Alternate power options collapsing

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Alternate power options collapsing

Posted at 10:41 p.m. PST Monday, Feb. 19, 2001

BY JOHN WOOLFOLK

Mercury News

San Jose power company Go-Green jumped in when California opened electric service to competition in 1998, signing up thousands of utility customers eager for an environmentally friendly alternative.

Now the desks are empty and phones are silent at Go-Green's Bernal Road offices, and customers have been turned back to their local utilities.

Alternative power services like Go-Green are fast becoming casualties of California's electric deregulation failure, driven out by soaring energy prices and the collapse of the state's principal power market. And now, advocates fear the state's foray into the power market will drive the final nail in the coffin of customer choice -- the very thing deregulation was supposed to encourage.

``Personally, I'm pretty upset,'' said Rick Kohl, president of Go-Green holding company Preferred Energy Services. ``I took a great deal of risk, spent a lot of time and money to build a business and have now had the rug pulled out from under me.''

Hailed as deregulation's great blessing, customer choice in California stumbled right out of the gate -- crippled, many say, by generous breaks for the major utilities in the state's deregulation law. Of the nearly 300 companies that initially registered to provide service in California, only a few dozen followed through.

That number has dropped steadily in recent months, driven out by soaring wholesale electricity costs, the collapse of the state's power exchange and unpaid credits from utilities.

``It appears to be an exodus right now,'' said Lynn Maack, regulatory analyst at the California Public Utilities Commission Office of Ratepayer Advocates.

What's left are mostly a handful of ``green energy'' companies offering power from solar, wind and other renewable sources. They now are threatened by emergency legislation allowing the state to buy long-term electricity contracts for troubled utilities such as Pacific Gas & Electric. The law bars customers who are getting the state's power, to be bought with $10 billion in bonds, from switching providers -- possibly for up to 10 years.

That means most Californians, now signed up with the big utilities, would be stuck with them for years, and would be off-limits to alternative energy companies offering cheaper or greener power.

``I think it's just outrageous that the state of California has put us out of business,'' said Rick Counihan, spokesman for Green Mountain Energy Co. ``Until this law gets changed, we're out of business in California, period.''

Green Mountain, once the largest alternative energy service in California, recently turned 50,000 of its 58,000 customers in the state back to their local utilities, keeping only those under extended contracts.

The move was prompted by the ``huge, daily uncertainty surrounding the restructuring of the California energy market and the regulations that govern it,'' company officials said. Green Mountain remains active in Pennsylvania, New Jersey and Connecticut and is expanding into Ohio and Texas.

Disappointed customers

Customers have been supportive -- some even sent Valentine's Day cards -- but discouraged.``I think it's really unfortunate,'' said Leonard Salle, 64, a Portola Valley engineer who was notified of the cutoff by Green Mountain last week. ``We were willing to pay a premium for something we felt was worthwhile.''

State leaders say they never intended to put green energy services out of business. But with the government buying power contracts at today's high prices, they want assurance that customers will keep buying that costly electricity for the life of the deals and not switch to another provider when market prices fall.

``We didn't want people gaming the . . . program, going in when the prices are nice and going out when prices aren't so nice,'' said Guy Phillips, chief energy aide to Assembly Speaker Pro Tem Fred Keeley, D-Santa Cruz.

Sen. Debra Bowen, D-Redondo Beach, is working on a supplemental bill to clarify how alternative or ``direct access'' energy providers can continue operating. So far, there's little agreement.

Questioning state's argument

Alternative energy services, along with the California Chamber of Commerce, California Grocers Association, state university systems and others, argue the state faces little threat from customers choosing other providers.

``That argument is ridiculous,'' said Richard Gann, a lawyer for PowerCom Energy and Communications Access. ``The ability of the state to meet its obligations under this bond financing scheme would not be impacted by the number of people who would take advantage of individual energy-service providers.''

They say residential and small business customers should be allowed to leave the state program without restriction or penalty. They propose allowing large commercial and industrial customers to leave as soon as each state contract expires. Otherwise, they could leave but pay an ``exit surcharge'' to the state for any losses caused by a company's departure.

