United States

United States

California goes competitive

The California electricity market--larger by far than the markets of most European countries--goes competitive this month. Wind energy has four years of partial protection to conduct a giant scale experiment in how to trade green virtues to a public free to pick and choose from a mind boggling array of electricity packages. We take a look at the options for selling wind into a market where there is no obligation to supply green power--and the only incentive to buy it, beyond the moral one, is a short term government subsidy.

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Starting on January 1, electricity goes competitive in California, the world's seventh largest economy. The state's massive $20 billion retail electricity market plunges into a four year transition period ending with a deregulated market place. And with little else to distinguish different electricity products, much of the fight will be to portray power as green.

What happens in California will be watched closely. A number of other markets elsewhere in the world are also in the throes of deregulating electricity, so the event is not unprecedented. But California is the first state in America, the world's most hungry consumer of power, to deregulate its retail electricity. At least 15 other states are poised to deregulate their electricity markets -- Massachusetts is the next in line -- and will be scrutinising California's effort closely. Within a few years, electricity markets in all parts of America are expected to have followed suit.

It is in California, however, that green power is expected to be most popular. The state has a population of 32 million, about 70% of whom -- perhaps as many as 13 million households -- can now select what company their electricity comes from. Industrial consumption of electricity is huge too, although it is residences that tend to choose green. And the state's electricity rates are some 30% higher than elsewhere in the nation. With research indicating that anything from 10-30% of Californians will pay more for power perceived as green, and with little else to differentiate electricity, the competition to provide clean electricity is going to be intense.

Doubts are arising as the market begins the four year transition. Will California consumers be able to tell if a supplier is offering wind? Will enough consumers want green power, at a premium of perhaps one or two cents a kilowatt hour or an extra $5-10 monthly for a residential bill, to make a difference in the face of advertising for lowest cost electricity? And will customers understand whether a supplier is offering green electricity from power plants already built, or from new sources? This particular aspect is top of the worry list for some experts. "There ought to be some sort of disclaimer that you're buying what's already available," fumes Nettie Hoge of The Utility Reform Network (TURN). "Folks are just sucking that out and selling it to a select group of people at a premium."

The problems faced by the deregulation of America's telephone market, which is just one-third of the size of its electricity market, also seem too close for comfort for those involved in supplying renewables or hoping to buy them in California. The phone system was plagued with technical glitches, billing problems and annoying sales pitches, with little actual savings for many. One issue that came up during phone deregulation is already a serious concern. In the shorter term, will the traditional utilities be able to switch customers over quickly enough?

Wind advocates at a conference in November on the state's deregulation were aghast to be told by representatives of the three investor owned utilities that they expected only to be able to switch over a maximum of 28,000 customers statewide every month. One conference participant said that scenario implies that not much extra wind capacity will be needed in the near future. If 12,000 residential users monthly sign up for green electricity, which is highly optimistic, that would translate into approximately 72 new 400-500 kW wind turbines installed a month -- and only if it were all translated directly into new wind capacity. Residences use on average some 500-600 kWh monthly, so the new wind needed would be a maximum of 7.2 million kWh a month. Demand for green electricity means that existing turbines will continue to operate, but can green companies, which cannot sell power from existing turbines locked into contracts with the investor owned utilities, get enough of a foothold in the market?

Wait and see

It will be some time before the long term implications of the California experiment become clear. As a first taste of what is ahead, about 2000 requests to change supplier were received from mainly commercial consumers within just the first two weeks of the doors being opened to the possibility on November 1. It is only the generation side of the industry, under state law AB 1890, that starts becoming deregulated on January 1. It will be four years before the entire the new structure should be in place, by December 31, 2001. Transmission and distribution will remain regulated, although an Independent System Operator (ISO) has been created to oversee long distance transmission. A new independent Power Exchange (PX) will act as a power pool for California, through which investor owned (or private) utilities will sell their product as will new independent electricity producers.

Approximately $70 million in state subsidies are to be made available to wind farm operators, part of a pool of $540 million set aside for clean power technologies (Windpower Monthly, November 1997). That will amount to a $0.007/kWh supplement for wind, available through a competitive application process. The money may become available as early as April. The consumers who are eligible to chose their supplier are those who have been customers of the state's three investor owned, or private, utilities, Pacific Gas & Electric (PG&E), Southern California Edison (SCE), and San Diego Gas & Electric (SDG&E). The state's three largest utilities, they are guaranteed a 10% rate reduction for four years starting on January 1, regardless of who their supplier is, although a premium for green power may cut into that. To complicate matters further, customers get a $0.015/kWh rebate for buying green electricity certified by the state. The rebate may or may not be included in the price advertised by green suppliers. And from about June, customers will start receiving more detailed billings that will lay out the different charges.

