No Magic Bullet

The Electric Power Research Institute (EPRI), a non-profit, utility-sponsored consortium whose members include electric co-ops, is hopeful that carbon dioxide reductions can be accomplished without driving electricity prices beyond the reach of the American consumer. However, there is no single action that has any realistic chance of bringing about the total amount of prescribed reductions. Instead, EPRI has developed a multi-phased, technology-based framework to cut carbon dioxide emissions 45 percent over the next 22 years while continuing to meet the growing demand for electricity.

The plan essentially takes reductions sought in one of the more high-profile congressional approaches—getting to a level by the year 2030 that’s below the amount of carbon dioxide emitted by U.S. electric utilities in 1990—and applies an array of existing and developing technologies to hit that mark.

“Technology is what it’s all about,” notes Glenn English, CEO of the National Rural Electric Cooperative Association, the Arlington, Va.-based service arm of the nation’s 900-plus consumer-owned electric co-ops. “It gives electric cooperatives the opportunity to address climate change and at the same time generate the amount of power we need to meet the needs of our members.”

Squeeze on Power, Costs

Even though demand for electricity is predicted to increase 18 percent over the next decade, capacity to generate electricity will increase by only 8.4 percent, according to the North American Electric Reliability Corporation, a non-profit organization charged with monitoring America’s power system reliability. This means unless new power plants and transmission facilities are built to generate and move the power, Americans will face the almost unimaginable possibility of being uncertain whether electricity will be available when they most need it.

And climate change legislation could have a dramatic effect on power generation and electric bills. Along with federal lawmakers, state and local officials across the country are considering measures that would add expense to the production of energy.

EPRI’s analysis recognizes this reality and encourages aggressive new action in seven specific areas: boosting energy efficiency, improving the operating efficiency of advanced coal-fired power plants, investing in renewable energy, expanding nuclear power capacity, capturing carbon dioxide produced by coal-fired power plants and storing it deep underground, adding distributed generation resources, and putting plug-in hybrid electric vehicles on the road.

Massive Mobilization

The recommendations represent what is probably the most realistically achievable path to cut carbon dioxide emissions to the levels of years past, though implementing many of them on a large scale will require a massive investment of government and taxpayer resources and mobilization of every sector of the economy. Making some technologies (notably carbon capture and storage) commercially viable will require expensive research and development—an estimated $1.4 billion annually through 2030. But Revis James, director of EPRI’s Energy Technology Assessment Center, says he feels confident the overall goals can be met through a progression of milestones.

“Let’s suppose that as a society we want to send a man to Mars,” James says, offering an example of a project similar in scale. “Are we currently building rockets designed to go to Mars? Absolutely not. But we do have technology available now that will be valuable in getting there.”

James sees curbing carbon emissions in the same way. “Underlying research has already laid the foundation. We’ve got a good bedrock of current technology to build on in years to come.”

Energy Efficiency

 Energy efficiency stands as the most cost-effective approach for managing electricity use and lowering greenhouse gas emissions. Steps include making simple modifications around a home or office, such as replacing insulation or caulking air leaks around doors and windows. Energy efficiency measures can also reduce the amount of additional generation that will need to be built. Still, energy efficiency improvements will reduce electricity consumption by 9 percent over the next 22 years, according to EPRI.

 New domestic renewable energy resources, such as wind, solar, hydro, and biomass (including landfill gas, livestock waste, timber byproducts, and crop residue) can help diversify our nation’s fuel mix, shrink dependency on foreign sources of energy, and reduce greenhouse gas emissions. EPRI sees “green power,” led by wind energy, leaping from 2 percent of kilowatt-hours produced nationally today to 6.7 percent by 2030. Of course, most quality sites for wind generation are in remote areas, so transmission lines must be built to bring the power to population centers.

Nuclear Energy

 Many more nuclear power plants will be needed to meet the growing demand for electricity and reduce greenhouse gas emissions. EPRI proposes that roughly 12 two-unit nuclear plants come on-line in the United States by 2020, with two more plants then added each year through 2030. On average, it takes 10 or more years to construct such a facility, including regulatory review and permitting. Presently, only six license applications for new nuclear reactors have been submitted to the federal Nuclear Regulatory Commission, though many more are expected. Nuclear plants now supply about 20 percent of the nation’s electricity, but they are aging. No new nuclear plant has been built in the U.S. in about 30 years.

Advanced Coal-Plant Efficiency

 Presently, coal generates 50 percent of our country’s electricity and new technologies are being developed to improve plant efficiency and reduce carbon emissions. These new technologies must be implemented to improve coal plant operating efficiencies—finding ways to burn less coal and still produce the same amount of power.

Carbon Capture and Storage

 Effective ways to capture and store carbon dioxide emissions can make coal—a readily available and affordable fuel, of which the U.S. has at least a 250-year supply—an integral part of the nation’s electricity portfolio. Research and development of carbon capture and storage technology will likely take years, if not decades, to come on line—assuming the federal government makes a sufficient investment of taxpayer funds.

Plug-In Hybrid Electric Vehicles and Distributed Generation

 Plug-in hybrid electric vehicles and small-scale power plants owned by consumers are also among EPRI’s solutions. In the first project of its kind, electric co-ops are testing whether plug-in hybrid electric vehicles can wean the nation off foreign oil, curb greenhouse gas emissions, and increase off-peak electric sales. Distributed energy resources, such as “backyard” wind and solar systems as well as emergency generators, help electric co-ops reduce load during times of peak demand (the electric utility industry’s equivalent of rush-hour traffic and the time when power costs skyrocket) offset the need to build new power plants and transmission lines, and reduce greenhouse gas emissions.

In examining the opportunities available in each of these six areas, electric co-ops have emerged as industry leaders in the continuing effort to provide safe, reliable, and affordable power in an environmentally responsible manner.

