local power

4281 Piedmont Avenue

Oakland, California 94611

February 10, 2003

President Michael R. Peevey

Commissioner Loretta M. Lynch

Commissioner Carl W. Wood

Geoffrey F. Brown

Susan P. Kennedy

California Public Utilities Commission

505 Van Ness Avenue

San Francisco, CA 94102

Re: Docket # R.01-10-024, Order Instituting Rulemaking to Establish Policies and Cost Recovery Mechanisms for Generation Procurement and Renewable Resource Development

Dear Commissioners:

According to the schedule established in Decision No. 02-12-074, Local Power hereby submits these comments on the long-term procurement plan outlines submitted by the respondent monopoly electricity utilities (“monopolies”) on February 3, 2003. While substantive discussion in the monopolies’ February 3 filings is very limited, Local Power will more thoroughly address substantive issues relating to long-term resource planning in testimony to be filed on June 2, 2003.

Local Power is a service list participant in your current proceeding on long-term procurement plans recently filed in outline form by the state’s three monopolies, R:01-10-024.

This is the first time that Local Power has submitted comments in this proceeding. Our credentials and purpose are as follows:

I. Credentials

A. Inventors of Community Choice. Local Power staff authored the California Community Choice of Energy law of 2002, Chapter 838, after co-authoring, also, the nation’s original Community Choice bill, Massachusetts Senate bill 447 on January 4, 1995 (preserved intact in the subsequent 1997 energy industry Restructuring law in 1997 with local control also of a pro rata share of ratepayer-financed energy efficiency funds enabled for a similar non-bypassable surcharge-based state subsidy program), advised in the drafting of Community Choice laws in Ohio (1999) and New Jersey (2003), and drafted California’s new Community Choice law for Assembly Speaker Pro Tem Fred Keeley (finally declined to sponsor, 2000) and then Assembly Member Carole Migden (AB48x, AB9xx of 2001, AB117 2002), which was passed by the legislature and signed by the Governor on September 24 as Chapter 838 of 2002. Local Power has also assisted, observed and published articles about aggregation efforts that has been undertaken in recent years as part of its American Local Power Project, a national 501c3 project to educate public officials about Community Choice.

B. Inventors of “Community Power.” Local Power is not only uniquely qualified to speak for the interests of Community Choice Aggregators in California; it has also developed models and passed a major San Francisco city charter amendment to allow the use of municipal revenue bonds to finance renewable energy, conservation and energy efficiency. As author of San Francisco’s 2001 Proposition H, Local Power has broken new ground for Community Choice with a plan announced by Supervisor Tom Ammiano in May, 2001 to use aggregation and revenue bonds to finance construction of a solar photovoltaic power system into San Francisco’s rooftops that is five times larger than the Sacramento Municipal Utility District’s, currently the largest, in conjunction with revenues from San Francisco’s Community Choice contract..

C. Network Design Innovators. The San Francisco Solar Power Facility (local.org) proposal would be 50 Megawatts, built as a single system rather than an incremental patchwork of individual installations, and be built as an integrated network with large facilities providing a variety of services to San Francisco neighborhoods, business areas and public facilities, ranging from providing the whole city with peak power to powering schools and bomb shelters in a grid failure. Taking revenues from Community Choice aggregations as the basis of municipal revenue bonds to finance the project, the Community Power facility would deliver this dual benefit to consumers and the environment. Informed by staff experience in designing and regional and national telephone networks for Lucent, Motorola, Western Wireless and others for more than ten years, Local Power staff have adapted the rapid buildout and risk-assumption methods of rooftop network operators and in January, 2002 presented the solar industry with a model for the 50 Megawatt network, predicting it should take only three years to install (SMUD took seven years to install 10 Megawatts).

