PG&E has qualified Proposition 16 for the June 2010 ballot that uses the initiative process to do exactly the opposite of what it was designed to do.
The California Legislature enacted the modern day initiative process in 1911 as part of a package of reforms that were designed to protect the people of California from the unchecked power of a major corporation.
Prop. 16, titled the “The Taxpayers Right to Vote Act,” uses the initiative process to solidify the monopoly power of one company at the expense of California citizens.
Specifically, the measure requires local governments to obtain the approval of 2/3 of voters before providing electricity to new customers or expanding service to new territories if any public funds or bonds are involved. The measure would make it very difficult for local communities to switch from PG&E and other investor-owned utilities (IOUs) to municipal-owned utilities (MUNIs) which have been proven to have cheaper rates.
To date, PG&E has been the sole contributor to the Yes on Prop. 16 political action committee (PAC)—contributing a total of $19 million to support the measure as of March 9, 2010. To view the filing for the Yes on Prop. 16 PAC click here.
This brief seeks to summarize what is wrong with Prop. 16 and show how the Prop. 16 uses the initiative process to do the exact opposite of what it was designed to do.
Prop. 16 Supporters State Their Case for the Measure, but Lawmakers Remain Unconvinced
California lawmakers and energy experts blasted Prop. 16 at a legislative hearing held at the Capitol last month with many participants using harsh and colorful language to describe the measure.
Ed Bedwell, a senior director for PG&E, said PG&E introduced the measure to give voters the “right to decide” and believes that the higher 2/3 vote requirement is merited if public funds are at stake.
Lawmakers questioned Bedwell about why PG&E seemed to be all alone in supporting the measure to which he replied “I don’t know that we’re all alone,” noting that SoCal Edison and SDG&E are also potential supporters.
Marc Burgat, vice president of government relations for the California Chamber of Commerce, said the Chamber supports Prop. 16 because it would provide a “higher level of scrutiny” for the use of taxpayer money.
Michelle Pielsticker, vice president and general counsel for the California Taxpayers Association (Cal-Tax), said that Cal-Tax supports Prop. 16 because they welcome the right of taxpayers to decide about the use of such a large amount of taxpayer funds which could lead to higher taxes and fees.
“I think this is a terrible initiative,” said Assemblymember Jared Huffman (D), who noted that the initiative creates a double standard by requiring a majority vote for PGE&E to annex new territory but requiring a 2/3 vote for a MUNI to annex a new territory.
Assemblymember Mark Leno (D) was highly critical of the measure and said he thought it was “astounding” that the California Chamber of Commerce would support a measure that would limit competition in electricity markets.
John L. Geesman, former chair of the California Energy Commission, said he had never seen such an overstepping of corporate power and urged lawmakers to “do what you can to put this mongrel down.”
City and County Supervisor Ross Mirkarimi said he was amazed at the “brazen arrogance” of PG&E in submitting Prop. 16 and compared the company to the tobacco industry in the 1990s when they said “smoking is good for you.”
Summary of Arguments against Prop. 16
Opponents of Prop. 16 have raised numerous arguments against the measure. The following is a summary of arguments against the measure:
Prop. 16 Will Limit Competition in California’s Retail Electricity Market and Serve to Further Solidify PG&E’s Monopoly: Requiring a 2/3 vote of the people to switch to a MUNI provider will make it very difficult for ratepayers to get out from under PG&E’s control of local electricity markets. Such a vote requirement will make it much easier for PG&E to run successful opposition campaigns against such local measures—in effect allowing 1/3 of the population to veto a decision that is likely to be in the public’s interest. The California Association of Realtors voted to oppose Prop. 16, noting that Prop. 16 “is aimed at stifling competition by privately owned utility companies and could result in higher utility bills for homeowners,” according to their website. A Sacramento Bee editorial stated “in recent years PG&E has spent tens of millions of dollars to fend off efforts by ratepayers in San Joaquin, San Francisco, Marin and Yolo counties who’ve tried to form their own public utilities or annex themselves to public power agencies…the constitutional amendment makes it virtually impossible for any jurisdiction to escape the PG&E monopoly.”
Prop. 16 Will Serve To Lock In Higher PG&E Electricity Rates for Millions of Californians: There is an overwhelming body of evidence which proves that PG&E’s electricity rates are higher than MUNIs. Electricity rates are affected by season, usage, and area, but here is a summary of some data comparing PG&E rates to other California MUNIs:
–Chart #1: Compares the average electricity prices of the state’s major investor owned utilities (IOUs) and municipal-owned utilities (MUNIs), including PG&E (IOU), Southern California Edison (IOU), San Diego Gas & Electric, Los Angeles Department of Water and Power (MUNI), and the Sacramento Municipal Utility District (MUNI).
–Chart #2: Compares the average residential electric bill (for 750 kWh) for PG&E (IOU), Southern California Edison (IOU), San Diego Gas & Electric, Los Angeles Department of Water and Power (MUNI), and the Sacramento Municipal Utility District (MUNI).
–Chart #3: Compares the average retail electricity rates by class for 2008 ($/kWh) for PG&E versus the average of IOUs and MUNIs in California.
PG&E’s $35 million Plus Campaign to Pass Prop. 16 Will be Funded with Ratepayer Money, and Likely Lead to Higher Electricity Rates for Existing Customers: “It ought to be illegal to take ratepayer money and use it against ratepayers,” said John L. Geesman, former chair of the California Energy Commission at the legislative hearing on Prop. 16. Geesman noted that media reports have indicated that PG&E is prepared to spend $35 million or more to pass Prop. 16. MUNI providers, on the other hand, are not allowed to use ratepayer money for political purposes. PG&E has proposed an average 8.3% increase in residential rates for 2011, and a corresponding 3.3% to 5.4% increase for business customers, according to the Sacramento Bee. The ballot argument opposing Prop. 16 states that PG&E’s proposed rates increase equates to a $5 billion rate increase for California customers.
