Power struggle: will utility deregulation finally unplug 'dirty' electricity?

At United Illuminating Company's harborside Unit 3 in Bridgeport, Connecticut, built in 1969, Kentucky coal rides in on a conveyor belt to five huge blue silos that can each hold 700 tons. When pulverized to the consistency of talcum powder and burned in UI's huge boilers at 2,500 degrees, the product is steam, which turns a humming General Electric turbine at 3,600 revolutions per minute, generating 400 megawatts of electricity for county consumers.

In the plant's control room, a constantly moving printout takes note of the emissions from Unit 3's 500-foot smokestack. Power plants account for 36 percent of U.S. emissions of carbon dioxide, the most damaging greenhouse gas. Sulfur dioxide is also an environmentally damaging byproduct of burning coal (along with mercury, lead, cadmium, selenium and hydrochloric acid). Where do those emissions go? "It depends on which way the wind is blowing," says Wayne Barrett, Power Supply Support Engineer. Midwestern coal stack emissions end up as pollution in the Northeast, so the wind can carry particulate matter quite a long way. Unit 3 can also burn fuel oil, which produces far less fly ash, but prices for minimum-sulfur "compliance" coal are so low these days that UI has leased out its oil tanks.

Unit 3 is old technology, and it could well become obsolete in the new millennium, when consumers are likely to be able to choose their own utilities. As a sign of the times, UI is collaborating with Duke Energy Power Services of Houston and Siemens Power Ventures of New York to build an environmentally advanced $260 million natural gas-burning turbine on a grassy site now occupied by UI picnic tables. UI is a small utility, dwarfed by Connecticut's Northeast Utilities (NU), and it's preparing for a brave new world, full of both challenges and opportunities, that will end forever the days of cozy monopolies and captive customers.

Utility deregulation is a national movement. Six states have passed deregulation bills in their local legislatures (Rhode Island, California, New Hampshire, Montana, Maine and Pennsylvania) and bills are pending in more than 40 others.

The momentum for deregulation comes from large utility customers who want to "shop around" for the best electricity rates. For the last 100 years, utilities have operated as local monopolies, with varying degrees of price and practice regulation from the state and federal governments. In a deregulated environment, consumers could choose an electric company the way they now do a long-distance telephone service.

Deregulation presents both challenges and opportunity for the environment. As Rob Sargent of Massachusetts Public Interest Research Group points out, "Without the right protections in place before we 'restructure' the industry, there could be a rush to dirty electricity sources like coal and oil, which might be cheaper in the short run."

Coal and oil plants like UI's - and many in the Midwestern "rust belt" - are "grandfather" protected against the tougher standards imposed by 1977 amendments to the Clean Air Act. A growing number of environmental leaders are raising their voices to ensure that when deregulation does come, it includes stringent safeguards for renewable technologies and energy efficiency. They're also vigilant against utility efforts, as part of deregulation, to pass along to rate payers all the costs of their"stranded assets" - the increasingly uneconomic, white elephant nuclear power plants that most of them have on their books. Nationally, these stranded assets amount to an astonishing $250 billion.

Scott Denman, executive director of the Washington-based Safe Energy Communications Council, notes that Wall Street - not noticeably friendly to renewable energy - is calling nuclear power "an economic dinosaur. Companies like Bear Stearns and Prudential have issued reports saying that nuclear reactors are not going to be able to compete economically. Given Wall Street's two thumbs down, we should not be throwing good money after bad with any more nuclear investment."

But utilities don't have to own nuclear plants to have investments in them. UI, for instance, hasn't built any, but it owns 17.5 percent of New Hampshire's much-protested Seabrook plant, and 3.5 percent and 9.5 percent respectively of both NU's Millstone III and Connecticut Yankee (both now closed). Its"stranded assets" total $1 billion, much of which it would have recovered from rate payers if recently proposed Connecticut legislation had passed.

California's deregulation bill, passed unanimously in August 1996 and signed by Governor Pete Wilson a month later, grants the electric utilities a whopping $28 billion in stranded asset payments from customers to subsidize the state's increasingly ailing nuclear industry. Denman thinks that's an unfair burden on rate payers, and he also opposes "securitization" - state guarantees (through bonding) of stranded asset debt. "Utilities were not forced to put nuclear plants into the rate base," he says. "They took a marketplace risk, and it was contentious - consumer advocates and grassroots groups opposed what they were doing. They simply made a bad investment."

Howard Learner of the Chicago-based Environmental Law and Policy Center of the Midwest, one of the country's leading authorities on what he calls "the nuclear endgame," predicts that 10 to 15 plants will be closed down in the next decade. (The Department of Energy is even more pessimistic; it estimates that between 1995 and 2015, as many as 93 plants will retire, leaving nuclear power at just 10 percent of the power grid.) Like Denman, Learner argues that utilities don't have the right to recoup all the money they gambled on nuclear power, though he concedes they should probably get "a fair allocation." A more significant issue, he says, centers on what type of power replaces the mothballed nukes. "As nuclear plants shut down," he says, "it's extraordinarily important that as much of the replacement energy as possible be cleaner rather than dirtier."

A model for the nation is the taxpayer-owned Sacramento Municipal Utility District (SMUD), which closed its troubled Rancho Seco reactor in 1988, and has since turned itself into one of the "greenest" utilities in America - with low rates and one of the country's best utility bond ratings. But will the SMUD model be followed nationally? Rich Ferguson, director of research at the Center for Energy Efficiency and Renewable Technologies, admits, "Solar is still a long way off. An optimistic estimate is that it costs three times what natural gas costs. But everybody loves it."

According to Ralph Cavanagh, energy advocate for the Natural Resources Defense Council, "It matters enormously how the restructuring is done. It's not really 'deregulation' - there will still clearly be monopoly elements, and significant pollution into the indefinite future. But if we can expose those dirty plants to the full force of competition, we can accelerate their retirement and replace them with alternative energy."

To ensure that process being set in motion, Cavanagh and others argue for minimum renewable energy content and new technology development funding; a national public benefits trust to ensure minimum levels of investment in energy efficiency; an end to reduced clean air standards for older, dirtier power plants; and congressional action on interstate pollution.

Keenly competitive utilities are unlikely to pursue renewable and energy efficiency programs on their own, but they can take heart in the growing market of what's called "green power" (generated from clean sources, not fossil fuel or nuclear). Excluding hydroelectric, green power accounts for only one to three percent of the current nationwide grid, but its share is growing, and consumers have demonstrated their willingness to pay more for it.

Alan Nogee, a senior energy analyst at the Union of Concerned Scientists, thinks the current state negotiations are critical, because most deregulation plans will kick in on January 1, 1998. "There are lots of risks and a number of opportunities," he says. "Utilities will be concerned above all with reducing their immediate prices to gain more market share, and that could be bad for renewable energy and efficiency programs." CONTACT: Center for Energy Efficiency and Renewable Technologies, 1100 11th Street, Suite 321, Sacramento, CA 95814/[phone]; Environmental Law and Policy Center, 203 North LaSalle Street, Suite 1390, Chicago, IL 60601/[phone]; Safe Energy Communication Council, 1717 Massachusetts Avenue NW, Washington, DC 20036/[phone].