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 years) will raise worldwide average temperatures from 1.5 to 4 degrees Centigrade (em a level of change not seen in thousands of years (em with potentially catastrophic effects on the global economy and ecosystems.
From the global perspective, U.S. domestic energy policy serves as a poor example for developing countries poised to contribute substantially to the environmental crisis. The United States leads the world with per capita emissions of 19.5 metric tons of CO2 per year. The developing nations of India (0.8 tons/ yr) and China (2.2 tons/yr), with populations already four to five times larger, are rapidly increasing their per capita energy use.
The consumer record is no different. High prices, in fact, supply the impetus for restructuring. The utility industry's response to competition has been to offer lower rates to industrial customers, although many already receive discounts. These special deals insulate utilities from competition, while burdening smaller ratepayers with additional costs. Discriminatory retail wheeling proposals aimed at large customers fail to address the fundamental problems plaguing the industry, while shifting many costs and risks to smaller customers. If policymakers are intent upon "direct access," they must ensure that all customer classes have truly competitive options, particularly those lacking market power.
Robust markets can rein in the hefty profits available from generation, cutting prices, and leveling the playing field between supply- and demand-side resources. For example, competitive pressures have already forced the premature shutdown of a number of nuclear plants, most recently the three plants canceled by the Tennessee Valley Authority. Other companies, such as Centerior Energy, have written down costly generating assets. In some service territories, where ratepayers now pay not only for DSM program costs but also for the utility's lost revenues and shareholder incentives, funds should be available for efficiency improvements and actual energy savings.
But while open markets can keep business accountable, they offer no panacea. No restructuring plan will succeed without addressing the complexities of environmental protection and social goals. Markets may run efficiently, but will never fully recognize environmental costs or guarantee that people living around or below the poverty line (em now more than 15 percent of the population (em will enjoy basic access to essential service. Over the years, regulators have turned to utilities to provide critical environmental and social goals, including universal service, low-income bill assistance, low-income weatherization, and conservation and renewable energy. With competition on the horizon, each of these goals lies at risk.
Some restructuring ideas now circulating would address these concerns. The California consumer group TURN (Toward Utility Rate Normalization) proposes to set up "consumer-owned" utilities. Counties, cities, and towns would aggregate loads and buy power from a competitive generation market. Massachusetts State Sen. Mark Montigny has proposed legislation to create "consumer service districts." His idea would allow local jurisdictions to take bids for their local franchise systems (em essentially a form of franchise competition.
Another plan, developed by Michael Arny, director of the Consortium for Integrated Resource Planning at the University of Wisconsin, would spin off a new group of retail energy service companies, armed with full access to customer information now monopolized by the utility. These energy service companies could market a complete environmental package (em solar photovoltaic panels for the roof or fuel cells for the basement. Much as in the computer industry, consumers would drive innovation. Meanwhile, an unaffiliated, regulated company would still perform the monopoly functions, such as transmission, distribution, and system dispatch.
Regulators would still play key roles under Arny's proposal. They would oversee long-term planning and intervene when the market fails to reach environmental goals. They would develop a package and bidding process for the "provider of last resort," which would sell retail energy services to customers that do not (or cannot) elect to participate in the market. An "uplift" charge to all would pay for important social objectives. Regulators could still approve environmental adders for polluting fuels, set aside a portion of generating capacity for renewables, or raise funds for additional efficiency measures.
Although it's difficult to predict what types of electric services consumers might choose in a fully competitive market, there's room for optimism. By putting customers in the driver's seat, creative energy service companies could tap public support for renewable energy and energy efficiency. t
David Lapp works as an energy policy analyst for the Environmental Action Foundation in Takoma Park, MD, a self-declared nuclear-free zone.
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