Wednesday, March 28, 2001


California State Assembly

Standing Committee on Energy Costs and Availability

 

Roderick Wright, Chair

Anthony Pescetti, Vice Chair


3:00 p.m. -- Room 4202


On AB48x (Migden)

“The California Community Choice Bill”

 

Comments of Paul Fenn

Local Power

4281 Piedmont Avenue

Oakland, California 94611

510 451 1727

paulfenn@local.org

local.org

 

 

Mr. Chairman, Assemblymember Migden and Members of the Committee: 

 

My name is Paul Fenn. I co-authored the original Massachusetts Community Choice bill in 1995 as director of the Massachusetts Senate Energy Committee, organized a coalition of California consumer, environmental and local government organizations in opposition to AB1890 in 1996, helped draft the Ohio Community Choice bill in 1998, and drafted AB48x for Assemblymember Migden on behalf of the dozen or so California cities and counties which have passed resolutions asking for a Community Choice law since 1999.

 

Community Choice is not new to California cities, many of which passed resolutions asking for this legislation in 1999 and 2000 before the state’s energy crisis became official, and whose leaders signed Local Power’s testimony asking the legislature for Community Choice at the first San Diego rate-shock hearing of this committee last August. The cities and counties of San Francisco, Oakland, Berkeley, Marin County and Fairfax, as well as West Hollywood, Lomita, Carson, El Segundo, Hawthorne, Culver City, Lawndale and the Southern California Cities Joint Powers Consortium have each passed a resolution asking the Legislature for the Community Choice bill. The California League of Cities and the California Association of Counties have also endorsed. This is only a partial list, as representatives of new cities, counties, water districts, and other local governments are signing onto this legislation every day as the word gets out.

 

Among local officials endorsing, San Francisco Board of Supervisors President Tom Ammiano, Oakland Mayor Jerry Brown, Oakland City Council President Ignacio De La Fuente, Berkeley City Council member Linda Maio, Marin County Board of Supervisors President Hal Brown, Fairfax Mayor Frank Egger, Santa Cruz Vice Mayor Christopher Krohn, as well as Albert Vera and Carol Gross, representing the ten member cities of the Southern California Cities Joint Powers Consortium, have written letters of endorsement for AB48x.

 

This legislation also has a strong base of support among consumer and environmental organizations at the state and national levels. AB48x is endorsed by CALPIRG, The Utility Reform Network (TURN), Western Power Trading Forum, David Brower (d), Ralph Nader, Public Citizen, Greenpeace USA, Global Exchange, and the Southern California Cities Joint Powers Consortium.

 

The legislation has such a broad base of support because Community Choice has worked in other states, and is now recognized as a major component of any structural solution to rate shock and the failed Consumer Choice market in California.  Without it, every “solution” on the table is nothing but a repeat of the political folly and lobbying largesse of AB1890, California’s “National Model” electricity deregulation, law passed unanimously in 1996.

 

I say “folly” because yesterday’s rate increase at the Public Utilities Commission is yet more evidence that the state has no solution to the energy crisis, and the longer the legislature waits to address the structure and demand responsiveness of this market the harder it will be to find a solution. Indeed, members of this committee must first admit that AB1890’s promise of  “consumer choice” in 1996 was disingenuous. Any “solution” to the energy crisis is similarly disingenuous if it does not address the failed wholesale market and propose ways to bring unregulated power sellers to the bargaining table. This is why Community Choice is so important. Rhetoric aside, deregulation cannot be “undone” without a state takeover of all power plants and infrastructure. Barring this, the legislature must get serious about reforming the basic market structure to create a diversified market with large volume, long term contracts. Community Choice has demonstrated the ability to deliver such contracts.

 

Historical Context

 

The key failure of California’s non-aggregated “Consumer Choice” market has been the inability of any individual consumer, whether industrial, commercial or residential, to find an alternative supplier without extremely large-scale aggregation of demand. 

 

The result was a withdrawal of would-be competitors into spot market trading and an electric ghettoization of the world’s seventh largest economy. California’s rate shock resulted from two years of market failure that made virtually the entire state hostage to a backup system designed for a minority of unprofitable-to-serve consumers. Before the crisis became official, AB1890’s prohibition against Community Choice forced 95% of Californians and 87% of electricity load to receive “default service” from the former monopolies buying power on the spot market.  Not only do these statistics clearly indicate the failure of the deregulated market, they also reveal why the Power Exchange is so vulnerable to collusion: because AB1890 prevented market diversification and made nearly all Californians captive to spot market power.

 

Community Choice is the structural solution to this failure. Local governments are authorized to aggregate all market non-participants in their jurisdictions into city-negotiated contracts, much like cable television or garbage services have been negotiated for decades, but with an opt-out clause for consumers who are able to participate directly in the market. Groups of contiguous municipalities may join together, and county governments may coordinate consenting municipalities in regional power contracts.

