California “Community Choice”: An Easy Option to Protect Consumers

March 22, 2001

California “Community Choice”: An Easy Option
to Protect Consumers

WASHINGTON, D.C. — Community choice legislation being proposed in California today is a good consumer-oriented step toward providing more leverage for the state?s beleaguered consumers, according to Public Citizen.

“Community choice” enables consumers to join together and negotiate with utilities for cheaper electricity rates. California Assembly Bill 48x, introduced by San Francisco Assemblywoman Carole Migden, will have its first public hearing today. The legislation won?t solve California?s energy crisis but would enable households to decide whether they want their town to join a municipal aggregation. Citizens of a town that votes to do so could opt out of the buying group and choose their own suppliers.

“The one striking aspect of California?s energy crisis is that households are defenseless,” said Wenonah Hauter, director of Public Citizen?s Critical Mass Energy and Environment Program. “This proposed community choice legislation, while not the solution to the state?s energy crisis, would provide more options currently denied to California consumers to negotiate for cheaper, more reliable, and more environmentally friendly electricity.”

As California?s electricity deregulation crisis continues, consumers have few options to choose new energy suppliers that can provide cheaper, more reliable and more environmentally friendly electricity. Two states ? Ohio and Massachusetts ? have adopted the community choice approach to help consumers, with successful results.

One of the fundamental problems of deregulation is that it doesn?t provide true retail choice. Less than two percent of residential consumers in deregulated states have switched their utility. That?s because the low volume of electricity usage consumed by households forces utilities to operate on slim per-house profit margins. These narrow profit margins effectively prohibit potential competitors from serving residential customers. For example, Houston-based power marketing firm Enron dropped out of the residential retail market just three weeks after competition began in 1998, claiming they were unable to profit. Before the crisis hit, less than 5 percent of Californians have switched providers. Now, all the competitors have dropped out, leaving only the incumbent utilities.

Conversely, large commercial users of electricity are much more profitable for utilities due to their economies of scale. As a result, more utilities jump into the market. Commercial consumers have more options and switch providers at much higher rates than do residential consumers.

Community choice allows residential consumers to band together with other households in their town to increase their economies of scale, placing them on par with industrial consumers. After Ohio adopted community choice in 1999, those cities that have elected to sign on have enjoyed great success at negotiating cheaper electricity deals with alternative providers and choosing providers with a focus on green energy.

An aggregation of more than 400,000 consumers in 90 Ohio cities just signed a deal with Green Mountain Energy that features a rate reduction and offers deals to provide residents with renewable energy. Representatives for each town form aggregations with other towns and negotiate contracts with alternative suppliers on behalf of all residential consumers in their jurisdiction.

“Community choice is good for consumers, and more states should commit to it,” Hauter said. “We urge California in particular to institute community choice. California consumers need any relief they can get.”