Energy and the role of utilities [The Price of Power studio session]

Transcript: Energy and the role of utilities

As we learned during the California energy crisis of 2000/2001 and the Enron scandal shortly after, many utilities don't actually produce the energy they sell to their residential and business customers; they buy, trade, and sell it like any other commodity. But unlike traders of other commodities, utilities are subject to extensive and on-going regulation by state and local utility commissions. And that fact means, love 'em or hate 'em, that utilities are often where consumers can go and have the most influence on energy policy.

These are selections from the whole transcript. Some comments will also occur on other themed pages because they cover more than one topic.

Peter Johnson: I would say that I think the emphasis is on demand side management, efficiency and conservation more today than it's ever been before. And the simple reason is that this exercise in, experiment in deregulation has not worked. It is dismembered; it is, we're, we're in a crisis; most utilities can't even finance their base resources, not at this time anyway. Heaven knows how we're going to get through that as we try to get our feet back on the ground after this experiment in deregulation. But so all the more reason why right now, today? And for the next 10, 20 years demand side management, in other words efficiency and conservation, are going to be at the forefront of how we best deal with this problem that we've created.
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Ralph Cavanagh: But Corbin you wouldn't suggest for a second that we've tried as hard as we could. Look at the utility industry across the country where there are just enormous disparities there are some superstars, but there are a whole lot of people who aren't even trying. And look at the record just if you think sure its hard if the question is how to get people to react to hourly changes and prices nobody's suggesting that's been a roaring success, but if you're talking about base load energy efficiency and centers and standards to do better that same Pew Charitable Trusts you just invoked has written the book on the national success story in energy efficiency. It really has been the fastest, cheapest and cleanest way to take the pressure off both the power and the gas grid and that's what we're talking about here the big base-load programs. Let's get them revived. Let's get the whole utility industry engaged because you know its not now.
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Corbin McNeill: But you need to find the incentivized way to do that. It's not in the utilities' interests to reduce its sales.
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Jude Noland: And that's one of the big problems, that's one of the big reasons that energy efficiency and conservation has, has not it I think going back to what you said Peter I think after the Northwest Power Act passed in the 1980 the '80s was a time of incredible growth in conservation activities a lot of utilities in the northwest were very creative in terms of things that they came up with, programs that they could do. With the start of the move towards deregulation and the Energy Policy Act of the early '90s utilities kind of stopped because they're saying well we don't know if we're going to have to do this. We don't know if we're going to get reimbursed for it. And so a lot of that activity as well as transmission, infrastructure upgrades and new generation all of that was put on hold because no one knew what was going to happen as the industry started down this path towards restructuring. So I think now is the time when we're coming back and conservation is seeing a much bigger emphasis you're seeing utilities get back into least cost planning where they take a look at what all these different resources are going to cost them to provide to their customers. And the other thing I wanted to point out is with the new technologies in terms of meter reading and other things you could take that away, the individual customer doesn't have to think about whether its costing him 5 a kilowatt hour at this point or 2 later you can do direct control of water heaters where people don't even know that the utility has turned the water heater down during a certain period. It can all be done automatically and not affect the lifestyle or the activities of the person in the household.
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Michael Grainey: I think the prospects are very promising, and I guess I'm still very skeptical about utility executives and you know the industry better than I you, you were there.
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Michael Grainey: Is willing to invest in your nuclear power.
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Corbin McNeill: And in fact it's not clear to me that the first, the first investors in new gas turbines were not traditional utilities, they were the upstart, independents like Calpine, Dynagy, and I'm not so sure that the new nuclear plants are not going to be built by a non-traditional utility company.
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Ralph Cavanagh: I agree with that. And for research and development you should look wide and you should take risks. But then at some point when you're in a deployment and commercialization. I don't support, Oregon's biggest investment I think has not been through the tax system it's been through the utility bill and the fundamental point there is I think the Oregon judgment and I agree with it is you want for the very diversification reasons we've been describing you'd like to have part of your portfolio out of fossil fuels and that's a judgment that a number of other states are in the process of making too.
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Michael Grainey: You know utility programs have been a big part and as part of the issue was raised earlier about how utilities can finance conservation and be against their own interests, one of the ways we dealt with that was with the public purpose charge that was imposed on all utility customers regardless of who your utility is it's a 3% charge on your utility bill that funds energy conservation and renewable resources. And that replaces it's about the level of the utility programs that they were in the past and that's about $50 million a year. So that's an important part although its just one piece of the effort for energy conservation and renewable resources in Oregon.
