Community Aggregation: Palm Springs
The residents of Palm Springs, a city of 42,500 people located
in a desert climate 100 miles east of Los Angeles, pay some of the
highest electric bills in the countryparticularly in the summer,
when the mercury typically soars well above 100o F.
As a resort community, the Palm Springs customer base is devoid
of the heavy industries that can typically demand discounted electricity
rates. Small consumers may benefit from competition in electricity
markets only if they can band together to purchase power. After
all, it was the benefits of customer aggregation that led to the
utility monopoly service territories in the first place.
Experience from the natural gas and long-distance telecommunications
markets suggests that 60-75% of small consumers will not participate
in a competitive market for services based on bill savings alone.
In a restructured industry, new innovative ways of aggregating customers,
as will the offering of new service options, will be necessary.
Challenge:
Can a local government take the lead in aggregating its constituents
in order to lower the bills of residents that pay, on average, 12
to 14 cents/kilowatt hour (kWh) for electricity to run lifesaving
air conditioners in the dog days of August?
Implementation Strategy:
Before Palm Springs pursued a community aggregation strategy, it
had exhausted all other options to access cheaper electricity. Palm
Springs originally sought designation as "muni-lite, " whereby a
local government claims it owns enough of the local electricity
distribution system to be granted the right to act as a municipal
utility without going through the complete and highly contentious
process of full municipalization.
What prompted this new strategy was 1992 federal legislation that
required the Federal Energy Regulatory Commission (FERC) to encourage
a national system of electricity trades by opening up transmission
grids to all buyers and sellers. But in August 1996, the FERC ruled
that the duplicate meters Palm Springs installed at customer sites
did not constitute an actual electricity distribution system, a
key requirement for any local government to buy cheaper wholesale
power directly. The FERC decision stalled efforts by other local
governments throughout the country to follow the Palm Springs "muni-lite"
strategy.
Luckily for Palm Springs, AB 1890, the state restructuring legislation
passed in 1996, authorized California local governments to serve
as purchasing agents for its constituents through the process of
customer aggregation. Under this scenario, local governments do
not need to own any portion of the distribution lines: They just
accumulate individuals into a larger bulk electricity purchasing
package. Once AB 1890 was passed, Palm Springs switched gears and
began to pursue a strategy which enabled the City to serve as an
aggregating agent for its constituents.
Results To Date:
While the passage of AB 1890 was good news for Palm Springs, a
key provision was stripped from the final bill that would have allowed
local governments to become the "default" electricity provider upon
a vote of the local city council. Instead, local governments are
required to aggregate customers individually like private sector
aggregators, and today's incumbent utilities are the "default" providers.
The passage of SB 477 in 1997 removed the requirement of local governments
for third-party verification of a switch in service providers. Private
sector marketers are still required to comply with the potentially
cumbersome verification process of switching from one power suppler
to another.
Palm Springs entered into contract with First Point Solutions,
a subsidiary of Portland General Electric which subsequently became
a subsidiary of Houston-based Enron Corp. to provide retail electric
service to the residents of Palm Springs.
Under terms of the five-year power purchase deal, First Point already
invested $50,000 in local non-profits the first year of the contract
and will invest $90,000 annually thereafter. Another $300,000 has
been pledged over two years for local economic development. However,
if the newly created Palm Springs Energy Services (PSES) does not
sign up 25% of the customer meters by January 1, 1999, a percentage
that equates to 8,000 consumerseither party, the City or Enroncan
opt out of the deal without penalty.
PSES began marketing its service offerings this past spring and
as of mid-May had signed up 2,000 customers. The City captures no
revenues from sales, but PSES, the public agency aggregation, entails
no expense either.
First Point is responsible for all recruiting and other expenses.
PSES offers its customers two choices. The Smart Citysm
Saver, a low introductory offer of electricity for 10.6 cents/kWh.
The second option is Enron Earth Smartsm Power, a clean
power option that features renewable energy resources and does not
include any nuclear and coal fuels.
Lessons Learned:
Among the key lessons learned by Palm Springs are the various ways
in which incumbent utility providers will try to frustrate efforts
by local governments to become the vehicles through which citizens
can aggregate their electricity demand in order to access cheaper
power. The utility filed for a distribution utility rate increasewhich
would have wiped any savings offered by PSES but withdrew the proposal
after a large public outcry. The utility also developed highly cumbersome
changeover forms for residents wishing to switch electricity service,
at one point requiring customers to fill out 49 fields of information.
These forms, too, were later revised due to public pressure.
There may be a need for local governments to pursue future legislation
that would facilitate local governments serving as community aggregators
by allowing them, at the discretion of local elected officials,
to become "default" providers.
For More Information:
Palm Springs Energy Services (Art Lyons)
2825 E. Tahquitz Canyon Way, Bldg. C
Palm Springs, CA 92262
(760) 416-6609
fax (760) 416-5706
e-mail: pses@ix.netcom.com
web site: http://www.pses.com
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