II. Purpose

Local Power’s purpose in R:01-10-024 is both to protect consumers and deliver substantial benefits to the environment. Lowering costs and minimizing price volatility to residents and businesses, and improving energy reliability will be achieved by targeting renewable energy, conservation and energy efficiency, installing new green energy capacity, load shaving and reduction to the community’s resource mix: not just buying existing green electricity capacity but establishing a new level of demand responsiveness that delivers efficiencies measurable at the substation. Local Power’s proposal in San Francisco will lower prices, reduce the environmental and economic burdens of the Provider of Last Resort, improve the quality of service and have a radical positive impact on the environment. Finally, consumers and the environment do not have to compete as “constituencies,” but share in a common public interest. By introducing renewable energy technologies into the community’s energy services at a lower price than is otherwise possible, and by adapting financing parameters to these technologies to minimize the utility bill impacts of these systems, green energy technologies will not cost but rather save residents and businesses of San Francisco money. By enabling local rate design to include these new resources, our policies will finance the first significant local green energy systems ever built, delivering major greenhouse gas and radiation mitigations in a way that enhances the quality of Californians’ energy services. By adapting municipal financing to such systems to reflect the peculiar revenue performance of solar and the like, these impacts can be distributed to make them perform perfectly against fossil or nuclear power. With life-cycle financing and integrated resource planning enabled by these key authorities, green energy technologies will become price-competitive with natural gas or coal. With the added benefit of not requiring any fuel in an energy environment destabilized by fuel price volatility, we are confident that green energy technologies will prove price-competitive as components of a properly designed Community Choice solicitation.

In addition to local control, a key innovation at hand in this new law is the simple removal of a massive century-old conflict of interest in putting the wires monopolies into a position of purchasing or building electricity capacity. Entrusting a throughput-based business with procurement and demand side management has never worked well; even “incentivizing” monopolies to implement energy efficiency resulted in notoriously mismanaged programs for years, reconfirming the overwhelming fact that slowing down a monopoly’s meters works against its shareholders interests; and that energy efficiency funds make for good monopoly marketing. With this inherent historical conflict of interest eliminated by Community Choice’s opt-out contracting authority, a great opportunity has been created. With many California municipalities making 7-20% net greenhouse gas reduction commitments in recent years, Community Choice presents a rare opportunity for dramatic and substantial mitigations on 20% of the cause of all greenhouse gases in California. This is the kind of opportunity that California needs for its energy markets, its high technology sector, and more importantly for both its consumers and its environment. With, also, the energy efficiency Public Benefits Charge funds freed from monopoly control by the Community Choice law, and making them available to directly support green energy technologies equipment purchases and installations (not “programs”) by Energy Service Providers, an aggregation of demand for these technologies achieve contractor volume discounts on equipment and provide a low-cost environment for installers, improving revenue performance and greater program transparency compared to any precedent, whether public or private.

III. Analysis

A. Summary. Our greatest concern in response to the outline plans submitted February 3 and 4 is that while Pacific Gas and Electric (“PG&E”) and Sempra do not mention Community Choice or aggregation, but rather choose to wholly ignore Community Choice as an issue, Edison places the monopolies in a competitive relationship with their own customers by claiming equal access to competitive supply, implying that their customers will have to compete with the monopoly to purchase power from the competitive suppliers. Knowing that this is a very physically limited pool of supply, such a demand-side competition will severely and adversely impede communities in Edison’s service territory from finding an alternative supplier to that monopoly.

This is clearly inappropriate. The monopoly’s role as provider of last resort should not be allowed to interfere with Community Choice aggregators (Chapter 838 requires the monopoly to cooperate fully with Community Choice aggregators), and it is incumbent on the Commission to ensure that a new form of consumer captivity is not allowed in California. Furthermore, Community Choice and related local authorities will be used to better manage a community’s energy consumption patterns, using distributed green energy resources as a load management strategy to reduce the community’s standby power requirements, in particularly its peaking requirements, and thus reducing the burdens of the Provider of Last Resort.

The key to making solar cost-effective is using rate design to finance systems and design systems to physically benefit a community’s local load profile, bestowing benefits rather than imposing costs on the monopoly’s grid, and sharing the system benefits with all ratepayers. With Community Choice comes the ability to distribute the costs and benefits of a Community Choice aggregator’s portfolio across the rate design, using a blended rate to provide competitive aggregate prices with better rate security, less fuel price volatility, and a higher employment o green power sources to deliver long-term consumer benefits. Critical to the revenue performance of such mitigations will be the design of such systems, the cooperative integration of such networks into a monopoly’s distribution system, and a concerted negotiation between City and monopoly to build whatever solar power and other green power facilities that cities like San Francisco seek through Community Choice and revenue bond authorities such as Proposition H.

