Local Power

4281 Piedmont Ave. Oakland, CA 94611 510 451 1727







Global Exchange Energy Summit

Lorenzo Patiño Law School

Sacramento, CA April 27, 2001




Local Power was formed in 1996 to promote “Community Choice,” state legislation which gives city governments control over their community’s electricity supply without having to seize utility poles and wires (historically the barrier to municipalization), in much the same manner as cities already control the negotiation of contracts for cable television, recycling, garbage service, and other essential services that have an impact on the public health. More recently, Local Power has begun to focus its efforts on implementing community-based renewable energy development, and is currently advising local governments on large-scale renewable energy and conservation programs. Local Power is also preparing new legislation to facilitate community-based energy development, and is lobbying the California Energy Commission to adjust its programs and judging criteria to the (different) economics of community-based energy.


Local Power director Paul Fenn co-authored the original Massachusetts Community Choice bill in 1995 as director of the Massachusetts Senate Energy Committee, organized a coalition of California consumer, environmental and local government organizations in opposition to AB1890 in 1996, helped draft the Ohio Community Choice bill in 1998, and drafted a California Community Choice bill, AB48x for Assemblymember Carole Migden (D-SF) on behalf of the dozen or so California cities and counties which have passed resolutions asking for a Community Choice law since 1999.  AB48x recently passed through the Assembly Cost and availability Committee with a 19-1 “aye” vote. He is also working with San Francisco Board of Supervisors President Tom Ammiano to propose a 50MW “Solar Power Plant” in San Francisco which would be six times larger than Sacramento’s solar plant, currently the nation’s largest, and provide between 5% and 10% of the community’s electricity needs. Local Power is preparing a statewide project to implement large scale renewable energy development among its coalition cities, particularly in the East Bay and Los Angeles area.


Community Choice is not new to California cities, many of which passed resolutions asking for this legislation in 1999 and 2000 before the state’s energy crisis became official. The cities and counties of San Francisco, Oakland, Berkeley, Marin County and Fairfax, as well as West Hollywood, Lomita, Carson, El Segundo, Hawthorne, Culver City, Lawndale and the Southern California Cities Joint Powers Consortium have each passed a resolution asking the Legislature for the Community Choice bill, and 30 California cities and counties have endorsed the legislation. The California League of Cities and the California Association of Counties have also endorsed.


Among local officials endorsing the Community Choice bill, San Francisco Board of Supervisors President Tom Ammiano, Oakland Mayor Jerry Brown, Oakland City Council President Ignacio De La Fuente, Berkeley City Council member Linda Maio, Marin County Board of Supervisors President Hal Brown, Fairfax Mayor Frank Egger, Santa Cruz Vice Mayor Christopher Krohn, as well as Albert Vera and Carol Gross, representing the ten member cities of the Southern California Cities Joint Powers Consortium, have written letters of endorsement for AB48x.


This legislation also has a strong base of support among consumer and environmental organizations at the state and national levels. AB48x is endorsed by CALPIRG, The Utility Reform Network (TURN), Western Power Trading Forum, David Brower (d), Ralph Nader, Public Citizen, Greenpeace USA, Global Exchange, and the Southern California Cities Joint Powers Consortium.


The legislation has such a broad base of support because Community Choice has worked in other states, and is now recognized as a major component of any structural solution to rate shock and the failed Consumer Choice market in California.  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.


Incredibly, there is no evidence of a serious solution coming from either the state or federal leadership. The Federal Energy Regulatory Commission’s recent decision to cap blackout prices (made on condition that California agree to sacrifice even more local control over its transmission system to a regional “market”) portends no substantial future help from the Bush Administration. The California Public Utilities Commission’s recent rate increase is yet more evidence that the Davis Administration has missed its opportunity to meet the energy crisis head-on and should not be waited for. The remaining options promise little more to hope for. The (secret) long- term contracts currently being negotiated by the Governor’s minions may prove no more than bad deals struck under duress and captivity that will usher in a second round of bailouts - this time not merely for utilities but for the state of California itself, which has already seen its credit rating cut by Standard & Poors as a result of its assumption of responsibility for bankrolling the cash hemorrhage. While some critics of deregulation have called for “re-regulation” it is unclear what this means short of a power plant seizure; and given the fact that the same companies owning the state’s natural gas plants also own the (out-of-state) natural gas supply lines to those plants, seizure will be difficult without major repercussions on the price and availability of natural gas-fired power. Finally, considering that the price of natural gas prices has tripled in the last two years (in part driving the crisis), the construction of new natural gas plants should also prove a disastrous ruse in the end, the last bad joke in a comedy of errors that will define the history of our “Fake Energy Crisis.”


