Green Buyers Beware
A CRITICAL REVIEW OF "GREEN ELECTRICITY" PRODUCTS
By Nancy Rader
October 1998
Public Citizen’s Critical Mass Energy Project About the Author
Nancy Rader is an independent consultant based in Berkeley, California, who specializes in policy matters relating to renewable energy and electric industry restructuring. Her 10-year career in renewable energy issues began in 1988 at Public Citizen's Critical Mass Energy Project in Washington, D.C., where she wrote two comprehensive reports on the status and potential of renewable energy in the U.S. At the consulting firm of Hansen, McOuat & Hamrin from 1991-1994, and from 1994 to the present in her own consultancy, Rader has represented and advised various renewable energy industry and public interest clients in state and federal regulatory and legislative proceedings. Rader served as West Coast Representative and Policy Advisor to the American Wind Energy Association from 1994-1998. From 1993-1995, she served as the prime support contractor for the Electric Power Research Institute's wind power program. Rader holds a Masters degree in Energy and Resources from the University of California at Berkeley and a bachelor's degree in Political Science from the University of California at Davis. Rader has written numerous articles on energy issues, which are published in The Electricity Journal, The Washington Post, and Energy Policy.
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ii CONTENTS
EXECUTIVE SUMMARY 1
I. INTRODUCTION 5
II. MUCH OF THE RENEWABLE ENERGY BEING SOLD TO CALIFORNIA GREEN CONSUMERS IS LITTLE MORE THAN FICTION 7
A. Most "Green Power" Products on the Market Merely Resell Power from Existing Utility-Controlled Renewables Plants That Are Fully Operational and Will Remain So Regardless of Green Sales 7
B. Sources of Green Marketers' "Renewable Energy" Product Content 12
1. Green Mountain Energy Resources 12
a. GMER's renewable energy "sources" are already being paid for by captive ratepayers, were already being fully dispatched, and require no further consumer support to continue operating 12 b. GMER's sales may actually result in a dirtier overall fuel mix 14
2. PG&E Energy Services 15
3. Edison Source 16
4. Keystone Energy Services 16
5. Sacramento Municipal Utility District (SMUD) 16
6. Enron Energy Services 17
7. cleen 'n green energy 18
III. CONSUMERS CANNOT TRUST EVEN "VERIFIED" CLAIMS 18
A. Verification of Green Product Claims Is Not Possible Without a Region-Wide Tracking System, Which Does Not Yet Exist 18
B. Private Verification Efforts, Such as "Green-E" Certification, Provide Consumers with Little, If Any, Additional Protection 22
IV. FALSE OR MISLEADING GREEN PRODUCT CLAIMS ARE COMMON 27
A. The Sale of Power from Existing Utility-Controlled Facilities Does Not Benefit the Environment 27
B. Claims of "New" Renewable Energy Content Are Deceptive, or Invite Consumer Abuse, or Both 28
1. The problem with "new content" claims 28
iii 2. Description of new content claims 29
a. PG&E Energy Services 29 b. Edison Source 30 c. Green Mountain Energy Resources 31 d. Enron Energy Services 31
C. Large Hydropower Products Do Not "Make a Difference," Are Not Environmentally Friendly, and Should Not Be Offered by Green Marketers 32
D. The Argument That the Resale of Existing Utility-Owned Renewables Will Eventually Make a Difference Is False 32
E. Green Marketing Materials are Replete with Various Other Misleading Statements 33
1. Claims of current solar and wind energy content are false 33
2. Marketers give the false impression that they contract directly with renewable energy producers 34
V. GREEN PRODUCT PREMIUMS ARE REQUIRED LARGELY FOR MARKETING AND ADVERTISING COSTS, NOT FOR RENEWABLE ENERGY CONTENT 35
VI. DESPITE HIGH PREMIUMS AND LOW-COST RENEWABLE ENERGY CONTENT, GREEN MARKETING REQUIRES ADDITIONAL SUBSIDIES 36
A. $75.6 Million in Direct Green Marketing Subsidies Are Available in California, and Are Necessary to Support Even Low-Quality Green Products 36
B. New Renewables Are Likely to Be Built for the Green Market Only If Supported by Public Policy 37
C. Without Continued Subsidies, the Green Market May Not Be Viable 38
VII. GREEN MARKETING IS UNLIKELY TO REVERSE THE CURRENT DECLINE IN RENEWABLE ENERGY PRODUCTION AND SIGNIFICANTLY DIVERSIFY ELECTRIC SYSTEM RESOURCES 39
iv A. Planned and Operating Renewables Have Been in Decline During the Debate over Deregulation 39
B. Currently Planned Investments in Fossil Fuel Plants Dwarf Planned Investments in Renewables 39
C. The Potential for Green Marketing is Overblown 41
D. Green Marketing Is Not Likely To Significantly Diversify the U.S. Electric Industry with Renewable Energy 42
1. Green marketing efforts are aimed primarily at the residential sector, so two-thirds of electricity sales are unaffected 42
2. Even optimistic green marketing projections would not significantly increase the total supply of renewables 42
VIII. MOST GREEN MARKETERS ARE AFFILIATED WITH POLLUTING COMPANIES AND ARE NOT ADVOCATES OF RENEWABLE ENERGY POLICY 45
A. Most Green Marketers Are Affiliated with Polluting Energy Companies 45
B. Can Otherwise Non-Green Companies Promote Green Energy? 47
C. Green Marketers Are Not Necessarily Advocates of Renewables or Renewable Energy Policy 48
IX. GREEN MARKETS DO NOT OBVIATE THE NEED FOR PUBLIC POLICY 49
X. CONCLUSIONS AND RECOMMENDATIONS 50
LIST OF TABLES
Table 1. Summary of Current "Green" Product Content 11 Table 2. Sources of GMER's Green Products 13 Table 3. Sources of Support for Green Power Sales in California 38
v EXECUTIVE SUMMARY
This report examines whether consumers of green electricity products are getting a fair deal for the premium prices they are paying (using California as a case study), and whether "green marketing" has significant potential for diversifying the U.S. electric system with renewable energy resources. The answer to both questions is a clear "no." The unfolding of green marketing practices underscores the hazards facing consumers in a deregulated electricity market and the improbability that retail competition, through green marketing, will significantly improve the environmental characteristics of the electricity industry.
The major findings of the report are:
1. Most green products on the market have no positive impact on the environment because most marketers are merely reselling renewable energy that other consumers are already paying for and that would continue to operate regardless of any resale to green consumers.
· The renewable energy being resold comes from utilities whose service territories are not open to competition. The cost of the renewable energy, which comes from facilities that are either owned by or under long-term contract to the utilities, is already being fully charged to the utilities' captive ratepayers.
· The resale of utility-controlled renewable resources does not cause any additional power generation from existing renewable energy power plants, does not support any existing renewable energy plants that face market risk, and does not cause the development of any new renewable resources.
· Promised "new" renewable energy content comprises only a small fraction of the products on the market. For example, Green Mountain Energy Resources recently announced the construction of two new wind turbines. But the power from these turbines will comprise only 10% of one of GMER's three green products. The balance of its renewable power (100% of current product content) comes from PacifiCorp (a Portland, OR-based utility) and would operate regardless of any resale to GMER's customers.
2. In some circumstances, the physical result of a consumer's purchase of a green product would be the extended operation of fossil fuel power plants and greater pollution.
· This could occur when out-of-state utility-controlled renewable resources are being resold but are already operating at full capacity. The result could be the extended operation of other, more polluting resources to generate additional power for export to California.
· This situation could result, for example, from Green Mountain Energy Resources' purchase of renewable power from PacifiCorp. At worst, the purchase could result in more Northwest coal- fired generation, perhaps from the Centralia power plantCthe dirtiest power plant in the West.
3. The resale of utility-controlled resources to green consumers cannot make a difference in the West because the supply of these resources greatly exceeds any realistic projection of green demand.
1 · If every residential consumer in 11 Western states had the choice of purchasing renewable electricity, 18% of those consumers would have to purchase a 100% renewable product (excluding large hydropower) in order to "use up" the existing amount of renewable power that is controlled by utilities and being paid for by their captive ratepayers. Only then would demand foster new supplies of renewable power. Since most green pricing or green marketing programs in the country have response rates of only 1% to 2%, the resale of utility power is unlikely to increase the supply of renewables.
4. Only one small green marketer (San Jose-based cleen 'n green energy) purchases power exclusively from renewable energy producers that are not owned or under contract to a utility and that would otherwise receive only the market rate for their power.
· California consumers have no way of distinguishing between renewable energy that is merely resold utility renewables and renewables that are at risk in the market. Fuel source labels required by California law will not differentiate between the two, nor does the private "Green-e" certification program recognize this critical difference among power products. In fact, two products offered by cleen 'n green energyCthe only ones that clearly do not merely resell utility- controlled renewables Care not endorsed by the Green-e program because the company has chosen not to pay the Green-e certification fee.
5. Most of the premiums charged for green power are spent on marketing and advertising costs, not on renewable energy content.
· Of the average $10/month extra that consumers are paying for green products, some $7.50-$9.50 is estimated to be needed for marketing and overhead costs, not for renewable energy content.
6. Largely because of high retail marketing costs, public subsidies are required to support green marketing.
· $75.6 million in direct subsidies will support green marketing efforts in California through 2001. At the request of green marketers and over the objection of the California Energy Commission, Senator Byron Sher sponsored legislation to extend subsidies of 1.54/kWh to support the retail sale of low-quality green products that merely resell low-cost utility-controlled renewables.
· The success of green-marketed products containing some percentage of new renewable energy may also be dependent upon public policy. Green-marketed new renewable power is likely to come from new projects that will be supported by a California Energy Commission production incentive of about 1.24/kWh, paid from California's system benefits charge.
· The combination of available public support payments for renewable power and green marketing in California can amount to 34/kWh. (Together with green-customer premiums, total "above- market" payments supporting green-marketed renewable energy products can amount to 6.44/kWh.)
· Without California's support of existing and new renewable energy projects, as well as subsidies paid specifically to support green marketingCall of which are scheduled to end in 2001, the green market may not be viable.
7. Some green marketers sell products on the basis of promised future content from new renewable energy projects. Others lead consumers to believe that their products currently
2 contain power from new renewables when they do not. Both charge extra now for promised electricity, which invites abuse of consumers.
· Charging now for a product to be delivered in the future invites abuse of consumers because green marketers may go bankrupt or otherwise exit the new and risky electricity market before promises are met.
· Consumers will pay up to a whopping 31% premium over market electricity prices for Edison Source's EarthSource 2000 product, which promises 10% new content. But Edison Source does not specify when or from where that new content will be delivered and reserves the right to change its policies without prior notice.
· Customers of Green Mountain Energy Resources' AWind for the Future@ product are promised 10% new wind content by November 1999. Though GMER has announced that construction of two new wind turbines is underway, it simultaneously changed the terms of this product by promising a new wind turbine (limit: 3) for each group of 4,000 customers instead of each group of 3,000 customers as promised during its first year of marketing.
8. Green product claims cannot be properly verified without a region-wide tracking system, which does not yet exist.
· In the absence of a comprehensive, multi-state fuel source tracking system, California's "verification" system will rely in part on marketers' unverified attestations. Presumably, the verification process is needed because retailers' claims will not always be truthful. Private verification efforts, such as Green-e, are even less able to verify claims.
9. False or misleading green product claims are common.
· Claims that consumers are benefitting the environment by purchasing resold, utility-controlled renewable power that would have been generated regardless of the resale are clearly misleading.
· Edison Source claims, for example, that "By purchasing EarthSource energy, you will help reduce pollution by decreasing California's reliance on fossil fuels." This is clearly not the case if Edison Source purchases its renewables from utility resource portfolios, as the company has indicated it may.
· Most consumers reading the Sacramento Municipal Utility District's (SMUD's) claim that its green power "will replace predominantly non-green power that we otherwise would have bought" will get the false impression that their purchase will result in the overall system becoming cleaner, which it will not.
· Most green marketers falsely inform consumers or give consumers the impression that their products currently contain solar and wind power when they do not.
10. Green marketing is unlikely to reverse the current decline in renewable energy production and significantly diversify electric system resources.
· Renewable energy production is in decline. In California, renewable energy production has fallen from 12% in 1994 to under 11% today.
3 · Currently planned investments in fossil fuel plants for the competitive market dwarf planned investments in renewables. The ratio of planned fossil-fuel capacity to renewable energy capacity nationwide is about 118:1. This is a stark indication that investors do not perceive renewable energy projects to be lucrative in competitive markets, despite potential green markets. Most new gas plants will be profitable at 34/kWh or less (as long as gas prices stay low), whereas most renewable energy projects require 44/kWh or more.
· Green marketing may prove to be a successful tool for marketers and provide modest benefits to renewable energy industries, but it is unlikely to increase significantly the 2% market share that renewable energy sources (other than large hydropower) now hold in the United States:
C Green marketing efforts are aimed primarily at the residential sector, so two-thirds of electricity sales are largely unaffected.
C Even very optimistic green marketing projections would not significantly increase the total supply of renewables: Assuming that: every residential consumer across the country has the immediate ability to choose a 100% renewable energy product (where large hydropower is not part of that product) and the consumer subscription rate is 3.4%Cmatching the highest rate ever achieved by a green electricity marketing program, the green market would support the equivalent of about 1% of the U.S. energy supplyConly half the market that renewables (other than large hydropower) control now.
11. Most green marketers are affiliated with polluting companies and are not advocates of renewable energy policy.
· Many of the green marketers soliciting California environmentalists are part of larger corporate families making multi-billion-dollar investments in non-renewable and environmentally destructive energy projects or are otherwise affiliated with such companies.
· Green Mountain Energy Resources' customers contribute to the profits of PacifiCorp's utility shareholders, whose latest investment attempt was to acquire The Energy Group, the parent company of Peabody Coal, the world's largest private coal producer.
· Most green marketers are not advocates of strong renewable energy policies. Indeed, Southern California Edison, the corporate sibling of green-marketer Edison Source, is attempting to limit severely the applicability of the federal wind energy production tax credit.
12. To suggest that green marketing is an answer to the lack of market penetration of renewables is to ignore the market imperfections that have hindered renewables in the first place.
· Electricity markets are full of what economists call "market failures"Cfrom the environmental damage caused by the production of electricity from fossil fuels, which is not reflected in electricity prices, to the high transaction costs associated with green marketing. Therefore, it is unreasonable to expect green marketing to obviate the need for public policies to promote renewable energy.
4 I. INTRODUCTION
The availability of "green electricity" products1 has been one of the most visible indications of electricity deregulation for residential consumers. Some environmental groups have argued that deregulated electricity markets are good for the environment simply because green electricity products are available. 2 Politicians not known for their support of the environment or renewable energy have also touted deregulated electricity markets as good for the environment. Republican Congressman Thomas Bliley (R-VA), for example, released a poll indicating that 66% of Americans would be willing to pay more for environmentally friendly electric power, which "shows that American consumers can be more effective in protecting the environment than government regulators."3
What "green marketing"4 can really accomplish for the environment and whether it has significant potential for diversifying the U.S. electric system with renewable energy resources, however, remains to be seen. A coincident issue is whether consumers of green electricity products will get a fair deal for the premium prices they will pay and, thus, whether the availability of green power products in deregulated markets can be considered a benefit to consumers. Given the intangible nature of electricity "products," combined with limited public understanding of electricity production and electricity markets, consumers can be easily deceived.
This report critically evaluates these issues. CaliforniaCone of the first states to deregulate its retail electricity marketCis used as a case study to examine the content and cost of green power products, as well as the claims associated with those products. The report further investigates the impact that green marketing is likely to have on the resource profile of the U.S. electric industry. The findings are not promising:
$ Most green products merely repackage renewable energy generation from facilities that other consumers are already paying for and that would continue to operate regardless of any resale to California green consumers. Thus, the purchase of these products has no positive impact on the environment. Claims that environmental benefits accrue from the purchase of repackaged utility renewable resources are therefore deceptive.
$ In some circumstances, the physical result of a consumer's purchase of repackaged utility renewable resources would be the expanded operation of fossil fuel power plants and greater pollution.
1 AGreen electricity@ or Agreen power@ refers to electricity generation sources that cause significantly lower environmental impacts than average utility system resources. Often, and particularly in California, green electricity refers to electricity generated from renewable energy sources, such as wind, solar, biomass, small hydro, and geothermal power plants. Renewable, however, is not synonymous with low environmental impact. 2 For example, a trade publication reported that Ralph Cavanagh of the Natural Resources Defense Council told the media that "California's deregulation bill, AB 1890, has been good for the state's environment because it allows customers to choose green power." California Energy Markets, September 11, 1998, No. 481, p. 8. 3 "Bliley Touts Poll Showing Public Would Pay More For Clean Power," Congress Daily A.M. via Individual Inc. [(c) National Journal, Inc.], April 23, 1997. Also see "US Republican releases survey backing clean power," Reuters America Inc., April 22, 1997. 4 AGreen marketing@ refers to the sale of electricity products that purportedly cause fewer environmental impacts or in some way benefit the environment.
5 $ Only one small green marketer purchases power from only renewable energy sources for which other consumers are not already paying, which benefits renewable energy producers.
$ Public and private labeling and certification programs do not enable consumers to distinguish between products that make a difference to renewable energy producers and those that do not.
$ Of the 14 - 34/kWh premiums being charged for green products (excluding those promising new renewable energy content), some 75%-95% is estimated to be necessary to cover the cost of marketing and associated overhead costs. Thus, of the $10/month premium that consumers pay on average for green products, some $7.50-$9.50 would go toward marketing and overhead costs. Marketing and advertising costs are so high that green marketers simply cannot afford to purchase quality renewable energy. Instead, they purchase renewables at wholesale from utilities for under 0.54 per kilowatt-hour above the California Power Exchange price. Even the small fraction that is paid to utilities for renewable energy stops with the utility instead of flowing back to the actual renewable energy producer.
$ Some green marketers misleadingly claim that their products currently include "new" renewable energy content, when they are merely promising to add new content in the future and charging extra in the meantime. Others simply charge extra for their promises. These practices invite consumer abuse because the marketers may not survive long enough to make good on their promises.
$ Promised "new" renewable energy content accounts for only a small percentage of the green products on the market; the balance is mostly resold utility renewables. Moreover, promised new renewables cannot be assumed to be in addition to the projects that would have been developed with the support of public policy. Green-marketed new renewable power is likely to come from new projects supported by a California Energy Commission production incentive of about 1.24/kWh, paid from California's system benefits charge. Thus, the success of new renewable energy products in the green market may be dependent upon public policy.
