The billion-dollar rate hike

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EDITORIAL Nobody wants to pay higher electric rates, but the real issue about Pacific Gas and Electric Co.'s new rate hike is its impact not just on residents and small businesses, which will bear the brunt of it, but on the Northern California economy as a whole. And figures we have received from the California Public Utilities Commission show that the hit will be close to $1 billion.

The San Francisco supervisors need to demand a comprehensive study of how the city's economy will directly suffer.

A little background: In 2002, Irwin Kellner, an economist at Hofstra University in New York, did an analysis of how public power on Long Island affected the region's economy. His research showed that the Long Island Power Authority, which had replaced a private power company four years earlier, had reduced rates by 20 percent — and that had injected $2 billion into the Long Island economy. The lower rates "helped Long Island stave off the effects of a national recession and the terrible events of Sept. 11 [2001]," Kellner concluded (see "The $620 Million Shakedown," 9/4/02).

The reason is simple: when residents and small businesses have lower electric bills, they tend to spend that money locally — and since local spending tends to generate more local spending, every dollar that's spent in a local economy has an impact of as much as $5.

On the flip side, if private utilities raise rates, they tend to suck money out of the local economy and ship it to out-of-town investors, subsidiaries, and projects.

We used Kellner's model — with his consent and guidance — and concluded at the time that PG&E's rate hikes had cost the San Francisco economy $620 million. The Board of Supervisors, at the request of Sup. Chris Daly, asked the city controller to pursue this issue, review our work, and release an official report on the impact of high PG&E rates on San Francisco.

No report was ever issued.

Fast-forward to 2007, when PG&E has announced that it's raising rates on residents and small businesses. (Many big customers will get a rate reduction.) Figures we obtained from the CPUC's Division of Ratepayer Advocates show that the rate hike will cost residents $121 million per year and small businesses $74 million per year. Together, that's a $195 million annual hit. According to Kellner's formula, which multiplies that annual cost by five, the total impact on the Northern California economy will be $975 million — almost $1 billion per year.

The State Legislature ought to commission a study on how this will affect employment, tax revenues, and other key economic indicators. San Francisco, a city that still hasn't fulfilled its historic public power mandate, should do the same thing. The supervisors should ask the controller to explain why Daly's request was never honored — and demand a full, detailed report on the economic impact of this damaging rate hike, with a deadline. And if the controller can't do it, they should assign it to Budget Analyst Harvey Rose.