The biggest thing to come out of the Democratic National Convention in California last month, other than Al and Tipper's smooch, was the bad news about electric deregulation. California was one of the first states to turn electricity prices loose and the only state to jump into deregulation without a net. Delegates and reporters visiting from the rest of the country got to see first-hand the awful splat: In San Diego, electric bills in August were more than double the prior year's, and consumers were in open revolt, refusing to pay.
All the more interesting, therefore, that Richard Harkrader, the lone environmentalist on our own state's 28-member Study Commission on the Future of Electric Service, remains a proponent of deregulation in North Carolina--if it's done right. A big if. But unless we deregulate, Harkrader says, CP&L and Duke Power will maintain their stranglehold on our market, keeping renewable, "green-power" sources like solar energy out and their own coal-fired and nuclear plants in.
"Only when the system is opened up for competition would there be opportunity for renewable energy generators to put power into the grid," he argues.
"From the beginning," Harkrader says, "California has been a good example of what not to do, and San Diego is the worst of the worst." By contrast, he points to Pennsylvania, the only other state where deregulation has advanced to the point that you can make a judgment about it. There, the public interest group PennFuture says the competitive market for electricity has saved consumers $3 billion in less than four years and welcomed a host of "green trailblazers" into the business. The group reports that a half-million customers have chosen new suppliers, and 80,000 of them are buying "cleaner or renewable energy products" that are "acting powerfully to change the electricity industry and to reduce smog, acid rain and emission of global-warming gases" that the coal plants, in particular, put out.
The difference between the two? California let its utilities charge "market rates" before competitors had time to enter the market, thus putting consumers at the mercy of unregulated monopolies at least in the short-run. Meanwhile, Pennsylvania capped utility rates for a transition period of up to 13 years while establishing rules to promote competition and help consumers know what they're buying, what it costs and how they can conserve energy to keep their bills down.
In North Carolina, the big push for deregulation has come from industrial companies who expect to buy in bulk, at lower rates, in a competitive market. Progressives have been wary, though, because unlike California and the other states where deregulation is underway, our electric rates are below the national average, not above it.
In that sense, Harkrader, 52, is an exception to the skeptical rule. A Durham architect-builder, he goes way back as an advocate of renewable energy--including the solar, wind and biomass sources that held so much promise in the energy-crisis '70s, only to disappear from the public agenda in the '80s. Now "retired" except as owner-manager of some of the apartments he built, he's embarked on a second career as an activist. Part of the time, he's in Nicaragua with his wife, Lonna, who's spearheading work on a model farm and coffee cooperative through a nonprofit called the Durham-San Ramon Sister Community Partnership. Otherwise, he's a full-time volunteer working for the N.C. Solar Energy Association.
Harkrader also holds the designated enviro-seat on a study commission dominated by state legislators and representatives of the utility industry. The commission's now in its third year. So far, it's reached just one conclusion: North Carolina should deregulate, but on a go-slow timetable with a target date of 2007. Another target looms much closer, however. The commission is supposed to tell the General Assembly next year what to put in a deregulation bill. To do so, it must address a number of hard-nut questions:
Should CP&L and Duke Power be broken up as a prerequisite to deregulation?
What other steps can the state take to assure that deregulation leads to more competition, not less?
Should the state protect small, residential customers in a market where big-business has more buying clout?
If nuclear plants, like CP&L's Shearon Harris plant in Wake County, are too expensive to compete in a competitive market, does the state have to subsidize them by paying their "stranded costs?"
So far, the commission's attention has been fixated on the nuclear issue. Shearon Harris and one of Duke's nukes were under construction in 1978 at the time of the Three-Mile Island accident; the resulting safety requirements, and double-digit interest rates, pushed costs up so high that the utilities could only finish them using a complicated scheme in which 51 municipalities, the ElectriCities, bought shares using the state's good credit and tax-free borrowing power. (See "Power Play," March 31, 1999.)
The ElectriCities have never paid off the debt; in fact, it's doubled in the two decades since to almost $6 billion. A study done for the commission by the Research Triangle Institute estimated that, under deregulation, at least $3 billion of that would qualify as stranded--"costs that are uneconomic in a competitive environment." Duke and CP&L also claim about $1 billion each in stranded costs; the RTI study suggests that, depending on who's counting and how, the utilities may have no stranded costs at all. That's Harkrader's view of it. They've earned back their investments, he thinks. On the other hand, he's sympathetic to ElectriCities' customers--including the residents of Apex and Wake Forest--whose rates are already higher than their Duke and CP&L neighbors. The state got them into the nuclear mess, he thinks, and it has an obligation to bail them out.
The likely outcome is that stranded costs will be added to everybody's electric bills, as a surcharge, for the first few years of deregulation. But that remains to be decided. At least as important is whether consumers will be protected from price gouging and predatory sales practices--and for how long.