$ Even if all green electricity products were of high quality, consumer demand is unlikely to be high enough to significantly diversify the electric industry with renewable resources. The green market is primarily limited to the residential sector, so two-thirds of electricity sales will be largely unaffected. Green products are unlikely to constitute more than 1% of total sales.
$ A small green electricity market is consistent with economic theory, which predicts underinvestment in resources whose benefits are public, not private.
Green marketers and advocates of the green marketing that is occurring in California argue that low product quality standards are necessary at this stage in the development of the green market in order to develop the market and green marketing companies quickly. They argue that, once sufficient green consumer demand is demonstrated, product quality will improve. The logic of this argument is that a meaningful green market can best, or only, be built on the foundation of a meaningless product and the mistreatment of consumers. But building a market based on a false productCthat is, one that is intended to be replaced later by a more expensive, meaningful oneCdoes not create a sound foundation for that
6 market. A successful green market must be founded on products that make a difference to the environment and the fair treatment of consumers.
Even if green products are valid, however, green marketing by itself will not support the development of renewable energy to the degree needed to move the U.S. away from fossil and nuclear fuels and to meet carbon reduction goals. If current practice in California becomes the norm, green marketing will contribute little, if anything, to these environmental goals.
II. MUCH OF THE RENEWABLE ENERGY BEING SOLD TO CALIFORNIA GREEN CONSUMERS IS LITTLE MORE THAN FICTION
A. Most "Green Power" Products on the Market Merely Resell Power from Existing Utility-Controlled Renewables Plants That Are Fully Operational and Will Remain So Regardless of Green Sales
Most California green marketers obtain wholesale renewable power for their "green" retail products from California municipal or out-of-state investor-owned utilities, whose service territories are not open to retail competition and which are not required to sell their power into the California Power Exchange.5 As summarized in Table 1 and detailed in Section II.B, some marketers have disclosed this fact directly or indirectly, while others refuse to disclose where they obtain their renewable power but do not deny that they may purchase from utilities. Based on their own testimony, it is reasonable to assume that those companies that refuse to disclose the sources of their power obtain some or all of it from utility sources. Virtually all green marketers doing business in California were party to a petition before the California Energy Commission stating that the majority of their power comes from power plants under the control of investor-owned or municipal utilities and requesting that this power be made eligible for green marketing subsidies 6 (see Section VI). Other sources also indicate that most of the renewable electricity in green power products comes largely from existing resources purchased from utilities.7 Unfortunately, this practice will go on for at least the first year of retail marketing in California, as green marketers have publicly testified that "the vast majority of marketer demand" is already contractually committed to these resources through the first 12 months of competition and that the supply of utility resources greatly exceeds demand.8
5 Through 2001, California's investor-owned utilities, Pacific Gas & Electric, Southern California Edison, and San Diego Gas & Electric, are required to sell their contracted renewable energy capacity into the California Power Exchange, where it becomes "generic" wholesale power and cannot be sold at retail as "green." After this date the California utilities will be able to resell some 4,300 megawatts of contracted renewable power to green marketers, as other utilities are now doingCan amount that vastly exceeds the renewable resources of the other utilities, which could flood the green market with excess supply. 6 Warren W. Byrne, Executive Vice President, Foresight Energy Company, Transcript from the Renewables Program Committee Workshop On the Customer Credit Subaccount, California Energy Commission, p. 38 (Docket No. 96-REN-1890), April 6, 1998. 7 Ryan H. Wiser and Steven J. Pickle, Selling Green Power in California: Product, Industry, and Market Trends, p. 13. Lawrence Berkeley National Laboratory. May 1998. 8 "Comments of the Renewable Marketers on Power Purchase Eligibility for the Customer Credit Subaccount," presented on behalf of PG&E Energy Services, Edison Source, Green Mountain Energy Resources, Enron Capital and Trade Resources, Friendly Power, Preferred Energy Services (dba cleen 'n green energy), Utilisys, PowerUSA, Electric Clearinghouse, Inc., PacifiCorp, Automated Power Exchange, Foresight Energy Company, and the Natural Resources Defense Council, pp. 2, 4 and 38. CEC Docket No. 96-REN-1890, April 6, 1998. (cleen 'n green claims that it later removed itself from
7 Only one company, cleen 'n green energy, sells products whose content is not derived from utility portfolios. Instead, it purchases power from independent renewable energy producers that would otherwise receive only the market price for generic power. cleen 'n green acquires its renewable power through the Automated Power Exchange (APX), a private power exchange which hosts a renewable energy trading market that does not accept renewable power from utilities, consistent with eligibility guidelines established by the California Energy Commission for obtaining green marketing subsidies (see Section VI).9
Promised "new" renewable energy content comprises only a small fraction of the products on the market. For example, Green Mountain Energy Resources recently announced the construction of two new wind turbines. But the power from these turbines will comprise only 10% of one of GMER's three green products. The balance of its renewable power comes from PacifiCorp and would operate regardless of any resale to GMER's customers.
The problems with reselling utility resources to green consumers are several:
1. Reselling utility resources does not result in additional generation of renewable power and thus makes no difference to the environment. Utility-controlled renewable energy resources are usually either (a) non-utility-owned plants under long-term contract to the utility, which are already operating at full capacity,10 or (b) utility-owned, low-cost resources, which would be fully dispatched regardless of the green sale. Unless it can be demonstrated that a utility is using the proceeds from its "green sales" to increase the output from its renewable generatorsCwhich no utility or green marketer has ever even asserted, let alone provedCit must be assumed that there is no additional renewable energy production and no displacement of dirty resources.
2. Reselling utility power makes no difference to renewable energy producers. When utility renewables are re-sold, renewable energy producers under contract to utilities do not receive additional revenues from the utilities' resale of their power. Neither the utility nor the marketer has to sign a contract with any renewable producer, pay market prices for renewable energy, or make any investment in new renewable energy projects. Therefore, the resale of utility resources does not strengthen the renewable energy industries.11
3. In some cases, reselling utility resources may result in more pollution from the electricity system. More pollution would occur if out-of-state utility renewable resources are already operating fully, causing the expanded operation of other resources in the out- this coalition.) The marketers testified that there are 350 megawatts of municipal-utility-owned power potentially available in addition to power from investor-owned utilities that are not required to sell their renewable power into the California Power Exchange, compared with estimates of a total potential green market demand ranging from 20 to 90 megawatts by March 1999. 9 Conversation with Jan Pepper, Vice President, Automated Power Exchange, August 13, 1998. 10 These independent renewable power projects, even those with high operating costs, can afford to operate at full capacity because they receive favorable, above-market rates for their power from the utility under contracts that were signed when the cost of power was much higher than it is today. 11 Some would argue that the renewable energy industries benefit indirectly, since utilities that profit from their contracted renewable energy resources will be more inclined to invest in renewables in the future. This argument is not convincing, however, since the supply of utility-controlled renewables exceeds likely green demand (see Section IV.D).
8 of-state system for shipment to California consumers, where those other resources are dirtier than the California resources that would otherwise have been used (see Section II.B.1).
4. Reselling utility resources makes no difference even in the long run, since the supply of utility-controlled renewables far exceeds any realistic demand for green electricity. (See Sections IV.D and VII.D.2.)
5. Reselling utility resources that would operate regardless of the resale treats consumers unfairly. Consumers are made to believe that the products they are purchasing "make a difference" to the environment, when in fact most do not. Most consumers, if informed that they were paying premiums for resources that other consumers are already paying for and that would operate regardless of their purchase, would choose other green products or spend their dollars elsewhere. The sale of products that do not make a difference therefore diverts consumers away from supporting products that are meaningful to the environment.
6. Reselling utility resources provides an unfair competitive advantage to utility shareholders at the expense of their ratepayers. As the American Wind Energy Association (AWEA) stated:
Resources that are already being charged to consumers by a utility should not be sold in competitive markets outside of the utility's territory. A utility should be able to market renewable resources when they have been removed from rates and placed within an unregulated subsidiary. Otherwise, utility shareholders assume no risk and gain an unfair competitive advantage against companies who do not have access to ratepayer-subsidized resources and must take additional risks to participate in the green market. Absent a rate case or other adjustments to lower rates to reflect the green sales, utility shareholders would gain at the expense of ratepayers, who would no longer have access to the green resources they have paid for.12
Though currently some green marketers are benefitting from their purchases from utilities, these marketers could find themselves at the mercy of those same utilities should the utilities decide to use their resources in their own retail green marketing efforts.
The public testimony of California green marketers makes clear that utility-controlled renewables are being acquired for less than a half-cent per kWh above the California Power Exchange (PX) price13 (the price paid by most California consumers), and it is widely known in the industry that the cost can be as low as 0.14 to 0.24/kWh above the PX price. These low prices are possible because the utilities' captive ratepayers have paid and continue to pay for the full costCas much as 7 cents/kWhCof the renewable energy resources.14 The green marketers are merely paying the utilities for the right to claim that the
12 "Principles of Green Marketing," American Wind Energy Association, released March 1998. Available from AWEA's website at: www.igc.org/awea/pol/greenprins.html. 13 Note 8 supra. "There is currently enough [utility] supply available to supply the market for several years at prices of within a half-cent of PX." (p. 6). 14 In the case of municipal utilities, green market revenues may be credited to the utilities' customers, but the customers still pay for the bulk of the cost of the resource. In the case of investor-
9 electrons it purchases are from those renewable resources; they are not paying the full cost of those resources.
What we have, then, is a majority of green products whose renewable energy content is little more than fiction: utility-controlled renewables will continue to operate regardless of green marketers claiming those resources and selling them to California customers; utility ratepayers will continue to pay for those renewable resources; no additional dispatch of renewable resources is occurring; in some cases, a "green" sale from already fully dispatched resources could result in the dispatch of dirtier resources; and consumer dollars flow to the utility, not to the non-utility renewable producers generating the green power. Any claims that consumers are "helping the planet" by purchasing these green products are plainly fictitious.
The most that can be argued (and indeed is argued by those who promote and endorse the kind of green marketing that is occurring) is that green marketing must be profitable (or at least not too unprofitable) in order for green marketers to remain in the market and make good on their promises to support existing non-utility renewable energy producers and new renewable energy projects in the future. Unfortunately, this ends-justify-the-means argument is based on consumer deceptionCgreen marketers and their promoters are hiding the fact that the green products being sold now are already being paid for by ratepayers. Consumers should be allowed to decide for themselves if buying a meaningless product now is likely to produce a meaningful product later.
Moreover, if green marketers are allowed to get away with selling deceptively labeled products now, what is to stop them from continuing on this most profitable course, particularly when there is so much utility power available? Green marketers should be purchasing all of their existing renewable power from California renewable energy generators that are not owned by or under contract to a utility and that would otherwise receive only low market prices for their power. Such purchases can, at least in theory, help stem a serious decline of renewable energy production in California, 15 while the current practice of reselling utility-controlled resources cannot. Though some green products promise to include some percentage of new renewable energy resources in the futureCand are charging now for those promises (see Section IV.B) Cthe majority of the product content is likely to remain meaningless absent public pressure.
Green marketers should compete on the basis of the true merits of the products they have on the marketClike any other competitor, and those who have made the investments and taken the risks that are necessary to make a difference in the electricity industry should be rewarded. Consumers must be able to distinguish between companies whose products make a difference and those that do not, or the risks will never be taken.
owned utilities, any extra revenues increase shareholder profits. 15 In California, operating biomass capacity has dropped by 25%, wind plant capacity by 9%, and geothermal production by 30%. Nancy A. Rader and William P. Short, "Competitive Retail Markets: Tenuous Ground For Renewable Energy," The Electricity Journal. April 1998.
10 Table 1. Summary of Current "Green" Product Content*
Company Product Name Source of Renewable Power Makes a Difference to the Environment? in Product
cleen 'n green cleen 100 Large hydro and natural gas No. No additional dispatch of hydro; hydro resources are low cost and need no additional support to fully operate. (In addition, most hydro projects cause significant damage to river ecosystems.)
cleen 'n green green 50 Renewable energy generators Yes; renewable energy generators that would not under contract to utilities, otherwise receive market rates benefit directly through through the APX.** the APX.
cleen 'n green green 100 Renewable energy generators Yes; renewable energy generators that would not under contract to utilities, otherwise receive market rates benefit directly through through the APX.** the APX.
Edison Source EarthSource Would not disclose; may Any portion from utilities will not make a difference 50 purchase from utilities. unless it can be shown to cause additional dispatch.
Edison Source EarthSource Would not disclose; may Any portion from utilities will not make a difference 100 purchase from utilities. unless it can be shown to cause additional dispatch.
Enron Energy Earth Smart Suspected to be from utility Any portion from utilities will not make a difference Services Power*** portfolios. unless it can be shown to cause additional dispatch.
GMER Water Power Large and small hydro projects. No. No additional dispatch of hydro; hydro resources are low cost and need no additional support to fully operate. (In addition, most hydro projects cause significant damage to river ecosystems.)
GMER 75% Utility-controlled sources No. Resale of utility resources will not make a Renewable (PacifiCorp). difference unless it can be shown to cause additional dispatch.
GMER Wind for the Utility-controlled sources No. Resale of utility resources will not make a Future (PacifiCorp). difference unless it can be shown to cause additional dispatch.
Keystone EarthChoice No information available from Any portion from utilities will not make a difference products the company; indications are unless it can be shown to cause additional dispatch. that ultimate source is utility resources.
PG&E Energy Clean Choice Would not disclose; may Any portion from utilities will not make a difference Services 20 purchase from utilities; does not unless it can be shown to cause additional dispatch. purchase from APX.**
PG&E Energy Clean Choice Would not disclose; may Any portion from utilities will not make a difference Services 50 purchase from utilities; does not unless it can be shown to cause additional dispatch. purchase from APX.**
PG&E Energy Clean Choice Would not disclose; may Any portion from utilities will not make a difference Services 100 purchase from utilities; does not unless it can be shown to cause additional dispatch. purchase from APX.** * Some products promise "new" renewable energy content in the future. See Section IV.B. ** The Automated Power Exchange's green power exchange does not accept renewable power from utility portfolios, consistent with California Energy Commission eligibility guidelines for "customer credit" payments. *** Product is no longer offered, but is being provided to those who signed up for it.
11 B. Sources of Green Marketers' "Renewable Energy" Product Content
1. Green Mountain Energy Resources16
a. GMER's renewable energy "sources" are already being paid for by captive ratepayers, were already being fully dispatched, and require no further consumer support to continue operating.
Green Mountain Energy Resources (GMER) is currently the green market leader in California, with more than 10,000 customers, or 40% of the green market.17 According to GMER's website,18 GMER acquires its renewable power from the Blundell Geothermal Plant in Milford, Utah, and two biomass plants in Oregon, the Biomass One plant in White City and the D.R. Johnson Lumber plant in Riddle. GMER's webpage does not state the source of the "small scale hydro" included in GMER's products but, according to a company representative, 19 the small hydro sources are the Fall Creek plant in Northern California and the Prospect 3 plant in Prospect, Oregon. No mention is made on the website that each of these resources is controlled by PacifiCorp, an investor-owned utility serving seven states in the Northwest.20 As Table 2 shows, however, these resources are either owned by PacifiCorp or are independently owned and operated under long-term contract to PacifiCorp.
These PacifiCorp resources constitute GMER's "75% Renewable Power" product and its "Wind for the Future" product. When GMER's promised new wind content comprises 10% of its Wind for the Future product, the balanceC90%Cwill still be comprised of PacifiCorp resources. (Large hydropower comprises GMER's third "Water Power" product.)
According to a staffperson at the Oregon Public Utility Commission, PacifiCorp passes through all renewable energy contract expenses to its captive ratepayers in the utility's seven-state territory and fully recovers the cost of the facilities it owns, plus a profit, through rates paid by those customers.21 These rates will not change until new rate cases are completed in each of the seven states; some states, including Washington and Oregon, do not even have rate cases planned and may not schedule them for several years. Moreover, PacifiCorp has given no indication to the OPUC, nor presumably to the other six states, that it will provide rebates to its captive customers as a result of its "green" sales to GMER's California customers.22
16 Because Green Mountain Energy Resources is open about their claimed sources of renewable power Cand it deserves credit for that, those sources could be analyzed in detail for this report. Documentation of the problems with GMER's sources, and the lack of detailed documentation of several other marketers who refused to disclose their sources, should not obscure the fact that the problems are likely to be the same for these other marketers given widespread reliance on utility-controlled resources. 17 "Companies Give 'Green' Power the Green Light," Los Angeles Times, p. D-8, September 27, 1998. GMER was reported to have more than 10,000 customers, as compared to 25,000 customers that have chosen green electricity products in California. 18 GMER website, www.choosewisely.com, as of August 24, 1998. 19 Telephone conversation with company representative who answered GMER's 888-246-6730 phone line on August 24, 1998. 20 GMER has, however, announced to the media that PacifiCorp is its wholesale supplier of energy products. October 14, 1997, Green Mountain Energy Resources press release via PRNewswire. 21 Conversation with Bill McNamee, Resource Economist, Oregon PUC, August 25, 1998. 22 Ibid.
12 Nor is PacifiCorp passing through any extra revenue to its contracted renewables plants. Plant managers of the two biomass plants from which GMER claims to obtain power confirmed that the terms and conditions of their contract have remained the same, that no changes have occurred in the dispatch of their plants as a result of the GMER sale, and that they continue to produce power at full capacity as they have in the past.23 Indeed, until contacted for this report, they were completely unaware that their power is being claimed by GMER. Finally, these contracts were signed in the early 1980s when energy prices were high. Compared to today's market, therefore, PacifiCorp pays the owners wholesale rates that are significantly above market (6-7 cents/kWh24) and the plants are not in danger of discontinuing production.
Table 2. Sources of GMER's Green Products25
Plant Name & Size Location Contract/Ownership Status & Other Notes
Blundell Geothermal Milford, Utah Ratebased facility, owned by PacifiCorp. 40-year above-market (25 MW) steam take-or-pay contract with CalEnergy.
Biomass One (25 MW) White City, Oregon 25-year PURPA QF contract with PacifiCorp expires in 2013. Complicated pricing formula results in a price significantly above market.
D.R. Johnson Lumber (7.5 Riddle, Oregon 20-year, fixed-price PURPA QF contract with PacifiCorp (price MW) rises with inflation) expires in 2006.
