No Pain-No Gain: Is Energy Dereg Really Worth It?

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Eye from Albany
ESR Eye From Albany Column
November 2000

No Pain-No Gain: Is Energy Dereg Really Worth It?
by Paul M. Bray

We are seeing the notion that you can’t have gain without pain in action when it comes to energy deregulation. There were sighs of relief in many corners in Albany over the cool, wet summer we experienced. It allowed state officials to avoid what would have happened if surging consumer demand from summer heat outstripped the supply of electricity. But there are signs all over that a very bumpy roller coaster ride of deregulation is just beginning.

The deregulated market has already led to a 40% spike hike in Con Ed energy prices and howls of consumer pain were clearly heard in Albany. Possible power shortages this winter may lead to higher price spikes for all customers in the State. In a letter calling for an energy summit to Governor Pataki and Senate Majority Leader Bruno, Assembly Speaker Silver and Assemblyman Tonko declare that, ‘This winter, what we have repeatedly called an energy price crisis could become a full-blown energy crisis’.

Deregulation of energy in New York was driven by large customers wanting an alternative to regulated prices from utility monopolies and, at the time, independent power producers with power to sell. At least in the abstract it is easy to convince voters to believe in the market as opposed to regulated prices. But if the individual voter/consumer is to gain from increased choice by getting reduced prices, it looks like it won’t happen without some serious consumer pain at least in the transition.

One has to wonder how carefully energy deregulation was thought out. Energy unlike other deregulated industries like telephone and airlines is a commodity that we can not do without and that we have taken completely for granted. The regulatory system has a record of guaranteeing reliable and generally affordable power and smoothing the shocks that come from severe weather, oil politics and market forces. Where will that extra margin of power to make competition work for the consumer come from’

The Business Council argues ‘that New York must increase its energy supply by expediting the siting of new power plants’. But new generating plants face hurdles of environmental standards and community opposition. Few communities want power plants and transmission facilities in their backyard. While the State’s siting board gave the go-ahead to PG&E for a proposed 1,080 megawatt power plant in Athens, Greene County, the plant still requires Federal approval and must get past a law suit challenging the State approval.

The New York Power Authority plans to increase generating capacity with up to 11 new gas turbine generator sets placed in yet to be identified ‘best sites’ in New York City by next summer. Are these generators with their significant environmental impacts going to be forced on communities without environmental review’

The ideal from an environmental perspective is to have increased demand management and clean energy sources. There would be a major uptick in use of time-of-use meters to reduce energy consumption and on-site distribution generation sources like solar photovoltaics and fuel cells. These types of less polluting, energy efficiency sources of power are available now, but very far from pervasive in use. How can deregulation succeed without an aggressive effort to promote and foster energy efficiency and where is that effort in New York’ Such an effort is not happening and, in fact, pre-deregulation demand management efforts by utilities are history.

Even if adequate and clean power was available for competition to provide universal lower cost energy, there is also the question being raised whether consumers really want to have to make the choices deregulation offers.

A recent article in the New York Times points out that ‘Consumers grow more anxious as they are cut loose in electricity’s new free market’. Some social scientists are suggesting that there is a point at which people no longer wish to be autonomous, rational consumers and may wish to delegate their thinking and protection in some areas like energy to their utility and government regulators.

There should be little surprise when the next price spikes hit if there is a serious move to return to the days of regulated electric utility monopoly providers. This is happening in California where State Senator Steve Peace who was the architect of deregulation is proclaiming that government should take back control. No doubt that even price spikes without a full blown ‘energy crisis’ will generate political heat in Albany at a level not seen in many years.

Because of likely political heat it is going to be very tough for State government to make tough adjustments for an effective market structure necessary for energy deregulation to work. If energy becomes a political football as controversial issues tend to become in Albany, it is hardly likely that resources will be allocated to effectively educate consumers on options, assist consumers in getting the tools like time-of-use meters to be more energy efficient users, foster the development and use of energy efficient and environmentally friendly alternate energy sources and create safeguards to volatility in the market.

More likely to happen is finger pointing and knee jerk responses to the crisis of the moment. If that is the case, no one will win and there will pain without gain. The political repercussions will be major especially if the public decides that for electricity the promised gain from energy deregulation isn’t worth the pain.