SF's New Energy Plan Could Reap Millions at PG&E's Expense

Under the proposal, the SF Public Utilities Commission could sell its clean power at market rates to customers in new housing and commercial developments.

by Marisa Lagos, McClatchy News Service / June 17, 2014

San Francisco's Public Utilities Commission would be given the option to provide hydropower to nearly all new developments in the city under legislation being introduced Tuesday to the Board of Supervisors that could help raise millions of dollars a year for streetlights and other underfunded infrastructure.

But the proposal by Supervisor Scott Wiener also could take a big bite out of Pacific Gas and Electric Co.'s future customer base by allowing the SFPUC to sell cleaner power from the Hetch Hetchy water system to private customers.

Currently, the PUC provides the hydropower from Hetch Hetchy to public agencies in San Francisco at a deep discount, and sells any excess power on the wholesale market to residential and commercial customers at one-quarter of the price it could get under normal market pricing.

Under the proposal, the SFPUC could sell its clean power at market rates to customers in new housing and commercial developments.

City officials have been working to expand the agency's customer base in recent years, signing deals to sell power to the new Transbay Transit Center and the Hunters Point Shipyard housing development when they are completed.

But under current law, Wiener said, the default assumption is that PG&E will provide power to any new development - projects such as Transbay and Hunters Point were given the right to use SFPUC power on a case-by-case basis.

A matter of choice

This legislation, which will be co-sponsored by Supervisor London Breed, would change city law so that the SFPUC, instead of PG&E, can choose whether to be the power provider to any new public projects and private developments that are larger than 10 units or 10,000 square feet. The PUC would decide whether providing power to new customers makes "economic, environmental and community sense" in each case.

"Right now, the PUC does not have the power to say, 'We are the service provider' for individual private developments," Wiener said. "Typically, there has to be legislation passed by the board by way of a development agreement.

"This is broader. It says that for all new developments ... the PUC will have the statutory right to decide that they want to provide power."

Wiener and SFPUC General Manager Harlan Kelly said the proposal's main goal is to shore up the SFPUC's perennially underfunded power enterprise division, which needs $882 million worth of investment over the next decade. It needs more than $400 million to repair a tunnel that's essential to generating hydropower, and more than $100 million to fix and install new San Francisco streetlights.

"The PUC power enterprise is on the road to not being financially viable," Wiener said.

Kelly said a big part of the problem is that both wholesale power and power sold to municipal customers such as City Hall, San Francisco International Airport and Muni is deeply discounted. That wouldn't be the case if the SFPUC provided power at market rates to new developments: The agency would fetch three to four times as much as it does on the wholesale market, or an estimated $4 million for every 10 megawatts sold to private customers. Transbay alone is projected to use between four and eight megawatts annually.

Too soon for estimates

But Kelly said he doesn't have any estimates on how much extra money the SFPUC could take in by expanding its customer base, because it's not clear how much power the agency could sell if the legislation is approved.

"One of the things we have been talking ... about is, wouldn't be nice if we were able to expand our customers, especially commercial customers, so instead of a nominal fee, we could get a better fee," Kelly said. "That way we will have more revenue to invest in infrastructure and we will continue to provide all the benefits we do to the citizens of San Francisco."

Power sold by the SFPUC would also be cleaner and cheaper for new customers than the energy they get from PG&E. Transbay Transit Center, for example, would be expected to save more than $252,000 a year on its electric bill, while new SFPUC customers in the shipyard development would pay about 10 percent less than they would if PG&E were providing power, according to Wiener's office.

Wiener said the change would be better for the state as a whole, because it would encourage the sale of more renewable energy overall.

"Entities outside San Francisco that buy their hydropower from the SFPUC to meet their state (renewable energy) mandates will have to find it elsewhere, so it will stimulate" the green power market, he said.

It's not clear how the proposal will be viewed by PG&E, which in the past has fought efforts to shrink its customer base.

PG&E's response

"We look forward to reviewing the ordinance once it is introduced, and we will work with the city on how to best serve utility customers in San Francisco," PG&E spokesman Jason M. King said.

But the board has been working to chip away at PG&E's monopoly. Most recently, supervisors have been pushing a program to bypass the utility entirely and allow San Francisco customers to purchase their power directly from the city, which would buy green power on the wholesale market. The mayor and SFPUC board have put up a number of roadblocks, however, saying that one version of that program proposed last year would have been too expensive, not green enough and wouldn't have produced enough local jobs.

The SFPUC, at the behest of the board, is now studying whether San Francisco could join a similar program run by Marin County, or if it could shape a new proposal that better addresses critics' concerns.

©2014 the San Francisco Chronicle