Proposition 16 is an initiative sponsored by PG&E that would add new provisions to the California Constitution.

Vote Requirements of Proposition 16

Under Proposition 16, creation of a public utility or initiation of community choice aggregation program would require 2/3 approval by voters in the area to be served. Expansion of the service area of an existing public utility would require separate elections by (1) the voters in the public utility’s current area of service and (2) the voters in the proposed new area of service, with 2/3 of the voters in each election approving the proposed expansion of service.

“Public Money” in Proposition 16

The higher voter requirements of Proposition 16 apply if a local government uses “public funds,” defined very broadly to encompass all sources of money available to government. So, a government undertaking electric service would probably always be using “public funds” and be subject to the vote requirements of Prop 16, unless the proposition’s exceptions applied.

Borrowing for local public utilities or community choice programs would typically be done via revenue bonds, or bonds backed by the revenue stream provided by electricity customer payments. Such bonds are not backed by a local government’s general fund and are not now approved by voters. Proposition 16 would require voter approval of the local electricity venture before these ratepayer-backed bonds could be issued.

Community Choice Aggregation

In 2002, the legislature passed AB 117 (Migden), allowing California communities to form Community Choice Aggregation (CCA) programs to choose alternative electric service providers for the whole community. The bill garnered strong legislative approval (72.5% Senate, 80% Assembly) and was supported by PG&E even though the statute required them to cooperate fully with CCAs. One reason for the strong support of this legislation was that it was seen as a way to encourage communities to be innovative in providing more clean energy. 

Here’s how a CCA works. One or more communities decide they want to form a local energy cooperative, and get approval from the governing boards of the relevant local governments. Following extensive planning to insure supply of the electricity needed for the whole community and fulfillment of legal requirements, the CCA is certified by the California Public Utilities Commission and can go into business. It is the CCA that enters into contracts with electric service providers to deliver the communities’ electricity. But, that electricity is still delivered over transmission lines owned and maintained by the investor-owned utility (IOU). The IOU also continues to handle customer service and billing for CCA customers.

Two CCA programs have been certified, the San Joaquin Valley Power Authority [2] in April 2007 and the Marin Energy Authority [3] in April 2010, and there are other communities [4] in various planning stages. The San Joaquin program never actually went into business and suspended its attempts last summer due to a tight credit market, volatile energy prices, and other concerns.  The Marin program (MEA) plans to start serving some customers in May 2010, offering nearly double the ratio of renewable energy at the same or lower cost as PG&E is now charging. (PG&E delivered 14.4% renewable energy in 2009, and MEA is targeting 25% renewable.)  MEA also plans to offer 100% renewable energy at a cost of about one cent more per kilowatt hour.

The reasons cited for forming community choice programs include the following:

• increased reliability of power, energy independence,  local control
• increased renewable energy supply, reduced greenhouse gas emissions
• improved price stability, lower cost
• improved local economy from new local renewable energy projects

For more information about CCAs, see the websites of the Marin or San Joaquin Authorities.

CPUC Tightens Utility Regulations

At its meeting on April 8, the California Public Utilities Commission (CPUC) adopted some tougher rules that aim to block certain uncooperative practices by investor-owned utilities.
The new rules will:

• Prevent utilities from refusing to sell electricity to CCAs (community choice programs).
• Prevent utilties from offering incentives to local governments not to participate in a CCA.
• Prevent utilities from soliciting opt-out requests before customers have information from the CCA that is necessary for an informed decision about electric service options.

The original legislation authorizing CCAs established that energy customers would be automatically included in the local energy cooperative unless they chose to opt out and continue buying electricity from the investor-owned utility.

Renewable Energy Requirements

State law sets a target of 20% of our electricity being generated from renewable energy sources by 2010. A 2008 executive order by the governor set an additional target of 33% renewable energy by 2020. Although the specific requirements vary for different types of electric providers, all are being encouraged to increase their generation or procurement of renewable energy, in order to help achieve the state’s ambitious targets.

Authority for Government-Owned Public Works

The California Constitution (Article 11, Section 9 [5]) establishes that cities may form a municipal corporation to “…operate public works to furnish its inhabitants with light, water, power, heat, transportation, or means of communication.” The city may also regulate private persons or corporations that are supplying those services. Prop 16 singles out one type of public works–power, and places a new restriction on cities’ authority to oversee the delivery of just that one service to its inhabitants.