S.F. officials to take on PG&E

Hetch Hetchy power-delivery cost at center of dispute

Wednesday, September 28, 2005

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San Francisco officials hope the new leaders in charge at PG&E after last week's executive shake-up will reconsider attempts to change the way its utility charges the city to deliver power from the municipal Hetch Hetchy hydropower system. They argue that PG&E's changes could cost taxpayers tens of millions of dollars.

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The dispute, simmering for years between the city and Pacific Gas and Electric Co., has intensified in recent months. Both sides have filed complaints with federal energy regulators, while city staffers have revived talk of cutting the cord with PG&E in favor of an independent municipal power system.

San Francisco owns 167 miles of transmission lines that carry hydropower most of the way from the city-owned Hetch Hetchy reservoir in the Sierra Nevada mountains. But it relies on PG&E lines beginning at Newark to ferry the electricity the last 30 miles to the city. That service is governed by a 1987 contract.

San Francisco's power manager, Susan Leal, claims PG&E is illegally trying to gut the contract before its 2015 expiration date to boost corporate profit. If the Federal Energy Regulatory Commission sides with PG&E, city officials contend, the municipal agencies that receive Hetch Hetchy power -- including schools, hospitals, Muni and the airport -- could be saddled with tens of millions of dollars in unexpected energy bills.

Leal said the city is reviewing its options, including construction of its own power line extension. But she said the recent executive changes at PG&E might be an opportunity to resolve the dispute. Last week, PG&E announced that Peter Darbee has succeeded Robert Glynn as chairman of the corporation, and Thomas King is replacing Gordon Smith as president and CEO of the utility.

"We're hopeful that maybe a change in management will mean withdrawal of some of their hostile actions against San Franciscans,'' Leal said.

The utility denies that it is just trying to line its pockets by asking FERC to sanction changes to its 1987 Interconnection Agreement with the city. PG&E claims the contract is outdated and needs to conform to new rules that now govern California's transmission grid under the state's 1996 deregulation law and other enactments.

Scheduling of power moving through the grid, including PG&E's lines, is now controlled by the California Independent System Operator on an open-access basis. Instead of continuing its special contract terms with the city, PG&E wants San Francisco to buy transmission rights on company lines through the operator.

Barbara Hale, assistant general manager of power for the San Francisco Public Utilities Commission, said such a change would not only cost more but threaten the reliability of San Francisco's power supply. "Right now, we have a reservation for capacity on those lines that we would lose under PG&E's approach,'' she said. The operator rules don't require the abolition of existing contracts, the city maintains.

If federal regulators allow PG&E to make the changes, which would take effect in February 2006, the city says it would also have to quickly arrange contracts for other services, like supplemental power when needed.

PG&E says it wants out of its obligation to bank city credits for the excess hydropower it generates and then make up shortfalls in periods when the city's own power doesn't cover its demand.

PG&E claims that other service providers in California's new energy market could meet the city's needs. In the meantime, PG&E argues, other electricity customers now subsidize the favorable terms the city gets under its contract with the utility.

In addition, the 1987 agreement interferes with the efficient operation of the grid, and its outdated provisions have already led to disagreements with the city over its interpretation, said PG&E spokesman Paul Moreno.

"Terms have changed, regulatory issues have changed, markets have changed,'' he noted.

The city and the utility are also squabbling over other charges. San Francisco wants PG&E to improve its infrastructure and pay a $15 million fine for a 2003 fire at the Mission substation that cut power to 100,000 customers. In turn, the utility claims the city owes an extra $28 million for services between 2000 and 2003 under PG&E's recalculated tally of those charges.

The city, in addition to considering construction of its own transmission line from Newark, has tried in the past to overthrow PG&E as the electricity supplier for San Francisco's population.

But the latest attempts to make moves toward a municipal power system through ballot measures in 2001 and 2002 were rejected by voters. To serve customers other than its own city agencies, San Francisco would have to buy PG&E's distribution lines, which deliver power directly to homes and businesses.

E-mail Bernadette Tansey at btansey@sfchronicle.com.

This article appeared on page C - 1 of the San Francisco Chronicle


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