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.
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.
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.
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.
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.
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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