September 9, 1997

Deregulation and Green Marketing: The Threat to Safe Energy

by Jon Entine

"Nuclear free electricity," boldly proclaimed Working Assets Green Power (WAGP), one of 30 power marketers competing in a New England electricity deregulation pilot project.

It was the first marketing volley in what is shaping up as a brutally competitive battle over the country's estimated $300 billion a year electricity bill. At risk is the future of the fragile renewable energy market which seeks to develop long-term alternatives to dirty fossil fuels and nuclear energy.

WAGP is a sister company of Working Assets Long Distance (WALD), which has developed a loyal following by promoting itself as a "socially responsible" alternative in the ultra-competitive telephone long distance business. It's followed a similar script marketing electricity, banging relentlessly on the social justice hot-button in pilot projects in New Hampshire and Massachusetts.

"Does the power come from a company owned by the developers and owners of Seabrook nuclear power plant? If you don't ask, they won't tell you," reads one flyer sent by WAGP to prospective customers.

WAGP was apparently betting that no one would ask. As it turns out, it acts as a middleman, buying all of its power from New England Electric Systems (NEES), part owner of Seabrook and the dirtiest utility in New England, according to Rob Sargent of the Massachusetts Public Interest Research Group.


Electricity is the nation's biggest experiment with deregulation, but so far the debate has played out far below the public's radar screen. Studies indicate that competition could shave as much as 40% off the average electric bill, although the greatest savings are expected to go to industrial and large-volume consumers, while residential buyers could end up with little gain.

The potential spoils from deregulation have fused an odd green energy alliance among some right-wing Republicans, nuclear energy lobbyists, mainstream environmentalists and green marketers. Although most energy in the United States today comes from polluting, non-renewable sources - primarily coal, oil, natural gas and nuclear - the onset of deregulation has led alliance members to make hyperbolic promises of so-called green energy.

In recent months, the Environmental Defense Fund, the Natural Resources Defense Council and the Conservation Law Foundation have all struck tactical deals with major utilities in the apparent belief that the free market is the most realistic way to increase alternative energy generation.

As a result of these alliances, power companies such as Pacific Gas & Electric, Southern California Edison, San Diego Gas & Electric, AEP, and ENRON are backing limited green power initiatives. But the working agreements come with a pound of flesh: these environmental groups have tacitly agreed to support lucrative purchases by the utilities of other energy companies and, in some cases, not to oppose write- offs of billions of dollars in money-losing investments in nuclear plants.

The Congressional strings in support of this alliance are being pulled by ultra-conservative congressman Thomas Bliley. The Virginia representative, best known as the tobacco industry's most loyal friend on Capitol Hill, has become a born-again green power advocate. "Given a choice, " said Bliley earlier this year, "American consumers will be more effective in protecting the environment than any number of government regulators."


The green energy sweepstakes got underway in 1996 in New Hampshire when the state opened a fraction of its market, 3%, to competition. Working Assets CEO Laura Scher, a rising star in the socially responsible business movement and a board member of Business for Social Responsibility, not only pitched clean energy, but cut-rate prices.

"We are offering people an opportunity to save money and save the environment at the same time," she stated. Scher heralded her "commitment" to solar and wind energy and publicly mused about the day her company could offer 100% renewable energy.

The San Francisco-based company, which also offers green-branded credit cards, phone, Internet and paging services, has made a name for itself in liberal circles by giving away Ben & Jerry's ice cream to customers and donating 1% of billings to activist social causes. It advertises heavily in liberal publications like Mother Jones and E Magazine, and sells its services at a significant premium based on its green- branding image.

But Working Assets' energy promises appear to be more green wash than green power. The energy brew going to its trusting customers is among the highest-priced of the power marketers (as much as 53% more than other participants in the pilot), and is generated mostly from coal, nuclear, oil, and natural gas. WAGP buys all its energy from New England Power Company (NEPCO), a subsidiary of the $2.3 billion NEES, the region's second largest utility. NEES holds shares in four nuclear power plants (including Seabrook 1) and has 40 Superfund toxic waste sites.

