We should build a four-legged energy stool, not a for-profit superhighway.
Power for the people
A.J. (Nino) Amato
While we do not know the cause of last summer’s massive blackout, we do know that the nation’s electric transmission system is overloaded, antiquated and misused.
By "misused," I mean the system was not designed as a for-profit superhighway, wielding power from region to region. That’s analogous to putting I-90 traffic on Mifflin or Pinckney streets in downtown Madison day after day. It would not work for long.
But advocates of a competitive energy market made that fundamental miscalculation, just as their miscalculations about deregulation blew up in California three years ago with skyrocketing prices and energy shortages.
Still, we are told that Wisconsin needs more deregulation and competition in its energy market. I strongly disagree.
It is a mistake to think that the energy market operates like other commodity markets. Electricity is not like pork bellies, corn or Bucky Badger sweatshirts. It cannot be stored for future sale. Supply must be generated to meet demand in real time. As a result, traditional price and market-clearing signals do not work.
With a spike in electrical demand, you cannot go to the storeroom and pull out old electrons from the stockpile, nor can you save newly generated electrons as inventory once demand falls.
Wisconsin clearly needs fresh thinking to deal with increased energy demand. A market-based solution is no answer.
Energy prices here are skyrocketing. Electricity rates were, on average, the lowest in the Midwest until 1997. Now, out of the eight states in our region, we rank fifth highest for residential and fourth for commercial and industrial. During that same period, electric rates in most other Midwest states have remained fairly steady—or even declined—while ours have climbed.
These rate increases are, in effect, a property tax increase on anyone who owns a home, rents an apartment, runs a business and uses electricity. They hurt people on low and fixed incomes, forcing them to make impossible choices about whether to buy food, electricity or medicine. And it is a job tax, as employers must spend more on energy and invest less in wages, training, benefits and job creation.
Meanwhile, our supplies are faltering. Every summer since 1997, Wisconsin has been on the verge of an East Coast-style blackout. The transmission system here is antiquated and overloaded. Power-generating capacity is inadequate. And programs to encourage energy conservation, which are funded by ratepayers and taxpayers in this state, are being decimated precisely at a time when cost-effective conservation is needed.
What do we do?
Here are six suggestions for the state's Public Service Commission (which regulates energy in Wisconsin) and the Legislature.
1. Declare that Wisconsin will not deregulate its energy marketplace. Let’s not repeat the California debacle or head down the East Coast-blackout road. Instead, we should reintroduce Wisconsin’s commitment to progressive, responsible public oversight that protects consumers instead of bowing to the appetites of the utilities.
2. Focus on generation, transmission, renewables and conservation -- the four-legged stool of sound energy policy. Yes, Wisconsin needs new power plants and new transmission lines. But it takes three years or more to build them after approval by regulators. Sound and cost-effective conservation tools are an essential energy supply bridge in the interim, and they make sense because they reduce our reliance on costly imported energy.
3. Restore all of the energy conservation money that was stripped from the state budget. Anything less is double taxation: Ratepayers contributed to the conservation funds, and if the money is not restored they will wind up paying again in the form of higher energy rates.
4. Strengthen the role of the PSC. Understaffed and outgunned by high-priced utility lobbyists, public relations firms and consultants, we need to provide the agency with more technical experts to expedite rate cases and applications for new facilities. We also need ethics and integrity safeguards, with a new state law prohibiting commissioners and staff from taking a utility job within two years after leaving the agency.
And we need to strengthen the PSC’s ability to audit utility performance and intervene when power plant staffing and maintenance levels are inadequate. We should reinstitute the policy of allowing PSC staff to take positions on issues, not just report “neutralities” to consumers.
5. Include consumer groups and any other interested ratepayers when negotiating and approving wholesale power contracts between utilities and independent power producers. Case in point: After one state utility signed a contract with an independent power provider, a review and challenge by consumer advocates resulted in the utility’s rate request being lowered by some $4.5 million. That intervention should have happened during the negotiations on the front end of the contract, not years later during a regulatory review.
6. Empower the customers in long-range energy planning. To his credit, Governor Jim Doyle directed PSC Chair Burnie Bridge to undertake a strategic energy assessment that “evaluates the adequacy and reliability of the state’s current and future electric supply.” In the Wisconsin Electric Reliability Act of 2000, a key provision also requires the PSC to promulgate new reliability reporting rules for utilities.
These are good initiatives, but both have displayed alarming weaknesses. The assessment is limited only to facilities that will commence construction within three years, and due to understaffing at the PSC, reliability-reporting rules are nowhere to be seen.
We do not need a return to the cumbersome 20-year Advance Plan process. But we do need a robust strategic planning process that brings energy consumers, environmental groups, energy providers and energy regulators together.
Again, generation, transmission, renewables and conservation must all be part of this strategic planning mix, with electric efficiency and conservation being at the very top of our list. That is good public policy and sustainable economic development.
Although the alarm bells are sounding, it is not too late. Wisconsin enjoyed decades of progressive government regulation, reliable energy supplies, and affordable rates. With the right level of engagement from all parties involved, and the voice of the consumer clearly heard, we can move forward again.
March 28, 2004
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Nino Amato is president of the Wisconsin Coalition of Energy Consumers, the Wisconsin Industrial Energy Group and the Wisconsin Technical College System Board, and a member of the University of Wisconsin System Board of Regents. He lives in Madison.