California's problems should put those questions front and center when the commission resumes its work, following a hiatus for the legislative term, this Thursday. Meanwhile, a small group of consumer and environmental advocates, including Harkrader, Mike Rulison of the N.C. Consumers Council and Rob Schofield of the N.C. Justice and Community Development Center's Utility Watch Project, will host a meeting in Raleigh Sept. 28 to talk about what the progressive stance on deregulation should be.
Harkrader thinks the key to successful deregulation is breaking up the utilities--splitting their power-plant generation and the retail sale of electricity into separate, independent companies. He fears, though, that the utilities' political power will allow them to remain intact, with different operating divisions still under their corporate control.
The problem with that, he points out, is that only power-generation is going to be deregulated. Power delivery--the wire into your house--will still be a monopoly, since it wouldn't make any sense for different companies to be stringing their own wires all over town.
But if the company that controls the wires is also competing on the generation side, he says, "an accounting nightmare" will result. That company could load the costs of its marketing, its lobbying and executive salaries onto the retail side, resulting in higher charges to competing generators for access to the wires and lower prices for their own plants.
Still, it would be an improvement on the current setup, under which the utilities run the plants, the wires and the transmission lines, or "grid," that connects them.
The utilities are guaranteed a 13 percent rate of return on virtually all the money they spend, Harkrader says, so they have little incentive to be efficient or innovative themselves. But they do work to keep competitors off their turf. How? By keeping them off the grid.
Let's say you want to put up windmills in the mountains and sell the power to customers down on the flats. You can't under deregulation. You've got to sell it to a utility first to get it on the grid. But the utilities have convinced the Public Utilities Commission to set the price for your power at a low, low rate called "avoided cost," instead of the companies' actual generation costs. Essentially, avoided cost is what it would cost the utilities to generate the same amount of power using the cheapest possible fuel.
It's almost as if farmers were forced to sell corn to the only supermarket in town for the price of the seed, without counting the cost of the farm.
The big advantage of renewable sources, Harkrader points out, is that their "seed"--the sun, the wind, or in the case of biomass, organic matter from farms and elsewhere--is virtually free. But the capital costs of installing solar panels, windmills and biomass generators are still high relative to, say, pouring more coal into an old generating plant that's long since paid for. The other big plus for renewables is that they're clean--they don't pollute. But that's no advantage if the cost of the coal plant's pollution isn't counted against it. And under Public Utilities Commission policies, it isn't.
For those reasons, Harkrader says that while the Public Utilities Commission could make room for green-power generators even without deregulation, he holds out little hope that would happen.
"Put it this way: There's a possibility of input from citizens and different interests [than the utilities] at the PUC, but it hasn't happened in the past," he says.
With renewables blocked at the grid, their progress here has been limited to backyard windmills and solar panels over the living room (Harkrader's old company put up quite a few), cutting homeowners' bills one at a time.
But if deregulation's done right, Harkrader says, every neighborhood, and every office and industrial park, could have its own array of solar panels set out on open ground or atop the highest roof, transmitting power--via the grid--to every house or business that wants to buy it.
As much as he loves solar power and wind, though, Harkrader says the potential of biomass generation far outstrips them both. He sees a future in which the methane gases generated by landfills are used to turn electric turbines, with the power sold to the grid. And he sees hog wastes burned--no, "digested"--in a generator that looks like a septic tank; microbes "eat" the waste, breaking it down into liquid compost and methane gas that runs the turbine or a fuel cell. And what exactly is a fuel cell?
"It's like a battery in reverse," Harkrader says. "It takes methane and strips the electrons off of it by combining it with oxygen, producing water and heat."At this point, it's probably important to note that Harkrader is a quiet-spoken person, not given to hyperbole. Talking about fuel cells, though, he's suddenly ecstatic. "It's almost magic!" he exclaims.
That would be magic, getting our electricity from hog poop. But the costs of making it happen--for research and development as well as startup capital--will be daunting. And the federal effort to push alternative fuels that began under President Carter in the '70s came to a screeching halt in the Reagan '80s, when oil and natural gas prices tumbled. Now they're bouncing skyward again, of course.
What Harkrader and his progressive allies propose is that a public benefits fund be created as part of a dergulation scheme. Their goal is a small surcharge on electric bills that would create as much as $100 million a year in incentives for green producers to come into the market.
Rulison, of the N.C. Consumers Council, says the fund could boost efficiency in energy markets in a variety of other ways, too, from helping low-income consumers tighten up their houses to subsidizing price-sensitive electric meters, so consumers could easily cut back usage when demand on the system is peaking. He says he's pro-deregulation as long as residential customers are assured their rates will be no higher with it than without it. Every customer must have a "default provider" who's required to sell him power when no one else will, he says. But he doubts everyone will see rates go down, as some proponents have promised.
"You can't have a free market and mandate that everybody ride for less," he says.
Schofield is even more skeptical of deregulation. California's problems "are a reminder that markets are markets," he says. "They go down, and they go up."
Those interested in attending the Sept. 28 meeting of consumer and environmental groups should call Schofield at (919) 856-2570.