Consumer wind options

A little over a month before deregulation started, the state's 13 million or so households, its small businesses, and its 40,000 large commercial and industrial users, were faced with an astonishing (and confusing) array of electric service suppliers. As of November 20, the California Public Utilities Commission had registered a total of 228 potential providers, no doubt because to peddle electricity they need only pay a $100 filing fee to keep their options open. Of most note for wind watchers, is the handful of providers certified by the California Energy Commission (CEC), or that are able to display the "Green-e" logo offered by the newly formed Centre for Resource Solutions in San Francisco (Windpower Monthly, December 1997). Green-e is the country's first voluntary certification and verification programme and, as deregulation starts, its logo is the only way that customers have of identifying credible green products quickly and confidently, says the non-profit centre. It was founded by long time renewables advocate Jan Hamrin. Formally named the Green-e Renewable Electricity Branding Programme, it has stringent environmental, consumer and ethical criteria that govern, for example, business conduct as well as the content of the electricity. Only products that are certified as having at least a 50% renewables "content" -- using the state's definition of what is renewable which excludes hydro over 30 MW -- can display the Green-e logo. Companies using the logo must also provide customers with regular information about the sources of the electricity they purchase.

The first six companies to receive Green-e certification from the centre are Edison Source, Enron Energy Services, Foresight Energy Company, Green Mountain Energy Resources, PacifiCorp, and Sacramento Municipal Utility District. By the second week of December, PG&E Energy Services had also been certified, bringing the total to seven. Certification is a crucial issue. The question of "disclosure" of the contents of green electricity has already become a hot topic. Renewable energy advocates fear that companies can use "green-washing" and portray their products as green when they are not in an attempt to cash in fraudulently on consumer concern for the environment.

Products must not only have at least 50% green electricity in their portfolio, the rest of their power cannot produce more emissions than the current system blend. If they have fossil fuels in the remainder of their mix, then certain key emissions must be no greater than in the system. More specifically, for non-renewables their air emissions of S0x, NOx and greenhouse gases per kWh must be no higher than for California system power regulations. The same essentially goes for nuclear power: if there is any nuclear generated electricity, its proportion can be no greater than that already in the system. The approximate fuel mix of California system power is: gas 32%; large hydro 27%; nuclear 15%; coal 16%; renewables 9%; and other 1%.

"By choosing electricity products with the Green-e logo, Californians will purchase at least four times more renewable energy than is in the current mix, will dramatically reduce air pollution and can be confident that they are getting what they are paying for," says Hamrin. Also involved is Karl Rabago, energy programme manager with the Environmental Defense Fund (EDF). He heads the governing "Green Power Board" for the programme. EDF has previously been in an alliance to try and ensure green certification in electricity sales in New England and ultimately nationally (Windpower Monthly, June 1997).

Easing the shock

Much official information is being disseminated by the state, although so far the private Green-e programme is the only way buyers have of finding truly green products. For about the last eight weeks, California's official $89.3 million advertising and education campaign has been inundating electricity consumers to ease the electric shock of deregulation. The information, paid for by ratepayers of the state's three big utilities, is disseminated in at least 12 different languages, from English and Spanish to Cambodian and Korean.

Entitled "Plug In, California," the campaign tries to convey the complex and abstract subject of retail electricity with humour. In one Spanish language TV ad, an endearing Jack Russell terrier named "Chispita," Spanish for "Sparky," shows its owners that it has solicited information on deregulation from a toll-free number and taped the response on the family answering machine. In another, a California highway patrol officer is trying to do his usual job of policing cars whizzing by on a freeway, but he is instead thinking about the choices available to an ordinary consumer in a deregulated power market.

