[BETA] Fortnightly

Electric industry restructuring is progressing at a rapid pace. Across the country, states are moving ahead to encourage retail competition. Two states have allowed retail wheeling experiments (Michigan and New Hampshire), utilities are proposing them, and over 20 states are studying the issue. Back in Washington, Congress is examining legislation to amend the Public Utility Holding Company Act (PUHCA). A few blocks away, the Federal Energy Regulatory Commission (FERC) is implementing the Energy Policy Act of 1992 in its Mega-NOPR (Notice of Proposed Rulemaking) on electric restructuring. Some also question the need for the Public Utility Regulatory Policies Act (PURPA).

In preparing for change, many companies will follow the traditional model of cost cutting. They will reduce staff and attempt to sell uneconomic assets. Unfortunately, they may also feel pressured to reduce investments with long-term payoffs, such as leading-edge efficiency techniques and renewable energy technologies. Without these, the nation could have trouble achieving important federal policy objectives.

Few experts doubt that wholesale competition has arrived in several regions of the country. Some believe retail competition is around the corner. In a market driven solely by economics, that could mean the lowest price always wins. In many cases, then, investments in renewables or energy efficiency would not be selected to meet energy-service requirements for consumers. Such beneficial investments could dry up without regulatory policies that consider the social benefits offered by these technologies. However, these new models will evolve slowly, while the new price-conscious market is taking off rapidly.

Many will argue that the market should prevail. However, there are other federal interests that must be met besides the lowest price. So, what is the role of energy efficiency and renewable energy in the coming restructuring? Where does the federal interest lie?

"Green" Investment Lies in Jeopardy

During the past two and a half years, the Department of Energy (DOE) has been a leading supporter and partner with utilities in energy efficiency investments. We didn't do it just to feel good.

The electric power sector produces approximately 35 percent of the nation's emissions of carbon dioxide (CO2) caused by human activity. (The manufacturing and transportation sectors are responsible for the remaining 65 percent.) To the industry's great credit, utilities responsible for approximately 50 percent of the CO2 emissions from this sector have signed agreements with DOE ("climate challenge accords") to voluntarily reduce greenhouse gas emissions. Energy efficiency and demand-side management (DSM) measures will account for a significant percentage of these reductions.

Some believe that global warming is not a real threat. But the climate challenge accords also benefit our nation's health and environment, bringing us closer to achieving the goals of the Clean Air Act (CAA). DOE estimates that voluntary climate initiatives can provide nearly 5 percent of the CAA's sulfur dioxide reduction goal. These programs should also reduce nitrogen oxide emissions by 7 to 14 percent of targeted CAA reductions. Energy efficiency plays a major role in these reductions.

Restructuring is a matter of concern because the reductions due to investments in energy-efficiency technologies are voluntary, not mandated, and are made only