The California Community Choice Bill:
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.