Prop. 16 Will Have a “Chilling” Effect on the California Economy: Several contributors at the Prop. 16 hearing said the measure would have a “chilling effect” on the state’s economy by increasing retail electricity rates for residential, industrial, and commercial users, including small businesses and large corporations. Paul Hauser, director of the Redding Electric Utility, said PG&E’s rate structure would require an additional $40 million to be paid in his county, which would come at a terrible time for ratepayers who are struggling with an 11% unemployment rate. Michael Boccadoro, executive director of the Agricultural Energy Consumers Association, and Geesman also noted that Prop. 16 would have a “chilling effect” on California’s economy during these tough economic times.
Prop. 16 Will Serve to Reduce the Use of Renewable Power and Is Bad for the Environment: The Sierra Club has voted to oppose Prop. 16 because it requires a 2/3 supermajority vote before communities can purchase clean power or power from renewable resources. Prop. 16 “is a dagger aimed directly at a movement to enable municipalities to offer renewable green power to their residents in competition with private utilities,” said Michael Hiltzik, a columnist for the Los Angeles Times. PG&E provides less renewable power as a percentage of total sales than it did in 2002, while MUNI providers are well known for their development and use of renewable resources. “It is unacceptable for a company that is falling behind in meeting state adopted goals for clean energy to impede the efforts of others who would attain those goals through innovative means,” wrote Senate Pro Tem Darrell Steinberg and seven other state Senators in a letter opposing Prop. 16.
Prop. 16 Drafting Error May Require a 2/3 Vote of Electorate for Public Agencies to Provide Power to New Subdivisions or Businesses: “Attorneys for the Northern California Power Agency say the way the initiative is drafted may prevent public agencies from providing power to a new subdivision, apartment building or business built within their own jurisdictions without first getting a 2/3 vote of approval from the public,” states the Sacramento Bee. This drafting error was a major reason why the California Association of Realtors voted to oppose Prop. 16.
History Shows that Prop. 16 Uses the Initiative Process for the Exact Opposite of What It Was Designed for
The California Legislature enacted the modern day initiative process in 1911 as part of a package of reforms that were designed to protect the people of California from the unchecked power of the Southern Pacific Railroad Company.
In the late 1800s, Southern Pacific created a political machine, dubbed the “Big Four,” which rivaled New York’s Tammany Hall. The “Big Four” included Leland Stanford, California’s eighth Governor, and reigned strong for nearly 40 years until Republican Governor Hiram Johnson succeeded in beating back the Southern Pacific political machine in 1911—marking the dawning of the Progressive Era.
Southern Pacific was organized right after the Civil War in 1865 but had established monopoly control of shipping goods in and out of California by 1870. Southern Pacific had the power to isolate opponents by withholding goods and controlling shipping rates. The company charged farmers exorbitant rates to ship goods, controlled party politics, and threatened those who dared to get in their way, including journalists, according to historian Spencer Olin.
State lawmakers were given free train tickets from Sacramento to San Francisco and their hotel bills were sent directly to the railroad company. The “Big Four” spent at least $3 million influencing legislation which was a fortune at the time.
Author Frank Norris referred to Southern Pacific as the “Octopus”–a metaphor for the company’s vast network of corruption and unlimited influence. “I saw the Octopus nominate and elect Governors, U.S. Senators, judges….,” wrote Thomas Storke, a long-time publisher of the Santa Barbara News-Press.
Southern Pacific controlled both political parties through their Political Bureau. “Southern Pacific maintained an expert political manager…to see that the right men were chosen…,” according to Norris. Prior to the reforms of 1911, the parties elected their candidates through the convention process which made it easy for the machine to control which candidates were nominated. The direct primary, enacted in 1911, discontinued the practice of parties electing candidates through conventions.
“Scarcely a vote was cast in either house that did not show some aspect of Southern Pacific ownership, petty vengeance, or legislative blackmail,” remarked one Republican State Senator in 1907.
By the turn of the century there was a general belief that Southern Pacific as well as other corporations had overreached their bounds—through political corruption and monopoly control of markets. Reforms were discussed that sought to give power back to the people. Southern Pacific was “the greatest single influence operating in California politics,” according to Spencer Olin.
Both parties nominated progressives in 1911. Republican Hiram Johnson beat his Democratic opponent rival Theodore Bell. As Governor, Johnson quickly made good on his campaign promises—even mentioning Southern Pacific four times in his inaugural address.
Johnson spearheaded the effort to pass a series of progressive reforms through the California Legislature. Johnson asked the Legislature: “How best can we arm the people to protect themselves hereafter?” His answer was a package of major constitutional reforms that included the initiative, referendum, and recall processes that were passed by the California Legislature in 1911, according to historian Gladwin Hill.
The constitutional amendments were supported by both Republicans and Democrats; the direct democracy legislation passed the Assembly on a vote of 106 to 1. President Theodore Roosevelt described Johnson’s reforms as “the most comprehensive legislation ever passed at a single session of any American legislature.”
Conclusion
California’s initiative process was designed to serve as an added check to corporate greed and corruption by giving California voters a direct way to participate in the democratic process.
On its face, Prop. 16 may appear to some voters to benefit them by setting a higher bar, namely requiring a new 2/3 vote requirement for the use of taxpayer funds, however, a closer examination of the measure reveals that Prop. 16 is not really about protecting taxpayers at all.
PG&E, through Prop. 16, is trying to use the California initiative process to further solidify their monopoly of regional electricity markets and advance their own narrow corporate interests at the expense of all Californians.
Hopefully California voters will see through this veiled attempt to use the initiative process against the public interest.
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