San Francisco Leads 11 California Cities Demanding Community Choice As Rates Triple in San Diego:

Legislature, Governor Instead Choose Second Bailout, Gutting of Environmental Regulations to Solve State's "National Model" Deregulation Law

A Perspective on California Bedlam in San Diego's Rate Shock
by Paul Fenn and Julia Peters

San Francisco, Oakland, Berkeley, Marin County, Fairfax, West Hollywood, Lomita, Carson, El Segundo, Hawthorne, Culver City, Lawndale, and the Southern California Cities Joint Powers Consortium have all asked for a Community Choice Law. As California Reels from its 1996 "national model" deregulation law consumer advocates like The Utility Reform Network (TURN), Ralph Nader, and Public Citizen all endorse Community Choice, and even an industry group of would-be competitors, the Western Power Trading Forum, agrees. Meanwhile, all the legislature or Governor have proposed are re-monopolization, more bailouts, and the gutting of environmental regulations to fix the problem.

With another bailout at $150 million "the state" pays (read: we pay) to compensate San Diego Gas and Electric for "protecting" San Diegans against the electric industry deregulation law of 1996, it must be asked, for what would you dare to demand more money of the public when the law, a self-declared "national model" written by the state's utilities and their subsidiaries, failed?

At least, we should say, recognizing the emergency situation for people in San Diego and the need to afford them emergency relief, that the Governor and legislature now have a responsibility to deliver what was promised for the $30 billion in 1996 and $150 million the legislature authorized last week. There is something of a shell game at hand, in that, after authorizing $30 billion for the privilege of ending electric industry monopoly in 1996, the legislature would go on to authorize a taxpayer bailout to compensate San Diego Gas and Electric for a "rate cap" on San Diegans' bills, as if to save consumers money by making taxpayers pay, as if we weren't the same people. The Governor, frowning on taxpayer bailouts, says alternately that ratepayers should pay for it, only later, not now. Either way, we pay in the end. Thanks a million, guys.

Now will the Governor and legislative leadership get serious about delivering what was promised for the $30,150,000,000 namely an end to monopoly, and "choice?"

To the contrary, so far all they are doing is blaming everything on everyone but the utilities, and pushing "solutions" which will restore the former electric utilities' monopoly: all in the name of "protecting consumers." Indeed, the quality of discussion remains shockingly unserious.

AB1890 champion state senator Steve Peace, who shanghaid the first legislative hearing on rateshock chaired by Debra Bowen and Roderick Wright this past August, even blamed TURN, Northern California's principal electric consumer advocacy nonprofit, for causing the rateshock. Then he blamed it on an alleged green conspiracy in the Public Utilities Commission to force conservation technology on San Diego. Unchequed, Peace finally proposed in total seriousness that the solution to San Diego's tripling of rates is to allow our former monopolies to own power plants again, and even to act as our aggregators, purchasing power directly on behalf of their captive customers. That the army of legislators, lobbyists and "stakeholder" groups in the hearing room quietly grinned through this kind of Orwellian reversal game bodes poorly for everyone.

The Public Utilities Commission also appears unconcerned about returning the retail role to our utilities, despite the fact that 95% of Californians and 87% of electric consumption in the state remain captive to their "default service" today. Neither admitting that these percentages indicate market failure, nor ever discussing how making all consumers captive to one spot market might make the Power Exchange so vulnerable to collusion, the PUC instead authorized San Diego Gas and Electric "to participate in Forward Block Markets." This means they are no longer restricted to being "market neutral" wires companies which as wires companies are not supposed to enter the power supply business; now the PUC says they may hedge contracts within the state Power Exchange, on our ("consumers'") behalf.

We have to conclude that so far neither the Commission nor the Legislature is serious about delivering on the $30,150,000,000. Why is it that nowhere is found any proposal in the stakeholders' legislative or regulatory discussion which takes market power away from the deregulated and bailed out former monopolies? Why are they so untouchable in this political crisis? If we are serious about ending monopoly, then we address the need to remove our former monpolies' control of the "competitive" market to get at least a good portion of the captive 95% and the 87% out from the electric ghetto called "default service."

It's the demand, stupid.

The key failure of California's non-aggregated "Consumer Choice" market has been the inability of any individual consumer, large industrial or residential, to find a supplier without extremely large-scale "aggregation of demand." We are not talking about merely a few thousand people buying together, but hundreds of thousands or millions needed to be served profitably. The structural solution to this error in Consumer Choice economics is known as "Community Choice."

Community Choice authorizes local governments to aggregate all market non-participants in their jurisdictions (95% of Californians) into city-negotiated contracts, much as cable television or garbage services have been negotiated for decades, and as the electricity and telecommunications industries themselves started. Unlike garbage and cable tv, franchises, however, Community Choice includes an "opt-out" clause for consumers who find their own power provider or who would prefer default service through their deregulated utility. Recognizing that even many municipalities will be too small to serve profitably, Community Choice authorizes groups of contiguous municipalities to aggregate together: and county governments can negotiate on behalf of consenting municipalities in regional electricity supply contracts.

Forbidden by AB1890 in 1996, Community Choice was passed into law in Massachusetts in 1997 and Ohio in 1999. Two federal Community Choice bills have been introduced in Congress in recent years, led by Dennis Kucinich and Sherrod Brown, supported by a national coalition of 200 consumer and environmental groups called R.A.G.E., Ratepayers for Affordable Green Electricity, led by Public Citizen.

If implemented in the major urban areas, Community Choice will have a huge impact on the competitiveness of wholesale markets. In Massachusetts this started with the towns on Cape Cod, led by Barnstable County and local nonprofit Self-Reliance. Though as a tourist area with little industry Cape Cod has the worst "load profile" in the state, the Cape Light Compact found a power supplier who could beat the "Standard Offer" (default service). With a long term contract and performance bonds to protect consumers from San Diego-style rateshock, the Cape Light Compact has transferred risks to the private sector where it belongs.

In Ohio, whose Community Choice law requires a town vote, one hundred municipalities have recently filed papers to hold referenda to implement Community Choice next year when the market opens, presaging a larger scale application of the model. 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 Power Exchange, and introduce profitable wholesale contracts to the would-be competitors who currently play the Power Exchange because it's the only game in town. One hundred municipalities is a lot of power and a lot of money which is a better long term "incentive" for building new power plants than "streamlining" (read: gutting) environmental laws, as our Governor and Legislature have apparently accepted as necessary.

The electric industry is the largest cause of global warming and radiation, not something to take lightly. We need market solutions that significantly expand renewables and conservation, not "emergency" policies that litter the state with nothing but more gas, oil and coal fired power plants.

Rather than gutting environmental regulations to stimulate new investment in generation, Community Choice creates that large scale contracts that are needed to finance such projects. Most importantly, it creates dramatic new opportunities for large scale conservation and "green" power development that are essential for the kind of greenhouse gas reductions called for at Kyoto. 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. What is more, Local Power's Community Choice legislation also entitles municipalities to their pro-rata share of state-collected conservation surcharge funds, which 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.

The point is, let's get serious and put an end to what one critic called the "conspiracy of incompetence." Bailouts aside, without Community Choice, every "solution" on the table is nothing but a repeat of the political folly and lobbying largesse of AB1890.

Copyright (c) 2000 by Local Power.