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Why we must NOT sell our electric utility

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Posted: Saturday, March 6, 2010 12:00 am

We will soon be celebrating a milestone in Lodi. One hundred years ago, our city fathers made the decision to own the power system and run it as a public service.

Electricity was pretty new at the time, but they understood its importance. It would be a key to the city's future, and they wanted to ensure control stayed close to home. The same issues are brewing today.

Some in the community remain highly critical of our utility, and suggest the answer is to sell the electricity system to PG&E. In my book that would be a mistake, as shortsighted today as it would have been 100 years ago.

I want to lay out some facts so you understand what is at stake. Would we lose more than we gain? Yes. Would our rates go down? No. Would a private corporation be responsive to our local needs? I don't think so. If this is such a great idea, why aren't other cities in California lining up to sell their electricity systems? Fair question. Some have been tempted, but after careful analysis, not one has bit the apple.

Let's start with the fundamentals. An investor-owned utility answers to shareholders around the world who are seeking a profit. But in our case, you are the shareholders, as well as the citizens and customers. Your shareholder "dividends" stay right here at home, flowing into police and fire protection, parks and recreation, low-income assistance, and rebates for residential customers investing in energy-efficient appliances and insulation. Over the past 10 years, Lodi Electric has also provided more than half a million dollars in energy efficiency grants to our industrial and commercial customers, lowering their bills, keeping them competitive. Lodi customers know they can count on us. Over the past five years, we kept the lights on 99.99 percent of the time.

Last year, Lodi Electric contributed nearly $7 million to the city, a sustaining revenue stream that accounted for 17.5 percent of the city's general fund. These are payments in lieu of taxes. If Lodi Electric did not provide these funds, and we received our service from an investor-owned company, we would need to make up for these lost revenues, possible through a Utility Users Tax. In some cities, the Utility Users Tax accounts for as much as one-third of their General Fund revenue.

Environmentally, we are at the forefront. Today's citizens of Lodi are the beneficiaries of some sound decisions made decades ago to invest in geothermal, hydro-electric and other forms of renewable energy. As a result, we have 27 percent of our power coming from renewable resources while PG&E is at 15 percent. The state is moving forward adopting a 33 percent mandate for non-hydro-electric renewables by 2020. If they do, the city of Lodi is well-positioned.

Comparing electric rates among utilities can be tricky given the different classes and tiers of customers, and the influence of location, climate and seasonality on rates. But comparing apples to apples, PG&E's average residential rates are now higher than those in Lodi, and in fact higher than those in all other municipally-owned electricity systems in Northern California. Our rates are also lower for commercial and industrial customers.

Most importantly, this gap will grow larger with time. Also certainly, PG&E's rates will increase faster and steeper than our own. Their residential rates increased by 8 percent last year, and based upon filing with the Public Utility Commission, they are asking for 8.6 percent more for this year. Add it up: That is a 16.6 percent increase in two years.

Lower rates, local control, high reliability, better customer response, and closer ties to the needs of the community are the main reasons not to sell the city's largest asset. There are 40 municipally owned electric utilities in California, and over 2,000 publicly owned systems in the U.S., and you would be hard pressed to find a single one that went private. Sure, some have looked into it, but they back off.

The city of Anaheim was tempted in the late 1990s. They had two bidders: Enron and Southern California Edison. What they teased out of their analysis was that these bidders were not about to pay full value for their system.

Redding twice looked into selling, and decided in both cases that they would lose more than they gained. Santa Clara hired a consultant whose analysis showed the value of retaining public ownership was 2-3 times greater than selling it. This makes sense when you think about it. If there is only one buyer, why would it offer full value?

Speaking of value, in my next article I will introduce you to the exciting benefits and future value of the Lodi Energy Center, a cutting edge investment coming on line in 2012.

Larry Hansen is a member of the Lodi City Council and chairman of the Northern California Power Agency.

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