 

The Community Choice Alternative

 

Forbidden by AB1890, Community Choice was passed into law in Massachusetts in 1997 and Ohio in 1999. In recent weeks a Community Choice Entity representing 100 small municipalities surrounding (not including) Cleveland doubled the number of American residents nationwide that have found a non-monopoly power supplier. These cities chose Green Mountain Power in a six-year contract to serve 450,000 electricity customers, expanding Green Mountain’s national customer base from 100,000 to 550,000!

 

Because these communities buy in bulk, Green Mountain was able to offer promise 98%/2% natural gas/renewable energy at a guaranteed cheaper price than the 60%/40% coal/nuclear power mix these communities would otherwise receive under default service, a significant greenhouse gas reduction.

 

Community Choice works for both consumers and the environment. Because the Cleveland communities were buying in bulk they got clean power for a lower price than the 60%coal and 40% nuclear power they had previously received in default service. For the environment, the Cleveland area contract in effect meant Kyoto-level reductions for its communities, which will emit approximately 1/3 less carbon dioxide (CO2), which contributes to global warming, 2/3 less nitrous oxide (N2O) which contributes to smog, none of the sulfur dioxide (SO2) which contributes to acid rain, and none of the mercury which causes a range of health problems.

 

From a global perspective, this contract of small municipalities alone matched the total number of consumers participating in Pennsylvania’s “successful” deregulated market, and expanded America’s largest green power company’s customer base from 100,000 to 550,000! The program was so successful that Ohio enacted a Community Choice of Natural Gas law last week to create similar community based buying power for natural gas prices.

 

Public Benefits Funds Controversy

 

The Massachusetts Community Choice bill made Community Choice entities eligible to submit an energy plan and apply to the state for a pro rata share of public benefits charge funds, and we have similar language in AB48x. A locally-based approach to these programs both introduces greater cost effectiveness and distributes the funds more equitably to the consumers who pay into the fund. Any proposal to cap these funds is discriminatory and wasteful.

 

Energy Efficiency Funds

 

First, we would particularly ask that you preserve language in the bill that gives communities the opportunity to apply to the state for moneys paid by their communities into the state energy efficiency funds, as (1) these funds are essential to making Community Choice work for cities in the current dysfunctional wholesale market and (2) the funds are currently under utility control, which is a conflict of interest considering that utility shareholder returns are gross revenue based and conservation reduces gross revenues. No one can argue that California municipalities (which have no such conflict of interest), many of which are members of Cities for Climate Protection, are locally elected and nonprofit, and have experience administering solicitations for other services for decades, are less qualified than the utilities to administer the energy efficiency funds.

 

Renewables Funds

 

Second, it is also critical that the California Energy Commission’s public benefits funds for renewable energy development be restructured to provide for an equal eligibility for Community Choice. For example, the Emerging Technologies Fund sets aside 60% of funds for 10kw systems or less. This was written with small consumers in mind - a good idea in the old market - but if whole cities want to build distributed solar (for example) on behalf of all residents and businesses, they need large (300kw and above) installations to achieve the maximum efficiency and payback. In effect this policy accidentally discriminates against Community Choice, which otherwise would raise the scale of non-polluting power and conservation to a new level.

 

Given the need for rapid conservation measures, the legislature must recognize the value of facilitating local leadership in meeting the Governor’s conservation goals. If implemented in the major urban areas, Community Choice will have a significant impact on the competitiveness of wholesale markets and transfer the risks inherent in volatile energy markets from consumers to the private sector where it belongs. On such a scale, we are talking about a different kind of market entirely, with large volume contracts that will significantly reduce the market share of the spot markets, introduce profitable wholesale contracts to today’s would-be competitors, and remove millions of Californians from captivity in default service.

 

For those who say local governments are not experienced enough to create community energy plans for these funds, think again. Even without Community Choice, California’s municipalities currently purchase more than half of all green power sold in the state just buying for municipal facilities, which make up only 5% of an average city’s consumption. By empowering local governments to negotiate for the other 95%, Community Choice offers a dramatic opportunity to fight climate change. Our intention is to use the state surcharge funds as a component of larger “green” power supply contracts rather than being reduced to a marginal role under control of the former monopolies. We are not alone in believing that a community-based, demand-side approach to distributed generation, conservation and power supply will prove far more effective than utility-controlled projects, and we need your support to move forward.

 

 

Paul Fenn co- authored the original Massachusetts Community Choice Law as Senate Energy Committee Director (1994), organized opposition to AB1890 (1996), helped draft Ohio’s Community Choice law, and drafted the California Community Choice bill for Assembly member Carole Migden (2000). He can be reached at  510 451 1727 or paulfenn@local.org.

 

 

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