We Got Green?


<p>Not hardly. And now the FTC would leave consumers in the dark on some environmental claims.</p>

Fortnightly Magazine - October 1 1999

I don't quite get it about green power. Yes, I know that some marketers tout it as an unbridled success - proof that retail choice for electricity will unlock a flood of new power products and premiums, delivering untold benefits to energy consumers. And we at this magazine are as guilty of this as the next guy, having from time to time published articles on how green marketers have garnered retail market share in newly opened electric markets, such as California.

But green power is not a product. It's a gimmick. It has stolen center stage only because of a dearth of real value-added consumer products in electricity.

Suppose you visit a new car showroom, trying to decide between a Honda Accord and a Ford Taurus. The Honda salesman gives you his pitch: "We built our Accord with recycled steel, but Ford builds their Taurus with new steel produced from eco-destructive iron mines in Third world countries." If you're an ordinary American consumer, you laugh in his face.

Car buyers don't want recycled steel. They have no clue how their car was made. Instead, they want CD players. They want global positioning satellites and dashboard LCD screens that map out the route. They want leg room, cup holders and anti-lock breaks. Those are value-added products. They change the way the car works and the way the driver behaves. That's what products do. On the other hand, recycled steel is not a consumer product, but more properly described as a manufacturing process. The same goes for coal, uranium, wind, sunshine or natural gas, when used as boiler fuel.

This notion that green power marketers can hawk electricity based on the source and process of its manufacture, rather than its usable characteristics at the point of sale, simply underscores the dreary state of deregulation. It's sad to say, but our much-hyped emerging competitive market in electricity - itself as slow as molasses to develop - nevertheless has far outstripped the ability and ingenuity of retailers to come up with actual products to win the customer's fancy.

"IF SCARLETT O'HARA WERE ALIVE TODAY, we know what she wouldn't worry about," say consultants John Hanger, John Rohrbach and Peter Meadows Adels in the Sept. 14 issue of E3 (pronounced "E-cubed"), the newsletter they churn out of their eco-boutique, known as Citizens for Pennsylvania's Future, a nonprofit association.

"Overwhelmed by the sheer scale of air pollution, global warming and acid rain, Scarlett would do what most of us do. She'd think about it tomorrow," they say.

At PennFuture, Hanger, Rohrbach and Adels clearly come down as eco-boosters. Where I see snake oil, they see nirvana.

"Once largely considered a symbolic gesture ¼ required to satisfy a few regulators, renewable energy is moving toward the consumer and business mainstream. ¼ Retail competition and customers are making electricity generated from renewable energy a differentiated product with a higher value."

But I applaud their efforts in advocating a green power commodity exchange for the states east of the Mississippi. Here, Hanger, Rohrbach and Adels argue convincingly that the lack of a central commodity market for trading wholesale green power has hindered growth of renewable energy.

Without a commodity exchange for green power, they say, developers of new renewable facilities have difficulty financing the projects. The developers need large-volume, long-term commitments from buyers to purchase the output of the new plants, but must forge their own portfolios one buyer at a time. Hanger, Rohrbach and Adels add that in most cases, when would-be buyers attempt to identify wholesale renewable resources available for sale, they discover that the supply has been sold to others. "Rarely," they note, "does a buyer ever learn how much supply was available or at what price it has been committed or sold."

But with a green power exchange, they say, "a retail marketer could purchase blended resources directly, without having to create its own portfolio of resources."All of this sounds perfectly reasonable. But I say it proves my point - the green power mind-set is locked in the wholesale world, clueless about what it takes to perfect real consumer products.

BY DECEMBER 1999, THE ENVIRONMENTAL MARKETING SUBCOMMITTEE of the Energy Deregulation Working Group of the National Association of State Attorneys General plans to issue a final proposed set of guidelines for environmental marketing of electricity. Meanwhile, however, the subcommittee issued a preliminary draft that discusses how marketers should substantiate environmental claims. That draft drew a surprisingly laissez-faire response from the U.S. Federal Trade Commission in comments released Aug. 12.

The NAAG anticipates marketers might rely on a system of tradeable certificates or tags to substantiate green claims, since it is physically impossible to trace the source of electrons. Under a tagging system, the generator sells the premium associated with the preferred generation source - separate from the power itself. Thus, a supplier that advertises 50 percent hydro and 50 percent natural gas might actually sell nuclear power. But it could claim a green product because it had purchased tags from hydro gas generators, which, presumably, would not sell the tags a second time. Will consumers get it? NAAG is not sure:

"This raises questions about what tagging-based claims mean to consumers and necessitates, as an antidote to deception, disclosure of the use of a tagging system to them."

The FTC disagrees, suggesting that regulators should leave consumers in the dark about grid constraints, parallel paths and tagging schemes:

"Although tags may seem more complicated than contracts and may raise the suspicions of some consumers ¼ staff does not believe that benefits to consumers of NAAG's proposed required disclosure ¼ would outweigh its burdens. Research conducted by the National Council on Competition and the Electric Industry indicates that consumers have less confidence in environmental claims about power when they are told that a tagging system is used to support them."

By the way, the FTC also urges caution when requiring marketers to disclose environmental consequences measured on a full life-cycle basis. It recommends further study on the question of allowable tolerances between claimed and actual content of power supply portfolios. (See www.ftc.gov/be/v990012.htm.)

I asked Jacquelyn Ottman, a consultant who has worked extensively with the U.S. Environmental Protection Agency in reviewing marketing for the EPA's Energy Star program, about how a competitive power industry should get around the problem that its electricity product flows where it wants to, instead of along defined contract paths.

"To me, the idea of constraints in the grid are irrelevant. So it seems like you need an audit by an outside agency to match invoices to the power delivered to the grid," says Ottman.

"But," she adds, "I also think the people who have signed on for green power so far are probably sophisticated enough to understand all of this. It's sort of like that ad program, that every time someone bought a Chevy GEO, a tree was planted."

Ottman also shares some of my skepticism.

"Does the green product offer meaningful benefits beyond appeals to altruism?" she asks. "Remember those early green products of the '70s, such as all-natural laundry powders that didn't clean clothes, and water-saving shower heads that sputtered? They languished on health food store shelves, gathering dust."