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The evidence presented above suggests that to be successful, a restructured electric system should have seven fundamental characteristics: Friendliness to innovation. The greatest failing of the existing electric system is its antipathy to revolutionary technology. What is needed is a flexible system that encourages both long- and short-term R&D and remains open to new technologies and changing consumer needs. To a certain extent, restructuring laws have reflected an understanding of the need for additional R&D. The California restructuring legislation passed in 1996, for example, requires the state's utilities to spend $250 million on R&D for new and existing generation technologies through the end of 2001. Another $540 million will be specifically allocated for research on renewable resources technologies. To encourage work on energy efficiency, the law mandates expenditures of at least $872 million through the end of 2001. However, no requirements for research on renewable resource technologies or energy efficiency have been established for 2002 and subsequent years. True competition. The rules governing the electricity industry should encourage the emergence of new, innovative firms and restrict the market power of established ones wherever that power tends to inhibit competition. Here too, California legislators took the lead by creating institutions intended to prevent existing utilities from gaining too much power in a restructured system. For example, the California Public Utilities Commission ordered 70 percent of the state's transmission lines to be transferred to a state-operated Independent System Operator. This body centralizes control over transmission networks, coordinates the scheduling and dispatching of power from suppliers, and provides open access to generators as a means of encouraging competition. Moreover, the commission has suggested that the state's utilities divest themselves of generating facilities. In other states, such as Massachusetts, restructuring laws have actually required such divestments. True competition, however, requires more than just a number of competitors. It also requires that consumers have relevant information so that they can make informed decisions. To help electricity shoppers, the California legislature passed a law in 1997 that requires retail suppliers to disclose the sources of their power. Thus, customers can learn what percentage of their electricity was generated from traditional fossil-fuel sources and what from renewable resources. In Texas, Governor George W. Bush recently signed a restructuring law authorizing the state's Public Utility Commission to establish rules by which retail electricity sellers must disclose the negative impacts of their power generation as well as provide proof that their claims regarding environmental benefits are valid. Strategic environmental thinking. Corporate and government decision makers need to consider what type of electric system will meet U.S. society's air quality, climate, and other environmental goals. Where more competitive markets seem unlikely to meet those goals, minimal environmental standards should be imposed. Even in a restructured electricity market, government regulation will not disappear altogether. Although state public utility commissions will no longer be involved in setting rates, they will still have some authority to deal with environmental matters. In Texas, for instance, the commission will be responsible for enforcing a new provision requiring all electricity suppliers to either develop their own renewable energy sources or buy credits from companies that have. Moreover, the law establishes a schedule for increasing the total amount of renewable energy used within the state. By 2003, suppliers must provide an additional 450 MW of electricity from renewable resources, and by 2009 they must have a total of 2,000 MW of new renewable generating capacity. The state utility commission will supervise these changes. Self-sustaining markets. Renewable energy and energy-efficiency firms must seek self-sustaining markets; policymakers can help them to do so by removing the hidden biases toward conventional technologies. As noted above, the Texas restructuring legislation requires implementation of renewable technologies, partly in the hope that by 2009 those technologies will be mature enough to compete in the market without government assistance. In California, CEC will support technological advances by identifying the most competitive new technologies and helping to foster a market for renewable resources (in part by certifying and publicizing eligible renewable resource providers). A preference for distributed energy. Because distributed energy resources tend to increase the efficiency and decrease the environmental impact of the electric utility system, they should be encouraged. Distributed energy faces a complex web of regulatory, statutory, and practical barriers, however. For example, regulations for connecting these technologies to the power grid differ not only among states but also from utility to utility, making it difficult for manufacturers to develop products for national or regional markets. Similarly, the spread of residential photovoltaic systems and other distributed energy technologies is limited by neighborhood covenants that prohibit homeowners from altering their property in any visible way. In many cases, public policymakers can remove such barriers by requiring standardized approaches. Comparable environmental standards. No existing facility should have a competitive advantage due to looser environmental requirements; in particular, old coal-burning plants should be required to meet the same environmental standards as new facilities. Some states have begun attacking the highly polluting power plants that have survived largely due to grandfather clauses in environmental laws. Here again, the new Texas restructuring law may be a trend setter. It requires that the older plants reduce nitrogen oxide emissions by 50 percent and sulfur dioxide emissions by 25 percent by May 2003. Though these plants will not be as clean as the newest gas-burning or renewable facilities, they will be much cleaner than they would have been under federal law alone. Comprehensive environmental assessments. Policymakers should avoid replacing one environmental hazard with another (e.g., radioactive wastes with air pollution) if there is a more environmentally benign alternative. Achieving this goal will require a good deal of public and political activity. California took a major step in this direction in the 1970s, when it forbade the construction of new nuclear power plants until waste disposal and other problems were resolved. It has taken another important step in this decade by using regulatory actions to encourage the development and use of renewable resources. With deregulation, however, the role of the state's public utility commission has declined. Strong marketing of green electricity to consumers and further development of environmentally benign technologies within the free market will be needed to maintain the state's traditional friendliness to renewable resources. As experience so far indicates, it will be no easy task to create an electricity sector with all of these characteristics. It will be especially difficult to preserve the vibrancy of a competitive market if the industry is required to meet so many other policy goals (and all the more so if it fails to maintain current environmental standards). As it happens, the prerequisite for attaining all these goals is the same: commitment on the part of the public. How can such commitment be fostered? The key may lie in green marketing—although not precisely for the reasons one might expect. The direct impact of green markets for power will probably be limited. The biggest obstacle to the emergence of such markets is the fact that few people understand the links between their own (often unconscious) decisions about energy use; the massive though often distant environmental degradation that may result from those decisions; and their own health and quality of life, as well as that of their children and grandchildren. Unlike in the case of low-fat or organic foods, most people see little personal advantage from buying green power. Paradoxically, it is precisely because of such ignorance that green markets will be so important. Only through massive public education will the United States be able to create public support for green products and the policies necessary to protect the environment. And given the conditions in the country today, only the private sector has the tools, the funds, and—potentially—the incentive to carry out this massive education campaign. Simply put, it is much easier to raise $100 million for a business venture than it is for a regulatory initiative. (Box 3 offers some pointers for consumers interested in purchasing genuinely green electricity services.) Buying green is ultimately a political act, an act that may be much more satisfying than signing a petition, sending an e-mail to a member of Congress, mailing a check to an environmental organization, or even (sad to say) voting for an environmentally sensitive politician. If green marketing takes off, however, people will probably be more inclined to do those things, too. Of course, there are risks to this strategy, and some environmentalists may regard it as "selling out." Nevertheless, as policymakers relinquish their authority to mandate environmental protection—which produced only modest results at best—green marketing may be the last, best hope for improving environmental conditions in a restructured electric utility industry. |
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