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Mark Palmer@ENRON 09/26/2000 08:51 AM To: Steven J Kean@EES, James D Steffes/NA/Enron@Enron cc: Subject: Dereg Articles Should we ask the guy that did the deal with Champion Paper to write a response? ----- Forwarded by Mark Palmer/Corp/Enron on 09/26/2000 08:49 AM ----- Ann M Schmidt 09/26/2000 08:14 AM To: Mark Palmer/Corp/Enron@ENRON, Karen Denne/Corp/Enron@ENRON, Meredith Philipp/Corp/Enron@ENRON, Steven J Kean/NA/Enron@Enron cc: Subject: Dereg Articles F.Y.I. Metropolitan Desk; Section B Debate on Need for New Power Plants Ignores Conservation By KIRK JOHNSON 09/26/2000 The New York Times Page 1, Column 2 c. 2000 New York Times Company New Yorkers heard a lot this summer about why their electricity bills were going up and why a new generation of power plants was needed, and the message centered on one word: demand. Millions of new air-conditioners, computers and other gadgets are humming, blinking and draining electricity from the power pool, utility executives and state energy officials said over and over again. The 40 percent jump in electricity rates that many in the region were assessed in August was only a hint of what could lie ahead, those officials suggested, if residents did not accept more power plants in their neighborhoods. What the public was not told was that the people framing the argument for building power plants have an abiding interest in selling more electricity. Nor was the public told that the means already existed to dampen demand and reduce the amount of new power needed, if the political will could be exerted. Before New York's energy markets were deregulated, beginning in 1998, the state required companies like Consolidated Edison to reduce demand in the system -- through energy efficiency measures, for example -- if that choice was cheaper than building a new plant. Under deregulation , that requirement has been lost. In an open market, every participant wants to sell more energy, and the government agencies in New York and other deregulated states that once compelled companies to think of alternatives have become silent or powerless. ''The reliability problems and price spikes in the last two years have led to a simplistic set of solutions: build more power plants,'' said Richard Cowart, director of the Regulatory Assistance Project, a nonprofit energy policy institute in Montpelier, Vt., that works with state regulators and utilities. On the new playing field, Mr. Cowart and other experts said, the incentives are all one-sided. Power generating companies have no motive to encourage people to use less energy or to use it more efficiently because the most money is to be made when demand is at its peak. And electricity delivery companies make more money by sending more electricity through their wires. ''The incentive to sell more electricity is overwhelming,'' Mr. Cowart said. Certainly, demand for electricity is rising in New York and across the country, and most experts agree that some added generating capacity is needed. And New York State's top electricity official, Maureen O. Helmer, chairwoman of the Public Service Commission, has emphasized in her recent speeches that conservation and efficiency measures must be part of the solution to rising demand. The problem, environmental groups and energy analysts say, is that in an arena in which government has taken a step back through deregulation , it is harder for regulators to make those opinions count. Given the tone of the debate in New York and the sharp jump in prices this summer, it would be easy for the public to think that the region's energy situation is worse than it actually is. Most long-term projections for the region say that demand will increase less in New York State and New York City than in the nation as a whole during the next 10 to 15 years. New York, it turns out, is not an energy hog. The most recent official long-term projection for New York, called the State Energy Plan, issued in late 1998, said the state could get by with only a very modest expansion in generating capacity for the next 10 years, or no expansion at all if the levels of electricity that utilities are required to hold in reserve could be modified. The rate of growth in demand is also slowing down, not accelerating. Within the territory served by Consolidated Edison, which includes all of New York City and its northern suburbs, peak demand, the highest single moment of energy use on the heaviest day of the year, rose by 1.7 percent a year from the mid-1990's to the end of the decade. In the new century, that growth rate is expected to be 1.2 percent a year. ''It will be more modest,'' one senior Con Ed official said. The main implication of those projections, economists and energy analysts say, is that most of the increased capacity proposed for New York City may not be needed at all, at least to meet new demand. In the Con Ed service area, meeting a 1.2 percent growth in demand through new supply alone would require an increased capacity of 500 to 750 megawatts over the next five years. Developers and power plant builders have proposed a total increase six to eight times greater than that in the next three years alone. ''No one plant can make the argument that it's really needed,'' said Ashok Gupta, an energy economist at the Natural Resources Defense Council, a private conservation group. ''Like malls, power plants are now being built for market share.'' Predicting energy demand is notoriously difficult. In the early 1970's, for example, the accepted wisdom was that energy use would continue to grow at the