle. According to SMUD and the sanitation district, the annexation of the West Sacramento station and potential break away of Yolo county cities from PG&E are apples and oranges. The most significant difference is that the former action would not involve any condemnation of PG&E wires and poles. ?It is not a typical annexation,? said Chris Capra, SMUD spokesperson. He noted that SMUD has not heard any objections from PG&E over the potential servicing of the parcel in West Sacramento. Several months ago, the city councils of Davis, West Sacramento and Woodland, along with the Yolo County Board of Supervisors, voted unanimously to explore a SMUD annexation. West Sacramento and Woodland are the most appealing candidates because of the higher energy use given their industrial and commercial base. The land under the county?s control that would be affected by an annex is restricted to the unincorporated parts. Last July, SMUD voted unanimously to be part of a cost-sharing study to assess the costs and benefit of taking over part or all of PG&E?s facilities in the cities and unincorporated areas of Yolo County. The feasibility study is estimated to cost between $250,000 and $500,000. PG&E declares, however, that its electrical system in the area is not for sale. If SMUD moved into the neighboring cites to the west, it would not be it first annexation, and the crux of the battle would be over the valuation of PG&E?s electrical system. In the 1980s, the muni successfully annexed the City of Folsom, which was supplied power by PG&E. SMUD offered $5 million for the facilities, PG&E said they were worth $30 million and the two settled on $12 million. Half a century earlier, SMUD and PG&E were involved in a long battle over the muni?s seizure of the IOU?s distribution system in Sacramento and what is was worth. Sacramento?s neighbor, Davis, explored the possibility of being annexed by SMUD in the 1970s but the muni was not game. Three decades later, a public power coalition gathered about 4,000 signatures for a ballot measure that asked Davisites whether they wanted a Davis Municipal Utility District created. The measure never made it to the November 2000 ballot because the Yolo County Local Area Formation Committee voted against qualifying it. Subsequently, the city council voted to conduct a study on lowering energy costs and getting a cleaner power supply for Davis. The study by Navigant Consulting recommended a SMUD annexation. ?PG&E rates are high and it is totally non responsive to the community,? said Yolo County Supervisor Dave Rosenberg, a public power advocate who represents Davis. The recently approved feasibility study ?will allow us to aim, get ready and determine when and whether to fire,? he added. Around the same time SMUD approved a study assessing the bigger annexation question, the sanitation district asked it to consider hooking up to the West Sacramento plot. SMUD agreed in July to do a joint cost-benefit analysis. Population growth is driving the sewage project, and it is the largest district project to date. The goal is to have the regional project in service by the end of 2006. The district?s Shanks said he has not heard directly from PG&E. If the SMUD board voted to proceed with an annexation, it would have to get approval from the Sacramento County LAFCO and the California Public Utilities Commission to ensure ratepayers were not harmed by the move. A critical issue in the tiny or large annexation is the potential exit fee. Under current CPUC rules, only existing PG&E or other investor-owned utility customers pay the charge if they switch power providers. Thus, the annexed property?as it is served by neither?might escape an exit fee. Many, however, expect the CPUC to rework the rule more to PG&E?s liking and require an exit fee. The annexation will likely also be impacted by the high costs of PG&E?s bankruptcy proceedings?in excess of $100 million. ?PG&E is doing its damnedest to price themselves out of the market place,? Marcus said. He also noted the private utility is not alone in pursuing costly ventures?noting SMUD?s huge costs overrun in the Rancho Seco nuclear power plant. SMUD is expected to vote on whether to pursue annexing the small parcel in West Sacramento in mid-October or November.

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