California Proposition 16 Power Grab!

Power grab—that is how opponents of Proposition 16[1] on the California June 8th primary election ballot describe it.  The initiative petition on the ballot would amend the California Constitution to require that two-thirds of voters approve of any public agency entering into the business of producing or selling electric power in the Golden State.

This measure is part of a trend in California of  “designer ballot measures”  sponsored by a business to protect or advance its own business interests.  On the June 8th ballot, Californians will see not only this Proposition 16 sponsored by PG&E but Proposition 17[2] sponsored by Mercury Insurance which would authorize insurance companies to give “persistency discounts” to customers who stay with the same company.

The Initiative and Referendum processes are enshrined in the California Constitution to permit more direct democracy.  They date back to California Statehood and the influence of the progressive movement in the latter half of the 1800’s.  For good or ill, these experiments in direct democracy shape California’s politics and give anyone with a checkbook the ability to pay to play.

California Proposition 16

Prop. 16, on the surface, is designed to stem the loss of market share for PG&E and other investor owned utilities as a result of the 2002 Customer Choice Aggregation (CCA) law which permits cities and counties to create buying pools of their residents to shop for a better deal for electric power than is provided by their local utility.  The investor owned utilities hate this as you can imagine.  The instant pique over this which gives rise to PG&E’s sponsorship of this ballot measure involves efforts by the City and County of San Francisco and Marin County, north of the Golden Gate Bridge to do just that.  But there is likely lingering heartburn from PG&E’s bruising battle with the Sacramento Municipal Utility District (SMUD) over its attempted annexation of Yolo County back a few years.  PG&E simply does not want to fight this insurgency one city or county at a time.

Proponents of CCA argue that PG&E is not doing enough to provide clean renewable energy to its customers and that is its falling behind on its obligations to meet 20% of electricity demand from renewable sources by 2010.  They want to do more, faster.

PG&E responds that it is buying virtually all the reliable renewable energy it can procure and is performing on par or better than either Southern Cal Edison (EIX) or Sempra Energy (SRE).  It also points out that the State has committed to 33% of electric demand from renewable sources by 2020—a daunting task that requires statewide coordination not piecemeal efforts to achieve since California must already imports more than 20% of its power generation requirements.

Collateral Damage from the Fine Print of Prop 16

If all Prop 16 was about is whether cities should be able to double down on renewable energy beyond what their investor owned utility provider supplies this would be easy.  But Prop 16 also requires established public power utilities like Anaheim, Burbank, Los Angeles Department of Water and Power, Sacramento Municipal Utility District and other public power utilities to secure two-thirds voter approval for any new contracts for additional power supply according to opponents.  So the public power crowd is livid over this seeing it as a direct assault on their business future.

One legal problem in the drafting of the ballot measure appears to be the definition of an arcane term “sole provider of electric service” which, opponents argue,  may be interpreted to mean that an existing public power utility would be required to have an election where two-thirds of voters approve adding a single connection (one new house) to the existing muni system.

Admittedly, this is an absurd and far reaching conclusion by opponents but we worry when we vote on these proposition whether such strange things will appear in these ballot measures AFTER we pass them.  Prop 17 mentioned above sponsored by Mercury insurance seems innocuous on its surface authorizing discounts to customers for sticking with their insurer, but a more careful reading of the language by opponents of that measure says its true intent is to allow insurance companies to dramatically raise rates on any customer who shops around for a better deal if there is any material lapse in coverage.  Lose your job and fall behind on your insurance payment, for example, and ZAP!

The Real Threat

PG&E’s $35 million investment in Proposition 16 may actually be a shrewd move to protect its long term interests from a much more insidious threat than a few ‘do-gooding’ public power utilities.  Let’s face it, neither Marin County nor San Francisco is going to be able to do better than 33% of their energy supply from renewable sources anytime soon—and still enjoy electric rates anyone can afford.  Renewable energy is more expensive and until the production costs are driven down by market share growth and Chinese export production of cheaper wind turbines and solar panels we will pay more for it.  If PG&E is struggling to make 20% by 2010 given all the pressure, procurement requirements, subsidies and tax benefits being thrown at renewable energy today what makes Marin County think it can do better.

The practical strategy for PG&E would be to welcome Customer Choice Aggregation and invite Marin and others to do better than the PG&E portfolio.  If the CCA customers want to pay more for energy—let them.  Decoupling of electricity rates in California means that investor owned utilities are no longer compensated for growing sales of commodity energy. If those agencies stumble or price their residents out of the market utility customers can always return to PG&E which is obligated to serve them.

No, CCA is not the threat PG&E fears most.

Prop 16 may be a cost effective beachhead to slow or prevent other more insidious customer aggregation threats in the future from the likes of Google Energy or other high tech players with home area network solutions that seek to bundle commodity energy along with communications, security, entertainment, internet and other services  for customers.

This direct assault on the traditional utility business model is what PG&E should fear most.

If Prop 16 can deprive these cleantech players of the ability to bundle energy into the services provided through a home area network, PG&E and other investor owned utilities will continue to control the gateway to customers and will deprive these corporate competitors of the “sticky” energy services essential to a complete solution in a net zero building fully distributed generation world.

And if all it costs is $35 million to defeat Google and other cleantech barbarians at the gates of PG&E it will be the bargain of the century.



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