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States Rediscover Energy Policies After Shelving Plans for Years Robert Gavin, Staff Reporter The Wall Street Journal, March 21, 2001

Energy policy is hot. Again. Spurred by sharply rising prices and California's electricity fiasco, states from coast to coast are dusting off decade-old energy plans and revisiting the policies that sprang from past crises. At least five governors have created task forces to recommend responses to the current crisis while energy legislation of all sorts is pending in nearly every state capital in the nation.

In the Northeast, where officials fear a hot summer could bring electricity shortages and soaring prices, the New England Governors' Conference has, after four years of dormancy, revived its power-planning arm to coordinate energy policy among the six states. And at ground zero, California, lawmakers have filed more than 30 energy-related bills.

Back to the Future

The policies under consideration should be familiar to anyone who remembers the energy shocks of the 1970s and the high prices of the 1980s -- old standbys like tax breaks for new power sources, such as windmills or solar cells; rebates for energy-efficient appliances and renovations; and just plain-old planning ahead. But this time, consumer and environmental activists say, state officials ought to do something different: actually follow the policies they adopt.

Today's situation might well be far less dire had states stuck with programs adopted in the wake of the earlier energy crises, particularly in energy efficiency. These programs -- financed by small surcharges on utility bills, administered by utilities and overseen by state regulators -- were key components of energy policies in nearly every state. But in the years leading up to the current crisis, spending on state energy-efficiency programs fell by nearly half nationwide -- to $912.5 million in 1998 from $1.65 billion in 1993 -- at a cost of nearly 15,000 megawatts in power savings, according to the American Council for an Energy-Efficient Economy, a Washington, D.C., advocacy group.

California, by many estimates, would have 1,000 more megawatts of power available right now had it merely maintained energy-efficiency spending at 1993 levels, instead of allowing it to plunge by half. That's enough generating capacity to power about one million homes. In Washington state, where a drought is hampering hydroelectric generation and compounding the West's power shortage, steady investment in energy efficiency would have produced 300 megawatts in extra generating capacity (enough for about 300,000 households), according to the NW Energy Coalition, a Seattle-based group that advocates for conservation and alternative energy sources, like wind and solar power.

Energy-efficiency spending fell 73% in Washington between 1993 and 1998. Ironically, the decline coincided with the state's 1994 adoption of an energy strategy that stated its main focus was efficiency. "There's no question that had we maintained that commitment to conservation, we'd be several hundred megawatts better off," says David Danner, energy policy adviser to Washington Gov. Gary Locke.

The West, of course, isn't alone. Two-thirds of states let energy-efficiency spending fall by 20% or more between 1993 and 1998, including Georgia, which saw a 97% reduction; Michigan, 93%; and Pennsylvania, 92%. More broadly, these declines reflect a trend that relegated state energy policies and programs to diminished roles. In 1989, the average state energy office had 44 employees and a budget of $22.5 million, according to the National Association of State Energy Officials, an Alexandria, Va.-based professional organization. A decade later, the average office had only 29 employees and a $14.5 million budget -- a cut of about 35%. "There wasn't a whole lot of interest in energy," says Frank Bishop, executive director of the energy-officials group.

Market Forces

This lack of interest emerged from cheap and apparently plentiful power supplies available in the mid-1990s, and a national movement toward energy deregulation. In the West, for example, wholesale electricity prices in 1995 plunged well below $20 per megawatt hour -- compared with prices that today sometimes exceed $300 per megawatt hour -- and energy efficiency didn't seem to pay.

Steve King, a spokesman for the Washington Utilities and Transportation Commission, says regulators there allowed utilities to dramatically reduce spending on energy efficiency during this period because such policies couldn't deliver power as cheaply as the market.

At the same time, political leaders across the nation were embracing the central tenet of deregulation: that the market, rather than centralized state energy policy, could determine the right mix of power production and energy conservation to ensure stable supplies and prices. Under pressure from utilities, which, in preparation for competition wanted to shed any costs that might contribute to higher rates, policy makers allowed energy-efficient programs to be scaled back. Under Massachusetts' 1997 deregulation law, for example, utility-administered efficiency programs are scheduled to be phased out by 2002. Lawmakers, however, now are expected to extend the program and a utility-bill surcharge of about 0.3% for at least another five years.

"What everybody wants to avoid is being the next California," John Shea, director of energy and environment at the New England Governors' Conference, says of the newfound interest in such policies.

On Again, Off Again

To be sure, some argue that the market works, and the recent resurgence in energy-efficiency spending is just a natural part of that. In New York, state regulators and government-owned utilities recently restored energy-efficiency spending to near its 1993 levels after allowing it to fall by some 60%. Paul DeCotis, director of energy analysis at the New York State Energy and Research Development Authority, says that maintaining big energy-efficiency funds when prices are low doesn't make sense. Unless utility bills are high enough to justify consumers' making the investment, rebates alone are unlikely to get people to buy energy-efficient products.

"One could argue that the responsible public policy will be to turn efficiency programs on and [then] off when they can no longer be economically justified," says Mr. DeCotis.

Still, many observers believe now that states are rediscovering energy efficiency, they will be sticking with it for the long haul. The reason: California, of course. "The severity of this problem is going to be a vivid memory for long years," says Ralph Cavanagh, energy-programs director for the Natural Resources Defense Council, a New York-based environmental advocacy group, "and the desire to never see this happen again is not going to fade anytime soon."