Mayor Michael Bloomberg's energy plan should be lauded for its focus and vision.
In what may be, by his own reckoning, the most important part of his overall
plan for sustainability, the mayor has taken an activist approach to our energy
future and made some extraordinarily wise observations. Efficiency, renewable
supply, expanded resources, response to demand, a more mature financial market
and upgraded reliability are the right challenges to focus upon.
Respectfully, what we need now to begin to "finish the job" on energy
and protect the long-term interests of our citizens and our city lies in the
fine print- in more specific, and in some cases, more challenging initiatives
to achieve the mayor's far-sighted goals.
Case in point: The mayor rightfully puts his finger squarely on what may be
the greatest barrier to more energy efficiency in our city: The individual tenant.
Here we have an energy user who, due to the typical lease structure, often has
little incentive to consume energy efficiently and little or no opportunity
to improve energy efficiency. Yet I don't see an initiative in the mayor's plan
that would address this. How does the mayor intend to get owners and tenants
singing the same tune, in a key that will resonate with energy savings?
Paying the (Real) Price
One idea is "advanced
metering," which provides more detailed information on when and how
consumers use energy. This is a fine initiative to for larger facilities, but
hardly the right stuff for the average Joe or Jane. Imagine installing a $600
meter in an apartment that consumes $800 in electricity for the whole year!
Talk about a non-starter. But now imagine providing average consumers with inexpensive,
one-way communication devices to let them know when electricity is most abundant
and, therefore, least expensive and visa versa? Now we're talking a language
that rings true to the pocketbook and could add up to huge energy savings for
If, however, we do install advanced meters in all buildings by 2014, as suggested,
let us think twice about authorizing Con Ed to do the job. Why should the regulated
transmission owner install these meters? Why not give some of the power back
to the people?
Con Ed has many important roles: to meter entire neighborhoods; ensure grid
reliability; and provide rate plans that give consumers the opportunity to pay
for consumption based on their actual usage. However, individual buildings and
apartments should have a separate authority to see that people pay for the electricity
they actually consume and also see to it that energy is literally owned by the
user for the benefit of the deregulated marketplace.
"Real-time pricing," where consumer pay different rates, depending
on what hour they use power, is another positive change proposed by Bloomberg.
It could motivate people to change their energy ways---by using energy more
judiciously and cost-effectively. However, its impact on the city would be greatest
in the residential sector, which is difficult to engage in a city with more
than 3 million small accounts.
Further, the New York Independent System Operator caps each hour's price. Can
we get rid of that cap to truly allow the market to do motivational magic? The
mayor has shown the vision; now will he help exercise the political will to
accept the occasional $5 per kilowatt hours price for the larger goal of encouraging
each of us to use less?
A Market for Sustainable Energy
Encouraging the use of renewable fuel sources, through tax benefits, is another
laudable feature of the mayor's initiative. However, we need to think beyond
tax incentives, to the more fundamental matters of how to inspire people to
change their ways and how renewable energy markets should be structured if we
are to achieve a truly sustainable energy market.
For example, should we require fossil fuel power plants to buy a certain amount
of energy---or "green tags"-- from renewable power plants to sell?
If so, how much, and what is considered a "renewable" power plant?
If I use dollars from the New
York State Energy Research and Development Agency to support the construction
of a renewable power plant, do I own the "green tags" that will be
generated and eventually sold?
Similar questions come up with respect to an energy efficiency market. Will
power plants be required to buy back energy as "white tags" from those
who install energy saving technologies? (Connecticut will require that, starting
this year.) If so, how much energy will they be required to buy back? Will there
be a cap on the price of these so-called white tags? If I use the New York City
Energy Efficiency Authority to help fund a new installation, who owns the white
tags -- the city, the utility or me?
The mayor is perfectly positioned to ask these questions, and, in partnership
with consumers and energy firms like ours, to seek answers. Parts of his plan
already demonstrate courageous leadership and a commitment to real and potentially
far reaching change. For example, I very much respect his idea of dedicating
10 percent of energy costs paid by city facilities toward build a more efficient
Allowing power plants to sell electricity for the future, is also a smart initiative.
With vision, Bloomberg has proposed taking this one step further, by allowing
buildings to bid energy-efficiency projects into the market as if those projects
were a power plant. So far, only New England has such a forward thinking policy.
Taken together, the mayor's plan has raised some very important questions,
answered some, and so far, not fully addressed or engaged others. We in the
industry immodestly think we have some pretty good ideas as to how to best answer
many of fundamental questions and address the challenges that go to the heart
of our energy future. Working in collaboration with the city and its energy
consumers, large and small, we have the track record to help the mayor make
a difference. Sometimes we're in synch with the city's vision; other times we
may disagree; in still other cases, we seek to extend the boundaries for change
beyond the expected, understanding that the right thing to do is rarely the
easy thing to do.
Is Energy Too Cheap?
Perhaps the most politically uneasy question to ask-and answer--is whether
we should pay more for our energy. The courage to raise such a question, requires
a willingness to state a fundamental economic truth: Given Gotham's blossoming
economy, the reassurance that there will be enough electricity to go around
at a predictable price, is far more important to our economic well-being than
what that price is.
Reliability of supply will be expensive. Ultimately, a courageous politician
will admit that New York City's electricity prices are not high enough to sustain
an economy that drives global markets.
Some, perhaps many, will disagree with my belief that energy should cost more.
However, we need to decide together where we stand on this, and on many other
basic energy matters.
Mayor Bloomberg's initiative is a constructive and potentially powerful first
step on the path to a new, sustainable energy future. I know we can get there.
But, if we are to get there we will all need to contribute hard advice and take
courageous, sometimes unpopular, action. All of this seems a small price to
pay to make good on the mayor's bold vision to build a lasting legacy in the
energy infrastructure. More power to him.
Mike Gordon is an energy economist with more than 25 years of experience
in the energy marketplace. He is president and founder of ConsumerPowerline,
a strategic energy asset management firm.
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