Volatility in energy prices is both a scary and wonderful thing. It brings risks that must be managed under uncertain future conditions. It also brings opportunities to profit from price movement...
Following Congressional approval of the Energy Policy Act of 1992 (EPAct), Rep. Ed Markey (D-MA), a key sponsor of the bill's electricity title, predicted that "competition should replace monopolism as the rule for much of the power industry. Consumers, renewable energy, and the environment will be much the better for it."
Since then, however, Markey's vision has fallen under a cloud. Concerns mount that competitive pressures will subvert environmental progress by forcing utilities to abandon programs for demand-side management (DSM) and renewable energy. These fears are buttressed by utilities from California to New York slashing DSM program budgets, citing competitive pressures. They turn to environmentalists for support in the plethora of restructuring debates, from retail wheeling to stranded costs.
Restructuring poses a serious problem for environmentalists. Over the years, many environmental advocacy groups have channeled their efforts through public utilities. Today, there's a real risk of blurring the distinction between protecting the environment and protecting the electric companies themselves. How can we protect the environmental gains achieved to date, while taking advantage of a changed marketplace?
When it comes to environmental programs, utilities have received the most publicity for DSM. Yet, on the whole, utility DSM expenditures account for just over one percent of total industry revenues. Energy savings represent just over one percent of energy sales. Indeed, the accomplishments of utility DSM appear small when compared with estimates of 25 percent and more for potential cost-effective increases in end-use energy efficiency.
On the supply side, environmental progress has also remained relatively small. Electric generation claims the bulk of utility revenues and marketing efforts. But most adverse environmental and consumer impacts are felt there, too. The industry's continued emphasis on building profitable, capital-intensive generating power plants, symbolized by the nuclear debacle, implies higher electricity prices and widespread environmental degradation. A utility that succeeds in extracting monopoly profits from generation hurts ratepayers and the environment.
Despite the apparent advantages, utilities remain averse to the development and commercialization of renewable energy technologies. By capitalizing on their monopoly ownership of crucial facilities, such as transmission lines, utilities have successfully discriminated against renewable energy providers. A recent survey of the nation's utilities by Greenpeace identifies 220,000 megawatts of new generating plants built or planned between 1990 and 2014. Renewable energy sources account for only 5 percent, with the bulk supplied by fossil fuels.
Meanwhile, the environmental costs of generating electricity with conventional fuels are becoming clearer and more threatening. Air pollution, land degradation, and freshwater and marine pollution, among others, all contribute to growing environmental problems. Last fall, U.S. officials finally conceded what environmentalists already knew (em that the U.S. Climate Change Action Plan, which relies largely on voluntary action from the nation's utilities, would fall short of meeting even its modest commitment to cut carbon dioxide (CO2) emissions to 1990 levels by 2000. The Intergovernmental Panel on Climate Change has now released a new study showing that stabilizing CO2 concentrations in the atmosphere at twice today's concentrations will require reductions substantially below 1990 levels. A doubling of CO2 emissions (which will occur in about 35