Fall Creek (hydro) Northern California Ratebased facility, owned and operated by PacifiCorp.
Prospect 3 (87 MW, hydro) Prospect, OR Ratebased facility, owned and operated by PacifiCorp.
PacifiCorp's ratebased renewable facilities are also not in danger of discontinuing production, nor is production enhanced by the green sales. The geothermal plant has run at its designed output (approximately 90% capacity factor) since it became operational in 1984. PacifiCorp purchases geothermal steam for the plant through a 40-year, take-or-pay contract26 that effectively pays the steam producer, CalEnergy, the equivalent of 44/kWh.27 Because of this contract obligation, the power would be generated regardless of sales to GMER, with costs paid by PacifiCorp's captive ratepayers.
PacifiCorp's hydro resources are "limited energy" facilities, meaning that the power would be wasted if not used due to lack of storage. Moreover, the variable cost of hydropower is among the very cheapest available. Thus, no additional generation results from the resale of PacifiCorp's hydro resources.
The bottom line is that the resale of these renewable resources to GMER does not cause any additional generation from any existing renewables facility, does not support any existing renewables facility that is in jeopardy, and does not cause the development of any new renewable resources. Revenues from the resale of PacifiCorp-controlled resources simply flow to PacifiCorp shareholders, whose latest investment
23 Conversations with John Brimmerman, Biomass One, White City, OR, and Brian Pickett, D.R. Johnson Lumber, Riddle, OR, August 27, 1998. 24 Supra note 21. 25 Information on plants located in Oregon and California was obtained from Bill McNamee (note 21 supra). Information on the Blundell Geothermal plant was obtained from the 1996 FERC Form 1 for this plant and from William P. Short III, investment banker and consultant, September 4, 1998. 26 A "take or pay contract" is one in which the commodity is paid for whether or not it is used. 27 Conversation with investment banker and consultant William P. Short III, September 4, 1998.
13 effort was an ill-fated attempt to acquire The Energy Group, the parent company of Peabody Coal, the world's largest private coal producer.28
b. GMER's sales may actually result in a dirtier overall fuel mix.
GMER's "green" sales from PacifiCorp's system into California could actually worsen air quality in the West. This is because all of the green resources in PacifiCorp's system that GMER claims to be selling to California are already fully operational and fully paid for (see above), so that the operation of other, likely dirtier, resources must be expanded in the Northwest to fulfill PacifiCorp's contract with GMER. 29
Analysts of the Northwest power system generally agree that, while it is clear that the production of renewables will not increase as a result of the PacifiCorp-GMER deal, it is impossible to predict with certainty which plants are being utilized more. However, given that Northwest hydro resources are fully operated, any additional power from the Northwest system must come from one of the plants in that system that is not fully operated, all of which are thermal fossil fuel plants. This physical fact is true regardless of whatever deal PacifiCorp might transact on paper.30 Thus, the best plausible outcome is that the cleanest fossil fuel plant in the Northwest (the Hermiston combined cycle gas plant) is operated more, and the worst plausible outcome is that the dirtiest fossil fuel plant in the Northwest (the Centralia coal plant) is operated more.31
According to energy consultant Kevin Bell of Seattle-based Convergence Research, PacifiCorp is most likely to dispatch its Centralia coal plantCthe dirtiest power plant in the West.32 The Centralia Power Plant is a 1,300 megawatt mine-mouth coal power plant located near Centralia, Washington. PacifiCorp's subsidiary, Pacific Power and Light Company, has the largest ownership share of the plant. PP&L operates the plant and fuels it with high sulfur coal from an adjacent surface mine which is owned and operated by another PacifiCorp subsidiary.33 Centralia, which has no scrubbers, produces more sulfur dioxide (over 39,000 tons in 1996) than any power plant west of Texas and has by far the highest sulfur dioxide emissions rate of any plant in the West.34 The Centralia coal plant produces 10% of the sulfur emissions in the western U.S., and as much carbon dioxide as two-thirds of all the cars in Oregon. It
28 "PacifiCorp Drops Energy Group Bid," The Energy Daily, p. 1, May 1, 1998. 29 It is possible that PacifiCorp purchases power from California's cleaner system to fulfill its contract with GMER. This might be true, for example, if the California-Northwest transmission intertie were 100% full. In this case, however, the notion that GMER is obtaining power from PacifiCorp's renewable resources would be even more of a fiction, and, further, GMER could obtain California power without using PacifiCorp as a middleman. (Phone call and e-mail messages placed to PacifiCorp officials posing these questions were not returned.) 30 Conversation with Jim Lazar, consulting economist and expert on the Northwest power system, Olympia, WA, September 10, 1998. 31 Ibid. Lee Sparling of the Oregon Public Utility Commission also stated, in a conversation on September 4, 1998, that the additional power obtained to make up the difference for power sold to GMER could derive from PacifiCorp's Wyoming coal plants or its Centralia coal plant. 32 Correspondence with Kevin Bell, Convergence Research, August 27, 1998. 33 Jim Lazar, MicroDesign Northwest, Economics of the Centralia Target Solution, November 1996. (Available from www.converger.com.) 34 Clean Air Online (www.cleanair.net), plant data for 1996, website information as of August 27, 1998. Clean Air Online is a project of the Clean Air Network and the Clean Air Task Force, funded by The Energy Foundation.
14 causes significant harm to the environment, damaging Mount Rainier National Park in particular, and to human health. Centralia causes health impacts that are blamed for the deaths of a few dozen people per year.35 "I think that when we go back and look at resource dispatch," Bell said, "we are likely to find that every electron of that 'green' Green Mountain power came from running PacifiCorp's coal base a little bit harder. The California resource mix gets cleaner, the Northwest resource mix gets dirtier, net environmental impact is zero to negative."36
If extra power is generated from the Centralia plant, or another Northwest coal plant, to make up for PacifiCorp's sales to GMER's California customers, it would displace generation from California's cleaner system mix,37 or from cleaner gas-fired power plants that are not fully operational in California. 38 In this case, the only physical effect of a California consumer's purchase of a GMER "green" product would be the generation of more coal-fired power and more pollutants in the West.
Given the above facts, one must conclude that no additional renewable power generation occurs as a result of GMER's wholesale purchases and that GMER's customers have no way of knowing what physical system changes are occurring as a result of their switch to GMER. At worst, buying electricity from GMER could result in more coal-fired generation, perhaps from the dirtiest coal plant in the West.
2. PG&E Energy Services
PG&EES makes no disclosures on their website or through their toll-free information line about the sources of their renewable power. Little additional information was obtained from a PG&EES corporate representative, who stated that the company is not committed to any particular source, supplier, or renewable technology, and could not name any particular power plant from which power will be obtained.39 She did state, however, that the supplier could be a municipal utility or an investor-owned utility that does not sell into the California Power Exchange (PX), such as PacifiCorp. Another representative stated that the power would not come from the APX,40 the private power exchange that hosts a renewable energy trading market which does not accept utility power. PG&EES was a member of the green marketer coalition that petitioned the California Energy Commission and the Legislature to make eligible for a green marketing subsidy the resale of utility-controlled resources to California consumers (see Section VI.A), indicating the company's interest in such resources.
35 Convergence Research, www.converger.com, September 4, 1998. 36 Note 32 supra. 37 The Northwest power system relies more heavily on coal than does California, 31% vs. 17%. (The Northwest regional mix is 52% hydro, 31% coal, 11% gas/oil, 3% nuclear, and 3% renewables/other, according to information being provided to customers in PacifiCorp's service territory who are participating in pilot choice programs. The California mix, according to the California Energy Commission, is 24% hydro, 17% coal, 35% gas/oil, 14% nuclear, and 11% renewables/other.) 38 According to Clean Air Online (see Note 34 supra), the SO2 emissions rate of gas plants currently or formerly in PG&E's portfolio run between 0.001 and 0.167 lbs./mmBtu, as compared to Centralia's 1.618 lbs./mmBtu. The NOx emissions rate of gas plants currently or formerly in PG&E's portfolio run between 0.058 and 0.202 lbs./mmBtu, as compared to Centralia's 0.450 lbs./mmBtu. (PG&E is in the process of divesting its fossil fuel generating units to other owners.) 39 Conversation with Sancha Huang, Senior Product Manager-Energy, PG&E Energy Services, September 21, 1998. 40 Conversation with Geoff Jue, PG&E Energy Services, September 17, 1998.
15 3. Edison Source
Scant information is provided on Edison Source's EarthSource products on its webpage or in written materials mailed to prospective customers, and no information is provided on the source of the renewable power in the products. (Consumers are simply left with the impression that the sources are "the sun, the rivers, or the wind.") A call to Edison Source's toll-free number, however, did result in determining that the renewable power in the EarthSource products is obtained from small hydro, biomass and geothermal resources, which was confirmed by a corporate representative.41 The representative would not disclose specific plant information or suppliers, but said the power "could be from a utility that does not sell into the PX." Like PG&EES, Edison Source was a member of the green marketer coalition that petitioned the California Energy Commission and the Legislature to make eligible for a green marketing subsidy the resale of utility-controlled resources to California consumers (see section VI.A), indicating the company's interest in such resources.
4. Keystone Energy Services
No information on Keystone's "EarthChoice" products was available on its website as research was conducted for this report,42 nor were calls or e-mail correspondence returned. However, sources indicate that Keystone may be purchasing its renewable power from Foresight Energy Company. California Energy Commission sources stated that Foresight will be one of the primary beneficiaries of recently adopted state legislation to award subsidies for the retail sale of utility-controlled resources (see Section VI.A). Therefore, it is reasonable to assume that some or all of Keystone's green power could be derived from utility portfolios.
5. Sacramento Municipal Utility District (SMUD)43
SMUD informs its customers through its website44 that "the green power that you pay extra for will go into the SMUD grid, and that energy will replace predominantly non-green power that we otherwise would have bought." While it may be true that the power replaces power that SMUD would otherwise have bought, SMUD's power purchase does not result in changing the mix of the overall electricity system.
SMUD's "Greenergy" is purchased from the Northern California Power Agency's45 existing geothermal units located at The Geysers geothermal resource area in Sonoma County. SMUD states that this geothermal power will replace non-green power on the SMUD grid, but the same amount of The Geysers geothermal power would have been generated and placed on the California grid whether or not SMUD purchases it for its Greenergy program.46 This is because no change has occurred in the dispatch of The
41 Conversation with Gus Luna, Edison Source, September 21, 1998. 42 Keystone's website from August 24 through September 25, 1998, contained no information on their products. 43 SMUD's service territory is not open to competition; this green power program is offered only to SMUD's captive customers. 44 "www.smud.org/green" as of August 24, 1998. 45 The NCPA is a Joint Action Agency whose members include municipalities, rural electric cooperatives, irrigation districts, and other publicly owned entities interested in the purchase, aggregation, scheduling, and management of electrical energy. 46 It is even misleading to say that the power will go into the SMUD grid, because the laws of
16 Geysers resource and because the natural steam resource at The Geysers is in decline.
According to a geothermal industry expert,47 electrical production at The Geysers is curtailed when very low-cost hydropower is available, from December through the end of the hydro season, or when other lower-cost system resources are available. Geothermal power production is maximized in the summer and fall when it can be generated at a lower cost than system power can be obtained. SMUD does not claim that The Geysers are being dispatched more as a result of the Greenergy sales48; SMUD purchases a portion of the power that would be dispatched anyway. The amount of dispatched power from The Geysers far exceeds the demand that might optimistically be expected from SMUD's green sales. Even if production were enhanced, however, the green power sales would only accelerate the rate of depletion of The Geysers geothermal resource.
Available data from the California Department of Conservation's Division of Oil, Gas and Geothermal Resources and industry sources shows that operating capacity at The Geysers has declined by about 30- 40%Cabout 700 megawatts since 1988, representing some 5 billion kWh of lost generation from peak production levels. It is physically impossible to reverse this decline, which, in colloquial terms, resulted from developers putting "too many straws in the soda," depleting the naturally generated geothermal steam at a much faster rate than the earth is able to renew it. The economic practice of curtailing production during the winter and spring has the side benefit of slowing the rate of decline of the resource. Even if Greenergy sales were to result in increased production, therefore, it would only accelerate the rate of depletion.49 Most consumers reading SMUD's above-noted claim, however, will have the false impression that their purchase would result in the overall system becoming cleaner.
A SMUD representative defended the purchase of existing Geysers power by arguing that, because SMUD is claiming that power, "someone else can't."50 The argument here is that, as all existing renewable power is claimed, it will push the envelope toward new renewable supply. This is not a credible argument given the low potential for green sales relative to large existing quantities of Geysers geothermal power that would be produced, at a declining pace, regardless of green sales.
6. Enron Energy Services
Enron Energy Service's Earth Smart Power was discontinued when Enron pulled out of the California residential market, but it is being provided to those customers who signed up beforehand. Based on discussions with Enron representatives prior to Enron's withdrawal from the market, it was clear that, at
physics ensure that the path taken by the electrons generated from the geothermal facility will not change as a result of SMUD's purchase. 47 Note 27 supra. 48 Greenergy program materials do not claim that overall production of renewable energy increases as a result of the Greenergy program. Bud Beebe of SMUD also confirmed (in an October 8, 1998, phone conversation) that SMUD cannot demonstrate, nor does its contract with the NCPA require, increased production from The Geysers. 49 It would result in displacing other resources sooner rather than later, but there would be no change overall. Moreover, what would likely be displaced currently is hydropower, not fossil fuels. Note 27 supra. 50 Bud Beebe, SMUD. Statement made at Geothermal Energy Association conference, Berkeley, CA, on March 31, 1998.
17 that time, Enron was obtaining or planning to obtain its power from utility sources.51
7. cleen 'n green energy
Cleen 'n green energy offers two products, green 50 and green 100, for which it obtains renewable energy content exclusively from in-state, non-utility-controlled renewable resources.52 This power is obtained through a wholesale renewables trading market hosted by the Automated Power Exchange (APX), which accepts renewable power only if it meets the California Energy Commission's eligibility criteria for receiving a green marketing subsidy, which excludes utility-owned resources and all out-of-state resources.53 Because cleen 'n green purchases power from renewable energy producers that are not under contract to or owned by a utility, it directly supports renewable energy facilities that would otherwise receive only the market price for power. Apparently the only green marketer to reject utility-owned resources as a policy matter, cleen 'n green has begun to use this important fact to obtain a marketing advantage. A recent cleen 'n green press release reads that all cleen 'n green products obtain renewable resources "generated by independent California energy producers not under contract to any utility."54
III. CONSUMERS CANNOT TRUST EVEN "VERIFIED" CLAIMS
A. Verification of Green Product Claims Is Not Possible Without a Region-Wide Tracking System, Which Does Not Yet Exist
In order to verify claims regarding fuel sources and related environmental characteristics, systems must be developed to track all generation plants and transactions within an electricity trading region. Tracking of claims by a single state is insufficient because of the multi-state nature of electricity markets and the physical nature of electricity.
This is the conclusion of extensive research conducted by The Regulatory Assistance Project (RAP) for The National Council on Competition and the Electric Industry55 (National Council). The National Council's role is to provide research and information to federal and state decision makers on all aspects of electric utility restructuring. The research concluded that a comprehensive, regional mechanism for disclosing emissions and fuel mix is required to give consumers reliable information about fuel sources and emissions and to reduce the potential for gaming.56 RAP also concluded that:
51 Conversation with Maureen Palmer, Enron Capital & Trade, January 1998. 52 Conversation with Richard Kohl, President, cleen 'n green energy, August 11, 1998. 53 Note 9 supra. 54 "Cleen 'n Green Energy First to Apply for CEC 'Green Energy' Credits," cleen 'n green press release, September 21, 1998, via Business Wire. 55 The National Council on Competition and the Electric Industry is a partnership between the National Association of Regulatory Utility Commissioners (NARUC), the National Conference of State Legislators (NCSL), the U.S. Department of Energy (DOE), the U.S. Environmental Protection Agency (EPA), the Federal Energy Regulatory Commission (FERC), and the National Association of State Energy Officials. RAP serves as the project manager for the National Council=s Information Disclosure Project. 56 Tom Austin, David Moskovitz, Cheryl Harrington, Uniform Consumer Disclosure Standards for New England: Report and Recommendations to the New England Utility Regulatory Commissions, Regulatory Assistance Project (prepared for the National Council on Competition and the Electric Industry), October 6, 1997. (Available at www.rapmaine.org.)
18 "Disclosure rules for imports depend on whether comparable tracking and disclosure occurs in the neighboring regions. If the neighboring region has a [similar] tracking system and disclosure system ..., power from that region would be tracked and disclosed ... in the same manner as in-region generation. Otherwise imports should be labeled as imports ... "57
There are two primary approaches to a comprehensive tracking system: "settlements" and "tradeable tags." The settlements approach essentially "piggybacks" on information that is already tracked by the Independent System Operator, which controls long-distance power lines and manages the delivery of power over a state or regional electricity grid.58 With the tagging approach, transactions are not tracked, but all generators obtain "tags"Ccertificates which bear the fuel and emissions characteristics of the power produced. Tags are tradeable independently of the electricity.59
In California, however, the legislature adopted neither of these comprehensive approaches, opting instead (due to opposition from power marketers and utilities) for a much weaker means of claims verification:60
1. All transactions will not be tracked. Retail sellers that do not make claims about their fuel sources are not required to provide any data. Only retailers making environmental claims regarding fuel sources are required to provide information.
2. Sellers making no claims about their fuel mix can use a "default" system mix label, regardless of the fuel content of their product. Thus, a product that is 100% coal can be labeled as the California system mix C35% gas/oil, 24% hydro, 17% coal, 14% nuclear, and 11% renewables, as long as no specific claims are made about the product.
