Report Says "Automatic Aggregation" is Essential to Protect Consumers and the Environment: California's New Law Forbids It

A recent report by Environmental Action in Washington, D.C., indicates that small consumer aggregation is necessary for consumer and environmental protection in a deregulated electric industry, and criticizes California-style deregulation laws for restricting local government aggregation and bolstering distribution monopolies. The report, Group Buying Power: Meaningful Choices for Energy Consumers, concludes that "unless local government or institutions with existing resources take on this job, it will be difficult for small customers to gather the resources they need" to participate in the deregulated market.

Kay Guinane, the report's author, said "experience with competition in the natural gas and telecommunications industries suggests that, absent aggregation, most small customers will not change the supplier of service, even when it would result in cost savings." Only about 40 per cent of telecommunications customers have shopped for an alternative to AT&T since the long distance market was deregulated, leaving 60% of the market to the high-priced "default" provider company. "That means the rules governing passive consumers are at least as important as the rules governing active ones."

In California, passive consumers are "defaulted" to the current investor owned utilities, and public aggregator.s are prohibited from interfering with this arrangement; many states are following suit under heavy utility lobbying pressure. The report specifies that aggregation will work if participation is based on where you live or do business, and automatic for consumers who do not actively shop for power. "Automatic aggregation is more efficient than placing an affirmative burden on individual consumers to create a buyer's group or sign up for one....They are more likely to benefit from competition if they are automatically included in an aggregated group that is representing their interests." The report adds that privately owned distribution companies such as Pacific Gas and Electric, under California's law the "default provider" of customers on its distribution system, have "no incentive to get the best deal on power supply or to provide related services." The report criticizes California's law, which "does not allow automatic aggregation...makes signing up participants for (a buyer's group) complicated and expensive," and "lumps marketers and brokers with towns and other groups, failing to distinguish between end-users and entities that earn their money selling to end-users."

The report cites the 1996 New Hampshire direct access pilot, in which consumers received a "deluge of junk mail (with) an array of widely differing packages...making comparison-shopping impossible." Junk mail incentives included bird feeders, free ice cream, flashlights, tree seedlings, $25 cheques: and misleading advertising. Green Mountain Power, a supplier that advertised itself as an environmentally sound choice, is owned by Hydro-Quebec, a Canadian utility controversial for its lumber clear cutting and mega-dam building projects. Working Assets marketed "green power" containing nuclear and coal generated electricity from a Massachusetts utility. The incumbent utility, Public Service Company of New Hampshire, sent out $25 incentive checks to lock consumers into a 3.5 cents per kWh contract, 50% higher than the state average.

At the end of the bidding, a buyer's group aggregated by the City of Manchester had secured the lowest published price in the state, at 2.16 cents per kWh. The report suggests that buyers groups may provide a model for establishing consumer market power in increasingly deregulated service industries. "The past performance of community-based power has been generally superior to privately owned utilities in respect to rates, levels of service, and conservation." Also recommended is that buyers groups increase efficiency and buying power by seeking packages that include both gas and electricity, conservation, cable, telephone, water, sewer, and security services.

"For competition to work customer choice must be real, not a tradeoff of one form of captivity to another. The retail market structure must establish equal bargaining power for all players. This means that barriers to community aggregation must be removed and that the public must set minimum standards required for all providers." END

Copyright 1997 by the American Local Power News