Little more than a decade ago, California-style electric deregulation was thought to be the wave of the future and Enron Corp. was a juggernaut, striking fear into the hearts of small utilities and expected to sweep all before it.

Then the California scheme crashed and burned, and Enron turned out to be more blimp than battleship—hollow inside and lighter than air—and most people in states that hadn’t hopped on the restructuring bandwagon probably thought rough-and-tumble utility restructuring was dead and gone.

Not so fast.

This spring, lawmakers in several states are dealing with the consequences of 1990s restructuring experiments, and regulators in California are even contemplating revival of a key component of theirs.

Would You Believe…?

It may be hard to believe, but California regulators have been investigating the possibility of bringing back what amounted to the centerpiece of their state’s restructuring plan: direct retail access.

This spring, with eight years to ponder the consequences of the bungled experiment, the California Public Utilities Commission responded to a petition from a business coalition by starting a review process that could revive the practice which allows retail customers to deal directly with power producers, bypassing incumbent utilities.

That incumbent utilities and power producers aren’t the same people is a hallmark of many restructuring plans, by no means limited to California. Compelled by law to sell generation assets and become energy distributors, restructured utilities have been buying power from producers at unregulated wholesale prices and reselling it to retail customers.

Many power providers dealing directly with retail customers in restructured states had—or have—no generation assets of their own. Reliance on wholesale markets to furnish power for resale is one reason retail competition has withered or failed to develop: Buying wholesale electricity at market prices to resell at rates capped by regulation has been a loser’s game.

Caught in this trap at the beginning of the decade, California’s two biggest utilities were being bled dry. This prompted state government to take over as the wholesale power supplier—buying power on the utilities’ behalf after Pacific Gas and Electric filed bankruptcy and Southern California Edison came close.

Customers with direct access were allowed to keep it but lawmakers halted any expansion. The state taking over as middleman and minimizing its risk by clamping a lid on new retail access was supposed to stop the bleeding—and did, but consequences linger.

Costs of the initial experiment are still being paid. Monthly bills still include a surcharge to pay off state-issued bonds that financed a legislated 1990s rate reduction, as lawmakers borrowed $10 billion to buy down electric rates and create the illusion of immediate customer benefit from restructuring.

And this spring, state regulators have reportedly been looking for ways to end the state’s long-term power-purchase contracts, some of which are scheduled to run for nearly another decade.

Ironically, while the fiasco that was designed and enacted through the mid- to late-1990s and that imploded through 2000 and 2001 was created by an enthusiastic Legislature, state lawmakers today are among the most vocal opponents of reopening retail access.

Can You Go Home Again?

Among states that took the plunge into electric restructuring during the go-go1990s, most have tried to mitigate the consequences, but there is no unanimity about how.

Two examples, Ohio and Maryland, had considerably different results from their experiments and have been pondering considerably different remedies.

first, Ohio enjoyed modest success by allowing local governments to aggregate customers and shop for the best wholesale electricity deals on their behalf. But the number of competing electricity suppliers dwindled as wholesale power costs rose, and real competition failed to materialize.

Today, with rate caps set to expire in 2009 and potentially big rate increases looming, Ohio policymakers are toiling to put something safer in place. But rather than reassemble the old status quo—a task that’s in some respects impossible—Governor Ted Strickland has been shooting for a remake of state energy policy, and Republicans who control the Legislature are trying to make wholesale competition work.

In a plan already approved by the Ohio Senate, Strickland would keep rate-setting power for state regulators and expand reliance on renewable and alternative energy sources, conservation, and efficiency. Market-based wholesale pricing would remain, but with the Public Utilities Commission supervising competitive bidding.

At press time, the Ohio House was poised to vote on a version of the bill that retains aggressive alternative energy targets but moves closer to pure market pricing for wholesale power and regulatory pass-through of costs to consumers. Strickland had threatened a veto.

In Maryland, the whopping rate increase landed before the state started trying to find its way back to traditional regulation. Governor Martin O’Malley, who won election in 2006 partly by attacking a 72-percent Baltimore Gas and Electric (BGE) rate hike, has said he’ll get as close as he can to restoring the old regulatory regime.

We’ll see. Constellation Energy, the holding-company parent of BGE, sued the state to recover $386 million in credits to customers under 2006 legislation aimed at reducing the impact of the big rate increase. Constellation said the sanctity of contracts was at issue and accused the state of breaking the deal agreed to under the 1999 restructuring law.

Early this spring, the two sides agreed to a settlement that will see additional rebates of more than a half billion dollars to BGE residential customers, while the state will stop investigating whether Constellation benefited excessively when it took over BGE’s power plants in the restructuring deal. The settlement followed a realization, according to the Baltimore Sun, that “neither side could afford to keep fighting.”

Maryland’s Pubic Service Commission will continue to investigate how and whether it’s possible to return to traditional regulation.

Meanwhile, BGE customers await another rate increase of slightly more than 5 percent beginning in June to let the utility recover higher wholesale power costs that have risen, in part, because of federal wholesale market rules.

Same Beginning, Same End

Nearly half of the 50 states enacted some version of electric restructuring in the 1990s, and while no two of them started out with the identical approach or adopted identical remedies when the experiment fell short, they all have two things in common.

First, all of them were motivated to restructure because they believed consumers were paying too much for electricity, and less regulation—that is, less government intervention in the market—would solve the problem.

And second, all of them wound up with their consumers paying more for electricity after restructuring and with more regulation—more government intervention in the market—than before.

Late this past winter, the Baltimore Sun calculated that with the pending June rate hike included, BGE customers will be paying 85 percent more for electricity than before the Legislature approved its restructuring plan nine years ago.

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