Local Efforts to Fight Global Warming "At Risk" Under Electric Deregulation:
Cities and Towns Confront Hostile State Legislation

Local Efforts to Fight Global Warming "At Risk" Under Electric Deregulation as California, Massachusetts Plans Discriminate Against Municipal Aggregation, Franchising.

The deregulation of the U.S. electric industry may jeopardize the 1992 Earth Summit agreement to stop global warming, as U.S. cities and towns, which hold primary responsibility for cleaning up the air, now face significant threats to local authority over their jurisdictions in some electric industry deregulation plans.

Today, the United States contributes 23% of world greenhouse gas emissions, which have increased by 8% worldwide (13% in the U.S.) since 1990. The U.S. electric industry is collectively the largest domestic producer of carbon dioxide, the primary green house gas, according to the U.S. State Department's Climate Action Report. It is also the only greenhouse gas-producing industry whose cleanup depends on local governments.

The call for local government intervention came in June, 1992, when representatives of 178 nations met at the Earth Summit in Rio de Janeiro to agree on policies and actions to reduce the production of greenhouse gases to 1990 levels by the year 2000. Identifying the world's cities, whose power plants and automobiles produce most greenhouse gases, as both the cause of and the solution to global warming, the Summit supported local government intervention to attain sustainability. In 1994, mayors and other local authorities from cities around the world signed the Heidelberg Declaration, calling for a twenty percent reduction in greenhouse gas emissions caused by their communities from 1987 levels by the year 2005. To help facilitate such efforts, the International Council for Local Environmental Initiatives (ICLEI) created the "Local Agenda 21 action programme" for sustainable development, and mandated that local governments worldwide develop plans to cut global warming in the Cities for Climate Protection Campaign.

Since the Earth Summit, sustainable city plans following the Agenda 21 plan have appeared in 22 urban areas across the United States, including Seattle, San Francisco, Santa Monica, Boston, Portland (OR), Wayne County (NY), Chattanooga, Austin, Metro-Dade County (FL), San Jose, and Albuquerque. Other communities, such as Barnstable County (MA) have pursued sustainable energy plans independently.

Some municipal governments are aware that a deregulated electricity market will support more polluting sources such as coal-fired, oil, or nuclear power plants, and are examining municipal franchising and aggregation as environmental protection strategies.

But some state legislatures are moving forward with deregulation uninformed by local governments; the result is an increasing appearance of proposals - and laws - that effectively, if not explicitly, prevent local governments from franchising or aggregating their communities. Bob Finkelstein, attorney with The Utility Reform Network (TURN) in San Francisco, says that California's newly adopted deregulation law, AB1890, contains "onerous requirements for public agency aggregation that may squelch opportunities for cities or other public entities to aggregate." The new law hamstrings local governments that seek to aggregate consumers, while anointing the state's current investor-owned utilities as "default providers," who function as the AT&T of the electric industry, automatically selling power to and billing consumers who do not actively seek new electricity providers.

Some observers believe this "passive consumer" group may include 75% of American consumers, resulting in deregulated "default-opolies" controlled by the old monopolies in their new role as monopoly "wires companies." In contrast, the California law strictly polices local government aggregators, requiring them to secure positive written declaration by all consumers wishing to change providers. Furthermore, while the law allows for-profit customer aggregators to refuse service to "undesirable" customers, it specifically prohibits public aggregators from doing so. "So while the wires monopolies control the majority of the market automatically, the private aggregators get to cherry pick," said Energy Economist Eugene Coyle. "Private companies will have data on each consumer, seeking contracts with the best revenue sources and leaving the rest to the default provider. Cities will be left with the scraps. This will marginalize public aggregation."

The result is that some cities in California are scaling back their sustainable energy goals. Susan Munves, Conservation Coordinator City of Santa Monica, whose energy comes from an investor owned utility (IOU) Southern California Edison, says that California's AB1890 puts most municipalities in the position of "focusing exclusively on lowest cost energy" including "determining the amount of renewable energy the city can purchase without placing the city's electricity rates above market." The city of Santa Monica is considering whether or not the city should market green energy services. "Deregulation rules require ‘choice,' so we can't tell people in Santa Monica that they have to use Santa Monica generated power," says Munves, "so we would be out there competing with Working Assets and other companies that are jumping into the fray."

Recognizing the superior track record of public power systems such as the Sacramento Municipal Utility District (SMUD) in supporting renewable energy and efficiency technologies, some are looking to public ownership of electric systems as a sustainable energy strategy. "Sustainable energy with or without deregulation is more easily pursued in the municipal utility context than the investor-owned utility environment up to this point," says Alan Richardson, Executive Director of American Public Power Association. But deregulation in California cast a shadow of doubt on public power, when, months after the passage of AB1890, SMUD's board cut its famous renewables and energy efficiency programs in order to be more competitive, and the Los Angeles Department of Water and Power's General Manager speculated publicly whether the world's largest public power system would be the "first municipal electric utility to face a hostile takeover" by neighboring private power companies such as Edison International.

Recognizing the difficulties public power systems face as electricity suppliers in a deregulated market, some local governments are looking to less costly forms of local control such as Community Electricity Franchising in Massachusetts (see story in this issue on "Cape Light Compact"), under which local governments utilize traditional franchise powers of competitive bidding to aggregate local electricity consumers and set standards for renewable energy and efficiency. "Key to the community franchise is that, unlike private or non-profit aggregators, local governments have statutory authority, public accountability, and financial flexibility," said Matt Patrick, a Selectman in Falmouth, Massachusetts. "A community franchise can best control the renewable energy percentage of its overall energy supply by setting minimum standards to qualify for competitive bidding."

Meanwhile, legislation has been filed in the Massachusetts Senate which, like California's AB1890, would hamstring community franchising or aggregation. The bill, sponsored by Senator Michael Morrissey (D-Norfolk), senate chairman of the Joint Committee on Government Regulations, would prohibit cities and towns from acting as "default providers" to the approximately 80% of consumers who are not expected to shop in the deregulated market, reserving that role for current utility companies. "This bill would virtually disable local governments from representing consumers effectively," said Patrick. "Anyone familiar with the deregulation debate will tell you that local government aggregation is essential to protect public interests, but most lawmakers here are accepting the utility line that deregulation means ‘less government,' and are actually trying to stop us."

Ultimately, say observers, the problem is political, in that local governments are poorly represented in the nation's deregulation debate. "County government leaders, to date, have yet to assume their proper role as partners in plans to reshape the nation's electric industry," resolved the National Association of Counties in July. "This is a very serious problem, considering that local governments are the buck-stop on global warming," said Coyle. "Until local governments realize the profound implications of deregulating America's largest and most polluting industrial sector, our environmental future will remain at risk."

Copyright 1997 by the American Local Power News