In 1934, the Hetch Hetchy system brought water to San Francisco, and Hetch Hetchy had been generating power for some time. Its power transmission lines never reached beyond PG&E’s Newark substation. PG&E received this power and delivered the same amount into San Francisco on its distribution system – at a profit.

By 1940, San Francisco was selling over 5 million kilowatt hours a year to PG&E. This had been going on since 1925, under a contract that was in direct violation of the Raker Act. Voters rejected eight bond issues between 1927 and 1941 that were intended to fund development of a municipally-owned power system.

And the controversy continued – for decades – albeit not profiled by the pro-PG&E daily press.

The problem of how much revenue expected from the sale of Hetch Hetchy power during the next fiscal year became larger than ever in the minds of Mayor Rossi and other City officials preparing the new City budget at the time. In anticipation of a government approval of the proposed City-PG&E power lease, Mayor Rossi had estimated the lease would yield $2,671,584. Any reduction in that figure must be met by a corresponding increase in the new tax rate.

The Mayor’s worries became acute when he was advised that Secretary of Interior Harold Ickes did not approve “Plan E,” which City officials submitted in the hope that it would comply with the terms of the Raker Act. Under “Plan E” the City proposed to lease the PG&E system for municipal distribution of Hetch Hetchy power.

Ickes made public a letter to Mayor Rossi (which the mayor has not yet received) listing his objections. This confirmed predictions that were published in the news the previous week. Of “Plan E,” Ickes wrote, “I am not satisfied that it constitutes substantial compliance in good faith with the letter and spirit of the Raker Act as construed by the Supreme Court.”

The court held that “the grant to the city was made upon the mandatory condition that this power be sold solely and exclusively by the city directly to the consumers and without private profit in order to bring it into direct competition with adjacent privately-owned utilities.'”

The court held that “the regulatory conditions were designed to insure distribution of power from Hetch Hetchy through a municipal system in San Francisco…” with the belief that consumers would thus be afforded power at cheap rates in competition with private power companies, particularly PG&E.” So stating, Ickes added he would call an open hearing on the whole matter, at which City officials and “other interested parties” could appear. While Mayor Rossi worried about the budget, Public Utilities Manager Cahill became belligerent. “As far as I am concerned,” he said. “I favor signing the lease with the PG&E and letting Ickes take it to the courts.”

“The Raker Act granted the city public domain rights to develop the Hetch Hetchy system. It specifies that the power must be distributed municipally. PG&E has been paying $2,400,000 for the power under a so-called agency contract. This was ruled illegal by the Supreme Court, but an extension of time to June 30 was given so the City could prepare a substitute plan. This was “Plan E.”

Since the conference with Ickes would have probably taken place when the deadline expired, Mayor Rossi was hopeful that another extension would be granted and the City would still be collecting the $2,400,000.