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What’s Happening In California
[November 2006]
SMUD Annexation Fails in Yolo County
On Tuesday, November 7, voters in areas of Yolo County and the cities of West Sacramento, Woodland and Davis (Yolo Area) voted to retain Pacific Gas and Electric Company (PG&E) as their electric service provider, rejecting three separate measures that would have paved the way for the Sacramento Municipal Utility District (SMUD) to replace PG&E.
PG&E reportedly spent over $10 million in its campaign against Measures H, I and L. Measure H asked Yolo Area voters to approve of the annexation of the Yolo Area into SMUD’s electric service territory, while Measure I asked Yolo Area voters if they wanted to switch to SMUD. Measure L was put to SMUD customers asking them if the Yolo Area should be annexed and served. By contrast, SMUD, as a California public agency, was prohibited from spending ratepayer dollars for political advertising or making any “recommendations” on how to vote. These rules do not apply to PG&E, which sponsored ads attacking SMUD’s ability to provide reliable and cost-effective service.
Yolo Area elected officials requested that SMUD provide electric service to their communities in an effort to achieve lower rates, improved reliability, enhanced customer service and local representation from their utility. After a year of study, funded jointly by SMUD and the Yolo Area communities, SMUD applied to the Sacramento Local Agency Formation Commission (LAFCo) for approval to annex and serve the Yolo Area. In April 2006, LAFCo approved and recommended the proposal after conducting an independent, public review concluding that the SMUD service “should generate positive net economic benefits of approximately $165 to $380 million” over 20 years. The California Public Utilities Commission, which regulates PG&E, was consulted by LAFCo and did not oppose the annexation and service by SMUD.
According to SMUD, Yolo Area customers were to pay the cost of annexation and electric service through their rates via a surcharge estimated to last 5 to 10 years. SMUD and PG&E, however, disagreed as to the overall cost. SMUD representatives estimated the cost at $110 million, while PG&E claimed the cost to be in excess of $500 million. These costs largely reflect the estimated value of the portions of the PG&E transmission and distribution system to be annexed and the cost of necessary upgrades.
SMUD represented that its rates are currently 29 percent below PG&E’s rates and projected that even with the surcharge its rates would be at least 2 percent lower than PG&E’s rates in the Yolo Area. Generally, municipal utilities can offer lower rates because they are able to borrow tax-free, providing them with lower interest rates than investor-owned utilities, such a PG&E. Additionally, municipal utilities pay reduced salaries to executives and are not responsible for dividends to shareholders.
Several other areas within California are considering moves away from investor-owned utilities and toward some form of public power. Moreover, municipalities in other states are considering a switch from local investor-owned utilities, including municipalities in Iowa, Colorado, Connecticut, Massachusetts and Louisiana, among others.
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