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Peter Johnson: When nuclear was first approved the Congress was behind it solidly, reprocessing of the fuel rods and one thing another, there were a number of other technologies that were taking a great deal of money. But I think what we have to look at today is the fact that we've run out of money. Our federal government's run out of money. I think our utilities have run out of money; they can't even finance, for heavens sake, what they need today. There's going to have to be a selection made of the premier options and again I believe that demand-side management, conservation, efficiency has to be right up at the front because I think there is, that's one of the best ways we have. The title of our program, the Price of Power, if we want to keep the price down I think it will do a better job of it by putting a great emphasis right now. We can buy some time until the money catches up with those three or four technologies that should lead us into the future, but I think that, that one of the reasons we haven't gotten very far with several of 'em is simply because we were trying to do too many and we don't have the money to do that anymore.
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Ralph Cavanagh: Well, see I think this is, this is precisely the wrong way to look at it because then you have quotas for everybody, like in the relative level of enthusiasm and political clout and I still think we are best off if we have an honest process that has all of us theologians in there. I'm going to push for all efficiency and Corbin is going to be in there with every nuclear plant he can muster. But Peter is right there isn't, the fundamental problem is one of economic scarcity, and my biggest concern right now is the, the institutions that are most important in making these decision are our utilities. We haven't talked enough about them. Because they have one fundamental problem if you want to take Peter's advice that efficiency and demand side solutions are the best it is a problem as Corbin mentioned that most utilities profits are tied to increasing sales. The good news is we know how to fix that. Like you know Oregon pioneered rate reforms that break the link between utilities profits and the amount of electricity and natural gas they sell. The problem is those reforms have not been executed across the west and in fact virtually every utility in the west now has its profits tied directly to increases in the use of gas and electricity and that throttles investment inefficiency in demand side. The most important message for me to leave with folks is we know how to fix that problem, it is not inherent in the utility business. There are utilities that have solved that problem and become international leaders in energy efficiency and an overriding priority for the west right now ought to be solving that problem so the financial interests of the utility system are aligned with the interests of their customers in greater efficiency.
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Jim McClure: You asked a moment ago about what mistakes can we make in this field and what, what shouldn't we do. And we touched on this a little earlier, but I want to return to it because I think its fundamentally important. If you expect find answers don't expect the utility industry by itself to find all the answers. On the other hand don't expect the government by itself to find all the answers either. I think its going to take a partnership between all of the parties that are involved each one doing their part of it. Don't expect utilities to do what they will not do. Don't expect the government to do what it cannot do.
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Mark Maher: We see that struggle today in generators wanting to site their power plants and then want Bonneville and in my case to take the business risk and build transmission without a commitment of funds upfront or a long-term contract and so we don't have the money as, as Peter mentioned earlier. Government funding is going down and our borrowing authority ability is capped and limited and so our resources, transmission systems a capital sink, it takes a lot of capital to keep that running and maintained and to do expansions takes large amounts of capital. We don't have that and so we're looking for generators who want a site to front that. They don't have the funds to do that now and so we're, we're seeing a real lull in, in development.
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Ralph Cavanagh: This is it seems to me fundamentally is I happen to agree with Senator McClure on this point you have got to have a utility sector that can invest based on reasonable assurance about who its customers are and where the money will come from. A fundamental premise of Northeast style electric restriction Corbin as you well know is that all of that certainty is stripped away. The utility is denied its ability to serve as an investor on behalf of its customers and you basically rely on the spot market and entrepreneurs coming into the spot market and that I would submit hasn't worked very well. That is sure, in the short-term you can get some price reductions as the existing assets are shuffled around, but if you want long-term investment in the kind of infrastructure we're all talking about, demand or supply side there has to be a portfolio manager, a utility with the capacity to look along the arm, weigh the options against each other and pick the best buys. Without that we have chaos and we sure got that in the West in 2000 and 2001.
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Corbin McNeill: But that's a transitional issue. Until we learn the mistakes and they are expensive mistakes, but you have to go back, we didn't go into deregulation because the existing system was working. We went to deregulation because many people thought it was broken and that's what drove deregulation. It didn't, deregulation didn't occur in the Northwest because they didn't have a broken system.
