Guest Opinion: Palo Alto's $10 million fight with bureaucrats Guest Opinion: Palo Alto's $10 million fight with bureaucrats (April 02, 2003)

by Bern Beecham

While the War in Iraq occupies the nation's attention, there are obscure battles underway in Washington, D.C., and Sacramento that could cost Palo Alto residents and businesses $10 million a year from now on -- that's $100 million in ten years.

That would be the city's approximate hit from changes in new regulations that would unfairly penalize agencies that own their own electrical systems, such as Palo Alto, Santa Clara and others throughout the state.

As the City Council's liaison to the city-owned Utilities Department, and now as vice chair of the Northern California Power Agency, it has been my privilege and responsibility to meet with a wide range of officials in Washington and Sacramento who influence and control our future.

I and others from publicly owned utility systems have met face to face with representatives of agencies known by a bewildering array of acronyms -- letters that stand for power (political, not electrical) in one form or another. Two key agencies are OMB (Office of Management and Budget) and FERC (Federal Energy Regulatory Commission). We have also met with members of the California Congressional representatives. I have come to see clearly that it's up to us to explain our own needs and specifics to the federal policymakers, and the odds are often stacked against us.

The $10-million estimate is no exaggeration. It may be an understatement. It will have a huge impact on our utilities budget and rates to residents and businesses alike. The amount is so compelling that we cannot rely on others to represent our interests.

The energy-related issues in Washington change every year. Some impacts on Palo Alto are accidental, the result of unintended consequences -- such as a minor clause in a current bill covering bankruptcies of energy providers and others. This minor clause would let an energy provider collect a termination payment from us even when the bankruptcy prevents future energy deliveries -- insult added to injury.

Sometimes we see intentional mischief by bureaucrats, never elected but reflecting ideological views over the public interest, particularly our public interest in Palo Alto. OMB constantly attacks our reliance on federal power supplies -- even when we and other users are paying 100 percent of the cost.

We now face one of the biggest threats yet. It is hidden in a complex mix of acronyms: FERC, SMD, CAISO, MD02 and LMP. What they really spell is a formula that could cost the City of Palo Alto $10 million or more per year.

Just six years ago, California initiated an ill-defined "market design" for electricity, also known as deregulation. That colossal failure cost California consumers up to $45 billion, according to the Public Policy Institute of California.

Now FERC wants to impose a "Standard Market Design" (SMD) across the entire nation. FERC believes that a rule that seems to work in Maryland and New Jersey, which have a far different electrical infrastructure than we have in California and the West, will work here. That's a risk we cannot afford.

FERC is forcing the California Independent System Operator (CAISO) to a dangerously premature launch of its "Market Design 2002" (MD02). Even though it is now 2003, the design is woefully incomplete -- and poorly thought out. MD02 contains a heavy special charge on Palo Alto, known as "Locational Marginal Pricing" (LMP). CAISO has not conducted any meaningful or scientific studies to identify the costs, benefits or risks associated with LMP.

Not only would this ill-defined LMP concept cost Palo Alto $10 million or more per year, but, worse, we would get little or nothing in return. LMP would force us to pay PG&E $10 million (or more) per year simply because PG&E has failed to upgrade adequately its long-overloaded transmission lines that serve the Peninsula. So far, FERC and CAISO give no credit to Palo Alto and its responsible sister city utilities for our years-long campaign to push PG&E into making necessary upgrades.

A final irony is that neither SMD nor MD02 requires PG&E to use that $10 million-plus to actually upgrade the lines. The rules would force us to pay them $10 million per year, but nothing would force PG&E to upgrade.

In a February trip to Washington with our municipal-utility colleagues we achieved some success and progress. Senator Barbara Boxer and more than a dozen senators from across the country told FERC in no uncertain terms that SMD is a dim-bulb idea.

We succeeded in getting our local Representatives Anna Eshoo, Zoe Lofgren and Mike Honda to urge the CAISO directly to withdraw the current MD02.

But nothing has yet actually been withdrawn or amended, and the battle to save Palo Alto ratepayers $10 million per year is far from over.

Several other major issues are pending. One is the fight to protect our consumer rights. Both the House and Senate are considering important national energy-policy bills that may remove longstanding safeguards protecting the consumer from multi-state holding companies. These holding companies can amass enormous market control, and have no interest in protecting the consumer. At the federal level, we do not seem to have learned the lesson of Enron and deregulation. Later this month, Councilmember Yoriko Kishimoto and I will visit Washington to make Palo Alto's case to our elected representatives and to key staff at agencies such as FERC, OMB and in major Senate and House committees.

You can help. Believe it or not, letters, e-mails and phone calls DO make a difference when the outcome is in doubt and the odds are against you. We face a huge bureaucracy that is grinding inexorably our way, and the costs of our getting ground up by it are huge.

Bern Beecham is vice mayor of Palo Alto and vice chair of the Northern California Power Agency. He can be e-mailed at bern@beecham.org.