But Bowen opposes letting anyone out of the state's program without paying a price.

``There's a real cost shift if people take advantage of the frozen rates now, then bail later on when everyone else is making up the difference,'' Bowen said. ``If you want the benefit of frozen rates now, you have to be willing to be part of the same payment terms that everyone else is.''

Bowen noted that most alternative providers that recently dropped out of the market did so before the emergency law was passed because of the rising market costs for power.

Other options more expensive

Keeley aide Phillips added that customers still could choose another service because the state won't provide all their power. They could choose another source for power provided by their utility's hydroelectric, nuclear and other power sources, he said.

But Bowen aide Evan Goldberg conceded no one's likely to do that, given that the utilities' hydroelectric and nuclear power is now the cheapest stuff around.

To be sure, alternative energy services in California were troubled long before the recent power emergency.

At its peak last June, only 224,000 of all customers, or 2.2 percent, chose another electric service. That number fell to 185,000, or 1.8 percent, by the end of December.

Consumers found choices limited from the start, particularly for residential service. Of the few dozen companies that registered in California, many focused on more lucrative commercial and industrial customers and capped residential programs to new accounts.

Nearly 16 percent of industrial customers and more than 7 percent of large commercial customers switched providers, compared with less than 2 percent of residential customers.

Incentive to switch

Companies complained the state's deregulation plan gave residential customers little incentive to switch. Utility bills were frozen at discounted rates, and customers who switched still had to help pay the big utilities' power plant debts. As a result, most gave up trying to compete with the utilities.

Houston energy giant Enron Corp. was among the first to bail out on residential retail service in California. The company signed just 30,000 customers after a $10 million advertising blitz.

``We just couldn't come up with a win-win value based on the way deregulation was unrolled,'' said Peggy Mahoney, spokeswoman for Enron Energy Services.

Enron still courted commercial accounts but focused on efficiency consulting. Because of rising market prices, Enron recently stopped buying power for its customers, which include San Jose's Cisco Systems and the state universities. Local utilities now buy that power, and Enron eats the costs not covered by its customers' contracts, Mahoney said.

But those companies could face higher power bills when their Enron contracts expire.``It hasn't affected us at the moment, but we are watching it closely,'' Cisco spokesman Steve Langdon said.

Fewer choices

Retail customers, meanwhile, were left only with the choice of ``green'' energy, often more expensive. The few companies left, such as Commonwealth Energy Corp. and PowerCom Energy & Communications Access, are being flooded with calls as their competitors drop out of the market.

But the surviving companies aren't courting new customers, worried there isn't enough power on the market to supply them.

`We're doing our best to find more long-term power contracts,'' said Roy Reeves, marketing director at Commonwealth Energy Corp., which offers green power at a 5 percent discount from the big utilities. ``It's fairly difficult at this point with the state coming in and buying all the power they can for the utilities.''

Contact John Woolfolk at jwoolfolk@sjmercury.com or (408) 278-3410.

-- Swissrose (cellier@azstarnet.com), February 20, 2001

Answers

I predict, and strongly suspect, that these small businesses will file suit against California, under the Constitution's Fourteenth Amendment Equal Protection Clause, "No state may deprive any person of the Equal Protection of the Laws." Since alternative "green" energy confers "external economies" to society by producing less pollution, the opposite of conventional fossil fuel generation; the Courts are likely to be unusually symathetic to their case. At the very least, these companies may be awarded the same "Pollution Allowance Credits" that conventional providers get, and thus be able to sell them to recoup some losses. The result will be even more CA state public fisc expense, which will devastate other State provided governmental services --- many of which are Basic Infrastructure. The cascading effects of Y2K on the Infrastructure are beginning to approach frightening proportions, even though occurring much slower and later than foreseen in 1999.

-- Robert Riggs (rxr.999@worldnet.att.net), February 20, 2001.

Precisely my thoughts! Swissrose.

-- Swissrose (cellier@azstarnet.com), February 20, 2001.

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