3. Claims that are made will be "verified" through a private audit approach. California regulations 61 will require each retail seller of power that makes environmental claims regarding its product to: (a) provide an "attestation, signed under penalty of perjury" to the Energy Commission that the power it claims to have sold was "sold once and only
57 Ibid. 58 With the settlements process, the ISO knows: (1) hourly generation of every plant in the region; (2) generation firm or firms which are entitled to that output; (3) amount of power each retailer takes off the transmission grid to meet its customers= needs; and (4) electric energy contracts within the region or across the regional border where these contracts imply the purchase and sale of electricity. The ISO simply obtains fuel source and emissions data along with the information that it already tracks. 59 The principal elements of the tags approach, as described by RAP, are: (1) Tags (tradable certificates, issued either on paper or in a computer database) would be created simultaneously with electricity generation. (2) Tags could be bought and sold independently of any trading in electricity. (3) Periodically, perhaps every six months, the tag trading period would close, requiring that all retail sellers have adequate tags to cover their electricity sales. (4) At the time of closing, anyone holding tags could choose between using the tags they own to label their sales or turning the tags over to a central tag pool. Anyone needing additional tags would be allowed to draw out of the pool. Tags taken from the pool would have the average characteristics of all tags turned into the pool. 60 SB 1305, California's disclosure law, adopted 1997. 61 Title 20 California Code of Regulations, sections 1391-1394.
19 once"; (b) identify generators and fuel sources from which they obtained power, the amount of power obtained, and the total kilowatt hours they sold at retail during the previous year; and (c) "provide an attestation" to the Energy Commission that an audit has been performed by a certified public accountant which demonstrates that the information provided by the seller pursuant to item (b) contains no material misrepresentations of fact. (Note that the attestation regarding (a) Cthat power be sold once and only onceCneed not be audited.) These attestations are not due until the spring of 1999Cmore than a year after the market opened, and only annually thereafter. The Energy Commission may periodically investigate claims and may acquire the audit and other documents as part of its investigation.
4. California law allows claims to be made about out-of-state resources, even though California has no jurisdictional authority to verify them. Imports account for some 35% of California's electricity consumption and account for a significant portion of the "green" energy sales that are now occurring. California can, to some extent, verify claims regarding in-state generators, which can be required to register with the state, but has no such authority over out-of-state generators.
5. No consideration will be given to whether renewable resources sold in California are already being paid for by ratepayers in other states. As was mentioned in Section II.A., reselling utility resources does not result in additional renewable power production and thus makes no difference to the environment.
These methods fall short of the National Council's recommendations in several ways. First, the single- company audit approach is unreliable; a retailer can demonstrate to an auditor that it purchased renewables from a wholesaler (or directly from the producer), but proof of this purchase does not prove that the wholesaler has not sold those same renewable kilowatt-hours to another retailer. The difficulty is compounded by the fact that multiple parties may be involved and multiple transactions may occur between a renewable energy generator and the ultimate retail sale of its power. Unless the auditor has the authority to audit the records of each of the entities in the chain from which the retailer obtains power, it cannot verify that the resource has not been sold twice (or more). Even if the auditor did have this broad auditing authority, it would be very difficult, if not impossible, to track sales in a market where thousands of transactions involving multiple parties occur every day. This is the reason behind the National Council's recommendation, noted above, that a universal tracking system (settlements-based or tradable tags) be established, as is occurring in the New England states. If a lower cost audit system could suffice, it is doubtful that the New England states would incur the difficulty and expense of adopting an ISO- based tracking system.
Second, the problem with the auditing method is compounded by out-of-state transactions. California has no authority over generators in other states; therefore, it cannot verify any information on the energy sources of power that is imported.62 Though the National Council reports recommend, absent a consistent system in neighboring jurisdictions, that imports be labeled as imports (i.e., that no claims regarding fuel sources be attached to imported power), California's disclosure law requires the Energy Commission to allow any renewable power within the Western System Coordinating Council to be claimed as such as long as the claims are audited. Again, however, auditors are not required to ensure, and would not be able
62 Section 1392(c)(B) of the regulations implementing SB 1305, California's disclosure law, specifically states that the Independent System Operator is not required to provide the California Energy Commission with out-of-state generator information regarding type of fuel.
20 to ensure, that out-of-state power claimed to be sold to California consumers has not also been claimed in another state. Nor could an auditor ensure that power generated in California is not being claimed in another state.
The Energy Commission will attempt to cross check data that must be filed by California generators with claims-substantiation information submitted by retail sellers. With this, the Energy Commission hopes to "form a pretty good picture" of whether claimed power has been sold only once, but the system "is not fail safe by any means" and there is "no way to verify" that power hasn't been sold twice, according to several Energy Commission staffers involved in the verification program.63 The problem is more acute with claims regarding out-of-state resources, one of the "holes" in the system, the staffers confirmed. Thus, the clear potential for false claims exists. Worse, without a universal tracking system in place, it will be difficult if not impossible for false claims to be detected or proven by prosecutors. This concern was noted by staff of the Federal Trade Commission who stated, "It ... may be difficult to verify for law enforcement purposes the accuracy of fuel source claims in retrospect, and to assess proffered substantiation, because the systems needed for tracking fuel sources are still being developed and implemented."64
Energy Commission staff recognize and are concerned about the limitations of California's disclosure law and their existing implementing regulations, particularly the lack of verification of the supplier's attestation that power has been sold once and only once and lack of jurisdiction to verify imports, and are currently investigating ways to strengthen their verification procedures. Energy Commission representatives have begun to meet with Western state regulators and are discussing the development of a regional tracking system, possibly based on tradable tags. However, Energy Commission staff acknowledge that it may take several years to develop a comprehensive system and that, in the meantime, California's system will not be fail-safe. 65
There is one situation in which it is easy to determine that power has already been sold once: when it is being sold to the captive ratepayers of a municipal or regulated utility. Unfortunately, this circumstance will apparently not be factored into the Energy Commission's determinations of "sold once and only once" because what will matter is whether the "greenness" of the resource has been paid for, not whether the resource itself has been paid for. Thus, for example, PacifiCorp's resale of renewable power to Green Mountain Energy Resources, discussed in Section II.B.1, will be allowed as along as PacifiCorp does not make green claims to its Northwest ratepayers about the power sold to GMER. 66 Though separating fuel source characteristics from the power itself is not inherently problematic (as with the tradable tags approach to tracking),67 it is problematic in this case for several reasons:
63 Conversation with Cheri Davis, California Energy Commission, August 11, 1998, reiterated in conversations with Bob Grow and Caren Hough, California Energy Commission, September 21, 1998. 64 "Response to the National Association of Attorneys General Request for Comments on Discussion Draft of Proposed Green Guidelines for Electricity," Comment of the Staff of the Bureau of Consumer Protection of the Federal Trade Commission, August 10, 1998. 65 Conversations with Bob Grow and Caren Hough, California Energy Commission, September 21, 1998. 66 Conversations with Bob Grow and Caren Hough, California Energy Commission, September 21, 1998. 67 What is important is that money flows to renewable energy generators in addition to the market power price, whether that occurs in one bundled payment or in two separate payments, one for power and one for "greenness."
21 $ California will not track green markets in other states, so it will not know what green claims are being made. Moreover, California has no authority over claims made in other states;
$ Most Northwest ratepayers are not being provided with any information about their fuel mix, and so they cannot currently be informed that it is becoming browner due to PacifiCorp's sale of renewable power to GMER. Moreover, PacifiCorp never asked Northwest regulators whether they approved of their system becoming browner, with PacifiCorp shareholders benefitting rather than their ratepayers who are fully paying for the resources;68
$ The same logic that the Energy Commission used to decide against providing green marketing subsidies to support the resale of captive-ratepayer-supported renewables (see Section VI.A) applies equally to the resale of those renewables apart from any subsidy. The Commission stated: "Supporting projects that would otherwise operate in the restructured market without help from the Customer Credit would not promote a sustainable market for renewables ..."; 69 and
$ Allowing utilities to resell renewable resources that their captive ratepayers are fully paying for provides them with an unfair competitive advantage against companies that must take risks to participate in the green market.
Despite these problems, California consumers have no way of knowing whether or not the "renewable energy" content that shows up on their power source disclosure label is merely "claimed renewables" from the portfolio of a utility whose ratepayers are already paying a high price for that same power.
Finally, the lack of a universal tracking system and allowance of a "default" label means that many consumers will not be provided with accurate information about the resources their dollars are supporting, that, if provided, might cause them to switch to a more environmentally sound supplier. Whenever "non- green" suppliers are purchasing anything but 100% system power, the "disclosure" label will contain misleading fuel mix information. For this and other reasons, the National Council reports do not recommend the type of default labels that are allowed in California.
B. Private Verification Efforts, Such as "Green-E" Certification, Provide Consumers with Little, If Any, Additional Protection
Absent a comprehensive regional tracking system, it will be difficult, if not impossible, for states to verify environment-related claims about electricity sources. For the same reasons, it will be impossible for private interests, which lack the power of the state, to conduct such verification.
The Green-e certification program,70 a project of the Center for Resource Solutions (CRS) in San
68 Shareholders benefit because utility rates are fixed until the next rate case; shareholders therefore benefit from any extra revenues that are generated in the management of their resource portfolio. 69 Note 133 infra. 70 The Green-e board consists of representatives from several environmental groups, including
22 Francisco, has conferred its "Green-e" logo on most of the green products being widely offered in California. 71 Green-e asserts that its logo "will protect customers by helping them quickly identify credible green electricity products ... that meet the Green-e Program's stringent ethical, consumer and environmental protection criteria."72 Green marketers echo these words in their advertising. Despite this hyperbole, Green-e requires very little beyond what is already required by California law:
Fuel content verification will not exceed, and may itself rely on, what will be accomplished by the California Energy Commission. Green-e's website73 states that consumers can "be sure that a new provider is reliable and ethical" because Green-e-certified electricity providers have "signed a contract with CRS's Green-e Program agreeing to submit to an annual audit and abide by our Code of Conduct." (Emphasis added.) CRS has not yet completed, let alone tested, its audit protocols.74 A source involved in the Green-e program stated that Green-e has delayed developing its own protocols with the hope that the program could rely on procedures developed by the Energy Commission (which, as discussed previously, are inadequate), augmenting them as necessary. A draft of Green-e's own auditing procedures 75 shows that completed audits will not be required until five months after each 12-month period, or 17 months after products have been on the market (thus, for the first year of sales, Green-e audits will not be due until August 1999). The draft also shows that Green-e intends to rely on various attestations in lieu of hard evidence. For example: Marketers must attest that the power claimed has been sold once and only once to their retail customers and must provide a sworn affidavit that they have purchased no power from nuclear or coal, if such claims are made. (As discussed in the previous section, such "evidence" is all that is possible given the lack of a comprehensive tracking system.) Presumably, the verification process is needed because of a lack of trust that retailers' claims will always be truthful. If this is the case, there is no reason to trust claims that cannot be verified simply because retailers have attested to them.
Fuel content standards provide information that consumers can readily obtain from required fuel content labels. Green-e confers its logo only on products with a minimum 50% renewable
the Natural Resources Defense Council, the Center for Energy Efficiency and Renewable Technologies, the Union of Concerned Scientists, a former employee of the Environmental Defense Fund, as well as several other representatives. In addition, Green-e obtains advice from the green marketers on its "power marketers advisory committee," whose chair serves as a non-voting member of the Board. Renewable energy producers themselvesCthose whose interests are most aligned with the consumers' interest in receiving a renewable energy product that makes a differenceCare represented only indirectly through one board representative, the Executive Director of the California Independent Energy Producers, whose members include renewable as well as non-renewable energy producers and power marketers. 71 As of August 24, 1998, according to Green-e's website, Green-e had conferred its logo on the following retail products: Edison Source's Earthsource 50 and Earthsource 100 products, GMER's 75% Renewable Electricity and Wind for the Future products, Keystone Energy Services' EarthChoice 100 and EarthChoice 50 products, PG&E Energy Service's Clean Choice 100 and Clean Choice 50 products, and SMUD's Greenergy/All Renewables Option. 72 "Public Interest Coalition Unveils Green-e Renewable Electricity Branding Program," Green-e press release, September 22, 1997. 73 www.green-e.org, as of August 17, 1998. 74 Green-e did not respond to a request to provide a copy of its auditing protocols. Sources involved with Green-e state that the protocols have not been fully developed. 75 "Draft Verification Process for SB 1305." (Green-e internal draft.) April 1998.
23 energy content. Green-e asserts that its renewable energy percentage requirement has driven up the quality of the green products on the market. But because Green-e allows that content to be comprised of renewables that are in the portfolio of a regulated utility (see next point), the high content standard is meaningless. Moreover, consumers will be provided with information on renewable energy content through fuel disclosure labels that are required by law in all product- specific written or electronic promotional materials (except those in general circulation media),76 which will allow them to easily identify products with the most renewable energy content.
Green-e qualifies "make-no-difference" utility-renewables as acceptable product content. One of the most important standards that Green-e could establish would be to ban utility-controlled, captive-ratepayer-supported renewables as accepted "renewable" fuel content, for the reasons discussed in Section II.A. To do this, it need only adopt the higher standard established by the California Energy Commission for its green marketing subsidy (see Section VI.A).
Beyond the Green-e's weak renewable energy content standard, the only additional standards are an unverifiable emissions requirement and simplified price disclosure information. Though Green-e requires that the fossil fuel portion of an endorsed product have the same or lower air emissions than overall system power, the ability to verify emissions claims suffers from the same limitations as discussed with fuel content standards. Further, the Energy Commission has been given no authority to verify emissions claims. As with Green-e's general auditing protocols, an emissions verification protocol has yet to be developed. Beyond this requirement, the only Green-e standard that exceeds state or federal legal requirements is a simplified summary of price, terms and conditions that Green-e requires marketers to post on their websites, include in their direct mail and in response to specific inquiries, and provide to customers prior to enrolling them into service. 77 State law requires that a lengthier version of price, terms and conditions be provided to consumers only prior to enrollment. Despite adoption of this laudable standard in July 1998, a review of green marketers' websites in October showed that most Green-e certified providers had yet to comply.78
Green-e's planned "new" renewable energy content standard will not correct for the rest of the endorsed product content. Green-e is planning to adopt "new renewable energy content" standards, which will require all products to contain 5% new renewables 79 by 2001, rising to 25% over five years. But this will be of little consequence if the rest of the product content is allowed to be meaningless. Moreover, setting a low content standard for meaningful renewables may encourage retailers to simply meet the standard, instead of competing to provide more meaningful products.80 In addition, drawing a distinction between "existing" and "new" resources may be
76 Public Utilities Code section 398.4(b). 77 "Green-e Compliance Review Procedures and Customer Information Requirements, Final Draft #2," July 6, 1998. 78 The websites of all Green-e-certified retail companies were reviewed in early- to mid-October, and only GMER appeared to be in compliance, e.g., by including total monthly customer bills for default and green product service. 79 "New" renewables are likely to be defined as they were in California's restructuring law (AB 1890), i.e., those that became operational after September 1996. 80 Indeed, the involvement of green marketers in the setting of Green-e standards might be considered to be collusion.
24 inappropriate. As the American Wind Energy Association argues,81
First, a new project may not need support while an existing project might. For example, a new project whose "above market" costs are being fully covered by a government subsidy may not need additional consumer support,82 whereas an existing project receiving market prices that are inadequate to sustain operations may. Second, from an environmental perspective, it makes no sense to build a new project (new roads, power lines, etc.) while an existing project languishes, if it is possible to maintain or repower the existing project at the same or lower cost. Third, definitions of "new" are problematic (e.g., when does "new" become "old"?). Fourth, it is unfair to penalize early investors in renewable energy by classifying their product as somehow inferior. It is best to allow the market to displace existing renewable resources when new ones of greater value or lower cost are available.
Companies and their marketing practices are not held to higher standards than are required by the California Public Utilities Commission. Green-e's "standards" are focused on products, not the companies that sell those products. Thus, companies are not scrutinized to ensure that they have ethical business practices. This is particularly troublesome with companies that use multi- level marketing schemes because quality-control over independent agents is difficult (e.g., it will be virtually impossible for Green-e to police multi-level marketing agents for compliance with its information disclosure rules).
Green-e offers consumers no additional protection against fraud. If a fuel source claim is ever proven to be false (which will be difficult absent a comprehensive verification system), the false claim itself would provide sufficient grounds to file a consumer fraud lawsuit. An "attestation" provided to a private group creates little additional liability for the retailer. Though the group might be able to sue for compensation for the loss of the credibility of its logo, consumers harmed by their reliance on the logo are provided no greater recourse. Moreover, it is unclear that Green- e or its host, the Center for Resource Solutions, both newly established, have sufficient resources with which to pursue cases of fraud, certainly nothing comparable to the resources of state and federal agencies. Indeed, Green-e's "Code of Conduct" states that those who violate Green-e standards are: subject to losing their eligibility to use the logo; may be required to allow any customer to terminate any existing contracts without penalty and to offer to compensate any customer for switching expenses; and "may be liable for damages incurred by this program and/or its Board." But violators are not required to compensate customers for past premiums paid for the unworthy product. Though it charges marketers $3,000 annually for each product that receives the Green-e logo (the fee will be raised next year),83 the program is not self-supporting and relies on various grants. Thus, the program may not even be around to police the misuse of its logo.
Green-e criteria are not so stringent that they have prevented the following:
81 See Note 12, supra. 82 The same is true if the above market costs of a new resource are already being paid by captive utility ratepayers. 83 Relying on marketers to pay for the program is itself problematic, since it could become captive to the marketers. Indeed, marketers already exercise considerable influence over the program through Green-e's Power Marketers Advisory Committee.
25 $ Green-e-certified products are comprised largely, if not entirely, of meaningless utility- controlled, captive-ratepayer-supported renewables (see Section II).
$ Green-e certified products may be marketed by companies with highly questionable business practices. For example, in August, Green-e certified the products of Keystone Energy Services despite two pending class action stockholder suits alleging that Keystone intentionally misrepresented facts and made false and misleading statements in order to artificially inflate the company's stock price. 84 In addition, Keystone is working with multi-level marketing firm FutureNet, which has been convicted in various illegal pyramid schemes, fraudulent marketing schemes and other crimes relating to consumer fraud in various states.85,86
On the other hand, two products on the market offered by cleen 'n green energyCthe only ones that clearly do not merely resell utility-controlled renewables Care one of the few green products not certified with the Green-e logo.87
The California Energy Commission lends its credibility to the Green-e program by stating on its web site:
If the electricity product that interests you is listed as Green-e certified, it means that at least 50 percent of the electricity is generated using renewable energy resources. Green-e is a non-governmental, non-profit program designed to provide you with a way of identifying renewable power products. Providers that use the Green-e logo must abide by the program's high standards of professional conduct and undergo a verification process to ensure that they deliver what they promise.
