Prop 16 Is Confusing, But Hold Your Nose and Vote “Yes”

Prop 16 on the June 8 California ballot is confusing.  On one side the Proponents of Prop 16 say it is the “Taxpayer’s Right to Vote Act” that would restrict cities and counties from opting out of regulated electric utilities at the expense of its remaining customers without a two-thirds supermajority of the voters.  On the other side the opponents say Prop 16 is just a way for Pacific Gas and Electric (PG&E) and other investor-owned utilities (IOU’s) to protect their monopoly from competition by municipal non-profit electric companies and to block cities from getting into the clean energy business.

Many people will probably vote based on their prejudices no matter what the real issues are involving Prop 16.  If they are suspicious of Big Business they will likely vote against Prop 16.  If they are suspicious about Big Government they will likely vote for Prop 16.  But what about the mass of people in the middle who view themselves as smart voters who can’t make out heads or tails about Prop 16?

How does one sort out Prop 16 when both arguments sound valid? Will a YES or a NO vote be the best for electricity customers, the environment, or for local government and large electricity companies? Who knows with all the spin from both sides?

Here’s a clue. Ask yourself why Pasadena Mayor Bill Bogaard, writing in the June 4 issue of the Pasadena Star News, would oppose Prop 16 when Pasadena already has a municipal electric utility that would not require a supermajority 2/3rd’s vote to continue to operate or sell surplus electricity in the marketplace if Prop 16 passes? Why would Pasadena’s liberal mayor, by opposing Prop 16, suspiciously favor existing law (AB 117) that allows cities to deregulate electricity and play in the risky electricity spot market a la Enron without a two-thirds vote of the electorate?  Because voting no on Prop 16 would make it easier for financially stressed California cities and counties who do not have city-owned electric utilities to get into the electricity business and tack on a 10% Utility Users Tax (UUT) that can be siphoned into city or county coffers without a supermajority vote, which will be elaborated upon below.

By wanting to secede from PG&E and form its own electric utility, Marin County in Northern California sparked a civil war resulting in Prop 16 being place on the ballot by PG&E. The Marin Energy Authority wants to become a “Community Choice Aggregator” or CCA (not the same as a municipal electric utility).  The ability to form a Community Choice Aggregator was created under Assembly Bill 117 in 2002 after the California Energy Crisis of 2001-02.  An Aggregator doesn’t own the towers, poles or wires (the “grid) but is responsible for providing the energy commodity (electrons), which may involve owning power generation plants.  In other words, an Aggregator is mainly a trader or speculator in energy markets.

An Aggregator is allowed to compete with Investor-Owned Utilities (PG&E, Edison, etc.), doesn’t have to make a profit for investors, can issue tax-exempt bonds, and doesn’t have to pay corporate or property taxes.  PG&E, Edison, etc. have their profit margins regulated by the CPUC, can issue stock, can only issue corporate bondsthat must pay higher interest than tax exempt bonds, and have to pay corporate and property taxes. And just like banks shifted the burden of their risky subprime mortgages to Uncle Sam during the Financial Meltdown of 2008, an Aggregator can stick PG&E if it fails.  An Aggregator is not a municipal utility but a hybrid that can issue tax exempt bonds, condemn property, avoid taxes, and can compete with private power companies all justified by creating “clean energy.” An electricity Aggregator can put PG&E out of business, not by price competition, but by producing very expensive “Green Power.” Is it any wonder that PG&E
has spent so much money putting Prop 16 on the ballot?    This is why the Marin County Civil Grand Juryopposed Marin Clean Energy from becoming an Aggregator.

But becoming an Aggregator doesn’t come without a steep price. The California Public Utilities Commissionmandates that any city or county wanting to opt out of any monopoly electric service must pay a Cost Responsibility Surcharge. The surcharge ensures that all remaining customers will not pay higher rates when customers leave. Nor can Aggregators stick remaining electric customers with higher payments on bonds for new energy plants or for expensive “Green Power” mandated under AB 32 – the Global Warming Solutions Act.

In other words, if you want a divorce, you still have to pay your full share of the mortgage, property liability insurance, property taxes, and the solar panels on the roof of your house, until the mortgage is paid off. You just can’t walk out “scot free” (scot is a Scandinavian word for “tax”).

