SMUD Annex Would Cause 25 Percent Rate Hike, Says PG&E

Gearing up to retain economic hegemony in Yolo County, Pacific Gas & Electric officials charge that if PG&E ratepayers were annexed by the Sacramento Municipal Utility District (SMUD), they would pay 25 percent more for electricity. The investor-owned utility contradicted a forecast by consultant R.W. Beck released last month that estimated the annexation would cut electric bills. PG&E will soon release its detailed analysis of the Beck study on annexing 85,000 PG&E customers, PG&E spokesperson Jann Taber said this week. Beck prepared the $500,000 study for SMUD, the cities of Davis, Woodland, and West Sacramento, and unincorporated areas of Yolo County. According to the utility?s preliminary analysis, SMUD?s annexation study is flawed because it relies on false assumptions in three areas: -Drastically undervaluing PG&E?s power lines, poles, transformers, meters, and other electric facilities in Yolo County at $56 million to $108 million. PG&E maintains that its distribution system in the 190-square-mile annexation study region is actually worth more than $500 million. -Underestimating by $195 million the power supply costs for the annexation study area over the 20-year forecast. -Wrongly assuming customers in Davis would be exempt from paying exit fees to PG&E to reimburse the Department of Water Resources for long-term power contracts. Hence, the utility argues, the study underestimated by $75 million the exit fees that departing PG&E customers would have to pay the utility. PG&E also contends that the Beck study overestimated the reliability of SMUD?s electric service. ?There?s a misconception that if SMUD annexes PG&E service territory those customers would pay the same as other SMUD customers,? Taber added. She said that PG&E has no intention of giving up the customers it has served for a century. ?This isn?t 50 years ago when munis were just forming. It?s just a whole different ball game now.? R.W. Beck countered that its annexation analysis was based on ?overly conservative? assumptions of 12 percent. The muni?s customers historically have paid at least 20 percent less for electricity than PG&E?s rates and currently pay 25 percent less, said Paul Lau, SMUD?s project manager for annexation. Moreover, SMUD?s board of directors adopted a policy requiring that the muni?s rates be at least 10 percent lower than the utility?s. ?PG&E is just taking whatever numbers are given and multiplying them by four or five, which it did with the [city of] Folsom annexation,? Lau said. Beck prepared four separate valuations and concluded that the highest value of PG&E?s system was $108 million, compared to the depreciated book value of $56 million ( Circuit , Jan. 21, 2005). SMUD would have to exercise its power of eminent domain to condemn facilities because PG&E is not a willing seller. Beck and SMUD also disputed PG&E?s contention that SMUD would have to pay $195 million more than the study forecast to purchase power for new customers. ?PG&E and SMUD buy power in the same marketplace, so if SMUD were experiencing higher purchase costs, so would PG&E,? said SMUD spokesperson Scott Thomas. Nonetheless, PG&E?s forecast of higher power costs falls within Beck?s range of scenarios, the consultant stressed. Indeed, the Beck study concluded that annexation would bring greater load diversity and provide an opportunity to optimize SMUD?s power supply costs. SMUD is evaluating strategies for serving potential new customers. ?Our board is cautiously optimistic about the report, but they still have to wait and see the numbers,? Lau said. He noted that SMUD is annexing Yolo County?s water treatment plant ( Circuit , Dec. 4, 2004). Proponents of annexation stress that other benefits will flow to Yolo County customers, including local control. ?We have no control,? said Dan Berman, a member of the Coalition for Local Power, adding that ?PG&E is predatory.? For example, for an average 700 kW residential bill in September 2004, PG&E ratepayers paid $106, compared to $61 for SMUD customers. ?This is an issue where the chamber of commerce and the Sierra Club are totally in agreement,? Berman said. In 2002, PG&E heavily funded a successful campaign to derail a proposal to make way for the creation of a public power district in Davis, which was defeated 2-1 by the Local Agency Formation Committee. If an annexation were ultimately approved by voters, PG&E would likely sue to block SMUD from condemning and annexing its Yolo County electric distribution system, according to Lau. PG&E took SMUD to court after Folsom voters approved annexation in 1982 and settled five years later.

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SMUD Annex Would Cause 25 Percent Rate Hike, Says PG&E

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