84 The first suit, Josif Slutsker v. Keystone Energy Services, Richard Saxby and Michael Caldwell; US District Court for the Central District of California; 98-3695 WDK (CTx), was filed on May 12, 1998. The second suit was filed in June by the Los Angeles firm Weiss & Yourman [CV-98- 4446 WDK (CTx)]. California Energy Markets, No. 472, July 10, 1998, p. 8. 85 California Energy Markets, No. 475, July 31, 1998, p. 13. 86 FutureNet has had to pay large fines stemming from a Federal Trade Commission investigation and is under investigation by the Consumer Services Division of the California Public Utilities Commission. The CPUC found that FutureNet "had made claims of savings of up to 40 percent in monthly consumer electric bills with no substantiated evidence in attempts to mislead prospective customers." A CPUC administrative law judge subsequently issued an interim decision ordering all energy service companies (ESPs) who establish marketing contracts with FutureNet to include contract language holding the ESP responsible for FutureNet conduct as a sales agent. Keystone defended its use of FutureNet by saying "We think that because of this experience, they are going to be helpful and will uphold very high standards." Keystone general counsel Tom Darton noted that some of FutureNet's past difficulties were related to its representatives making savings claims but that, on behalf of Keystone, "they will be marketing a premium product at a premium price, so savings are not an issue ... This will be marketed on the basis of, "Do what's right for the environment." Ibid. 87 According to San Jose-based cleen 'n green, the company has chosen not to seek Green-e certification because: Green-e's content standards do not recognize the superior quality of the company's products; Green-e certification standards require little beyond what is required by California law; and the benefits of Green-e certification do not justify Green-e's $3,000 per product annual certification fee. Conversations with Rick Kohl and Dennis Dyc, cleen 'n green, August 17, 1998.
26 When asked what the program's "high standards" are that justify the CEC's endorsement, a CEC staffer responded that it is the 50% minimum renewable energy content requirement, as well as the Green-e verification process, which the CEC does not yet have in place. 88 The CEC staffer was not aware that Green-e "verification" will not take place until 17 months after the retail market opensCthe same schedule on which the CEC will conduct verification, or that Green-e hopes to piggy back off of the CEC's verification system. Moreover, California's required fuel-content label will provide consumers with clear information on each product's renewable energy content.
IV. FALSE OR MISLEADING GREEN PRODUCT CLAIMS ARE COMMON
A. The Sale of Power from Existing Utility-Controlled Facilities Does Not Benefit the Environment
As documented in Section II, most green products appear to rely largely, if not exclusively, on claimed renewable resources from the portfolios of municipal or regulated investor-owned utilities which would generate the same amount of power regardless of any resale into the California green market. Any claims to consumers that purchase of this product content will result in any environmental improvement, therefore, would be misleading if not outright false. Some companies are careful not to directly claim that the purchase of their product makes any difference to the environment, though that is clearly the intended implication. Other companies, as well as environmental-group champions of the green power market, make blanket claims that the purchase of green power products will improve the environment, as the following examples illustrate.
Green-e: The private Green-e certification program (discussed in Section III.B) claims on its website's "Frequently Asked Questions" page that the "green power" it certifies is "cleaner because it results in lower air pollution emissions" C but Green-e does not screen the products it endorses to determine whether air quality is actually improved or not, nor even does it take the simple step of screening for utility-controlled renewable content that would operate regardless of green sales.
NRDC: The Natural Resources Defense Council (NRDC) urges consumers to switch to any green power provider because "If you want to reduce the impact your electricity use has on the environment, the worst choice you can make is no choice."89 Despite this assertion, as discussed in Section II.B.1, switching from a California utility to some NRDC-endorsed green suppliers could actually increase the emission of air pollutants. Moreover, like Green-e, NRDC did not screen the six products it endorsed90 for utility- controlled renewable energy content, nor did it endorse the two products on the market that are not derived from utility portfolios. Indeed, all of the products endorsed by NRDC appear to rely wholly or in part on resold utility renewables that would operate regardless of green consumer purchases.
88 Conversation with Cheri Davis, California Energy Commission, September 21, 1998. 89 NRDC's website (www.nrdc.org/howto/encagp.html), August 24, 1998. 90 Though NRDC claims that its identification of certain green products as "environmentally preferable" "does not constitute an endorsement of any company or its products," it can only be seen as such given: (a) statements on NRDC's website such as "we've evaluated the options in order to help you choose;" (b) the concurrent issuance of press releases by NRDC and PG&E Energy Services announcing NRDC's "environmentally preferred" products; and (c) the allowed use of NRDC's name in green marketers' materials (see, e.g., the websites of SMUD and PG&E Energy Services).
27 Edison Source: "By purchasing EarthSource energy, you will help reduce pollution by decreasing California's reliance on fossil fuels ... By choosing EarthSource, you'll help clean up the environment. . . [R]enewable power equal to your monthly consumption will be added into California's Power Exchange."91 (Emphasis added.) This is clearly not the case if Edison Source purchases its renewables from utility resource portfolios, as it indicated may be the case (see Section II.B.3).
SMUD: SMUD claims its Greenergy product "lets you support the replacement of fossil fuel burning generation plants with cleaner resources." As discussed in Section II.B.5, however, the geothermal resource from which it purchases its Greenergy power is a declining resource whose operations are unlikely to be affected by SMUD's purchase.
B. Claims of "New" Renewable Energy Content Are Deceptive, or Invite Consumer Abuse, or Both
In the California green market, many products (described below in Section IV.B.2) are being sold based on promises of future product improvement, namely, that products will include a percentage of "new" renewable resources92 at some point in the future. Worse, some products falsely state that their product currently includes new renewable power and do not disclose, or disclose only in the fine print, that the new renewables are merely a promise.
It is difficult to think of any other product for which consumers are asked to pay extra for a future improvement of that product (e.g., imagine: "pay more for this broccoli, and we promise that what we sell you two years from now will be organically grown"). Marketers are usually not rewarded until they have taken risks, made investments, and delivered more desirable products to consumers.
1. The problem with "new content" claims
The problem with charging now for a product to be delivered in the future is that it invites consumer abuse. Especially in new, unstable and risky deregulated electricity markets, there is little assurance that green marketers will not go bankrupt or otherwise exit the market. Indeed, the green marketers themselves alluded to this distinct possibility when they argued before the California Energy Commission that, if California's green marketing subsidy was not indefinitely provided for the resale of utility-owned resources (and it was not), then the number of green customers that could be expected "would be barely enough to ensure the survival of one or two [green energy service providers]" in the first year of competition.93 Similarly, the Vermont Public Service Board, in scrutinizing the involvement of its regulated utility in establishing Green Mountain Energy Resources (see Section VIII.A), stated that GMER "is entering a new line of business, with numerous unknowns and uncertainties. There is a real chance that GMER may not exist as a viable enterprise a year from now."94 In the event of bankruptcy, consumers would have no recourse if claims of future benefit are not met. In addition, upon inevitable industry consolidation, Company A may purchase the customers of Company B, but may not honor
91 "A New Way, A Better Choice," Edison Source "Earthsource" brochure (received September 23, 1998). 92 "New" is usually defined consistent with California's restructuring law to mean resources that become operational after September 23, 1996, when the restructuring law was signed by the Governor. 93 See note 8 supra (p. 4). 94 Note 174 infra.
28 Company B's policies.95
Some companies are themselves reserving the right to change terms and conditions, such as Edison Source, whose Terms and Conditions sheet states in the fine print: "Edison Source reserves the right to make changes to the policies stated below without prior notice." Likewise, Green Mountain Energy Resources recently changed the terms of its "Wind for the Future" product by promising a new wind turbine for each group of 4,000 customers who choose that product instead of a new turbine for every 3,000 customers as was promised during its first year of marketing.96
There are at least two additional problems with products that misleadingly imply that they include "new" renewable energy resource content, when in fact that "content" is only a promise to add new renewables in the future. First, consumers cannot distinguish between those companies that have already taken a risk, made investments, and developed a new project, and those that are merely making promises while waiting to see if the green market pans out. This hurts marketers and developers who are making meaningful investments and benefits those who are merely selling promises. Second, if consumers are led to believe that a product now contains some percentage of new resources, but in fact the new content is to be provided at some point in the future, customers who switch to another company before that future time will never "receive" the power promised unless, in their absence, a higher percentage of renewables is delivered to the remaining customers. No California authority is set up to monitor fulfillment of these claims,97 and, since consumers are not aware that the "content" is a promise in some cases, they will not be informed enough to complain.
It is simply inappropriate to ask consumers to pay for a company's potential investment when they get no return for the risk taken. A more appropriate method of securing consumers is to charge for the new renewable power only after it is delivered, or to collect expressions of interest or agreements to purchase new renewable power when it becomes available.
2. Description of new content claims
a. PG&E Energy Services
PG&E Energy Services misleadingly informs consumers that their "Clean Choice" products currently contain new renewables when in fact they contain merely the promise of new renewable energy content in
95 In another industry, for example, it took a class action lawsuit for Wells Fargo to honor the lifetime free checking accounts that were promised to customers of banks that Wells Fargo acquired in mergers. ("Wells yields on lifetime free checking," San Francisco Examiner, p. A2, July 25, 1998.) 96 "Vermont Company Sparks Electricity Revolution By Empowering Consumers to Create More Renewable Energy Sources Through Their Electricity Purchases," Green Mountain Energy Resources press release, October 23, 1997, via PRNewswire. This press release, and GMER's website, through September 1998, stated that a new wind turbine will be built for each group of "approximately 3,000 customers." In early October 1998, the website promised a new wind turbine for each group of approximately 3,800 customers. An October 14 press release, announcing the construction of two new wind turbines, stated that GMER promises to build a new wind turbine for every 4,000 customers ("Green Mountain Energy Breaks Ground with Deregulation's First New Renewable Generation Source," October 14, 1998, via Business Wire). 97 The required product content label monitored by the California Energy Commission, for example, does not track "new" renewables.
29 the future. PG&EES's website98 refers to "new renewable power plants that will be operating in California within 12 to 18 months," but then misinforms consumers that the company's Clean Choice 50 product "is comprised of 13% new renewable sources, 37% current renewable source, and 50% large hydroelectric sources" (emphasis added). Similarly, it informs consumers that its Clean Choice 100 product is comprised of 25% new renewables. In two separate calls to PG&EES's toll-free number, representatives stated that these percentages of Clean Choice power actually come from new renewable resources.
When asked about the specifics of these resources, PG&EES representatives stated that the information is not available. When pressed, they admitted that Clean Choice power does not now actually include any new renewables. One stated that consumers' dollars "will be dedicated to finding and building new renewable resources." Neither would make any promises when the new renewables would be on line.99
Subsequent calls to PG&EES's corporate office confirmed that Clean Choice products do not now contain any new renewables, but that new resources will be purchased within 18 months.100 According to the representative, enough new renewables will be purchased later on so that customers signing up today will receive, on average over two years, the new-resource content stated. The representative could not identify the new resources because they have not yet been contracted for.
b. Edison Source
Edison Source's "EarthSource 2000" product is not listed on its own website or in its printed direct mail materials, but is listed on the website of the Natural Resources Defense Council (NRDC), which an Edison Source official affirmed to be an accurate characterization of that product.101 The product promises that "when 3,000 customers subscribe to EarthSource 2000, 10% of the current, historical, and future usage of ES 2000 subscribers will be provided from new wind generation sources." Edison Source's Terms and Conditions sheet also implies that the product currently contains that amount of new wind because its power content label lists ES 2000 as containing 10% new wind.
When asked what "10% of current, historical, and future usage" means, customer service representatives staffing Edison's toll-free line inform callers that "10% of the money from ES 2000 customers will go towards the cost of a new wind project," not that 10% of the consumers' product will be retroactively or prospectively fulfilled with new wind.102 That was presumably incorrect information, however, because the Edison Source official in charge of green power acquisition explained that, when the 3,000-customer threshold is met at some point in the future, new wind resources in excess of 10% will be purchased so that customers signing up now will receive, on average over some period of time, the 10% new-resource content promised.103 Another official could not identify the new resources because they will not be
98 Written materials on PG&EES's products were requested three times, but were never received. 99 "Lee" and "Murial" at PG&EES's toll free phone number, August 31 and September 1, 1998, respectively. 100 Conversation with Sancha Huang, Senior Product Manager - Energy, PG&E Energy Services, September 21, 1998. 101 Note 41 supra. 102 September 1, 1998, conversation with "David" at Edison Source's 1-888-93-EARTH line. 103 Conversation with Chris Martini, Manager of Green Power Products, Edison Source, September 18, 1998.
30 acquired until the threshold is met.104
Edison Source's Terms and Conditions sheet states the following in the fine print:
Until the 3000 customer threshold is achieved, ES 2000 customers will receive ES 100 which is 100% renewable generation from existing renewable sources. If the 3000 customer threshold is not achieved within 2 years, ES 2000 customers will receive a refund equal to the difference between the ES 2000 and ES 100 price.
What is not stated is any deadline by which, if the threshold is met, the new wind resources will be delivered. Thus, the promised delivery of the new wind content is entirely vague and may not occur for many years. Meanwhile, according to the Terms and Conditions sheet, consumers will pay a whopping 2.94-3.944/kWh over market electricity prices (up to 31% premium) for this product105 (which, as discussed in Section II, is likely being paid for by captive utility ratepayers).
c. Green Mountain Energy Resources
GMER promises that "up to" 10% of the content in its "Wind for the Future" product will come from three new wind turbines by November 1999 (two years after this product was first offered). To its credit, GMER clearly promises in its marketing materials to reimburse customers for the extra price paid for the Wind for the Future product if its promise is not met. Also to its credit, GMER recently announced the ground breaking for two new turbines. Until this power comes on line, however, GMER is charging for new wind content that it is not delivering. Moreover, how GMER's promise would be met in the event of bankruptcy or withdrawal from the market is not clear. Finally, as noted in Section IV.B.1 above, after a year of signing up customers, GMER reduced the favorability of the terms of its Wind for the Future product by increasing the number of customers that it requires before a new turbine will be supported, from 3,000 to 4,000 customers.
d. Enron Energy Services
Before pulling out of the residential market, Enron made the most significant commitment to new renewable resources of any green marketer. In November of 1997, Kenneth L. Lay, chairman and CEO of Enron Corp., announced plans to build a 39-megawatt wind farm in Southern California which was to provide electricity for Enron Earth Smart Power. Lay stated in a press release, "Unlike others who say they will build new sources of renewable power IF customers come, Enron is making that investment today. We will not simply be reallocating existing renewable production as the other marketers plan to do."106 The press release stated that the new wind farm would be constructed on two sites in Southern California by Enron Wind Corp. "The first site ... is scheduled to begin generating 16 megawatts of electricity in the third quarter of 1998 and the second ... will generate another 23 megawatts in 1999."
It is not clear whether or how widely Enron represented to consumers that its Earth Smart Power product would contain a certain percentage of these new wind resources. In a March 1998 survey of green power
104 Note 41 supra. 105 Range represents EarthSource 2000's baseline and nonbaseline charges compared with baseline and nonbaseline charges for service from SCE, PG&E, and SDG&E. 106 "Enron Announces the Construction of New Wind Farm in Riverside County," Enron press release, November 18, 1997 (via PRNewswire).
31 products, however, a researcher at Lawrence Berkeley National Laboratory reported that, in 1998, 25% of the renewable energy content in Enron's Earth Smart Power "is expected" to come from new wind, and that, in future years, the new wind portion is expected to increase to approximately 25% of the total product.107
Enron's withdrawal from the residential market in April 1998 apparently slowed these plans down. The 16-megawatt project, originally scheduled to begin operations in the third quarter of 1998 is now slated for construction in 1999, and the 23-megawatt project is on hold until the market for the first project's output becomes clear.108 The new wind power will comprise some portion of Enron's Earth Smart Power for those customers who signed up before Enron's withdrawal from the market, and possibly other green products.109
Enron's planned investment in new wind projects is laudable, but demonstrates how the uncertainty of the market can upset development plans and illustrates why consumers should not be charged in advance for promises of new renewable energy content.
C. Large Hydropower Products Do Not "Make a Difference," Are Not Environmentally Friendly, and Should Not Be Offered by Green Marketers
GMER's "Water Power" product, PG&E Energy Services' "Clean Choice 20" product, and cleen 'n green's "cleen 100" product are comprised mostly of large hydropower (hydro projects larger than 30 megawatts).110 Many other products contain a portion of large hydropower. These "gray" products, as they are known, generate greater profits for the marketer, but do not increase hydro generation. Not only would these projects operate regardless of the green sale because hydropower has very low operating costs, but they are destructive to river ecosystems by reducing water levels, blocking the downstream flow of nutrients and sediment, changing water temperatures and oxygen levels, and impeding fish and wildlife migration.111 By offering these products, green marketers divert potential buyers of products that could make a difference to the environment to products that clearly do not.
D. The Argument That the Resale of Existing Utility-Owned Renewables Will Eventually Make a Difference Is False
Read carefully, some green marketing materials do not promise that consumers actually make a difference with their purchase. For example, GMER's materials claim that it is "committed to changing the way power is made by unleashing consumers' demand for renewable energy."112 The promise here is that eventually consumer demand will make a difference in "the way power is made." There are several problems with these arguments as applied to products that merely resell utility-controlled resources that
107 Ryan Wiser, "California Retail Green Power Products," Lawrence Berkeley National Laboratory, March 27, 1998. 108 Conversation with Mary McCann, Enron Wind Corp., September 22, 1998. 109 Ibid. 110 While environmental damage from large hydropower dams is potentially far worse than from small hydro projects, small hydro can be environmentally destructive as well. 111 "Criteria for Low-Impact Hydropower," American Rivers, March 5, 1998 (Draft). American Rivers has developed five criteria to determine whether a dam is "low impact," though impacts cannot be entirely mitigated. 112 "About Us," GMER website (www.choosewisely.com), August 24, 1998.
32 would operate anyway.
First, consumers are falsely made to believe that their purchase is currently making a difference through such statements as "join us in creating a cleaner, healthier planet" and "You don't have to change your lifestyle to help protect the planetCjust your electric company."113 Second, the resale of existing utility- owned or -contracted resources, such as PacifiCorp's, to green consumers cannot make a difference in the West for at least a decade because the supply of these resources greatly exceeds any realistic projection of green demand. If every consumer in 11 Western states had the choice of purchasing renewable electricity, 18% of those consumers would have to purchase a 100% non-large-hydro renewable product in order to subscribe the existing amount of non-large-hydro renewables 114 that is either included in utility ratebase or is under long-term contract to a utility with costs passed through to ratepayers. The highest residential response rate to any green pricing or green marketing program in the country is 3.4%, and most program subscription rates are between 1 and 2% or less (see Section VII.D). Claims that consumer purchases of utility-controlled resources will push the envelope in favor of additional renewable resources are therefore not credible.