B. PG&E (PGE Corp.)

Most striking about PG&E’s Outline is that, unlike SCE, it does not mention Community Choice but rather refers only to Self Generation, Municipalization and Direct Access. Community Choice is a particular law that has just been approved of by the legislature and governor that has a particularly large impact on PG&E, in particular that San Francisco is seeking to find an alternative to PG&E, which would directly impact PG&E’s long term (2003-2023) procurement plan. Given that Oakland, Marin County, Berkeley, Fairfax and other towns have passed resolutions for Community Choice and are all interested in finding an alternative provider for their communities, ignoring Community Choice law is a bit like covering your eyes in order to hide.

PG&E places a restoration to creditworthiness as among the objectives of its outline plan. It is not clear why this would be in the public interest, however.

The goals of “Establishing Resource Adequecy Requirements” should be focused on reducing the burden of the monopoly’s obligation to serve, demand responsiveness being among the principal benefits of Community Choice and Community Power.

Finally, the goal of “Promot(ing) Regulatory Stability” is acceptable only if it does not mean the stability of a monopoly.

C. SCE (Edison International)

We are pleased that SCE has proven so open about its intention of competing with its own customers should those customers seek to find an alternative power provider by implementing the new Community Choice of Energy Law, Chapter 838 of 2002: or as Edison says, should they seek to municipalize. This provides for a clearer discussion of the threats that monopoly long-term procurement presents to customers seeking alternative providers.

A “durable but flexible long term plan” as proposed by Edison would be far longer than the public would entrust even to the state of California. Bankrupt and recently predatory monopolies that have already been paid billions of dollars by their customers (and reinvested those $ billions in unregulated holding companies) for the express purpose of making those monopolies renounce their traditional generation and procurement monopoly forever, should not be allowed to reassert themselves as procurement and generation monopolies against their customers. Having been paid continuously since 1998 to get out of procurement and self-generation, the implication of giving the monopolies equal access to the competitive suppliers that their own customers are seeking would clearly be a betrayal of California ratepayers, and adverse to the public interest. By returning the obligation to serve to the wires monopoly, Governor Davis did not intend this to mean that the monopolies should be allowed to prevent their own customers from finding alternative providers by buying up all their power. The Commission should not give monopolies access to supply “equally” with their own customers, but rather it should design a system that focuses on demand responsiveness relative to peak load reduction, so that the burden of providing backup service to a community may be reduced.

This is a simple decision, perhaps the simplest ever to face the Commission: try to go “back to regulation” or forward to Community Choice. The Commission should move proactively to limit the wires monopoly’s role in re-entering procurement and carve out a major space for this new hybrid of public power and competition. It is clear that as a monopoly Edison would compete with, rather than serve, their own customers.

The idea that the utility wires monopoly would have equal access to competitive suppliers of unregulated power plant capacity with Community Choice aggregators is to directly place wires monopolies into competition not only with unregulated competitive suppliers but also with their own customers should those customers seek to purchase competitive energy services under Chapter 838 and thus seek to negotiate long-term power supply agreements with the same companies now being solicited by these wires monopolies.

As the Commission is aware, because deregulation involved selling off half the electrical capacity in the state to unregulated companies, deregulation is not reversible in any meaningful way without a public takeover of the entire system. Otherwise re-regulation will be a net loss to ratepayers and the public rather than a recovery. The only recovery from California’s energy crisis is to get serious (really for the first time) about forcing competition on this industry, with the local control, revenue security and integrated resource planning that Community Choice provides. If bailed out, ringfenced and bankrupted wires monopolies are allowed to block their own customers from reaching alternative competitive suppliers by locking up the suppliers in long term contracts, the public will have been betrayed.

