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Home My WebLink About05/21/1996, C-7 - RESOLUTION CONCERNING IMPACTS OF ELECTRIC UTILITY INDUSTRY RESTRUCTURING council %21/96 j acEnaa nEpout CITY OF SAN LUIS OBISPO FROM: John Dunn, CAO Prepared By: Ken Hampian, ACRO SUBJECT: Resolution Conceming Impacts of Electric Utility Industry Restructuring CAO RECOMMENDATION Adopt a resolution urging PG&E,the California Public Utilities Commission,and the State Board of Equalization to work with the County of San Luis Obispo to develop alternatives for mitigating the impacts of the proposal concerning the valuation of PG&E holdings around the State. DISCUSSION During the meeting of All-City Councils held on April 25, 1996, a resolution was proposed by the County of San Luis Obispo regarding the impacts of restructuring the electrical utility industry in California, including accelerating depreciation. The resolution proposed by the County was amended in a motion for adoption. While the motion failed to attract the support of a majority of cities voting, the San Luis Obispo City Council voted in favor of the amended resolution (3/2). Because of the Council's support for the resolution, it is offered for adoption as amended. Attachments Memo from County Administrator Proposed Resolution ITE... NO. 4 County of San Luis Obispo COUNTY GOVERNMENT CENTER,RM.370■SAN LUIS OBISPO,CALIFORNIA 93408■(805) 781-5011 April 17, 1996 go OFFICE OF THE COUNTY ADMINISTRATOR To: Representatives Attending All Cities Meeting Re: Resolution Asking Pacific Gas & Electric Co. To Address Community Impacts Most of you will recall recent news coverage of a PG&E proposal to write-off the value of the Diablo Canyon Nuclear Facility on an accelerated basis and to sell out-right or accelerate write-off on its oil- or gas-fired generating plants as well. PG&E has made this proposal in the context of a number of maneuvers before the California Public Utilities Commission in response to the Commission's decision to pursue a restructuring of the electric utility industry in California. One effect of these proposals will be to reduce the amount of property taxes paid by PG&E. Those reductions come at the expense of several local agencies including school districts, the harbor district, the library and the county itself. Briefly, PG&E's property is treated differently than other private property for purposes of levying property taxes. The whole of PG&E property is valued as a "unit" across the whole service territory of the company. The determination of value for property tax purposes and the subsequent apportioning of it back to the counties is accomplished by the State Board of Equalization in Sacramento. The more utility holdings in the county the greater the value apportioned to the county and of course the more property taxes collected. In our case the value of the two power plants along with the rest of PG&E assets in the county is very significant. There are obviously other utility assets in the county. The Gas Company for example has value here. But on the whole the PG&E assets far outweigh any others. Almost 92% of all the unitary value in this county is PG&E property. Just how important is this change to the County and other local agencies? I happen to think that it is more significant than the PG&E leadership has indicated. The PG&E managers in estimating the impact made certain assumptions. Those assumptions limited the estimate to changes dealing with Diablo Canyon power plant only. They assumed no change in depreciation for Morro Bay or other assets and they assumed that no plant would be sold. These assumptions tend to minimize the estimate of financial impact on local agencies. Change the assumptions and the loss becomes more severe. For instance the estimates considered "no change" in circumstance for the Morro Bay Generating plant. We know, however, that the Company has proposed to accelerate the write-down on half its oil and gas plants and sell the rest outright. That will have an impact not shown in the PG&E estimates. C7 7 2 These reductions would also come in violation of an agreement entered into by all the counties in the state, the utilities, and the State Board of Equalization in 1992. That agreement stabilized these taxes when procedures of the State Board of Equalization were called into question. In addition to that agreement PG&E management entered into a separate agreement with San Luis Obispo County that acknowledged the seriousness of the issue and spread these adjustments over ten years. We are now about midway through that agreement period. I think the issue may even run deeper than that. When PG&E located the nuclear plant here years ago they created certain expectations in the community for creation of jobs, tax base and a long-term asset to the community. The accelerated write off might just place the management of PG&E in San Francisco in the position shut down the plant outright. The share holders would be protected at that point if a decision to close were made, but our community's economy and the folks holding related jobs would not. So how bad is it? The impact on public agencies would increase over five years to a loss of about $9.6 million annually. Of that annual loss, about $3.3 million would fall to the county each year. In order to get an idea what that means, the amount is about three quarters of the entire Library budget, or 85% of the County Fire Protection budget. To the county government our loss is very serious when the true amount of discretionary money is considered. Our discretionary funds are about $20 million. This loss takes almost a quarter of those funds. We have discussed these issues with PG&E and remain open to working with them to minimize the impacts. I hope the leadership of PG&E will find it in the interest of the company to work actively with the County on this as well. In that regard, I hope you will support and encourage that work through adoption of the proposed resolution. Respectfully submitted, Robert E. Hendrix County Administrator c: Members of the Board of Supervisors 7_3 RESOLUTION NO. A RESOLUTION OF THE CITY OF SAN LUIS OBISPO ASIUNG PACIFIC GAS & ELECTRIC, THE CALIFORNIA PUBLIC UTILITIES COMMISSION AND THE STATE BOARD OF EQUALIZATION TO ADDRESS THE COMMUNITY IMPACTS OF ITS PROPOSAL CONCERNING THE VALUATION OF HOLDINGS AROUND THE STATE The following resolution is hereby offered and read: WHEREAS, the State of California Public Utilities Commission (PUC) has ordered the restructuring of the electric industry in California; and WHEREAS, the Pacific Gas and Electric Company (PG&E), in response to this order, has submitted a proposal to the PUC which includes both the concept of accelerating the depreciation on the Diablo Canyon Nuclear Facility (Diablo) and, in addition, the selling outright or accelerating the depreciation on its oil- or gas-fired plants as well; and WHEREAS, one effect of this proposal will be to significantly reduce the amount of property taxes paid by PG&E, which will come at the expense of several local agencies including school districts, the harbor district, the City-County Library and County Government; and WHEREAS, in estimating the financial impact of its proposal, PG&E management made certain limiting assumptions which had the effect of artificially minimizing the full scope of the impact on local agencies, which would increase over five years to a loss of about $9.6 million annually; and WHEREAS, the proposed reductions may violate an agreement entered into in 1992 by all of the counties in the state, the utilities and the State Board of Equalization (SBE), which stabilized taxes when the valuation procedures of the SBE were called into question; and WHEREAS, a separate agreement was created by PG&E with San Luis Obispo County which acknowledged changes in valuation procedures, the seriousness of the property tax loses resulting from them and spread the resulting adjustments over ten years, which said agreement is only midway through its term. NOW, THEREFORE, BE IT RESOLVED by the City of San Luis Obispo that PG&E, the California Public Utilities Commission and State Board of Equalization is urged to work with the County to develop alternatives for mitigating the impacts of their proposal on the County and the community. On motion of seconded by and on the following roll call vote: AYES: NOES: ABSENT: the foregoing resolution of appreciation was adopted this day of 1996. e-7 1 Resolution No. Page 2 - _ Allen K. Settle; Mayor ATTEST: Kim Condon, Assistant City Clerk APPROVED:, ff gen _n, mey