Indeed, the legislature (in its consideration of the Community Choice bill AB48x and the Municipalization Reform bill SB23x), and California cities (in their ability to finance large scale renewable generation project such as San Francisco’s) are the last recourse. The longer the legislature waits to address the structure of this market the harder it will be to find a solution. Indeed, members of this legislature must first admit that AB1890’s promise of  “consumer choice” in 1996 was disingenuous. Any “solution” to the energy crisis is similarly disingenuous if it does not address the failed wholesale market and propose ways to bring unregulated power sellers to the bargaining table. This is why Community Choice is so important.


Rhetoric aside, deregulation cannot be “undone” without a state takeover of all power plants and infrastructure. Barring this, the legislature must get serious about reforming the basic market structure to break up and diversify the power suppliers with large volume, long-term contracts for both bulk power supply, distributed generation and municipally-administered conservation on a scale that has not been attempted before.


Historical Context


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 last Summer, AB1890’s prohibition against Community Choice had already 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 (and the Governor’s “monopsomy buying” in long term contracts) was so vulnerable to collusion: because AB1890 prevented market diversification and made nearly all Californians captive, first to spot market power and then to the Governor’s secret contracts.


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.


The Community Choice Alternative


Forbidden by AB1890, Community Choice was passed into law in Massachusetts in 1997 and Ohio in 1999. In recent weeks a Community Choice Entity representing 100 small municipalities 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!


Because these communities buy in bulk, Green Mountain was able to offer 98%/2% natural gas/renewable energy at a guaranteed cheaper price than the 60%/40% coal/nuclear power mix these communities would otherwise receive under default service, a significant greenhouse gas reduction.


Community Choice works for both consumers and the environment. Because the Cleveland communities were buying in bulk they got clean power for a lower price than the 60%coal and 40% nuclear power they had previously received in default service. For the environment, the Cleveland area contract in effect meant Kyoto-level reductions for its communities, which will emit approximately 33% less carbon dioxide (CO2), which contributes to global warming, 66% less nitrous oxide (N2O) which contributes to smog, none of the sulfur dioxide (SO2) which contributes to acid rain, and none of either the mercury or the radiation which cause a range of health problems.


From a global perspective, this contract of small municipalities alone matched the total number of consumers participating in Pennsylvania’s “successful” deregulated market, and expanded America’s largest green power company’s customer base from 100,000 to 550,000! The program was so successful that Ohio enacted a Community Choice of Natural Gas law last week to create similar community based buying power for natural gas prices.


Public Benefits Funds Controversy


The Massachusetts Community Choice bill made Community Choice entities eligible to submit an energy plan and apply to the state for a pro rata share of public benefits charge funds, and we have similar language in AB48x. A locally-based approach to these programs both introduces greater cost effectiveness and distributes the funds more equitably to the consumers who pay into the fund.


Energy Efficiency Funds


We are particularly concerned about preserving utility-threatened language in the bill that gives communities the opportunity to apply to the state for moneys paid by their communities into the state energy efficiency funds, as (1) these funds are essential to making Community Choice work for cities in the current dysfunctional wholesale market and (2) the funds are currently under utility control, which is a conflict of interest considering that utility shareholder returns are gross-revenue based and conservation reduces gross revenues. No one can argue that California municipalities (which have no such conflict of interest), many of which are members of Cities for Climate Protection, are locally elected and nonprofit, and have experience administering solicitations for other services for decades, are less qualified than the utilities to administer the energy efficiency funds.


Renewables Funds


It is also critical that the California Energy Commission’s public benefits funds for renewable energy development be restructured to provide for an equal eligibility for Community Choice. For example, the Emerging Technologies Fund sets aside 60% of funds for 10kw systems or less. This was written with small consumers in mind - a good idea in the old market - but if whole cities want to build distributed solar (for example) on behalf of all residents and businesses, they need large (300kw and above) installations to achieve the maximum efficiency and payback. In effect this policy accidentally discriminates against Community Choice, which otherwise would raise the scale of non-polluting power and conservation to a new level.


Given the need for rapid conservation measures, local leadership is the best hope for meeting the Governor’s conservation goals. If implemented in the major urban areas, Community Choice will have a significant 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.


For those who say local governments are not experienced enough to create community energy plans for these funds, think again. Cities are both experienced and well staffed to define energy plans; many already have greenhouse gas abatement plans as part of the Cities for Climate Protection campaign, and this gives them the power to implement real reductions. 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 climate change. Our intention is to use the state surcharge funds as a component of larger “green” power supply contracts rather than being reduced to a marginal role under control of the former monopolies. We are not alone in believing that a community-based, demand-side approach to distributed generation, conservation and power supply will prove far more effective than utility-controlled projects. Considering that the Bush Administration is backing the nuclear industry’s call for a “second generation” of nuclear reactors as the “solution” to global warming, it is critical that we move now to demonstrate that Community Choice and unprecedented large local power projects such as the San Francisco Solar Plant, offer better alternatives.


California’s energy crisis is an opportunity to actually meet the Global Warming challenge, whose single largest cause is electricity itself. Local Power is working both to get its Community Choice law passed this Summer, and to prepare for implementation in coalition cities that are eager to develop local power sources in their communities. 

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