The marketing mirage, which went undetected at first due to New Hampshire' s lack of disclosure requirements, has stirred up a hornets nest. Responding to criticism, CEO Scher released a carefully-worded mea culpa. "Time constraints limited our ability to incorporate more renewable sources and work more closely with environmental groups," it read.

Scher disclosed her actual energy contracts only after the controversy escalated. WAGP says it negotiated to purchase shares of the output from 11 of NEPCO's power plants, including hydroelectric, natural gas, landfill gas, and oil-pumped storage facilities. "None of these sources are nuclear plants, Hydro-Quebec (which destroy lands) or coal facilities," Scher argued.

Working Assets is not the only company pushing the green marketing hot-button. Northeast Utilities, the primary owner of the region's nuclear capacity, recently offered customers in the Massachusetts pilot 100% hydroelectric power. Both companies supply electricity generated from existing sources, simply reallocating the "greener" sources to those consumers who request them.

Critics have raised two issues with these marketing claims. First, the companies did not tell customers that all energy producers, clean and dirty; send their electrons to a central grid where they are mixed and sent into homes. So regardless of where the power is generated, everyone gets the same energy mix. According to the New England Power Pool, 26% to 60% of that energy is nuclear. Less than 5% is non-hydro renewables, primarily landfill gases and trash-burning incinerators. Not one solar or wind electron is fed into the grid or into the homes of Working Asset customers.


The second criticism asks whether green marketing will actually result in more green energy. MIT economics department chair and NEES board member Paul Joskow says that green marketers in New England did not contract for any additional cleaner energy to be fed into the grid, but merely rearranged existing contracts. Such paper shuffling has "no positive effect on the environment in the short run," emphasizes Joskow.

In her defense, Scher says her intention is to create a critical mass of demand so that power marketers like Working Assets could offer real green energy in the future. "In the long run, if it's recognized that customers are willing to pay more for green power, it may attract additional investment," says Joskow.

But almost everyone, Joskow included, believes that's a high-risk strategy. Only a small fraction of prospective consumers in New England opted to pay the significant premium for cleaner energy, while inexpensive, albeit, "dirty" electricity, was also available. Less than 100 people chose Working Assets in New Hampshire. In Massachusetts, only 1.2% of those eligible signed up for green electricity, far below projections. Cost considerations are also expected to be the critical factor for business, which uses two-thirds of all electricity.

Energy advocates warn that without continued regulations, these projects may relegate alternatives to permanent niche status as boutique premium-priced products. The mix will only change, they say, if increased demand for green power causes existing renewable-fuel plants to be utilized more, or new plants to be built, while nuclear and coal plants are shut down. But producers are not likely to mothball existing dirty plants as long as customers are price-sensitive.

The Environmental Defense fund (EDF) and NRDC argue that it is too early to give up on the free market. In Colorado, Minnesota, and Michigan some marketers are actually proposing to add wind-generated energy into the mix, and Arizona Public Service has announced a solar project.

EDF recently jumped into the green marketing game with two very different projects. In May, it announced a deal with the Bonneville Power Administration to offer environmentally beneficial energy at premium prices. But as with the New England offerings, no new alternative energy is being generated. In contrast, EDF has established a joint effort with Massachusetts- based ReGen Technologies to add wind and solar plants to the New England grid.

In California, the Natural Resources Defense Council gave its blessing to a plan that forces consumers to pay for some utility debts from unprofitable investments in nuclear plants in exchange for industry backing of green energy projects.

The romance with green marketing has unsettled critics who worry about turning the future of renewable energy over to those least interested in nurturing it. "The sham green power marketing schemes offered in some areas," according to Bill Magavern of Public Citizen, "are already being used by anti-environmental leaders as a rationale against enacting federal clean air protections" and other measures to support renewables and energy efficiency.

Renewable advocates note that similar to recycling, it may take years before there is enough demand for renewable energy to make its price competitive with fossil fuels. Until then, caution and government controls remain necessary. "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," says Paul Jefferiss of the Union of Concerned Scientists.

The big enchilada of energy deregulation gets underway next January 1, in the battle over California's $20 billion market. All factions in California have signed on to a disclosure mechanism that should result in more clean-generated energy, and all agree that accountability and disclosure are key. "Building a market on fraudulent advertising, " emphasizes MIT economist Joskow, "is not a long-term formula for success."