July/August 1998

California Green Energy Fiasco: Is 'Cleaner Energy' Worth the Price?

Is deregulation a classic win-win proposition for California homeowners and businesses, as many green power marketers, mainstream environmentalists, and utility companies claim?

"This is an opportunity to cast that vote [for clean energy] without any lifestyle change," boasted an executive from Green Mountain Energy Resources, which is trolling for customers in the newly-deregulated California energy market.   "It can be done from your couch."

If only cleaning up the environment were so easy.  Hailed by major utilities and some environmentalists as a pain-free way to increase the availability of cleaner energy such as wind and solar power, energy deregulation looks more like a get-rich-quick scheme for clever marketers. Since April 1, when California became the first state to introduce statewide competition to the $230 billion electricity industry, the pitch for green energy has not stirred many couch potatoes.  Less than 10,000 customers--our of 11 million--have switched to expensive green options. Demand is dismal.  Enron, the Texas-based natural gas company, which was supposed to be the most aggressive renewable energy marketer, pulled out of
the residential market altogether citing lack of demand.  And cost considerations are also expected to be the critical factor for business, which uses two-thirds of all electricity.  Is deregulation a classic win-win proposition for California homeowners and businesses, as many green power marketers, mainstream environmentalists, and utility companies claim?  Can we really benefit the environment by buying energy products with politically-correct names as Wind for the Future, Clean 'n Green, and Earth Source?   Can we as consumers use our collective buying power to nudge the country toward renewable energy generation?


It is not often that Ralph Nader's Public Citizen aligns with conservative, free-market advocates such as Citizens for a Sound Economy.  What has brought them together is a mutual disgust with how energy deregulation is playing out around the country.  And their ire is directed as much at the country's highest-profile environmental groups as at the energy giants.

In recent years, the established utilities have successfully lobbied legislatures deregulating their electric industry for a bailout of as much as $250 billion in bad debt -- so-called stranded costs, investments in nuclear plants and coal facilities that are not expected to be profitable in a
deregulated market.

Remarkably, the bailout has the backing of the Environmental Defense Fund, the Natural Resources Defense Council, and the Conservation Law Foundation, among mainstream environmentalists.  In exchange for their support, California's big three shareholder-owned oligopolies agreed to pony up some $2 billion in new
investments for energy efficiency, renewable energy, and low-income energy

But it's a Faustian deal.  In effect, environmentalists had convinced themselves that demand for green energy would soar after deregulation, enticing energy generators, including big utilities, to increase renewable energy output.  So far, it's been a sorry bet.

"It's been a predictable failure from both a public policy and a marketing perspective," says Nancy Rader, an energy policy consultant who has advised the Wind Energy Association.  "As its now designed, the fig leaf of promised lower rates is being used cover up a bailout of utilities who wasted taxpayer money on nuclear energy.   That's corporate welfare.  And we're talking billions
of dollars."

As with natural gas competition, deregulated energy is moving towards a multi-tiered system in which large corporations get the biggest cost breaks. Although California mandated a 10 percent rate cut, under Assembly Bill 1890 every power customer is forced to pay a special surcharge to help the shareholder-owned energy giants pay off as much as $28 billion in stranded costs.  And that rate cut, as well as the money for energy efficiency and renewable energy, will disappear in a few years.

"It's the greatest tax heist in California history," says consumer advocate Harvey Rosenfield, who heads a group known as Californians Against Utility Taxes.


Energy deregulation is more than just a failure of execution.  Let's be clear about what constitutes the 'green' in green energy, deregulation-style.  The handful of green power companies are "shells," marketers linked to utility giants set up to create a green brand identity to generate potentially huge profits.  The 'greenest' offering is the "Wind for the Future" option by Green Mountain Energy Resources.   Don't let the green in the corporate name fool you; GMER is affiliated with Green Mountain Power, Vermont's monopoly-provider, which draws almost 50 percent of its energy from nuclear sources with most of the rest from large-scale hydropower.

So what about GMER's "Wind for the Future" product, which idealistic customers can get for a whopping 20 percent premium?

It contains only 10 percent wind energy from new sources.  Twenty-five percent of the mix includes energy from nuclear, coal, natural gas, oil and large-scale hydro projects. The remaining 65 percent, marketed as renewable energy, was already contracted to be generated.

"The vast majority of the green products on the market rely on reselling cheap existing renewable power from neighboring utilities that are not deregulated," notes Nancy Rader.  This does nothing to expand the generation of and demand for renewable energy."

Almost all of the green energy hyped by marketers is already in the pipeline.  For the most part, for every slice of electricity going to customers of high-priced green energy, an identically browner slice goes to the rest of the region.  The net effect on the overall energy pie is zero.


Some activist groups stung by the deregulation fiasco have begun to fight back, although it may be too little too late.  Californians Against Utility Taxes has gathered 700,000 signatures to force a November vote to repeal the  bailout.  A similar vote is set for Massachusetts.

Not surprisingly, both the NRDC and EDF, who bet our environmental house on their paper version of "green" energy, are actively opposing the citizen initiatives.

Here's what concerned citizens can do.  Don't let shifty corporate environmentalists and green marketers bless a welfare bailout of the country's most profitable polluters.   Support the November initiatives in California and Massachusetts.  And if you have the opportunity in your state, switch to a low-price provider.  Then donate the savings to renewable energy organizations that haven't fallen for the siren song of green marketing.