DATE: September 15, 1998
TO: Board of Supervisors
SUBJECT: OPPOSITION TO PROPOSITION 9, THE 1998 ELECTRIC UTILITY INITIATIVE

SUMMARY:
Issue/Reference:
Approval of this Board letter will express the Board of Supervisors' opposition to the proposed initiative entitled "The Utility Rate Reduction and Reform Act" which will be included on the November 3, 1998 State election ballot.

Recommendation:
SUPERVISOR SLATER and SUPERVISOR JACOB
Adopt the attached resolution expressing the Board of Supervisors' opposition to Proposition 9, "The Utility Rate Reduction and Reform Act."

Direct the Chief Administrative Officer to draft a letter for the Chairman's signature to be sent to the California Secretary of State asking that the Board's opposition to Proposition 9 be included in any official publications concerning this initiative which are printed or distributed to California voters under the direction of the Secretary of State.

Fiscal Impact:
If approved, this request will result in no additional costs or staff years.

BACKGROUND:
In August, 1996, the California State Legislature unanimously passed bipartisan legislation (Assembly Bill 1890) to restructure California's electricity industry. The comprehensive process leading up to the passage of this law included participation by consumer advocates, large and small businesses, local governments, labor organizations, energy experts, environmental organizations, and energy providers. As a result of the law, investor-owned utilities were required to cut electric rates for residential and small commercial customers by ten percent beginning in January, 1998. Electric rates are projected to decrease further once the transition period ends and the electricity market is open to full competition.

Since the passage of the law, an initiative has been drafted which will appear on the November 3, 1998 State election ballot as Proposition 9. This electric utility initiative would eliminate key provisions of the law which are needed to ensure customer choice and the potential for lower electric rates. Although Proposition 9 proposes to require California's investor-owned utilities to reduce electric rates by twenty percent, the initiative offers no specific method to accomplish the reductions without harming ratepayers and taxpayers.

Proposition 9 also attempts to invalidate $7 billion in bonds that have already been sold. As part of the transition to a competitive electricity market, utility companies were given a limited period to recover some of the capital costs incurred prior to the electricity industry's restructuring. To recover these costs and provide ratepayers with immediate savings, the State's Infrastructure and Economic Development Bank authorized the issuance of $7 billion in bonds. Passage of the initiative will prevent utilities from recovering capital costs associated with certain power plants. Proposition 9 is also expected to impair the bonds which have been issued and result in years of litigation between bondholders, bond sellers, investor-owned utilities, taxpayers, and the State of California. California taxpayers will be ultimately responsible for repaying the $7 billion to bondholders.

Proposition 9 is opposed by numerous organizations, including the California Taxpayers Association, the Natural Resources Defense Council, the California Labor Federation, the League of California Cities, the California Teachers Association, the California School Boards Association, the Consumers Coalition of California, the California Chamber of Commerce, and the California Small Business Association.

We urge you to adopt the attached resolution opposing Proposition 9 and support the current efforts to establish a competitive energy marketplace throughout California.

Respectfully Submitted,

PAM SLATER
Vice-Chairwoman

DIANNE JACOB
Supervisor, Second District