As part of the campaign, California electricity customers also received a ten page booklet, "Knowledge is Power," on questions ranging from shopping for electricity, rates and billing changes to green power. In a section on whether to choose green power, the booklet says: "While coal and gas fuels usually cost less, they can have an effect on air quality. So as you choose a provider, you'll want to weigh the importance of saving money versus impacting the environment." It notes that the CEC has a list of providers of green power, although one discovers on calling the CEC that it will not have the list available until the spring, and in the meantime it can only give out information on a total of three green providers certified by Green-e.

Customers are also informed by the utilities that state policy has been to increase reliance on green power and efficiency for the last several decades because of possible environmental impacts. They are told that: providers of renewable power, under the state's deregulation legislation, must provide evidence to state authorities proving that the source is green; that renewables providers can choose to be certified by the CEC; and that information on providers is available on a free-phone telephone line.

consumer guidance

Other "facts" listed are that by choosing renewable power a consumer may help lower costs in the long run, that a green power consumer will get the same reliable service, and that for the next four years the CEC will award a customer a credit of up to $0.015 for every qualifying kilowatt hour bought from renewables. Under state law this excludes hydro plants of more than 30 MW and most out-of-state renewables electricity. The credit is automatic for customers, but some providers of green power are advertising prices before the credit is applied, while some are including it in their advertised price, says the CEC.

Electricity suppliers have also launched sizeable advertising campaigns to gain market share. The most visible campaigns, in newspapers, on TV and on billboards in San Francisco, are for Edison Source's "EarthSource" renewables campaign, Enron Energy Services and Green Mountain Power Energy Resources. Meanwhile the utility Pacific Gas & Electric Co has been running full-page newspaper advertisements stressing that all residential and small business customers will receive a 10% rate reduction and four year freeze regardless of whether they choose a new supplier or stay with PG&E.

It seems PG&E's warning is warranted. Enron Corp has run a smallish newspaper ad pushing its electricity as low cost -- it offers two free weeks of electricity once a customer has been with the company for a year. The advertisement also says customers can get a 10% rate reduction, but it makes no mention that the reduction is available to all customers for four years regardless of who the provider is. Indeed, one Enron phone saleswoman, commenting on whether the 10% reduction was standard or not, glibly says: "Oh, yes, I think that's a law, but ours is guaranteed for two yearsÉ"

The certified greens

As of December 9, three of the seven power marketers to have received Green-e certification have been targeting residential buyers across California: Edison Source, Enron Energy Services and Green Mountain Energy Resources. One other, the small Sacramento Municipal Utility District (SMUD), is offering green power, but only to customers within its existing service area. The others are selling green power for the residential market wholesale, acting as an aggregator of green power for group buyers, or, in one case, not selling green power, although it wants the option to do so. The marketing programmes of the seven are described below.

l Edison Source, affiliated with the investor owned utility Southern California Edison (SCE), offers two programmes, EarthSource 50 and EarthSource 100. In billboard and newspaper advertisements that display, among other things, a small photograph of wind turbines, the options are described as providing electric power from "clean, renewable sources such as the sun, the rivers and the wind."

It is unclear how sales have been going, but on December 8, Edison announced a new incentive. Those who sign up by December 23 were to be entered to win a $2500 trip to a New Year's Day football game near Los Angeles, the Tournament Of Roses game, and the 1998 Rose Bowl Parade in Pasadena, which is televised nationally. The wind power in the Edison packages is already built. The only new resource under way is a solar plant, say its phone representatives. Customers would not necessarily know that the wind plant depicted in the newspaper and billboard adverts pre-dates deregulation.

l Enron Energy Services, affiliated with Enron Corp, offers Earth Smart power (Windpower Monthly, December 1997). The supplier made a splash a little over a month ago by unveiling, at the same time as Earth Smart, its plans for two wind plants totalling 39 MW in southern California. The new wind farms will in part be paid for by a premium for Earth Smart electricity, which according to Enron will consist of 50% renewables, with the remainder containing no coal and no nuclear power whatsoever. It costs a flat $10 monthly for customers who sign up by December 31, with no minimum time limit for participating in the scheme. In the New Year, the promotional package may be different, say phone representatives. A corporate hint about how the balance of Earth Smart power will be generated probably lies in Enron's company motto: "Natural Gas. Electricity. Endless Possibilities."

l From outside California, Green Mountain Energy Resources is also certified to sell green power in the state. The company is about one-third owned by the Vermont utility Green Mountain Power Corp and also by the Wyly family of Texas. It is offering Californians who sign up for its green programme various incentives -- free beeswax candles and, for the first 1000 customers, a fleece sleeveless jacket or "vest," made of 50% recycled soft drinks bottles.

