Bay Area Economic Forum Issues New Report Recommending Caution Regarding Municipal Power.Business Editors SAN FRANCISCO--(BUSINESS WIRE)--Oct. 10, 2001 The Bay Area Economic Forum, a regional leadership organization sponsored by the Bay Area Council and the Association of Bay Area Governments The Association of Bay Area Governments (ABAG) is a regional planning agency incorporating various local governments in the San Francisco Bay Area in California. It deals with land use, housing, environmental quality, and economic development. , has released a report on the economics of electric system municipalization Municipalization is the transfer of corporations or other assets to municipal ownership. The transfer may be from private ownership (usually by purchase) or from other levels of government. It is the opposite of privatization and is different from nationalization. . In response to California's power crisis a number of cities in California There are 478 incorporated cities in California, 22 of which are styled "Town of (Name)" instead of "City of (Name)." They are arranged in alphabetical order, with the "towns" marked '*'. Under California law (see, e.g. and the Bay Area, including San Francisco San Francisco (săn frănsĭs`kō), city (1990 pop. 723,959), coextensive with San Francisco co., W Calif., on the tip of a peninsula between the Pacific Ocean and San Francisco Bay, which are connected by the strait known as the Golden , are considering the creation of new municipal utilities (MU's). The report analyzes the critical economic issues that cities must address if the conversion of investor-owned electric systems to public ownership and operation is to be successful. The report finds that, historically, the performance of municipal utilities in delivering power at lower cost than investor-owned utilities (IOU's) has varied widely. Municipal utilities have on average delivered lower cost power than IOU's. However, creation of a municipal utility does not assure lower cost power. While established municipal utilities performed well relative to IOU's during the power crisis, this was attributable to the unique historical base of each MU, including portfolios of long-term Long-term Three or more years. In the context of accounting, more than 1 year. long-term 1. Of or relating to a gain or loss in the value of a security that has been held over a specific length of time. Compare short-term. contracts (which California California (kăl'ĭfôr`nyə), most populous state in the United States, located in the Far West; bordered by Oregon (N), Nevada and, across the Colorado River, Arizona (E), Mexico (S), and the Pacific Ocean (W). IOUs were not allowed under deregulation Deregulation The reduction or elimination of government power in a particular industry, usually enacted to create more competition within the industry. Notes: Traditional areas that have been deregulated are the telephone and airline industries. ), ownership of generating assets, and access to low-cost federal preference power. Municipal utilities established in the future may not fully enjoy these advantages and will face a different set of challenges. In analyzing whether new MU's can deliver lower costs to customers, the report compares the cost structures of municipal and investor owned utilities. It also evaluates possible changes in California's regulatory environment, which may require new municipal utilities to pay exit charges, and to share in high-priced power negotiated by the Department of Water Resources (DWR DWR Design Within Reach DWR Department of Water Resources DWR Direct Web Remoting (Easy Ajax for Java) DWR Durable Water Repellency DWR Delayed Word Recall (medical testing) DWR Driving While Revoked ). These changes could reduce or eliminate potential MU cost advantages. The key determinants of whether a new municipal utility can deliver lower rates to its customers are its ability to 1) establish a power supply portfolio that achieves lower cost than the incumbent investor owned utility can provide (a mix of regulated power supply, spot purchases, and DWR obligations), and 2) recover the acquisition costs of the IOU's distribution system. These issues are related, since an MU's ability to develop lower cost power supplies will affect the acquisition costs it can afford to pay, and the price paid for acquisition of the IOU's distribution system will impact the price of power delivered to MU customers. Because of the portfolio mix of IOU's including low-cost hydro hy·dro adj. Hydroelectric. n. pl. hy·dros 1. Hydroelectric power. 2. A hydroelectric power plant. and nuclear generating capacity, it is unlikely that new MU's will be able to deliver lower cost power. Continuing regulatory uncertainty will also affect a new MU's power costs. Regarding the proposals to create a municipal utility or power authority in San Francisco, Bay Area Economic President Sean Randolph observed that "if consumers are to benefit and avoid the risk of higher power Higher power is a term used in a 12-step program, such as Alcoholics Anonymous, to describe "a power greater than yourself." Although many participants equate their higher power with God, a belief in God or in formal religion is not mandatory; the higher power is intended as a costs, before committing to a course of action voters and civic leaders should have hard figures for both infrastructure acquisition and power portfolio costs." The report concludes that in today's uncertain economic and regulatory environment, new municipal utilities will be exposed to heightened risk. In the Economic Forum's view, these risks should be considered carefully. Pursuing municipalization without detailed examination of these factors and the necessary financial analyses could add yet another unnecessary energy cost burden on California consumers. |
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