Energy Deregulation (brownout v. environment)

With all that is happening in California, there is one unifying thought throughout the other 50 states, "Let's not do it like California." Before all is shaken out, deregulation may rank up there with other natural disasters that one thinks of when they think California: flood, mud slides, forest fires and earthquakes.

One truly wants to avoid this latest disaster. Associated Press writer Karen Gaudette reported 2/23/01, that California power alerts were lifted for the first time in six weeks, talks between the government and the state's cash strapped utilities apparently stalled without an agreement on a rescue plan. California had been under a power alert of one level or another since 1/13/01 because of dwindling reserves of electricity. For one 32-day stretch that ended over the weekend, the state was at Stage 3, the highest level of alert, when reserves are so low that blackouts are possible. According to Gaudette, high electricity prices and the inability to pass those costs along to customers because of a rate freeze dictated in 1996 legislation has driven California's two largest investor-owned utilities $12.7 billion in debt.

Unfortunately, California picked probably the worst time to deregulate and to enter a competitive market. Major power generating companies are at full capacity and there is a major need for capital investment to build new power plants. Transmission lines are in equally poor shape and need major capital investments and consumers' demand is just going up and up and up.

What is deregulation all about? To better understand it all, you must first think of energy (primarily electricity) and how the states and local units of government have been delivering it to you, the retail customer, for as long as anyone can remember. Up until now, the utilities have been one company, highly regulated, that generates the electricity, transmits it, distributes it and services you—the final consumers—a monopoly pure and simple. And why not continue doing it that way? Because free-market proponents have argued successfully that prices would drop if electricity providers had to compete for customers. Is their hypothesis correct?

Minnesota is now being faced with the free-market challenge. In 2001, it appeared that the MN legislature would be looking at three deregulation proposals: one from the Chamber of Commerce, one from the environmental interests groups, and one from the MN. Dept. of Commerce (MDOC). Their legislative proposal and report "KEEPING THE LIGHTS ON" can be found on the internet at: or you can obtain copies through the department. Deregulation or not, according to MDOC, the upper Midwest is facing a shortfall of 5,000 megawatts of new generation capacity by 2006. That is the equivalent of 5 Prairie Island generation facilities. (Is comparing megawatt needs to an unusable source—nuclear generation a scare tactic?)

With California as a perfect model of all that can go wrong, states are choosing to move more cautiously toward full deregulation and are favoring limited deregulation, especially at the retail end of it.

MDOC defines deregulation as "To unbundle and separate the functions of electric generation, transmission, distribution and customer services and allow customer choice for generation and customer services in a competitive market." At present, there is not a statewide energy plan. In late 1999, the metropolitan counties saw, for self-preservation purposes, a need to fast track the deregulation issue and formed the Metropolitan Counties Energy Task Force (MCETF) to look at deregulation 7+-county wide. The Ramsey County Board held a workshop on 1/9/01 and discussed in detail unbundling and how it might impact the County as a customer, and how it would impact the end users, businesses and residences within the County.

Ramsey County, as one customer, is concerned with affordable prices, reliability, energy efficiency, ability to aggregate, distributed generation impact, and regulation suppliers. At present the electric distribution system and rates in Minnesota are reasonable and act as a catalyst by attracting new business to the State and County. Issues to watch are: 1) Market power, will the County alone or as an aggregate be able to get a reasonable price for its power use? 2) Reliability, you want electricity when you turn on the switch, no brownouts in the summer and no chilly unheated houses in the winter. 3) Consumer protection, high rates could force fixed income residents out of their housing. 4) Environment, look at LA, look at Denver, the County does not want to jeopardize air quality for cheap fuel.

Already the President has reversed his position on carbon dioxide emissions and has sent a signal to California and other states that consumer consumption is more important than protecting the environment. Waste to energy, current policy guarantees solid waste that will be used as fuel. This guarantee protects landfills and ground water resources. With deregulation, Xcel Energy wants relief from personal property taxes—that's a $5,301,751 dollar loss in revenue to the County.

At the County Board meeting of 2/6/01, Zack Hansen, Manager Environmental Health, presented MCETF's recommendations for consideration. The recommendations fall into three categories: 1) Pursue Energy Options: Things that Counties can do now; 2) Energy Policy Positions: Things the Counties can support; and, 3) The Future of the MCETF. The other 6—member counties had already taken action.

Janice immediately expressed her concerns, "I thought three things were going to be done following the workshop-there would be a follow-up workshop to go into the substantive issues before making this decision, and yet we're making decisions on legislative priorities of the task force." Commissioner Reinhardt said she was also surprised to see the whole packet today. She suggested removing the adoption of the legislative positions and move forward on the rest. She said, "The Board wants to be part of this organization but it is premature to adopt the legislative recommendations." Chair Ortega stated that as of now the MCETF is a place to learn about deregulation and to discuss advantageous approaches to the participating counties in taking on deregulation.

Janice expressed that was fine and dandy; but, "I still believe that we have a lot to look at (deregulation and MCETF legislative proposals) and we have to do our homework before we would support this. Their positions have financial implications and we should state more strongly that we are not going to support this with property tax usage. We have to be sure and protect customers from cold weather turnoff."

"We are just tagging along and basically letting Hennepin County be the lead," Janice said.

Somewhat in agreement, Commissioner McDonough stated that when we have representation on a task force, there should be discussion before it gets to this point. "If the Board sees the general direction without specifics, and if some of these directions are of concern, it needs to be addressed with the Board's representatives as the issues proceed to make sure they are representing our interests as a county."

Noting a need for further discussion, Chair Ortega suggested holding workshops on a quarterly basis for updates. Janice said the only thing she agrees with Mr. Hansen on is that this could be a 'sleeper issue'. These statements are so broad that anyone could see anything in them they like. She is not comfortable with these.

Rettman Report (March/April 2001)
Energy Deregulation | Respect | Excellence & Longevity
Legislative Session 2001 | Breaking News

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Author: Commissioner Rettman's Office / Information Services