So even though theoretically Aggregators could provide electricity for 15% cheaper than PG&E and Edison IF IT BUILT AND OWNED ITS OWN DUPLICATE POWER PLANTS, effectively there is no price advantage to customers to forming a Community Choice Aggregator until all the bonds, mortgages, and debts are paid off, which is likely to be a long time. And it is highly unlikely that an Aggregator could produce or buy cheaper electricity if it relied mostly on expensive Green Power. So why would any city or county in their right mind want to form an electricity Aggregator?  Why would any city want to forego lucrative corporate and property taxes from Investor-Owned Utilities for a tax-exempt electricity Aggregator? Think hard.

Many cities and counties in California are now threatened with municipal bankruptcy, especially when considering the $1 trillion in unmet pension obligations and bonded indebtedness in the state. Local governments are desperately looking for sources of revenues. Unlike cities, counties do not usually assess Utility User’s Taxes.

Marin County, North of San Francisco Bay in California, is an aggregation of wealthy small cities with no defined economic base and a population of about 250,000.  County government is the largest describes Marin County as follows: “Marin County is renowned for its natural beauty, liberal politics, affluence, and a strong New Age reputation.” Marin County has the 5th highest income per capita in the U.S.  Marin County’s coastline has a high potential for wind energy generation, but at many more times the cost of conventional power supplied by PG&E.

Two of Marin’s relatively larger cities, the cities of San Rafael and Novato with populations of about 50,000 each, do not have Utility User’s Taxes. Utility User Taxes are surcharges on electricity bills that are siphoned off by cities to go into their general fund budgets.

Investor-Owned Utilities like PG&E pay corporate and property taxes to the state, not directly to local government.  And many large conventional power plants are located either out-of-state or in remote locations outside municipal boundaries and thus do not generate local property taxes.  Solar power can be located on rooftops and within cities or counties. Wind power is a natural for Marin County, but would degrade the aesthetics and environment of its coastline.

It is no surprise that Pasadena Mayor Bogaard would oppose Prop 16.  Mayor Bogaard successfully circumvented the two-thirds voting requirement for new taxes under Prop 218 by concocting an artificial “emergency” that lowered the voting threshold to 50% + 1 vote for a Utility User’s Tax on telephone service in 2008 (Pasadena Measure D). Pasadena didn’t even need a Utility User’s Tax on telephone service because it had two-thirds of a billion (with a “b”) dollars in cash and reserves in 2008. Mayor Bogaard promptly used the extra taxes to fund luxury projects for the wealthy such as an open space preserve to protect views for hillside homeowners, an $8 million proposed bike trail, and an $18 million ice skating rink.

And Pasadena quietly reaped a $100 million windfall during the Energy Crisis of 2001 when it “gamed” theelectricity pricing system a la Enron.  Pasadena has since built two “peaker” power plants to sell energy in the spot market at exorbitant rates during peak periods of demand and any future energy crises. Pasadena also continues to refuse to disclose the amount of rebates due to its customers on their electricity bills even though PG&E or Edison would likely be required by the CPUC to do so.

Pasadena is charging a Utility User’s Tax on its water bills without voter approval as required under Prop 218.

Pasadena and Marin County might as well be sister cities for the wealthy New Techncratic Class of elites in California.

Some critics of Prop 16 such as former California Energy Commissioner and renewable energy advocate John Geesman contend that Prop 16 may make selling your home difficult because the exemption clause for the existing electrical utilities is worded poorly. Geesman asserts that to re-sell your home, or any new construction, may require a majority vote. However, if this were the case we would see lack of salability of homes now in such cities as Pasadena that have imposed a Utility User’s Tax on municipal water sales without the required voter approval under Prop 218. But no lack of marketability of homes has been reported.  So the claim that Prop 16 will hurt the salability of homes or new development appears to be a scare tactic by anti-Prop 16 advocates.

Prop 16 is also a proxy vote for maintaining a two-thirds supermajority vote for any increase in taxes or utility rates in California. Many cities and government agencies would like to see Prop 16 voted down for that reason alone, as well as Prop 16 making it difficult for cities to impose Utility User’s Taxes.

Prop 16 is a complicated measure and has been made confusing by both sides. By combining two good ideas, choice of electricity supplier (conservative) and Green Power (liberal), Marin County would end up with a toxic potion.  Prop 16 is the antidote.

When you go to vote on June 8 think a second time about Prop 16.  Even if you have to hold your nose in voting for any ballot initiative by PG&E, the smart consumer choice is to vote YES on Prop 16.

Image Courtesy st_a_sh on Flickr