Clean Power's Dirty Secret

By Jon Entine

Special to The Progressive Populist

The coming deregulation of the country's last monopoly, electricity, has mega-utilities and New Age "green" marketers working hand-in-hand, with both poised to reap a financial windfall. Consumers and the future of green energy may not fare as well.

Many renewable energy advocates contend that this alliance may slow or even end the move toward a viable, long-term clean energy market. The result of the current deregulation strategy, they say, would be to create dozens of energy marketing "shells" with little protection for consumers or assurance that renewable energy will have a significant place in the future energy mix.

This problematic union comes with the blessings of two lobbying groups that normally are at odds: ultra-conservative Republican lobbyists and high-profile environmentalists.

Congress and many states are laying the groundwork for the breakup of the electric utility industry. They are using as a model the deregulation of long distance service, which has reduced rates for long distance users, although costs for basic phone service have gone up. Studies indicate that competition could shave as much as 40 percent off the average electric bill, although the greatest savings are expected to go to industrial and large-volume consumers.

At stake is an estimated $200 billion a year spent on electricity generated by private industry. At risk is the future of the fragile renewable energy market which seeks to develop long-term alternatives to dirty fossil fuels and potentially dangerous nuclear energy.

The potential spoils from energy deregulation has led to an unusual alliance of convenience between energy deregulation supporters and green pricing advocates:
  • House Commerce Committee Chairman Tom Bliley, the Virginia Republican congressman also known as Mr. Tobacco, who is a utility industry favorite and a strong free-market advocate;

  • Working Assets Long Distance, which has become a successful niche reseller of long distance service by leasing lines from Sprint, marketing itself as "socially responsible" and claiming to offer lower rates but charging its idealistic consumers more than major competitors;

  • New England Energy Systems, ENRON, Pacific Gas & Electric and other major utilities and marketers who expect to become major players in the deregulated future;

  • Mainstream environmental groups like the Natural Resources Defense Council and the Environmental Defense Fund which have supported the write-off of utility debts in exchange for utility support for "clean" energy projects;

  • Large utilities with billions of dollars in money-losing investments in nuclear facilities -- Pacific Gas & Electric, Southern California Edison, and San Diego Gas & Electric are prominent examples -- which have aligned with mainstream environmentalists who support the write-off of these "stranded costs" in exchange for limited cleaner energy programs.

Based on the early returns in New England, the alliance has been a disaster for those enamored with green marketing. In pilot deregulation projects in New Hampshire and Massachusetts, electricity rates have dropped, almost entirely as a result of below-market pricing by marketers angling to net customers. Rates will kick up considerably with full deregulation. State officials also say that the pilot has resulted in no clean energy being added into the overall energy mix, despite claims by green marketers who are charging consumers a price premium.

Green Debits at Working Assets

IN 1996, NEW HAMPSHIRE became one of the first states to open a fraction of its market -- 3 percent -- to competition. The most aggressive "green" energy marketer was Working Assets Green Power, a sister-company of Working Assets Long Distance.

"Working Assets offers New Hampshire consumers NUCLEAR FREE Electricity," read a press release, also carried on its web page. "No coal or Hydro-Quebec power either." According to Working Assets CEO Laura Scher, "We believe there are thousands of New Hampshire residents who would appreciate a chance to support environmentally sustainable energy. These consumers would prefer not to support the nuclear power industry."

Scher not only pitched clean energy, but rock-bottom prices. "Consumers will be guaranteed a lower price than they currently pay for their electricity," she stated. "We are offering people an opportunity to save money and save the environment at the same time."

In a twist all too familiar in the self-promoting socially responsible business community, Working Assets promises appear more green wash than green power. According to data from the New England Power Pool (NEPOOL), which controls the energy mix, the actual electrons going into the homes of all customers in the region, including Working Assets', ranges from 26 percent to 60 percent nuclear. Coal and oil comprise the bulk of the remainder. Approximately 5 percent of electricity is generated by non-hydro renewables, primarily landfill gases and trash burning incinerators. No solar or wind generators feed into the pool. Customers must draw off of the New England grid, which mixes energy from all sources, clean and dirty.

Although it supplies customers with an energy brew generated primarily from nuclear, coal and oil, it charges a huge green premium. Its customers pay the most of the thirty-odd pilot project participants, as much as 53 percent more. Price comparisons for energy are a little difficult, however, since some marketers actually sold below cost to make a good showing in the pilot.