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Jude Noland: So from that perspective I think to, to get policy makers and, and utility customers in the Northwest and California to look favorably on deregulation is going to be a real challenge because we saw our rates go up by 50% when we had done nothing literally.
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Corbin McNeill: I'll go back and reiterate: we didn't go into deregulation because the existing system worked. We went there for those areas of the country that went to it, they went there because they considered the previous system broken.
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Jim McClure: I would submit that it was the wrong answer for whatever problem existed. There were some problems. Deregulations not the total reason for California market cratering the way it did; it was a regulatory climate that preceded that, that prohibited investment.
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Jude Noland: But part of the, part of the issue was there were a lot of people who believed that they could make a lot of money if the utility industry were deregulated and, and a lot of people did make a lot of money and then of course that money went away for a lot of those people, such as Enron, but, but regardless that was a big part of the incentive was if we open this market up to deregulation and prices are based on the market that's great because then you know if, if power's in short supply its going to be more expensive and so we can build new plants and make a lot of money building. . . plants.
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Corbin McNeill: I will tell you that the consumer in Great Britain under similar circumstances has incurred a windfall in lower prices in their market.
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Jude Noland: I'm not sure if that's necessarily totally true.
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Corbin McNeill: Well, at least in the last four years they have.
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Ralph Cavanagh: But it's called . . . to the west. I think what it comes down to here, I doubt you disagree with this, in the west right now for better or worse the investment decisions we're talking about are by in large going to have to be utility decisions. The old, the high-flying entrepreneurs who were going to come in and take over for the utilities are either gone or bankrupt.
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Ralph Cavanagh: Or dependent on utility contracts to do anything and so I think as, as the public tries to sort out how is this going to play out, what's going to happen the big utilities of the west -- the Idaho Powers, the PacificCorps', Pacific Gas and Electric when it emerges from bankruptcy in the wreckage of the California restructuring -- what decisions they make, what incentives they face and how they figure out to bring their customers into some of this, that's why this is really going to play out and happily everybody has a hometown utility and sometimes the hometown utility's policies are a whole lot easier to influence as you know Senator then a distant capitals on the east coast. And I think all of us would encourage folks who care about these issues to learn more about what the local utility's doing, what is it investing in energy efficiency, what efforts is it making to tap into those opportunities that Peter Johnson identified. What renewable energy options is it seeking. What's its long-term perspective on nuclear and fossil? These issues are being played out in every hometown utility in the west and that's where the real action will be for the foreseeable future on all of this.
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Ralph Cavanagh: There are a wealth of resources available to members of the public two, two things we talked a lot about today, one is use energy more efficiently where increasingly your local utility is helping and there are a wealth of options available to you and I, like Senator McClure, am a technology optimist in this though we're probably optimistic about slightly different technologies. On renewables, if you like renewables, you can invest in them directly through your, through your utility bill increasingly across the Northwest that's possible. There are institutions like the Bonneville Environmental Foundation that let you, if you want to wherever you are in the country simply buy out your pollution emissions associated with your electricity use if it's important to you as an ethical matter to do that. I do that, I encourage others to do it.
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Mark Maher: From a local level utilities more and more are having least cost planning and having public meetings. Get involved. Go to those meetings, express yourselves, understand what those issues are. I encourage folks to do that. We'll be embarking on several public processes in Bonneville, and I just ask people to get involved and give us your input.
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Corbin McNeill: Look at what is happening in your local arena and becoming knowledgeable, staying current on that and looking for the advantages that you can achieve. I last year Bonneville through my local cooperative offered a big energy savings discount and I didn't pay an electric bill for like six months, but.
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Jude Noland: Just the only other thing I would say is this is such a complicated subject and issue people can start by actually reading their utility bill because nowadays your utility will usually tell you the where the power that you use comes from and gives you an option as Ralph mentioned that if you want to pay a little extra to buy wind power you can do that. So you can start by looking at your utility bill, try and understand what's in there and what your utility is doing. Lots of people spend time surfing the web there's lot of sources of energy information on the, on the internet, so start that way, find things that you're interested in and Google 'em.
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Ralph Cavanagh: But of course we don't want to have to rely solely on volunteers to solve national environmental problems and so the other, if you read your utility bill and can't understand it, if you don't know where the power is coming from and don't see the energy efficiency investments then the hometown utility remains a crucial point of leverage as an investor for all of us.
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