COSTS

The CCA proponents have estimated the costs of new Green Power and have used these estimates to project a savings over time vs. their projection of PG&E electricity costs.

PG&E has disagreed with these estimates and has provided their own substantially higher estimates for the costs of Green Power and have disagreed on the availability in the market.

Fundamentally, the costs to construct and operate new Green Power generation facilities will be whatever they will be - no matter what organization conducts the activities. There may be small differences in the cost of union or non-union labor and related pension costs, but these should not be significant.

The only plausible reason for a reduction in costs for new production is that the CCA proposes to construct new facilities using Tax-Free Revenue Bonds, avoid the requirement for a PG&E Profit, and benefit from temporary government subsidies from some types such as solar power.

However, there are also plausible additional costs, including Buy Out costs associated with idling existing PG&E capacity before it has been fully amortized. The amount of this buy out will depend upon the rate at which such facilities are idled.

The long term validity of such differences is worthy of analysis.

PROFITS

Fundamentally, the undertaking of any activity involves risk. For private industry, the expectation of a profit is the motivation for taking the risk. Further, the magnitude of that risk is usually related to the degree of risk, i.e. people do not undertake a risk unless there is a comparable potential profit.

Note that the risk involves the notion of loss as well as profit, and the potential of loss involves not only the potential of loss of profit but also the loss of investment.

Thus, although the CCA may set consumer rates which forgo profit considerations, the CCA must still accept the risks of loss of investment.

While this may not be passed on to individual subscribers to the CCA, such a loss would have a major detrimental effect on the community for then some other fall back method would need to be used to provide the power.

As a lesser point, to the extent that PG&E will make less profit they will also pay less taxes - which will have to be made up by an increase in some other taxes to keep our standard of government the same.

NON-TAXABLE REVENUE BONDS

Both Municipal Bonds and Revenue Bonds are non-taxable. However, the use of Municipal Bonds would require that the Good Faith of the community be used as collateral. Since that would not be possible, and also might not be acceptable to the community, the CCA proposes to use Revenue Bonds.

Revenue Bonds rely solely on revenues for their interest payments and ultimate repayment without any collateral from the community served.

Accordingly, since there is more risk, they require a some what higher interest rate.

For those who are trying to improve our society by the promotion of Green Power, it is perhaps appropriate to acknowledge that the use of tax-free bonds for that purpose has no net financial benefit to our society. The taxes that would have been paid on the interest from taxable bonds will have to be paid out of our pockets by other means. The only benefit is limited to our community - at a cost to those in other communities which do not do so - in effect legally cheating those other tax payers.

Lastly, note that the use of tax-free bonds will be limited to those facilities which are constructed and owned by the CCA and will not apply to that portion their supply system that is provided by commercial sources.

ADMINISTRATION

The CCA will incur substantial administrative costs, including a substantial capital investment in start-up costs prior to receiving any revenue.

Since it will utilize many small contracts it should be expected that these costs will be greater than the related PG&E costs for larger facilities and larger contracts.

However, should PG&E initiate similar services from small suppliers they would likely incur similar costs.

As a result, their is no dis-advantage, or advantage, to the CCA relative to this issue.

GOVERNMENT SUBSIDIES

While government subsidies of certain types of Green Power may have a significant effect on near term costs, it should be remembered that the creation of a CCA is a long term commitment - during which these government subsidies will more than likely be discontinued.

BUY OUT COSTS

Prior to deregulation, PG&E did construct energy production facilities in anticipation of selling their energy to the public as a whole. Further, the rates that they were allowed to charge its customers were based upon amortization of those facilities over their useful life, usually 20 or more years.

PG&E has also entered into long term purchase contracts in anticipation of continued sales to its current customers.

To the extent that CCA participants do not buy power from as yet incompletely amortized units there will be a penalty to cover the residual amortization. The same will be true for incompleted future purchase contracts. The amount of this penalty will be very difficult to determine, involving such factors as PG&E's capability of selling power from them to others, or completely sell the units to others. (Only the lawyers will win this one.)

Incidentally, the CCA draft also acknowledges that individuals that have joined can not back out and return to PG&E power without a lengthy waiting period (greater than one year) and that even then they would have to pay a BUY OUT fee to the CCA who would by then have already made investments expecting them to continue.

As another point, there is no statement as to whether joining the CCA is a personal commitment, or a commitment against the property. Does the commitment remain and pass on to your buyer if you sell your house?

Will there get to be a "futures market" to trade commitments, or lack thereof, when houses sell?

STARTUP COSTS

The CCA draft report indicates that there will be a need for $15,800,000 capitalization for start up costs. Accordingly, the CCA rates will be set somewhat higher than the PG&E rates for the first few years in order to write off this start-up expense.

COST COMPARISONS

The CCA report compares its projected costs, using a mix of both new contract procurement and new CCA owned facilities, with their projections of PG&E future costs.

So doing assumes that PG&E does nothing to promote Green Power.

The more appropriate comparison is the cost of CCA producing Green Power, including Buy Out costs, vs. PG&E producing Green Power - probably at a slower rate and with little or no loss of amortization costs or costs due to incompleted future purchase contracts.

Those considering joining the CCA should be aware that the costs of Green Power are highly unpredictable, as evidenced by the difference in projections by the CCA proponents and PG&E. Accordingly, the only fair comparison is to look for why costs might be different, not at their absolute projected values.