Working Assets has used similar green marketing tactics in its other businesses. Although CEO Scher is regarded as a star in the socially responsible business movement -- she is on the board of Business for Social Responsibility and has been a featured speaker at the Students for Responsible Business annual gathering -- her company's most distinctive characteristic is not its vanilla collection of commodity services but its marketing acumen. Working Assets offers electricity, telephone access, Internet connection, credit cards and cellular calling by relentlessly promoting its promise to give 1 percent of billings to popular social issues. It advertises heavily in liberal magazines, including Nation, Mother Jones, E-Magazine and Utne Reader.

Despite its pristine reputation, Working Assets is structured like a classic "green shell" thriving on the idealism of its customers and feeding off the scraps created by monopoly busting. It has no products to speak of, but offers "pass-through" services developed by other companies.

While it claims its long-distance rates are "lower" than the "Big Three", they range from 33 percent more on domestic calls to 400 percent or higher than AT&T, MCI and Sprint on international calls. Using numbers supplied by Working Assets, a long distance telephone customer that it charges $1,450 a year would pay AT&T about one-third less under AT&T's One Rate Plus plan. Working Assets would contribute 1 percent to charity, which amounts to about $5. The extra $500 or so would go into Working Assets' bulging pockets. Smaller competitors like Affinity and EarthTones have lower rates and kick back a far larger slice of their profits to environmental causes. Working Assets also charges its credit card customers as much as 18.65 percent interest, more than twice the rate of some competitors and far higher than 16.98 percent national average quoted in Money magazine. Its Internet service offers an out-dated web browser with no storage for a web page.

Brown Energy from Green Marketing

UNTIL ITS DALLIANCE in the green energy market, Working Assets green marketing strategy could be considered little more than clever marketing. The stakes in the energy business are far higher, however. To the extent that it, or any company, was seriously committed to offering cleaner energy, it could have contracted with hydro or renewable generators who actually generate "green" electrons. However, Working Assets did not contract with alternative energy producers, or even propose a plan to nurture development of green energy. It contracted to buy energy from New England Power Company, a subsidiary of New England Electric System (NEES).

Rob Sargent with the Massachusetts Public Interest Research Group characterizes NEES, a $2.3 billion company comprising New England's second largest electric utility system, as "the dirtiest utility in New England." Among its holdings: Seabrook 1, Millstone 3 and Maine Yankee nuclear power plants; part ownership of Yankee Atomic Electric Company which owns a 185 megawatt nuclear generating station in Rowe, Massachusetts; and a partnership with a non-affiliated oil company that participates in rate-regulated oil and gas exploration. NEES also acknowledges responsibility for at least 40 Superfund toxic waste sites.

Working Assets has negotiated what are called "unit contracts" or "shares." These contracts designated that it would buy only "clean" energy generated by NEPCO. In effect, it is no more than an accounting device. The contract did not result in even one "green" electron being added to the overall energy mix.

The San Francisco-based company is not the only marketer pushing the green hot button in New England. In another pilot project launched recently in Massachusetts, Northeast Utilities, the largest generator of nuclear power in the region, promised to deliver customers 100 percent hydropower. Similar to Working Assets' contract with NEPCO, NU designated -- on paper -- that only its "clean" production would go to pilot participants.

Noted MIT economist and NEES board member Paul Joskow has been sobered by the New England experiments with green marketing. "I think that people who sell green power have an obligation to reveal to their customers precisely what it is they're selling," he said. "They're basically reselling contracts that have been designated for hydroelectric facilities, for example, that have no short-run effect whatsoever on the dispatch of generation in the area, and have no positive effect on the environment."

In her defense, Working Assets CEO Scher says her intention is to create a "critical mass" of demand so that "green" companies like Working Assets will be able to offer "real" green energy in the future.

Debate Over Green Pricing

THESE REVELATIONS have sparked considerable outrage among renewable energy advocates, who have repeatedly warned about the dangers of a sappy affair with green marketing. One likely outcome, they say, is that in a market dominated by major utilities and hot-button green marketers, and without a comprehensive plan, slack demand could permanently relegate "green" energy to a niche product.

