Free Speech

Why a MUD is a Bad Idea

by Darren Seaton

Proponents of a San Francisco Municipal Utility District (MUD) describe their scheme for taking over the city's electricity distribution system as a way to reduce rates and provide better service.

The facts, however, do not support this conclusion.
True, a few municipal utilities do enjoy lower rates than what San Francisco customers get. But many others have had to drastically increase rates because of the current energy crisis. The ones with lower rates were formed years ago. They either own their own generation facilities or have locked in long-term contracts for low-cost electricity. A MUD, per se, does not mean lower rates.

A newly formed municipal utility district, such as the one proposed for San Francisco, either would have to build its own generation facilities (which would take three to five years) or purchase power on the spot market, where MUD customers would pay for electricity just like everyone else - through the nose.

In fact, forming a MUD bears its own set of expenses, beyond the cost of simply acquiring electricity. A San Francisco MUD, for example, would have to pay PG&E a fair market value for the equipment - the power lines, poles and substations - needed to distribute electricity to each individual customer. The exact cost of acquiring these assets, under the procedure for creating a MUD outlined in state law, won't be known until a full audit is completed -- well after the takeover process has passed the point of no return. Conservative estimates, though, place the value of PG&E's distribution system in San Francisco at about a billion dollars.

MUD advocates acknowledge this burden and have stated publicly that they intend to finance the acquisition of PG&E's assets through the sale of revenue bonds. Meeting the obligation of principal and interest payments to investors would, of course, fall to the directors of the MUD, who would simply pass on the cost of servicing this tremendous debt, along with the cost of the electricity and running the utility, to the ratepayers.

Given these circumstances, which even the most ardent public power advocate cannot dispute, a MUD is an idea whose time has passed. Most successful utility districts emerged decades ago, built from the ground up, and became popular because they could take advantage of surplus federal power, available at low cost. Cheap federal power is not available today except, perhaps, in the minds of MUD proponents.

Increased costs, though, represent only one of the problems spawned by municipalization. Creating a government utility presages a whole new layer of bureaucracy, as well as hiring a corps of workers - lineman, troubleshooters, maintenance and repair crews, emergency service workers, billing clerks and customer service representatives, to name but a few - all of whom require training. The burden of their mistakes, and the associated cost, becomes the responsibility of the public agency and, ultimately, the ratepayers.

Moreover, the State Legislature has given every indication that it intends to get into the power business itself. By November, when San Francisco voters will address the question of creating a MUD for themselves, the matter could well be moot, overtaken by state action.

In the meantime, though, city officials could do much to reduce the tremendous strain on the state's power grid. Strong conservation measures, for example,would help immensely today, not months or years down the road.

As a result of this shortsighted rush to the ballot, San Francisco and Brisbane voters have before them in November a costly plan that fails to solve the crisis at hand. They should soundly reject it.

Darren Seaton is a representative of Citizens for Affordable Public Services, an organization opposed to the creation of a Municipal Utility District in San Francisco.