Finally, green marketers could obtain their power from renewable projects that do not already have lucrative utility contracts or access to captive utility ratepayers and, in that way, make some difference in the market by supporting projects that face market risk. The supply of renewable power in the West that is not currently owned or under contract to any utility is relatively small, but is sufficient to meet the green electricity demand that can be expected over the next several years. As the California Energy Commission stated in turning down green marketers' request for green marketing subsidies for reselling utility power, "This [non-utility] renewable energy supply far exceeds demand, even based on the marketers' anticipated number of customers during the first year of the program."115 The supply of such resources is small enough, however, that consumer purchases might help some renewable energy plants maintain and possibly enhance production. Currently, however, there is only one company, cleen 'n green, that purchases its power from non-utility resources. "We strongly support existing California renewable generators," cleen 'n green's president, Rick Kohl, stated. "If these generators are not able to sell their power in the newly deregulated marketplace, many of them will be in jeopardy of having to shut down."116
E. Green Marketing Materials are Replete with Various Other Misleading Statements
1. Claims of current solar and wind energy content are false
113 GMER brochure, "Choose cleaner electricityCIt's a celebration of pure energy." No date. 114 The 11 states are Arizona, California, Colorado, Idaho, Montana, Nevada, New Mexico, Oregon, Utah, Washington, and Wyoming. Total electric consumption in these states in 1995 was approximately 514,000 million kWh. Total non-large-hydro renewable energy production was approximately 30,000 million kWh. Residential consumers account for approximately 1/3 of total electric demand. (As noted in footnote 5, the 4,300 megawatts of renewable energy capacity under contract to California investor-owned utilities could be sold on the green market after 2001.) 115 "Renewables Program Committee Recommended Decision on Customer Credit Subaccount," California Energy Commission Docket No. 96-REN-1890, May 27, 1998. (Recommended Decision was subsequently adopted by the full Commission.) (The marketers' anticipated demand was several times greater than estimates made by other parties in the proceeding.) 116 Note 54 supra.
33 Solar and wind are the renewable resources that consumers prefer, but are not currently contained in green marketers' green power products.117 Most green power marketers cleverly define renewables as "solar, wind, biomass, geothermal, and small hydro," but do not claim that their own renewable power actually comes from all five of these resources. Some green marketers, however, falsely inform consumers that their products are actually comprised of solar and wind power.
Consumers calling PG&EES's toll-free phone number or browsing its website, for example, are falsely informed that power for PG&EES's "Clean Choice" products comes from "five different sources: solar, wind, geothermal, biomass and small hydro." When toll-free operators are specifically asked, they reiterate that power is obtained from solar resources.118 A PG&EES corporate officer confirmed that, in fact, none of PG&EES's Clean Choice power comes from solar, as represented by PG&EES's toll-free information line staff, though they "may have" solar in the future.119
GMER and SMUD's materials also prominently refer to "wind and solar" resources despite the fact that their products currently include neither. GMER's opening website page deceptively claims, for example, that "our electricity products are made from renewable resources like the wind, water and solar energy."
2. Marketers give the false impression that they contract directly with renewable energy producers
GMER states 120 that 100% of each product "is purchased directly from individual suppliers," implying that purchases are made from individual generators, when in fact the power is purchased from PacifiCorp. Listing the specific renewable energy facilities from which they obtain power, without stating the facilities' relationship to PacifiCorp, further gives consumers the false impression that GMER is purchasing directly from these renewable power producers. As documented in Section II.B.1, PacifiCorp does not pass through any of the proceeds to their contracted renewable generators. Though GMER has announced its relationship with PacifiCorp in a press release, they never state this fact in their promotional materials geared towards consumers.
The Green-e webpage also states that "when you choose clean power, you are redirecting your energy dollars to companies that contract directly with renewable generators who will put enough power into the grid to match your energy needs." This is not the case, since most Green-e-certified marketers appear to be contracting with utilities that have contracts with renewable energy generators, not with the renewable generators themselves. (In addition, as discussed in Section II, in many cases green power is not "put into the grid" as a result of a consumer choosing a green product.)
117 The only bulk solar and wind power generation that exists is under contract to PG&E and Southern California Edison, or owned by SMUD. By law, PG&E and SCE must sell their contracted renewable power into the California Power Exchange through 2001. Once sold into the PX, it becomes generic power and cannot be sold as green power to particular buyers. 118 Three separate calls were placed to PG&EES's toll-free phone number, and on all occasions (8/31/98, 9/1/98 and 9/21/98) the caller was told that PG&EES obtains its Clean Choice power from solar as well as four other renewable sources (one representative said that the actual percentages will vary from month to month, and that more solar power would be generated in the summer). 119 Note 39 supra. 120 GMER's website (www.choosewisely.com), footnote to the "Power Content Label," August 24, 1998.
34 V. GREEN PRODUCT PREMIUMS ARE REQUIRED LARGELY FOR MARKETING AND ADVERTISING COSTS, NOT FOR RENEWABLE ENERGY CONTENT
Green marketers have publicly testified that the advertising and marketing cost necessary to acquire one customer is approximately $100.121 Premiums paid for renewable power, and costs for customer service, start-up, overhead and any profits are in addition. The figure of $100 is a low estimate, however. Enron spent over $300 to acquire each of the 30,000 customers it acquired before pulling out of the California residential market.122 Thus, a better range of estimated marketing costs is $100-$300 per customer.
Green product prices of 134 - 154/kWh produce annual average residential "green consumer" bills of approximately $840.123 Thus, $100-$300 in per-customer marketing costs account for between 12% and 36% of a green consumer's total annual electricity bill. 124 Assuming that a marketer has a cost recovery period of two years and that consumers remain with the marketer for two years, marketing costs would account for between 6% and 18% of a green consumer's total annual electricity bill. Thus, out of average 144/kWh green rates, marketing costs would amount to between 0.84/kWh and 2.54/kWh.
The premiums being charged for green products with at least 50% non-large-hydro renewable energy content and that do not promise new renewables range from 0.934 - 3.074 above the cost of default utility service,125 as compared to the estimated 0.84/kWh to 2.54/kWh in marketing costs. Thus it is clear that a very high percentage, perhaps 80%, of the premiums being charged for green products is accounted for by marketing costs, not by the cost of the products' renewable energy content.
Viewed another way, green marketers have stated that they can acquire wholesale renewable power from utilities for a premium of less than 0.54/kWh,126 and it is widely known in the industry that the extra cost can be as low as 0.14 to 0.24/kWh. Subtracting out wholesale renewable energy costs of 0.14 to 0.54/kWh from the average 2.04/kWh127 premium charged for green products that do not promise new renewable energy content leaves 1.54-1.94/kWh for marketing and overhead costs.128 Thus, a reasonable estimate of the fraction of green product premiums that pay for marketing and overhead costs is 75% to
121 Note 8 supra, p. 3. 122 "Enron Out of Home Electricity Market," San Francisco Chronicle, April 23, 1998, p. D1. Enron spent $10 million in marketing and advertising costs to sign up 30,000 customers (only a small fraction of whom were for its Agreen" product). 123 Assuming 500 kWh/month consumption and given average 1998 rates of 124/kWh. (1998 nonbaseline rates are 11.94/kWh for Pacific Gas & Electric customers, 12.74/kWh for Southern California Edison customers, and 11.44/kWh for San Diego Gas & Electric customers.) The prices of green products that do not promise future new renewable energy content are 1-34/kWh higher than average, or 134-154/kWh. 124 Since the competition transition charge (CTC), the charge to consumers for uneconomic past investments, accounts for approximately 45% of customer bills, marketing costs account for a far greater portion of actual electricity generation and distribution costs. 125 Note 7 supra. Note: If products that promise new renewable energy content in the future are included, the upper end of the range would be 3.44 for Edison Source's EarthSource 2000 product. 126 Note 8 supra. 127 2.04/kWh is the average of the 0.934-3.074/kWh range of premiums being charged. 128 At this point, profits are not likely to account for a significant percentage, if any, of the premium, given that most marketers are struggling to remain in business.
35 95%. Based on the average 24/kWh premium, therefore, consumers would pay an $10 extra on their monthly bill, of which $7.50-$9.50 would go towards marketing and overhead costs.
Indeed, one of the reasons that green marketing is the dominant form of marketing in California's residential electricity market is that marketers need an excuse to charge more for their product in order to cover the high transaction costs of doing business with small customers.
VI. DESPITE HIGH PREMIUMS AND LOW-COST RENEWABLE ENERGY CONTENT, GREEN MARKETING REQUIRES ADDITIONAL SUBSIDIES
A. $75.6 Million in Direct Green Marketing Subsidies Are Available in California, and Are Necessary to Support Even Low-Quality Green Products
Despite the combination of low-cost, repackaged utility renewables and high green product premiums, virtually all of the California green marketers, joined by the Natural Resources Defense Council, petitioned the California Energy Commission (CEC) to award a public subsidy for the retail sale of utility-owned renewables.129 The petitioners asked the CEC to reconsider its established eligibility requirements for the state's $75.6 million "Customer Credit" program, which will pay up to a 1.54/kWh credit to green marketers for each renewable kWh they sell to retail consumers.130 The petitioners asked the CEC to waive its rule that denies credits for the sale of utility-owned renewables.
One advocate of the relaxed eligibility requirements noted that some green marketers have already dropped out of the market, and some of those remaining are "clinging to life."131 The coalition of green marketers testified that if customer credits were not provided for the resale of utility-controlled resources, "the green market will be very significantly harmed, if not mortally wounded."132 They argued that the customer credit fund was intended to support "the demand side," i.e., green marketers, not renewable energy producers, which benefit from other CEC programs. In effect, they argued that the quality of the product content should be immaterial in the award of credits.
The CEC's renewable energy committee rejected the petition,133 stating that existing utility-owned renewable projects do not need support from the Customer Credit Subaccount because either such facilities are operational because they are economically competitive, or the owners have a reasonable opportunity to recover uneconomic costs through a Competitive Transition Charge or another mechanism. The committee further stated:
Supporting projects that would otherwise operate in the restructured market without help from the Customer Credit would not promote a sustainable market for renewables . . . Moreover, the Committee believes that opening up eligibility to purchases from utility-
129 Note 8 supra. 130 This program is one of several renewable energy programs supported by California's system benefits charge for renewable energy, created as a part of California's deregulation bill, AB 1890. 131 Statement of John White, Center for Energy Efficiency and Renewable Technologies, as quoted in California Energy Markets, No. 468, p. 11, June 12, 1998. 132 Note 8 supra, p. 7. 133 Renewables Program Committee Recommended Decision on Customer Credit Subaccount, Docket No. 96-REN-1890, May 27, 1998. (The Committee's recommended decision was subsequently adopted by the full Commission.)
36 owned facilities could seriously undermine the potential for a viable renewable market on both the supply and demand side. If marketers can obtain renewable energy at very little additional cost, in part because it is subsidized by utility ratepayers, and receive a Customer Credit as well, there is little incentive for them to purchase non-utility renewable supplies which face greater market risk ..."
The committee also found that "most commenters demonstrated an ample supply of available non-utility renewable energy. This renewable energy supply far exceeds demand, even based on the marketers' anticipated number of customers during the first year of the program."
After the CEC denied the petition, Senator Byron Sher, at the request of the petitioners, inserted language in pending state budget legislation to allow AB 1890 customer credit funds to be distributed for six months to all in-state renewable energy projects without restrictions on ownership of the green power source, thus allowing sales from utility-controlled facilities to qualify.134 After Governor Wilson vetoed the language at the CEC's request, Senator Sher amended another bill, SB 977, this time making the six months retroactive beginning with the commencement of competition and ending September 30, 1998, which would presumably drain the fund of fewer dollars since fewer green customers will have been enrolled during this time than afterwards.135 SB 977 became law without the governor's signature on September 30, 1998. As a result of SB 977, not only will the customers of green marketers pay for meaningless green products, but all consumers will subsidize these products to the tune of a half-million dollars136 through the system benefits charge (a surcharge on all customer bills) which created the CEC's green marketing fund.
B. New Renewables Are Likely to Be Built for the Green Market Only If Supported by Public Policy
The "new renewable energy" content that is promised by some green marketers is likely to be supported by a $162 million state fund to support the development of new renewable energy projects in California, in addition to the state's $75.6 million fund to support green marketing. Production incentive payments averaging 1.24/kWh will be paid for five years to the winners of a CEC auction, which was held in spring 1998 to allocate the new-project fund.137 The winners represent some 331 net megawatts of renewable energy capacity,138 though it remains to be seen how much of this capacity will actually be developed.139
134 Note 131 supra. 135 On the other hand, providing a retroactive instead of a prospective subsidy creates a windfall which will have no impact on the development of the market, e.g., marketers who have already withdrawn from the market will benefit. 136 This figure assumes that 20,000 green customers with average monthly energy use of 500 kWh purchased green products with 65% utility-renewables content during the first six months of competition, and that green marketers will be paid 1.54/kWh for selling this power (which totals $585,000). 137 This program is one of several renewable energy programs supported by California's system benefits charge for renewable energy, created as a part of California's deregulation bill, AB 1890. Information on the New Technologies Account Auction is available on the California Energy Commission's Web Site at: www.energy.ca.gov/renewables/new-renewables.html. 138 Nameplate capacity is 541 megawatts, but 300 of this is wind energy capacity, which has a capacity factor of approximately 30%, thus net capacity is about 331 megawatts. 139 Only one bid was rejected, indicating that little additional renewables supply is available at
37 Since these are the only new in-state renewable energy projects on the drawing boards,140 they are likely to be the ones that will provide power to the green market. Thus, promised new renewables in the green market cannot be assumed to be in addition to those that would have been developed with the support of public policy. The success of green-marketed products containing some percentage of new renewable energy may be dependent upon public policy to support the development of new projects.
C. Without Continued Subsidies, the Green Market May Not Be Viable
A total of $540 million will be available to support renewable energy projects and green marketers between 1998 and 2001 as a result of California's four-year system benefits charge for renewable energy. In addition to the new-projects fund and green marketing subsidies described above, existing in-state renewables are being supported by production incentives paid from a $243 million fund.141 Some of those existing projects (those that are not under contract to a California investor-owned utility or owned by a municipal or investor-owned utility) will be available to provide power to the green market. As shown in Table 3, the combination of available public support payments for green power in California can amount to 34/kWh. Together with green-customer premiums, total "above-market" payments to green-marketed renewables can amount to 6.44/kWh.
Table 3. Sources of Support for Green Power Sales in California Source of Support Amount (per kWh)
Green-Customer Premiums 0.714 - 3.44142
State Green Marketing Subsidy 0 - 1.54
State Existing or New Subsidy 0 - 1.54
Total Support Payments 0.714 - 6.44
Without California's support of existing and new renewable energy projects, as well as subsidies paid specifically to support green marketingCall of which are scheduled to end in 2001Cthe premiums charged by green marketers would have to be even higher, shrinking the market and potentially driving marketers out of business altogether. Whether the green market is viable without this substantial public support will not be known until after 2001.
the subsidy level available, given current low market prices. Moreover, many of the projects that were bid are likely to be speculative despite a required bid bond and a series of project-development milestones because the bid bond will be returned after two early, low-cost project-development milestones are met. The development of the wind energy projects, for example, will depend critically on extension of the federal wind production tax credit. 140 Contingent on customer sign-ups, GMER promises to support the development of a maximum of three new wind turbines, which may be located in Wyoming. 141 See the website of the California Energy Commission, www.energy.ca.gov/renewables. 142 Note 7 supra. Note: The upper end of the green premium range represents Edison Source's EarthSource 2000, which was not listed in the Wiser/Pickle report.
38 VII. GREEN MARKETING IS UNLIKELY TO REVERSE THE CURRENT DECLINE IN RENEWABLE ENERGY PRODUCTION AND SIGNIFICANTLY DIVERSIFY ELECTRIC SYSTEM RESOURCES
A. Planned and Operating Renewables Have Been in Decline During the Debate over Deregulation
The existing base of renewables has been in decline since talk of deregulation seriously began in 1993. In California, which accounts for about one-third of the nation's renewable electricity, renewables have fallen from providing 12% of the state's power in 1994 to providing under 11% in 1997 due to reduced output at geothermal facilities, uneconomic biomass plants and aging wind energy equipment.143 Similarly, in Maine, operational biomass plant capacity has declined by 16%.144 These declines represent larger amounts of renewable energy than will be produced from a few large wind projects that have been mandated in Iowa and Minnesota, as well as smaller renewables projects elsewhere. Thus, declines in renewable energy must be offset before renewables can gain a larger market share relative to what they had in the early 1990s.
In addition, electric utility restructuring has significantly reduced the large markets that were predicted for renewables development in the early 1990s, when state regulators were increasingly requiring utilities to use "integrated resource planning" to consider the long-term costs and non-price benefits of supply- and demand-side resources.145 The market slowdown contributed to bankruptcy filings by two of the largest five U.S. wind companies, Kenetech and FloWind.
The Energy Information Administration predicts that, under current conditions, the total renewable share of U.S. generation, including hydropower, will likely drop from 12.5% in 1996 to 9.2% in 2020, due to growing total generation met almost entirely by fossil fuels.146 Electricity generated from non-hydro renewables is projected to increase by only 34% over its small existing base, providing about 2.5% of the U.S. grid-connected electricity supply in 2020,147 as compared to approximately 2% today.
B. Currently Planned Investments in Fossil Fuel Plants Dwarf Planned Investments in Renewables
In competitive markets, most new generation will be "merchant plants," i.e., plants without long-term power purchase contracts. The vast majority of announced merchant plants across the country are gas- fired. Of the 40,500 megawatts of merchant plant capacity now being planned in the Northeast, Texas and California, virtually the only renewable energy capacity is the 331 megawatts that will be supported by California's "system benefits charge," as discussed in Section VI.C, and 11 megawatts of net wind
143 Note 15 supra. 144 Ibid. 145 The Electric Power Research Institute, for example, estimated in 1994 that over 20 utilities were planning 2,300 megawatts of new wind capacity, at least 1,045 of which was to be on line by 2000. ("Utility Wind Plans Double, EPRI Survey Shows," p.4, WindWord, Fall 1994, Electric Power Research Institute.) Less than half of those 2,300 megawatts are still on the drawing boards, of which about 80% is due to state renewable energy purchase mandates in Minnesota and Iowa. 146 Annual Energy Outlook 1998 With Projections to 2020 [DOE/EIA-0383(98)], p. 57. Department of Energy/Energy Information Administration. December 1997. 147 Ibid.