The free market green pricing strategy represents a fragile alliance of conservatives and some key environmentalists. EDF and more recently the Natural Resources Defense Council appear to have climbed on the free-market bandwagon. Their goals diverge, however. While key congressmen, such as Bliley, collect huge contributions from deep-pocket utilities -- USA Today estimated that energy industry lobbyists expect to spend $50 million on this issue alone in 1997 -- environmental advocates are betting that there will be a steady increase in demand for cleaner energy supplies, even at boutique prices.

That outcome rests on the risky demand-side proposition that residents will pay more for so-called "clean" energy. Despite surveys that claim that 60 percent of electricity customers would pay marginally more for "green" energy, less than 100 New Hampshire homes signed up for Working Assets above-market-price "green" scheme. Working Assets says it signed up 750 customers in the Massachusetts project. Overall, only 1.2 percent of those eligible to participate in the Massachusetts pilot chose the green option. The figures are far below predictions, and raise concerns that the premise on which green pricing is based, backed so fervently by the mainstream environmental groups, may be fundamentally flawed.

EDF and NRDC argue that it is too early to give up on the free-market model. California, which is the big enchilada of energy deregulation, is building in mechanisms that should result in more clean-generated electrons being added to the mix. Public Service Company, Platte River Power Authority, and Fort Collins Light and Power, all in Colorado, two Minnesota co-ops, Dakota Electric and Cooperative Power, and Traverse City Light and Power, among others, have all proposed or are implementing bona-fide green pricing programs in which new wind energy capacity is added to their generation mix and sold at a premium. In early May, Arizona Public Service announced it will build a commercial solar power plant and offer residential customers the choice of renewable energy at a premium price.

Many renewable-energy advocates remain skeptical. Nancy Rader, an energy consultant with the American Wind Energy Association, notes that given today's low market prices for electricity, and in the absence of an energy policy that is not tied so tightly to green marketing, generation of renewable energy may actually decline over the next few years. According to Bill Magavern of Public Citizen, "the sham green power marketing schemes offered in some areas are already being used by anti-environmental leaders as a rationale against enacting federal clean air protections, renewables portfolio standards, and public benefits charges for efficiency and renewables."

Ed Maschke, executive director of the Public Interest Group in California, says deregulation "attacks the basic role of government to control the power of monopoly corporations. It is set up by the political contributions of the large industrials who demanded and got access to cheaper power wheeled [obtained] from other suppliers ... and see [deregulation] as a brass ring in paying off decades of bad economic decisions."

Shake Out in the Environmental Community

The outbreak of misleading claims by social marketers was a major issue at a recent Attorneys General meeting in Washington, DC., where New England officials presented the details of their less-than-successful experiences. Yet the alliance of the huge utilities with mainstream environmental groups and conservatives in Congress could very well result in utility deregulation going forward with little monitoring and few if any disclosure requirements. The promise by deregulation advocates of lower prices may also turn out to be a mirage. The below-market teaser rates now available in Massachusetts and New Hampshire will certainly go by the wayside once the pilot period ends and companies have to pass along the "stranded costs" from years of investments in problem-riddled nuclear energy.

The green market fiasco has exploded inside the environmental community like a bombshell at a family reunion. In an attempt to preserve its fragile alliance, mainstream environmental groups have tried to keep the green marketing fiasco out of the press. However, the tight ship of "silence" has begun springing leaks. Articles have already appeared in some environmental journals, including a scathing editorial in Energy magazine. But other liberal magazines usually hot to crusade for environmental reform have inched away. Although editors at E-Magazine and other liberal journals were interested in running with the story, they reportedly told writers they were turned down by publishers who were reluctant to step on the toes of a major advertiser.

Paul Jefferiss of the Union of Concerned Scientists warns that the romance with green marketing risks turning the future of renewable energy over to those least interested in nurturing it. "We believe," he said, speaking on behalf of the UCS, "that the biggest risk to renewables development now is reliance on the unproved assumption that renewable energy will prosper without policy support in competitive markets that ignore external costs and benefits."

Renewable energy advocates note that similar to recycling, it may take years before there is enough demand for renewable energy that is price competitive with fossil fuels. Until that time, caution and deliberate controls remain necessary. Adds Maschke, "In the end, deregulation is a sham. At a time when we need focused regulation to increase conservation, we are leaving this to the market."

With the green energy movement up for grabs, this head-in-the-sand approach may have disastrous consequences for the future of renewable energy, as well as for other progressive causes. "Building a market on fraudulent advertising," remarked economist Joskow, "is not a long-term formula for success."