rapid pace that it had in the 1960's. Academics and utility industry officials said the country might need 1,000 nuclear plants by the turn of the century. But the oil shocks of the mid-1970's and early 1980's forced the introduction of energy-efficiency measures that made those forecasts worthless. Energy use as a percentage of the nation's economy, called energy intensity, began declining and has done so ever since. Some energy officials have said the problem of rising prices and the overwhelming focus on supply is the result of a still-new electricity market that is not yet functioning as intended. Theorists who had envisioned competition as the door to a golden age of consumer choice had predicted that companies specializing in demand reduction -- they sell ways to cut energy use through technology or better management -- would compete with companies selling supply. But that has not happened yet. Part of Con Ed's prediction of more modest growth in demand in coming years is based on the expectation that demand-management companies will emerge within the next few years, company officials said. But state regulatory officials also made the political decision in the late 1990's to reduce spending for conservation and efficiency measures. The state, which once led the region in financing for alternatives to new supply -- an effort that included television commercials urging people to think about saving energy -- now spends about a third as much per capita as most states in the Northeast, including Connecticut and New Jersey, according to figures from the New York State Energy Research and Development Authority. Last month, a report filed with the State Public Service Commission recommended an increase in financing for the efficiency program. The report was produced by representatives of the electricity industry, working alongside consumer and environmental groups. But the state's utilities, including New York State Electric and Gas, Niagara Mohawk and Con Ed, refused to support the final report because they were unhappy with its conclusions. '' Deregulation undermined the role of utilities in promoting energy efficiency,'' said Edward A. Smeloff, the executive director of the Pace Law School Energy Project, a research and advocacy group that helped write the report. As electricity companies have become more conscious of the bottom line under deregulation , Mr. Smeloff said, demand-reduction programs have become a threat to profits. For utilities that buy most of their power from other companies, moving more electricity through the wires has become the primary way to increase profits, Mr. Smeloff said. ''That's the business,'' he added. Utility officials say that much of their demand problems come down to one hour each year, that moment of peak demand when consumers are using the most electricity. To a great degree, planning revolves around the need to have adequate supply for that crucial moment so as to avoid blackouts. But experts like Mr. Smeloff say the tools already exist to dampen those peaks, and reduce prices to consumers as well, if only a constituency existed to push for the changes. Many business and residential energy uses are routine and could be postponed for a few hours to dampen load on peak days, a plan that efficiency experts say would be particularly easy in New York City commercial buildings where energy use is centrally controlled and monitored. In England, one electricity provider created lower rates for consumers who ran appliances like washing machines and dishwashers in off-peak hours. The program became so popular that power use in the middle of the night went up significantly during the discount-pricing window. Environmentalists also worry that increasing power capacity beyond the real demand in New York could create a kind of self-fueling spiral. If too many new plants are built, they say, prices will probably fall, encouraging people to use more electricity, while at the same time reducing incentives to save energy or use more efficient products. In New York and elsewhere in the country, much of the growth in demand is being driven by the spread of air-conditioning, especially from people buying extra units to cool more parts of their homes. Last year, Con Ed began a kind of visual history project in which employees began regularly photographing 90 apartment buildings in New York City and counting the number of window air-conditioners. In one year, the total went up by 5 percent. Some energy experts say more air-conditioning could further increase the spurts in demand that could in turn lead to more power plants, which many scientists say are prime sources of the greenhouse gases blamed for global warming. ''We have hotter summers because of greenhouse gases and more greenhouse gases because of more air-conditioning,'' said Joseph Romm, the executive director of the Center for Energy and Climate Solutions, a nonprofit consulting institute based in Virginia. ''It would certainly be ironic if people decided that the solution was more power plants.'' Chart: ''LEDGER: Efficiency Plans'' While New York State makes plans to increase its electric power supply, it is doing less to promote the efficient use of existing power. Graph tracks spending for efficiency programs since 1992. SPENDING PER CAPITA CONNECTICUT: $33.33 MASSACHUSETTS: $32.69 NEW JERSEY: $29.18 RHODE ISLAND: $17.00 NEW YORK: $9.67 (Sources: Natural Resources Defense Council; New York State Energy Research and Development Authority)(pg. B6) Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved.
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