JUICE: Munis Deserve Local Control, Not One-Size-Fits-All State Regulation

By Published On: May 12, 2006

Investor-owned utilities and public power agencies are about as chummy as the Hatfields and the McCoys. The turf battles are largely a result of competition involved in selling the same product: juice. But in the case of the pioneers on the opposite sides of the Tug River, it was bottled in the backwoods prior to distribution. The latest round of shots between investor-owned utilities and public power agencies has come during debates over a bill to impose energy-efficiency standards on California munis. AB 2021 by Lloyd Levine, sponsored by the Natural Resources Defense Council, would require public power agencies to comply with energy-efficiency rules developed by the California Public Utilities Commission and Energy Commission. Public power entities want those state agencies to stay on the other side of the river along with the investor-owned utilities they regulate. When public utility advocates see or hear a state agency gazing or wading across the river, they start blasting away. I can’t blame them. As long as munis agree to meet legislative goals and take the necessary steps, they should not have to face additional bills that apply investor-owned-utility-like regulations to get to the promised land. It’s simply overkill. Often overlooked is the different lineage of the two utility groups. Instead of being regulated by the CPUC like investor-owned utilities, the state’s 38 munis are regulated at the local level. Some have elected board members. These local officials generally are better situated to figure out how best to meet desirable state targets – be they renewables, efficiency, or reliability ones – because they know their territories. They answer more directly to their constituent ratepayers because they can more easily be voted out of office. On the other hand, CPUC members – appointed by the governor – are remote from the communities served by munis, such as Anaheim or Roseville. It is appropriate for the state to regulate large private utilities that provide an essential service over multijurisdictional areas to millions of people. Strong state agency regulation is needed to provide checks and balances on the competing interests of the stockholders and customers they serve. Munis don’t have stockholders to keep happy, just their customers, who also are local voters. Unlike investor-owned utilities, munis remain vertically integrated. They come in many shapes and sizes and have all kinds of power portfolios, ranging from the coal-heavy Los Angeles Department of Water & Power, which is about as big as San Diego Gas & Electric, to the itsy-bitsy city of Biggs, which serves one industrial customer with hydropower. Through the last few years, I have listened to the muni refrain of “local control” every time the Legislature has attempted to force them to comply with standards placed on the private utilities. I was sympathetic to a point, but they lost me when they – principally LADWP – fought off having the bill creating the renewables portfolio standard apply to them. The munis, however, were not united in their opposition to the renewables law. Indeed, the Sacramento Municipal Utility District and others supported the bill. As one muni executive told me, the state’s largest public power agency in Los Angeles was like the sibling you wished lived not just across the river but on another continent. Since then, after a lot of bad press, a new LADWP board has begun working to clean up its act through new green policies. LADWP has joined other munis, which have agreed to the state’s renewables portfolio standard and adopted local policies to reach those goals. Munis also supported the failed Million Solar Roofs legislation. They backed bills setting resource-adequacy standards and one that requires them to report energy-efficiency savings. In spite of these moves to operate in the spirit of state goals and policies for the power business, they are facing additional efforts to subject them to state control. Let’s take AB 2021. It seeks to get munis to save 7,000 MW over 10 years. You certainly can’t quarrel with the end. The issue is the means. Levine’s bill arises from an informal report last year by the Natural Resources Defense Council (NRDC) comparing the efficiency savings of a handful of public utilities to those of investor-owned utilities. It concluded that munis needed to increase their efficiency programs at least two- to threefold to be on par with investor- owned utilities. Those are pretty dramatic findings in these times of repeated warnings about the impacts of rising greenhouse gas emissions, decreasing natural gas supplies, and volatile energy prices. However, after a little deeper digging, the report turned out to have a number of flaws. First, it looked at only the eight largest munis in the state. It compared limited public data on energy savings by power agencies with the $2 billion efficiency spending program for investor-owned utilities approved by the CPUC. That’s not exactly an apples-to-apples comparison. Devra Wang, NRDC energy analyst, admitted that comparing the amount of designated investor-owned utilities’ funding with sketchy records of actual muni savings was less than ideal. “It is the best proxy we have,” she explained. Wang also acknowledged that LADWP’s deficient energy-efficiency programs “weigh heavily on the average for the munis.” Not surprisingly, munis reject the report’s findings. They insist that it’s unfair to judge their efficiency before they get a chance to report their negawatts to the California Energy Commission as required by last year’s SB 1038, authored by Senator Christine Kehoe (D-San Diego). They also point out that the Levine bill’s proposed 3 cents/kWh penalty, which could be slapped on those who fail to meet the savings target, would hurt muni ratepayers. There are more effective means than penalties for getting munis, or IOUs, to comply – in particular, public pressure and bad press. Consider, for example, a Sierra Club report on the high costs that some Bay Area cities charged to permit solar installations. The report led to unfavorable media coverage and public complaints. As a result, six months later, permit fees in the region dropped by about one-third, according to a May 7 report in the San Jose Mercury News. To ensure that munis comply with efficiency standards, the Legislature should require the Energy Commission to report on the utilities’ investments and achieved savings, in place of penalties. All the utilities in the state – public and private, large and small – should be required to supply clean, green, and reliable energy that benefits California’s people, environment, and economy. But a one-size-fits- all regulation for both investor-owned utilities and California’s diverse munis threatens to squelch diversity and local innovation. The differences in the two types of utilities should be embraced, not diminished. As the French say, viva la diffĂ©rence. Then, let the one – be it Pacific Gas & Electric or the Sacramento Municipal Utility District, the city of Corona or Southern California Edison – offering the cleanest, least expensive, and most reliable deal win. Unlike the feud between the Hatfields and the McCoys, there can be a bridge over the river while the rivals remain on their own sides.

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