39 capacity in Texas.148 Thus, the ratio of planned fossil-fuel capacity to renewable energy capacity is 118:1. This is a stark indication that investors do not perceive renewable energy projects to be lucrative in competitive markets, despite potential green markets. The lack of investment in renewable resource facilities likely reflects investors' perception that green markets are not large or stable enough to offset the several market advantages that fossil fuel plants have over renewables, even those with 44/kWh levelized costs:
$ First, new gas plants have a bus bar power cost of 2.5-34/kWh, a price that will hold for as long as gas prices stay low. Some industry experts predict that 100,000 megawatts of new plant capacity will be added by 2010, and that most of it will operate as merchant plants "producing power and making money at 3 cents/kWh or less."149
$ Second, developers of low-cost gas power can sign large commercial and industrial customers to long-term power contracts, while long-term contracts in the residential sector, where virtually all of the interest in renewable power exists150, are virtually unheard of, given consumer mobility and high transaction costs. Moreover, consumer interest in green energy may wane in an economic downturn, making the stability of green markets difficult to predict.
$ Third, gas-fired plants are less capital-intensive than renewables. Since gas plant capital costs can be paid off in as little as six years, investors view gas plants as much less risky than renewable plants whose fixed costs usually require at least 10 years to pay back. In unpredictable markets, investors are not inclined to make long-term, inflexible investments.151
$ Fourth, fossil fuel suppliers are developing new tools to maintain their market share by reducing risks to electricity producers. For example, with Areverse tolling@ fossil fuels are sold in fuel markets rather than being used to generate electricity when fuel prices are high.152 These tools are mostly unavailable to renewable energy projects, which do not
148 27,700 megawatts of capacity is planned in the Northeast ("New Plants Under Development in the Northeast," Northeast Power Report, September 11, 1998), of which none is renewable; 7,709 megawatts of planned capacity is pending before the California Energy Commission (www.energy.ca.gov/sitingcases, as of October 8, 1998), all of which is gas-fired (conversation with Robert Hessler, California Energy Commission, October 8, 1998). In addition are 331 megawatts (net) of renewables that bid for funding under the CEC's auction (see section VI.C); and 5,456.5 megawatts of capacity is planned in Texas, of which 5,422 megawatts is gas-fired and 34.5 megawatts is wind (data provided by Mario S. DePillis, Electric Industry Analysis Division, Public Utility Commission of Texas on October 8, 1998). Thus, planned gas plants total 40,500 megawatts and planned renewables plants total 342.4 megawatts (net) . 149 Roger Naill, AES Corp., as quoted in "Price-Driven Merchant Market in U.S. Major Theme at New Orleans Meeting," Global Power Report, p. 5, March 28, 1998. 150 Green market advocates can point to a few long-term contracts for green power, such as Toyota and Patagonia, but these are a mere few among some 25,000 large customers who have switched to low-cost providers. See California Energy Markets, August 21, 1998, p. 10. 151 Note 15 supra. 152 See, e.g., Jeffrey P. Price, "What's a Power Plant Worth?," Public Utilities Fortnightly, p 38, September 15, 1997 .
40 have control over the price or location of wind, solar, biomass and geothermal Afuels.@
The bottom line is that the competitive market will be an extraordinarily tough one for renewable energy project developers to participate in, green market or not, because investors are looking for the lowest cost and the lowest risk possible.
C. The Potential for Green Marketing is Overblown
Various characterizations of the potential for green marketing intentionally, but misleadingly, create the impression that the green market has great potential for diversifying the U.S. electric system with renewables.
As an example of overly optimistic characterizations, analysts at the National Renewable Energy Laboratory (NREL) introduce an article on green marketing with the statement: "Evidence is mounting that [the] ability to exercise choice may give a long-needed shot in the arm to the deployment of renewable energy technologies."153 The "evidence," revealed later on in the article, includes the fact that 30 utility green pricing programs have resulted in plans for 35 megawatts of new renewable capacity. Amounting to about 0.005% of U.S. generating capacity, this is an inauspicious figure in terms of diversifying the resource portfolio of the U.S. electric industry, and hardly one that amounts to an adequate "shot in the arm" for shoring up weak domestic renewable energy industries.
The statistics cited in the article for pilot retail marketing programs reveal similarly modest results, though they are misleadingly presented. For example, regarding Massachusetts Electric's retail pilot program, the article states that "31 percent of residential participants chose an 'environmentally sensitive' or 'green' service option." This statistic ignores several facts. First, 96% of consumers who were eligible to participate in the pilot choose not to, and the program was not fully subscribed. Of the 4% who switched, 30% chose a "green" product. Thus, only 1.2% of those eligible to select a new supplier chose a green product. Second, these consumers were self-selected, so even this 1.2% response rate cannot be extrapolated to the rest of the consumer base that might one day switch. Third, the highest renewable energy content in any of the products offered was just 10%. Fourth, the pilot was structured so that consumers who participated in the pilot would see electricity bill savings no matter which supplier they chose.154
Statistics were similarly skewed regarding a Klamath County, Ore., retail pilot program. The article stated that "15 percent of Pacific Power customers ... who chose among a portfolio of four services, selected a green power product" (emphasis added). Buried in a footnote is the telling statistic that only 6% of eligible customers chose. Thus 15% of 6%Cor 0.9%Cchose a green power product. The green power product was comprised of PacifiCorp's existing resources, according to a PacifiCorp spokesperson. Eighty percent of choosing customers (about 5% of eligible customers) chose the market-based pricing option.
Only brief mention is made of the common practice of reselling existing resources, and the authors do not point out that these resources are not just existing, but utility owned, the purchase of which, therefore, makes no contribution to bolstering the supply of renewables.
153 Blair G. Swezey, Ashley H. Houston, and Kevin L. Porter, "Green Power Takes Off with Choice in Electricity," Public Utilities Fortnightly, August 1998. 154 Conversation with Steven Rothstein, Environmental Futures, June 27, 1997. (Environmental Futures managed the pilot program.)
41 D. Green Marketing Is Not Likely To Significantly Diversify the U.S. Electric Industry with Renewable Energy
Green marketing may prove to be a successful tool for marketers155 and provide modest benefits to renewable energy industries, but it is unlikely to increase significantly the 2% market share that renewable energy sources (other than large hydropower) now hold in the United States.
1. Green marketing efforts are aimed primarily at the residential sector, so two-thirds of electricity sales are unaffected
The first critical fact in understanding the potential for green marketing is that residential consumersCwho constitute just one-third of total electrical demandCare the primary target for green marketers. Thus, two-thirds of electricity sales will be virtually unaffected by green marketing.
While a small percentage of commercial and perhaps a few industrial customers will subscribe to green products primarily for the public relations value, most will not for the simple reason that they must compete with other companies who are cutting all possible costs.156 Moreover, even in the residential sector, the advertising techniques of green marketers indicate that the target consumers are upscale "yuppies," rather than the masses. Green Mountain Energy Resources, for example, compares the cost of its products to the price of a "double cafJ lattJ."157 A newspaper reported that GMER's Vice President of Marketing, Kevin W. Hartley, "wants to position Green Mountain Energy Resources as a funky, friendly, feel-good company that happens to provide the best electricity in the U.S. while helping save the planet." "Doing the Ben & Jerry's, Patagonia, Starbucks kind of thing," Hartley said. "It's a rockingly cool thing."158
2. Even optimistic assumptions of green marketing participation rates would not significantly increase the total supply of renewables
The most successful utility green pricing program in the country, run by Traverse City Light & Power (TCL&P), had a 3.4% response rate for a 100% new-wind product.159 Most program subscription rates
155 An advertisement for a green power conference boasts "Green Power--it's the latest alternative for utilities exploring new avenues for generating revenue. The profit potential is enormous." (Advertisement for IBC's 2nd Annual Marketing Green Power, "Profit Opportunities in Selling Renewable Energy." Conference held September 16-18, 1998, Washington, D.C.) 156 Even the recent subscription of Toyota Motor Sales to Edison Source's "EarthSource" product is somewhat illusory. Toyota is purchasing EarthSource 100, which, as discussed in Section II.B.3, is comprised entirely of existing, likely utility-owned renewables. Moreover, Toyota is paying a "negotiated price," not the list price that residential consumers pay for the product (conversation with Chris Martini, Manager of Green Power Products, Edison Source, September 18, 1998). Thus, Toyota could be paying a very low premium for low cost utility power which makes no difference to the overall renewable energy supply, as discussed in Section II. Patagonia's planned purchase of new wind power from Enron is encouraging, but is likely to be relatively rare. 157 GMER website, "California Products and Pricing," August 24, 1998. 158 "From power lines to politically correct," Pittsburgh Post-Gazette, Tuesday, July 21, 1998. 159 See Edward A. Holt, Green Pricing Resource Guide, Regulatory Assistance Project, February 1997.
42 are between 1 and 2% or less.160 Some argue that green marketing in competitive retail markets is likely to be more successful than utility-sponsored green pricing programs. But the TCL&P program benefitted from many favorable circumstances which will not necessarily be available to green marketers:161
C TCL&P is a small-town, municipal utility in which consumers have a high level of familiarity and trust, as compared to the mostly unknown green marketing companies who will be offering products in competitive market.
C A state grant covered about 8% of project costs, and the balance was equity-financed through the general fund of the utilityCi.e., the project did not have to be financed as a merchant plant.
C The wind turbine that was built is two miles from the city limits, which made the green marketing tangible and increased consumer confidence. This will be an impossible feat in most metropolitan areas, which account for 80% of the U.S. population.
$ The 3.4% response rate was achieved only after a media campaign, a targeted direct mail effort, and then a direct mail piece which was sent to each of the utility's commercial and residential customersCsomething that few green marketers will be able to afford.
C TCL&P is charging a relatively low 1.584/kWh (23%) premium for its new-wind product. Consumers began to pay the premium only after the wind turbine began to operate. In California, green consumers are being charged two or more years in advance for renewable energy products that promise to include 10-25% new renewables (see Section IV.B). This makes it more difficult to calculate the price premium being charged for the new renewable energy content. Using Green Mountain Energy Resources' AWind for the Future@ product as an example, however, and ignoring the fact that customers of this product will pay a premium for up to 21 months before the new wind comes on line, the premium for the 10% new wind content amounts to more than 104/kWh (nearly 100% of default utility rates).162 This huge premium reflects the risk of making investments in renewable energy in competitive markets, as well as the high transaction costs of doing business in the residential market. In any case, the product offered by TCL&P was likely much more attractive to consumers in Traverse City than the products promising "new renewables" content will be in California.
The TCL&P program has been far more successful than all other green pricing and marketing programs around the country, both in terms of participation rates (which, as noted above, are generally between 1 and 2% or less) and renewable energy content (which usually accounts for a smaller percentage of the
160 Ibid and Note 153 supra. 161 Note 15 supra. 162 According to GMER's website (www.choosewisely.com, on August 24, 1998), the company is charging a 1.24/kWh premium over the Power Exchange price for its 75% renewable power product, or a 1.64/kWh premium on the renewable kilowatt-hours. [(1.24/kWh) ) 0.75 = 1.64/kWh.] The company's "Wind for the Future" (WFF) product is the 75% blend with a conditional promise that new wind will constitute 10% of the blend's mix by displacing an equal amount of the 75% renewable power blend. GMER is charging a 2.14/kWh overall premium for this product, or a 2.84/kWh premium for the renewable power. [(2.14/kWh) ) 0.75 = 2.84/kWh.] Assuming the existing renewables portion still costs 1.64/kWh extra as part of WFF product, the premium for the new wind power works out to 10.64/kWh. [((2.14/kWh) - (1.64/kWh x 0.65)) ) 0.10 = 10.64/kWh.]
43 product and is often comprised of existing utility-controlled renewables).
Results to date in CaliforniaCthe first full-scale test for green marketingCmake clear that TCL&P's program is still the one to beat. As of August 1998, 10 months after marketing efforts began in California and five months after retail markets opened to competition, only 63,000 of the 8.66 million eligible residential customers (0.73%) had switched to a new electricity provider. No public data is available on the products or suppliers that customers have chosen, but it is estimated that some 25,000, or 0.4%, of residential customers have opted for green products163 containing anywhere from 50-100% renewable energy content. This level of demand is enough to support approximately 12 megawatts of renewables capacity, as compared to the 6,600 megawatts of existing renewables capacity in California. As discussed in Section II, it is likely that most of the renewables content being sold makes little difference, since it is merely being resold from in- and out-of-state utility portfolios, rather than supporting existing or new resources that would otherwise receive low market prices. And, as discussed in Section VI.B, California's green market is supported by considerable public subsidies which will not be the case in other markets, certainly over the long term.
Even if one assumes, very optimistically, that:
$ every residential consumer across the country has the immediate ability to choose a 100% renewable energy product,
$ large hydropower is not part of that product, and
$ the sign-up rate is 3.4%, matching that of the TCL&P program, the green market would support the equivalent of only 1.1% of the U.S. energy supply,164 only about half the market that non-hydro renewables control now. If this were added to renewables' current market share, it would be very significant. However, at least a significant fraction of the renewables marketed will be existing resources (which, if not under contract to or owned by a utility, may require additional support), so the 1.1% cannot be assumed to be an addition to the 2% that currently exists. In any case, even with these optimistic assumptions, it is clear that green marketing will not significantly diversify U.S. electricity resources any time soon.
In California, which accounts for one-third of the nation's non-hydro renewables,165 the situation is even bleaker: some 35% of residential consumers would have to purchase a 100% renewable electricity product just to keep California's existing renewable energy power plants (excluding large hydro) operating,166 and those products could not contain out-of-state renewable power or large hydropower
163 Estimate of Ryan H. Wiser, Lawrence Berkeley National Laboratory, as quoted in "Companies Give 'Green' Power the Green Light," Los Angeles Times, p. D-8, September 27, 1998. 164 Residential consumers account for one-third of total electricity sales. One-third of total sales multiplied by a 100% renewable energy product and a 3.4% response rate equals 1.1%. 165 According to California Energy Commission's, Policy Report on AB 1890 Renewables Funding: Report to the Legislature (March 1997) (P500-97-002), biomass (including landfill gas but excluding municipal waste), geothermal, wind and solar resources in California accounted for some 5,141 megawatts of capacity in 1996 and generated 23 billion kWh in 1994. The EIA's Annual Energy Outlook, 1997, shows nationwide generation from these resources, plus biomass self-generation, as 69 billion kWh. 166 Including small hydropower, the CEC (see ibid.) estimated 1994 renewable energy generation
44 which they currently do. That 35% is a long, long way from California's current 0.4% subscription rate or even TCL&P's 3.4% participation rate.
Some expect that the rate of switching in general, and the rate of switching to green products in particular, will increase over time in California and other states. But it is also possible that, when price-based competition begins with the 2002 partial-expiration of California's "stranded asset" charge, green products will be marginalized. Currently, one of the only viable ways to enter California's residential market is to offer products that cost more than the default utility service. This is because high transaction costs are inherently involved in retailing to small customers (see section V) and because a number of market rules favor California's incumbent utilities.167 "Greening" products is one of the few ways in which companies can attempt to seek customers in such a market (though Enron tried and failed and others may as well), which explains the current dominance of green products. When the stranded asset charge expires in 2002, and as market rules become more fair, many companies are likely to shift their marketing emphasis to price-based competition, if not drop their green products altogether, and new price-based competitors will enter the market.
VIII. MOST GREEN MARKETERS ARE AFFILIATED WITH POLLUTING ENERGY COMPANIES AND ARE NOT ADVOCATES OF RENEWABLE ENERGY POLICY
A. Most Green Marketers Are Affiliated with Polluting Energy Companies
Many of the green marketers soliciting California environmentalists are part of larger corporate families making multi-billion-dollar investments in non-renewable and environmentally destructive energy projects or are otherwise affiliated with such companies. These companies include Edison Source, PG&E Energy Services, and Green Mountain Energy Resources.168
Edison Source and PG&E Energy Services are corporate affiliates of California's investor-owned utilities. Edison International is a holding company which owns 100% of the common stock of Southern California Edison, the utility, as well as unregulated Edison Source and Edison Mission Energy (EME). Likewise, PG&E Company is a holding company which owns the utility Pacific Gas & Electric Co. and in California at 26 billion kWh. Total residential electric sales in California were about 68 billion kWh in 1993 (California Historical Energy Statistics, California Energy Commission, 1995). Thus, about 38% of residential consumers would have to purchase a 100% renewable energy product in order to subscribe all existing renewables. (Since renewable energy production has declined since 1994 and total residential consumption has probably increased since 1993, a reasonable estimate of consumers that would have to purchase a renewable energy product to subscribe existing renewables is 35%.) As discussed in Note 5, after 2001, some 4,300 megawatts of existing renewable power under contract to California investor- owned utilities could be sold by the utilities to the green market, as other utilities are now doing with their contracted power. 167 Just a few examples include: (1) all customers automatically remain with the incumbent utilities, unlike some other states which are fostering competitive markets by assigning customers who do not chose a supplier among a number of suppliers selected through competitive bid; (2) unregulated competitive affiliates of the incumbent utilities are allowed to use their parent companies' names (e.g., "Edison Source" and "PG&E Energy Services") which gives them an unwarranted advantage over their competitors; and (3) billing costs have not been "unbundled" in California, which means that competitors must pay for the utility's billing costs even if they bill their own customers. 168 cleen 'n green is not owned or otherwise affiliated with such companies (note 87 supra); Keystone did not return phone calls.
45 the unregulated companies PG&E Energy Services and U.S. Generating Company. Thus, any profits that might one day stem from the green marketing efforts of Edison Source or PG&E Energy Services might end up funding the investments of EME and U.S. Generating.
