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The Hard Choices Ahead

by Mike Gordon, May 07, 2007
 

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.

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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 the city.

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 infrastructure.

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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