Thursday, Jul 24, 2008
Electricity deregulation is bankrupting California's fledgling eco-friendly energy industry.
Jan 18, 2001 | In April, Ray Levinson persuaded the U.S. Postal Service to make the largest federal purchase of eco-friendly power in U.S. history. After two years of effort, Levinson, an environmental compliance manager for the USPS, led 1,100 California post offices away from power generated by coal and natural gas and to Go-Green, a "green" power company. Go-Green promised to generate its competitively priced electricity from a mix of underground steam and methane -- renewable, environmentally friendly energy.
A press release announcing the switch bragged of "social responsibility" and noted that the three-year deal would "save about 25 million pounds of carbon dioxide, 60,000 pounds of nitrogen and 18,000 pounds of sulfur dioxide each year from being released into the atmosphere." The Postal Service planned to move an additional 1,000 offices to green power in 2001.
But just a few months after the contract was signed, electricity prices in California started to jump -- an unforeseen result of the state's flawed electricity deregulation scheme. Levinson hoped that the contract would remain secure. Go-Green's power wasn't subject, theoretically, to the ups and downs of the fossil-fuel business, so shouldn't the cost of steam remain stable? He figured Go-Green would be less likely to go bankrupt than a traditional utility like Pacific Gas & Electric.
He figured wrong. In September, Go-Green founder Rick Kohl told Levinson that he was having trouble getting enough credit to buy green power from power wholesalers. The wholesalers (Calpine, Enron and others) had jacked up their prices from 6 cents per kilowatt-hour to about $1.50. Kohl told Levinson that some of the post offices would be forced to return to PG&E and other so-called brown power companies. Then, in December, Go-Green went out of business, abandoning not just the post offices but also MCI WorldCom and 2,500 residential customers who had also decided to go green.
Go-Green is but one of many clean-energy companies that have recently ceased operations. TenderLand Power Co. of Truckee, Calif., also booted customers back to the big utilities this month. Several other green power companies in California and in Pennsylvania -- another state that's deep in the throes of deregulation -- have also fled the business. The consequences for the environment, say some industry watchdogs, will be horrific.
"It's a disaster," says Dan Kammen, director of the Renewable and Appropriate Energy Laboratory at UC-Berkeley. Not only are the environmental gains that were made possible via deregulation now being lost, says Kammen, but the failure of deregulation may well lead to a rush to build new power plants that will only accelerate environmental damage. "These small companies drive the market for cleaner air. When they close down, that cuts off our ability to clean up the power supply. Within a year or two, we'll see the difference."
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