A recent Public Citizen report169 documented many of the investments being made by these companies. The projects owned and under construction by EME include conventional fossil fuel plants, pumped storage systems and hydroelectric damsCnot sustainable energy systems. Even in developing countries Cexcellent candidates for smaller renewable energy projectsCEME is investing in the 734-megawatt coal-fired Kui Buri project in Thailand, the ISAB Energy oil-fired power plant in Italy, and the 1,230 megawatt coal-fired Paiton project in Indonesia. Back home in the U.S., EME is purchasing the Homer City coal-fired plant, located east of Pittsburgh, for $1.8 billion.170 The Homer City power plant ranks eighth in the nation for excess SO2 emissions, annually producing 130,280 tons more SO2 than a new power plant would produce. The plant ranks thirty-third in the nation for CO2 emissions, contributing 13,745,174 tons of the pollutant primarily responsible for global warming.171 So while Edison Source is busy marketing its EarthSource green energy products, its corporate siblings are busy investing in dirty power plants at home and around the world.
Similarly, PG&E Energy Services' sister company U.S. Generating recently purchased 18 power plants in New England for $1.6 billion, three of which are coal-fired plants. The other 15 are hydroelectric dams on the Connecticut River.172
The leading green marketer, Green Mountain Energy Resources, implies in its advertising that it is not closely affiliated with utilities, boasting "we're the nation's only leading cleaner electricity brand that's not 100% owned by a major electric utility."173 What the advertisements do not say is that the company was established by the Vermont utility, Green Mountain Power Corporation (GMP), which is part owner of the Vermont Yankee nuclear plant and which purchases about 33% of its power from Hydro-Quebec, the Canadian-state owner and developer of very controversial large dam projects.
GMP retains a one-third ownership share of GMER through its subsidiary Green Mountain Resources, Inc., a wholly-owned subsidiary of GMP.174 In return for its 33% share in GMER, GMP contributed resources including: an experienced team of employees; intellectual capital including a sophisticated set of market research studies; a plan for a billing information system; "the idea to sell customers electricity on the basis of the perception that the company is environmentally friendly" (emphasis added); and the
169 "Proposition 9: A Greenlight for Sustainable Energy in California," Critical Mass Energy Project, Public Citizen, September 1998. 170 Dennis Wamsted, "Edison Mission Energy Pays $1.8 Billion for Homer City," The Energy Daily, August 4, 1998. 171 Rebecca Stanfield, Lethal Loophole: A Comprehensive Report on America's Dirtiest Power Plants and the Loophole that Allows Them to Pollute. U.S. Public Interest Research Group, Washington, D.C. June 1998. 172 Benjamin A. Holden and Ross Kerber, "PG&E to Acquire 18 Generating Plants From New England Electric System," Wall Street Journal, August 6, 1998. 173 Cover wrap-around advertisement on September-October 1998 edition of Mother Jones magazine. 174 State of Vermont Public Service Board, Order on "Tariff filing of Green Mountain Power Corporation requesting a 16.715% rate increase, to take effect July 31, 1997," Docket No. 5983 (order entered June 8, 1998).
46 name Green Mountain, since the word Agreen@ is associated with renewable energy products, which has potential value in a competitive energy market.175,176 That value is part of why the Wyly family, which currently holds a 66% share of GMER, was willing to invest $30 million in GMER. 177 In reality, the only thing "green" about the utility is a six megawatt wind energy R&D project which GMP put into service in July 1997. GMP purchases about 5% of its power from independent renewable energy producers, but these purchases are required under Vermont Public Service Board rules.
As for GMER's majority owner, the Wyly family, its investments include founding an oil refining and silver mining company.178
At least as important as GMER's connection with GMP is its connection with PacifiCorp, a large Northwest utility which owns several coal plants, including the most polluting plant in the West, and which recently attempted to purchase the world's largest private coal producing company (see Section II.B.1). GMER obtains its "green power" from PacifiCorp, though, as discussed in Section II.B.1, the physical result of the sale of this green power could be increased power dispatch from fossil fuel plants.
B. Can Otherwise Non-Green Companies Promote Green Energy?
Some argue that even dirty companies deserve to be praised for selling a clean product, and that what matters is the sale of that product, not the companies' other activities. While this may be true, there is also reason to be wary of such companies:
1. It is possible that profits earned from green products ultimately may be invested in dirty energy, which is not what green consumers intend to happen with their purchasing dollars.
2. Companies that are primarily invested in fossil and nuclear fuels have a disincentive to promote competing renewable fuels aggressively. This is evidenced, for example, by some green marketers' opposition to renewable energy policies (see next section) and by many utilities' opposition to fuel source disclosure requirements (which lead to California's weak disclosure law, see Section III). It is also evidenced by the poor quality of the green products currently being offered in California. It may not be a coincidence that the one green marketer that is not affiliated with a utility or other company invested in traditional fuels, cleen 'n green, is the only one which sells a high-quality green product, benefitting renewable energy producers.
3. Consumers are understandably reluctant to trust the environmental claims of companies whose major investments are in fossil and nuclear fuels (which, presumably, is why GMER is attempting to distance itself from its utility partners). If the green product market is dominated by such companies, consumers may be soured from participating in
175 Ibid. 176 GMP did not compensate its ratepayers for any of the property transferred to GMER, which the Vermont Public Service Board found to be "unjust." In June 1998, the PSB ordered GMP to provide ratepayers compensation equal to 5% of the equity interest that GMP received in GMER, which the PSB estimated at $612,537. (Ibid.) 177 Ibid. 178 Gene Rigoni, "Sam Wyly 'Innovates To Opportunity' Time and Time Again." No date.
47 that market.
4. As discussed in Section II, some utilities are marketing renewable resources that are being paid for by their captive customers. This allows utility shareholders to participate in the green market without assuming any risk, thus gaining an unfair competitive advantage against companies who do not have access to ratepayer-subsidized resources and must take risks to participate in the green market. The result may be that companies that would invest in and sell meaningful renewable energy products are driven out of the market.
C. Green Marketers Are Not Necessarily Advocates of Renewables or Renewable Energy Policy
As discussed in Sections VII.D and IX, green marketing is not likely to obviate the need for strong policy to advance renewables, if the goal is to move away from fossil and nuclear fuels. As policymakers debate electric industry restructuring, they are also considering new methods of promoting renewable energy in the electric system. In lieu of broad-based policies that would promote renewables, such as a carbon tax or eliminating all public subsidies for fossil fuels, new policies will be necessary to promote renewables in the competitive marketplace. The "Renewables Portfolio Standard" (RPS) is a leading policy for ensuring that renewables maintain their existing market share and steadily increase that share over the next decade or twoCsetting the electric industry on a course toward environmental sustainability. The RPS is a market-based policy that requires all retail sellers of power to demonstrate, through ownership of tradable "renewable energy credits," that they have supported the generation of a certain amount of renewable power.179 The policy can be effective regardless of whether retail electricity markets are deregulated. The RPS has been adopted in five states (Arizona, Connecticut, Maine, Massachusetts, and Nevada) and is pending in five Congressional utility restructuring bills.
Enron, the only green marketer with investments in renewable energy technologies, is on record in support of the RPS. Other green marketers, however, have been less than supportive. Karen O'Neill, vice president at Green Mountain Energy Resources told the Public Utilities Fortnightly,180 "If [the RPS] kicks in immediately in an area where there are very few renewables, it could suck up all the green resources. That would make it difficult for those marketing the supply to find the product." Referring to the Renewable Energy Alliance, composed of seven green power marketers,181 O'Neill said, "All of us have a strong interest in renewables development and want to be supportive of that. But at the same time, we want to protect the market for renewables. We don't want the RPS competing or undermining a competitive market."182 Likewise, Karl Rabago, chair of the Green-e's "Green Power Board," told the Fortnightly that the RPS "might actually frustrate the development of renewable markets by making every seller of electricity look green." In other words, some green marketers and their proponents place a priority on preserving a market that makes a minor contribution to the environment at the possible
179 For more information on the RPS, see the websites of the American Wind Energy Association (www.econet.org/awea) and the Union of Concerned Scientists (www.ucsusa.org). 180 "Renewable Energy: Toward a Portfolio Standard?," Public Utilities Fortnightly, p. 30-36, August 1998. 181 Current members of the Renewable Energy Alliance are AllEnergy Marketing Co., Edison Source, Enron Corp., Foresight Energy Company, Green Mountain Energy Resources, PacifiCorp, and PG&E Energy Services. Source: www.realliance.org, September 26, 1998. 182 Note 180 supra.
48 expense of policies that could make a major contribution to the environment. To date, the Renewable Energy Alliance has not taken any positions in support of the RPS or other policies that directly support renewable energy.183
Other policies important to the advancement of renewable energy have been vigorously opposed by the corporate siblings of green marketers. Southern California Edison, affiliate of green marketer Edison Source, and Pacific Gas & Electric, affiliate of green marketer PG&E Energy Services, both have a long history of adversarial relations with the renewable energy producers from which they are required by law to purchase power. Most recently, SCE aggressively campaigned against the extension of the federal production tax credit for wind energy because the tax credit would lead to the repowering of the existing wind projects which are under contract to the utility, potentially reducing the utility's "stranded cost" recovery during a legislatively imposed rate freeze period. As a result, in pending legislation, the wind industry was forced to accept a compromise which significantly reduces the economic incentive to repower and which could result in hundreds of megawatts of aging wind projects not being replaced with new, more efficient turbines, according to the American Wind Energy Association (AWEA).
The San Diego Union-Tribune reported that, "while Edison targets the heart of the environmentally committed, many in the wind industry say the Los Angeles utility is knifing them in the back. They say the [green marketing] ad campaign is an example of 'greenwashing,' or trying to launder damaging environmental policies with a dash of green dye." The article quoted AWEA's legislative director as saying, "Edison is trying to shut down the small wind energy industry in California." It also quoted Hap Boyd, director of governmental and regulatory affairs for Enron Wind Corp. and a wind industry veteran, as saying, "Edison has consistently talked out of both sides of its mouth on this issue." While their consumer operations tout their green power offerings, "their wholesale side is trying to shut down the (wind) industry."184
IX. GREEN MARKETS DO NOT OBVIATE THE NEED FOR PUBLIC POLICY
Public policies can be justified on economic grounds if they increase the efficiency of market outcomes and on moral grounds to ensure that market outcomes are consistent with societal objectives, such as preserving resources and environmental quality for future generations.185
Markets produce efficient outcomes when they operate within a set of idealized conditions. To result in
183 The "policy positions" section of the Renewable Energy Alliance's website includes positions on fuel source disclosure, advertising guidelines, and public educationCall geared toward promoting green marketing, but none on renewables portfolio standards, system benefits charges, tax credits, or other policies aimed directly at promoting renewable energy. According to a participant in the Alliance, the group has been drafting a set of principles that address renewables support policies, which will emphasize that such policies be implemented in a way that supports green marketing. It would indeed be optimal for policies to be crafted in such a way that is at least neutral towards green marketing. However, policies should not be opposed or compromised for this reason because they are far more likely than green marketing to advance renewables. 184 Craig D. Rose, "Wind industry says Edison not so 'green'," San Diego Union-Tribune November 19, 1997. 185 For an elaboration of these issues, see Nancy A. Rader and Richard B. Norgaard, "Efficiency and Sustainability in Restructured Electricity Markets: The Renewables Portfolio Standard," The Electricity Journal. July 1996.
49 efficient resource allocation, markets must be free from externalities, public goods and transaction costs, among other conditions. When any of these conditions are violated, a "market failure" or "imperfection" exists which will yield an inefficient outcome. If public policy can correct a market imperfection so that the resulting benefits exceed the policy's public and private administrative costs, the efficiency of the market can be improved.
Electricity markets, of course, are full of market imperfections Cfrom the environmental damage caused by the production of electricity from fossil fuels, which is not reflected in electricity prices, to the transaction costs associated with green marketing. Thus, to suggest that green marketing is an answer to the lack of market penetration of renewables is to ignore the market imperfections that have hindered renewables in the market in the first place.
Relying on individual choice to achieve social goals also ignores our collective responsibility to achieve those goals through democratic processes. Deliberately making a transition to renewable energy sources through public policy measures is a well-recognized component of every proposal to mitigate climate change in an effort to protect future generations.
Where market imperfections exist, and where society has equity-based goals, consumers, acting as individuals, cannot produce market results that comport with what, as citizens, they overwhelmingly favor. For example, though many polls show that large majorities of consumers favor reduced pesticide use,186 organic food sales account for only about 0.5% of total U.S. grocery sales after six years of more than 20% annual growth.187 Only about 0.1% of U.S. farmland is farmed organically.188 More sobering, the use of green power, unlike organic produce, provides no tangible personal benefit at all. This is a problem even in the organic produce market, where one seller commented that Amany people buy organics initially because they want to avoid pesticide residues on and in their foods . . . . [Eventually] they will graduate into the more global reasons of sustainability.@189
X. CONCLUSIONS AND RECOMMENDATIONS
Green marketing, if conducted in a way that is fair to consumers and truly offers them a way to reduce their personal environment impact, can make a positive contribution to the environment. Encouraging people to take personal responsibility for the environmental impacts caused by their consumption of
186 See, e.g., Pesticide Action Network, Rising Toxic Tide: Pesticide Use in California (San Francisco, 1997) (showing that 79% of Californians believe it is important to reduce pesticide use); and Survey Shows Americans Want Labels on Genetically Altered Foods, ENVIRONEWS SERVICE (Feb. 25, 1997) (reporting on a survey showing that 54% of the public prefer greater reliance on organic farming compared to 10% who prefer greater reliance on pesticides). 187 Statistics derived from various articles in the Natural Foods Merchandiser, New Hope Communications (June 1996).
188 The USDA estimates that 1.1 million acres of land were devoted to organic farming in 1994, according to "Widening Market Carries Organic Sales to $2.8 billion in 1995," Natural Foods Merchandiser (New Hope Communications), June 1996. The World Almanac 1996 (World Almanac Books), contains data from the National Agricultural Statistics Service, U.S. Department of Agriculture, showing a total of 973 million acres of U.S. farmland. 189 Quoting Phillip Nabors' in "Organics in the Mainstream, " Natural Foods Merchandiser (New Hope Communications), September 1996.
50 material goods is an essential part of solving environmental problems. Most of the green electricity marketing that is occurring in California, however, does not treat consumers fairly and makes little, if any, difference to the environment. Even if the green electricity products on the market were of high quality, their availability would be a woefully inadequate means of addressing the environmental impacts caused by electricity production. Those impacts can only be seriously addressed if green consumers act as green citizens to demand strong environmental policies for the electric industry. All of the media hype surrounding green marketing must not give cover to the fossil fuel industries and their politician friends who argue that renewable energy and other environmental policies are not necessary as an integral part of electric industry operations.
These recommendations follow from the findings of this report:
1. Consumers Must Act As Citizens to Demand Sustainable Energy Policy. The most important thing that consumersCas citizens Ccan do to reduce the environmental impact of the electricity industry is to follow electric industry restructuring legislation at the state and federal level, and inform their elected representatives that any legislation which does not ensure that the industry becomes significantly cleaner over the next decade is unacceptable. Citizens should get involved with groups that are placing a priority on this issue, as well as issues of consumer fairness, in electric industry restructuring.190
2. "Community Choice" Is Needed to Give Consumers Bargaining Power. Individual green consumers can buy green power, but they cannot command quality green products or avoid the high transaction costs that comprise a large percentage of the premium paid. Green citizens work with their local governments to create a purchasing agent, or public aggregator, to purchase green power on behalf of all citizens in the community. Green power then becomes affordable and meaningful. However, legislation can either facilitate or hinder "community choice." Some statesCincluding California, in its restructuring legislation, AB 1890Chave made it impossible for local governments to act as an aggregator for their citizens. Citizens must preserve their right to purchase power collectively, and act on that right.191
3. Home Energy Conservation Is the Best Investment for Consumers. The best way for consumers to reduce the environmental impact caused by their own electricity consumption is to use less electricity. Regularly turning off unused or unnecessary lights and appliances is the easiest and cheapest first step. The best investment is in energy efficient lights and appliances.192 These actions are far more effective in curbing personal environmental impacts than purchasing "green" electricity products, certainly most of those now on the market.
Consider the premium paid for Green Mountain Energy Resource's "Wind for the Future" product, which costs 2.1 cents extra for every kWh used in exchange for a promise that 10% of the product's power will come from a new wind turbine sometime in the future. (Purchasers of this product must also agree to a 3- year contract and pay a $25 fee if the contract is terminated early.) A quarter of the product is system power or big hydro, and the rest is PacifiCorp's resold renewable power. An average household
190 Public Citizen's RAGE campaign can be contacted through Public Citizen's website: www.citizen.org/CMEP or by calling 202-546-4996. 191 For more information on community choice, contact Cape and Islands Self-Reliance at 508- 457-7679. 192 More information is available on home energy efficiency at the Lawrence Berkeley National Laboratory's Home Energy Saver website: http://eande.lbl.gov/HES.
51 consuming 6,000 kWh annually will pay GMER an annual premium of $126 for this product, whose only redeeming feature is the 600 kWh of new wind energy. And this cost ignores the extra money that consumers will pay before the new wind even comes on line. Now consider that, for $126, one can purchase at least seven compact fluorescent lamps (CFLs)193 which will together save 5,000 kWh over their lifetimes Ca far bigger environmental payback than the 600 kWh of new wind from the green power purchase. Consumers who have not replaced their incandescent bulbs with CFLs should do so before investing in green power products.
4. Scrutinize Green Products Before Purchasing Them. After investing in home energy efficiency, consumers should purchase green electricity products only with extreme caution. Seek providers that do not merely resell utility-controlled renewable resources, are not associated with polluting energy companies, and charge a fair price.
5. Green-Product Certification Groups Should Raise Their Standards. Green products should not be endorsed when they contain resold utility-controlled renewables, when claims cannot be properly verified, or when products are promoted by companies that do not support public policies to promote renewable energy.
6. States or Congress Should Adopt Comprehensive Fuel Source Tracking Systems. Green marketing claims cannot be verified without comprehensive, regional fuel source tracking systems. Such systems are a prerequisite for green marketing and should be adopted by all states in each electricity trading region or by Congress.
7. Consumer Protection Agencies Need To Police False Green Marketing Claims. False claims, such as those documented in this report, should not be tolerated. The green market should not be developed by duping consumers. When products contain renewable energy that will be paid above- market prices by the captive customers of a utility regardless of the resale of that power to green consumers, those consumers should not be lead to believe that their purchase is making any difference to the environment. State Attorneys General and the Federal Trade Commission should investigate these practices and take action as necessary to rid the green electricity market of false claims.
193 CFLs last up to 13 times longer than incandescent light bulbs and use one-fourth of the electricity to operate.
52