Similarly, the public urgently needs control over procurement of electricity for a multiplicity of public policy goals that are now being shouldered by many California cities: some of which are not far from implementing Community Choice. Electricity, the cause of one third of U.S. Climate Change (cars and industry are only incrementally changeable), two thirds of US childhood asthma, and two thirds of all US radioactive waste, represents perhaps the largest single policy opportunity to do something now about all of these major public crises. It is, indeed a policy imperative of the state of California that orderly local public control be entrusted to communities that propose to comply with the Kyoto treaty through Community Choice. Should Community Choice be used in this manner, it will actually present the immediate, existing resource-based opportunity to meet Kyoto (7%) to Toronto (20%) scale greenhouse gas reduction targets (compared to which the Renewables Portfolio Standard law would deliver less than 2% by 2017). What this presents to the general public to actually meet those targets without depending on significant federal support.

With revenues from aggregation contracts under local control, a generic municipal revenue bond authority such as San Francisco’s 2001 “H Bond Authority” may be neatly employed upon such revenue to provide low-interest financing of renewable energy, conservation and energy efficiency installations. In addition, aggregation may incorporate energy efficiency Public Benefits Charges to directly support aggregation revenue-supported energy efficiency and conservation programs, reducing overheads and inefficiencies and mitigating, for the first time, the incredible inefficiencies that have been preserved by California’s monopoly utilities, leaving many a California city with a combined peak load that is twice its base load, driving up the retail price for all power that their customers pay and keeping some of the most polluting generators in California online to provide the backup power for the load waste.

Local Power’s plans would apply technologies to shave peak loads such as solar photovoltaics, solar thermal, heat recovery, as well as HVAC and lighting retrofits, load management and the like. Truly, under Community Choice the energy industry may have a technology renaissance that will take up where the information technology revolution left off. This is the public benefit of Community Choice, in contrast to which a bumbling restoration of a bailed out, ring-fenced, and bankrupt monopoly is simply not a very good idea, at all.

The Hint. Edison has also mentioned its interest in both “demand and supply side options” and indicates its ability to provide reliable, cost-efficient and environmentally sound electricity service somehow hangs on having “equal resource adequacy requirements for all load serving entities” meaning they as wires monopoly should be allowed to have equal footing with their customers in seeking competitive supply of electricity, which they have already been paid by ratepayers to abandon. Unless the monopolies are prepared to give the $ billions back from their unregulated holding company, there is no basis for a claim to equal access to competitive supply with their own customers which they are supposed to serve as wires companies and default suppliers, not blocked from finding competitive suppliers – which Chapter 838 authorizes them to do - as competitors. Clearly this would be a direct violation of state policy.

Second, Edison request further “creditworthiness” from the CPUC. Again, it is not in the direct interest of California’s residential, commercial and industrial consumers for California to restore the wires monopolies to de facto electricity monopolies.

Edison indicates that it wishes to see a “restructuring of long term demand side management planning and implementation.” This is strangely stated given that the Community Choice law, Chapter 838 expressly required that the California Public Utilities Commission establish standards and procedures for the independent administration of the Public Benefits Charge funds paid by ratepayers by July 15, 2003, meaning that long term demand side management planning and implementation has already been changed by the legislature to non-utility control of those funds, some $300 million per year, by the legislature and Governor on September 24, 2002.

The fact that Edison also requests removal of permitting barriers to new transmission only underscores their unwillingness to develop local load-mitigating technologies, and adds insult to injury by trying to preempt communities that oppose transmission lines that threaten the health of their families. The Commission should be clear that while it is in the direct interest of Community Choice aggregators to reduce the need for transmission, it is in the direct interest of the monopolies to expand the need for transmission: a revisitation of the conflict of interest at hand in monopoly procurement and demand management.

Finally, Edison indicates it wishes to “potentially own new supply.” This would obviously be the final erasure of what Edison legally gave up when it agreed to give up its monopoly in return for the $ billions its customers paid them to get out of the business starting in 1998 under AB1890. The Commission should put its foot down and see to it that the monopolies not be allowed to own new supply, which would adversely impact the competitive market, re-establish the wires monopolies as procurement and generation monopolies, and present a direct conflict of interest for a publicly regulated company to have with its own customers that the Commission most not allow.

C. Sempra

Sempra also declines to mention aggregation or the Community Choice law in its long term procurement plan outline. All Comments for PG&E would therefore also apply.

V. Conclusion

We look forward to working with the Commission in this matter.

Respectfully,

Paul Fenn

Local Power

4281 Piedmont Avenue

Oakland, CA 94611

510-451-1727

paulfenn@local.org