PITTSBURG -- The city-owned power company here delivers no electricity to its residents, but it has given Pittsburg's budget a jolt over the years.
Since its founding in 1996, four projects by the Pittsburg Power Co. have generated nearly $30 million that the city has spent in an array of areas, including economic development and other community investments, according to General Manager Garrett Evans. The investments have included an auto mall, a community arts nonprofit and a downtown restaurant that recently closed.
But with the city facing tough budget cuts in coming years, a former Pittsburg leader is one of those questioning whether more money should be spent on core services.
Some investments made with power company money have been frivolous and out of step with the goals of city leaders who created the company, argues Joe Canciamilla, who was mayor when the city created the company to leverage its location as a nexus on the power-transmission grid.
"The goal of at least past City Councils for the power company was to provide the city with a diversified income stream so when the city hits bad times that we would have a revenue stream," said Canciamilla, who is also a former county supervisor and state Assembly member. "The money wasn't meant to be used as a piggy bank to fund failing projects."
Canciamilla said that he hasn't brought his concerns to City Manager Marc Grisham or the City Council because he thinks it would have no effect.
Although Pittsburg is projecting a balanced budget through June 2012, a recent report by Finance Director Tina Olson estimates that the city could have a $34.3 million deficit over the next 10 years. The city has $7.3 million in reserve to help reduce deficits.
The power company has slightly more than $1.82 million in uncommitted reserves, Evans said.
The largest single economic development venture by the power company was a $6 million plunge into Century Auto Mall at the eastern edge of the city. The mall opened in 2004 after three years of planning.
The investment helped an existing Chevrolet dealership relocate from an outmoded facility on Railroad Avenue. It also lured a Pontiac-Cadillac dealership from Antioch.
Winter Chevrolet-Honda has survived the auto sales downturn, but Mazzei Pontiac-Cadillac went under, with owner Matt Mazzei abandoning his obligations under the deal.
The nearly new building has been vacant since mid-2009, and Pittsburg sued Mazzei in September 2009 to try to recover some of its investment.
The power company paid $300,000 in tax incentives to Mazzei and in compensation to Antioch, where the dealership was formerly located, said Pittsburg Councilman Ben Johnson.
Johnson called the Mazzei investment a "lost cause." The city is now having problems with vandalism and theft at the vacant dealership, he said.
"They moved one business that was already viable, Winter Chevrolet, and they've never been able to attract any other dealerships," Canciamilla said.
The city hoped to attract up to 12 dealerships to the mall, Pittsburg Economic Development Director Brad Nail said in 2005.
Former Councilwoman Mary Erbez, who served alongside Canciamilla when the power company was created, said she thinks the auto mall idea was good, but Pittsburg officials may have been victims of bad timing when they began the project.
"An auto mall is a big producer of sales taxes, but nobody expected the bubble to burst," Erbez said.
Despite losing Mazzei, the mall has been a good investment, said Grisham, the city manager.
Grisham said he can't reveal how much sales tax comes from the mall's two dealerships, because they are operated by the same owner.
"We're not allowed to release information on individual sales-tax providers," he said.
He said, however, a dealership typically pays $350,000 to $400,000 in sales tax to a city annually in a normal economy.
The city owns the roads and water and sewer lines serving the mall, but not the land or buildings, Grisham said.
Restaurant investment
The City Council recently voted to use Pittsburg Power Co. reserves to buy out the owner of 615 Restaurant in the city's revived downtown for $100,000, taking over $818,100 in loans that it granted in its role as the city's redevelopment agency.
Grisham said the restaurant is also a good investment, allowing the city to take over improvements paid by the seller. Taking ownership of the restaurant, which closed this year, will allow the city to keep it operating in perpetuity, guaranteeing another attraction in Pittsburg's once-moribund downtown, he said.
There has been considerable interest from restaurant operators in leasing the space, he said.
But former planning commissioner Frank Gordon called using power company reserves to take over 615 inappropriate, throwing good power company money after bad redevelopment money.
"They loaned a restaurant operator some money and ended up with the building," Gordon said. "They now have less in a piece of property than what that loan was for."
Canciamilla also criticized the 615 deal and questioned a gift of $150,000 to the city's Arts and Community Foundation to open a bookstore in the Vidrio housing and retail redevelopment project.
The foundation, which has sponsored literacy programs and other cultural amenities, has received its primary funding from the redevelopment agency.
"Programs are always lovely, but is this an appropriate use of funds that are nonrenewable resources?" Canciamilla said.
Antioch resident Lori Anzini, who served with Canciamilla on the Pittsburg council in 1996, credited city leaders with keeping power company revenues apart from redevelopment in the past.
"Pittsburg has been very smart in keeping its eggs separated," Anzini said.
Johnson, the Pittsburg councilman, said he has no problem with the city using power company revenues for projects not related to balancing the city budget. As a joint powers authority, Pittsburg Power Co. can spend its revenues to promote economic development or a host of other community improvement goals, he said.
"The power company and the general fund are not like glue," Johnson said.
Power company money has been used for a variety of projects, including $2.2 million for dredging at Pittsburg's marina, $1.2 million for renovations to Central Park, and smaller amounts for street repairs, tree trimming and storm drain improvement. About $3.25 million has gone toward administration.
Powerful idea
The idea for the power company came when the Modesto Irrigation District offered to buy excess power from a couple of Pittsburg plants operated by Dow Chemical and Praxair, Evans said. The city discovered that it could set up a separate entity using a municipal utility-like structure, taking the excess power and running it through a transformer onto the power grid.
In succeeding years, Pittsburg Power Co. bought the power company on Mare Island in Vallejo from the federal government for $50,000, later reduced to $1.
Island Energy has been a break-even proposition for the city, Evans said, but a pair of power plants created through joint ventures have been lucrative.
The power company typically uses its rights of way in the city and negotiates with other landowners for other rights of way for energy-transmission lines from power plants to PG&E's Pittsburg substation, where the power goes on the grid, Evans said.
The power company helped create a total of 1,417 megawatts of power capacity with the Los Medanos Energy Center and Delta Energy Center in Pittsburg, both operated by San Jose-based Calpine.
The city received 60 percent of the profits from the Los Medanos Energy Center deal, totaling $15.6 million, as well as $11 million for park construction, a truck bypass road and payments to a benefits district. Pittsburg will get $16.9 million in payments over 25 years from the Delta Energy Center deal.
Pittsburg Power undertook another joint venture beginning in 2005, working with Australian engineering firm Babcock & Brown to lay an electricity cable beneath the bay to San Francisco.
The cable, which went into operation in November, sends excess electricity from the state power grid from Pittsburg to San Francisco.
Under a settlement agreement negotiated in November with the cable's current owner, San Francisco-based SteelRiver Infrastructure Partners, the city will receive $900,000 annually for 40 years.
Pittsburg Power is now looking into an opportunity to invest in a power transmission line in the Bakersfield area.
"It's another transmission project to improve grid reliability and relieve some of the congestion issues," Evans said.
Contact Rick Radin at 925-779-7166.
