The
California Community Choice Bill:
Making the Deregulated
Electricity Market Work
by Paul Fenn
The structural solution to rate shock and the failed Consumer Choice
market in California is the Community Choice bill, AB48x sponsored on February 15
by Assemblywoman Carole Migden (D-San Francisco), and up for a legislative
hearing in early March. 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.
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 100 Community Choice Cities 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! While not perfect (lacking distributed generation) Green Mountain’s
proposed mix will change these 100 communities from a 60%/40% coal/nuclear
power mix to 98%/2% natural gas/renewable energy including small hydro wind and
solar, a significant greenhouse gas reduction.
If
implemented in the major urban areas, Community Choice will have a huge 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.
Community
Choice will also offer major opportunities for conservation and green power.
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 global warming. The Community Choice
legislation also entitles municipalities to their pro-rata share of
state-collected conservation surcharge funds, so that conservation programs can
be used to leverage “green” power supply contracts rather than being reduced to
a marginal role under control of the former monopolies, who after all make more
money, the more electricity we consume.