Of its three electricity blends, one is based on large hydro and the other two -- "75% Renewable Power" or the "Wind for the Future" mix -- are certified as Green-e. Only the latter specifies wind, while the 75% renewables option is to consists of at least 10% wind by November or, at the latest, December1999. Green Mountain is publicly saying that a wind turbine will be installed to supply the approximately 3000 Wind for the Future customers -- up to a limit of three turbines. The price to consumers will be an extra $0.021/kWh on top of the state's Price Exchange charge for a three year contract, compared with a price of an extra $0.012 for a one year contract for the 75% renewable Power Mix. Green Mountain says that is the equivalent of about $11 extra monthly for an average household. Where does the wind power come from? Its wholesale supplier of green electricity is PacifiCorp of Portland, majority owner of the Wyoming wind plant of 69 Mitsubishi turbines that was inaugurated recently by SeaWest at Foote Creek Rim (Windpower Monthly, November 1997). According to the company, a photo of the site will be published on its World Wide Web site and be updated regularly "once enough customers have signed up to begin construction." That is misleading -- the project is to consist of 69 Mitsubishi turbines anyway. Be that as it may, Green Mountain is hoping to sign up 30,000 customers for its three blends in the first year of California deregulation.

l Sacramento Municipal Utility District is also on the Green-e list and has been offering its Greenergy blend since last summer to its own customers in the Sacramento area (Windpower Monthly, June 1997). For one cent more per kWh, SMUD matches 100% of the customer's needs with renewables. More than 1300 had signed up in October for SMUD's green rate, the first to become available in California.

The utility, which owns the troubled 6 MW Kenetech wind farm in Solano County (Windpower Monthly, November 1997), also allows customers to donate an extra half cent per kWh to support renewables more generally, although their green dollars are not matched with new green capacity. Although SMUD is building a small amount of new geothermal, there is no new wind in the pipeline. Indeed, the utility's latest competitive bidding, for 3 MW of power to be on-line in 1998, attracted no interest from wind. Greenergy manager Bud Beebe expects, however, another small solicitation to be issued early in January and hopes this time to attract wider interest. "I'd love to have a wind component as the programme continues to grow," he says.

l A relative newcomer to the energy market, Foresight Energy Company, is also approved to sell green electricity in California. It recently moved offices from Oakland to San Francisco and was founded by Eric Miller, formerly of the now bankrupt wind company Kenetech. Foresight offers wholesale "Eco-Power" (green electricity) in California to state registered Electric Service Providers (ESPs) that are selling to residential users and non-profit groups, says executive vice president Warren Byrne. Wind is part of the mix, as is geothermal, but he declines to say from where Foresight will buy the power. "Things are looking goodÉ but it's early in the market's developmentÉ. there's a lot of tyre-kicking going on in the [residential] market place," he says.

He adds that Foresight might build as many as two wind plants in California and hopes to make a decision on that towards the end of the second quarter of the year. The company has apparently already secured three major customers for Eco-Power, which it soon expects to be offering outside California in Massachusetts, Maine, Rhode Island, Oregon and, hopefully, New Hampshire. The price of the electricity in California will be about equal to or below what a customer is paying today -- that is, 10% higher than the reduced rate required by state law to help utilities ease into a competitive market place. Foresight also promises potential customers that by buying its product, they can reduce air pollution by at least 60% and eliminate their consumption of coal and nuclear power.

l PacifiCorp of Oregon, the majority owner of the $60 million Foote Creek wind plant under construction in Wyoming, is acting as an aggregator of green electricity in the California market, says the company's Anita Marks. It might sell green electricity, she says, to a pool of city agencies or businesses. "It's a matter of what deal you can strike," she says. One new client is Green Mountain Energy, which is buying renewable power whole sale from PacifiCorp and selling it to residential users. The size of the deal is not being disclosed, but Green Mountain has said it hopes to secure 30,000 customers in its first year in California.

l PG&E Energy Services Corp has received Green-e certification, although it will not use it in marketing power in the immediate future. The utility's Diane Sable says that initially PG&E will target commercial, industrial and institutional consumers. If a given business wanted to specify where its power comes from, PG&E would be willing to work with them, she says. And green electricity could be offered in the future to residential users.

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