By Rachel Brahinsky

The landmark decision reached last week to renegotiate one of San Francisco's flawed electricity contracts pushes the city forward on the path to public power.

Finally, 14 years after the Bay Guardian first exposed the flaws in the original contract, which was negotiated in secret by then-mayor Dianne Feinstein under pressure from Pacific Gas and Electric Co., the city has moved to take back much of its cheap public hydropower. The 1988 contract – a three-part deal between San Francisco, the Turlock and Modesto Irrigation Districts, and PG&E – worked to PG&E's benefit because it guaranteed that more than half of the power generated by the city's Hetch Hetchy Water and Power system would be diverted to other communities, thus protecting PG&E's monopoly over the city's power service.

What's more, the new deal could eventually lead to city savings of more than $18 million a year.

The original contract promised a hefty chunk of the power to the Turlock and Modesto Irrigation Districts in the Central Valley. Though federal law specifically earmarks a modest amount of Hetch Hetchy power to the two communities, the deal forced the city to guarantee a much larger amount of electricity to them – no matter how much the system generates. This set the city up for disaster when the California energy crisis hit in 2000. Back then, when energy prices were soaring, San Francisco had to buy power on the market to meet its contractual obligations to Turlock and Modesto.

The budget took a $14 million hit that year.

The city system, which generates as much as 400 megawatts of power, depending on the season, was built in the 1920s to form the foundation of a public energy system. But PG&E manipulated officials and the public process for years to keep the city from moving forward with that mandate.

The 1988 deal guaranteed the city wouldn't have excess hydroelectricity to anchor a local public power system. At the time, the Bay Guardian warned that the arrangement, which was to last until 2015, would solidify PG&E's hold on the city (see "The Fix Is In," 1/13/88).

Feinstein worked hard to negotiate the contract, and she went as far as to privately meet with then-PG&E chair Richard Clarke to hash out a deal that even her own financial advisers warned against. In essence, Feinstein's deal required the city to keep paying PG&E millions of dollars a year for "wheeling fees" and guaranteed Turlock and Modesto access to more than half of the city's Hetch Hetchy power.

Now that's finally changing. With the terms of the new contract approved last week by the San Francisco Public Utilities Commission, Modesto will give up its rights to excess power in two phases, part in 2005 and the rest in 2008. In return, Modesto is promised extremely cheap rates for the power it does buy.

While city officials may have hoped to escape responsibility somewhat sooner, the negotiators say the new deal will be far better for the city than the original 1988 contract. "This is the balance of what we got. I think this is a good deal," Ed Smeloff, SFPUC assistant general manager for power policy, told us.

The city is trying to negotiate a similar agreement with Turlock, but officials there aren't yet willing to concede, although Smeloff said he hopes to use the Modesto agreement to leverage a Turlock deal. Turlock officials are trying to push the city into binding arbitration, which would probably make it much harder for San Francisco to get a fair shake, he said.

If Turlock goes for a similar arrangement, Smeloff estimates San Francisco could save about $18 million annually. The city would also be free to sell as much as 265 megawatts of electricity in the winter and spring. On a peak power-use day, the city consumes up to 950 megawatts, so Hetch Hetchy power could serve about a quarter of the city's load during those times and far more during nonpeak times, when power consumption can drop to as little as 400 megawatts citywide.

The agreement still must be ratified by the San Francisco Board of Supervisors, which is expected to take up the issue in the next few weeks.
E-mail Rachel Brahinsky at rachel@sfbg.com.