Jeff Erickson of Navigant Consulting presented an interesting paper at last week’s American Council for an Energy Efficient Economy (ACEEE) Summer Study for Buildings. The title was, “Occupy Wall Street and the Tea Party Battle over Energy Efficiency.” I thought it was just clever (aka bait and switch) advertising, but the presentation featured, almost exclusively, how the free market, small government tea party and the profit-bad, regulation-good occupiers might view energy efficiency.
The tea party would favor consumer choice for incandescent light bulbs and gas guzzlers over government regulation of these common, and other uncommon for that matter, consumer goods. They would also advocate free markets for energy supply. The problem with this notion, however, is that the utilities were developed on a regulated monopoly business model, I would guess for economies of scale reasons. Also, natural gas and electricity are more like public benefits, as are roads, water, and sewage systems.
Free enterprise exists where barriers to entering a market are reasonably affordable, where access to consumers is vast, and/or where the product or service is pretty much optional. In my case as an electricity consumer, for example, the street transformer, the wires feeding it, and the wires going to my house from the transformer up to and including the meter, are owned by Xcel Energy. I can only guess where the electrical supply actually comes from, but it is safe to say Wal-Mart is not an option for buying electricity at this point.
Consumer choice for electricity, for me, realistically includes: (1) Xcel Energy, (2) a natural-gas-fired generator, (3) photovoltaic / batteries, or (4) other options that are even less cost effective. At the current bargain basement cost of about 70 cents per therm of natural gas delivered to my house, I could generate electricity for roughly 12 cents per kWh. This, of course, does not include the $4,000 (or whatever) cost for the electrical generator churning out electricity with a stunning 20% efficiency.
Switching gears for a moment, I’ve overheard discussions of how the deregulations of the telecom and airline industries have been failures – how? Apparently because many carriers filed for bankruptcy. These are failures of adaptation, not failures of market changes. Nearly all, if not all the legacy airlines have filed for bankruptcy and others like Eastern and PanAm were essentially liquidated. These legacy carriers were saddled with unsustainable contracts with unions. The “solutions” included crippling strikes and/or eventual bankruptcy to put these doomed-to-fail contracts through the shredder and start over.
I was just explaining to my friend how Delta Airlines had retrofitted their planes to have skinnier chair cushions to shoe-horn another row or two of seats into their cattle-class cabins. His response: “Dude, but you can still fly practically anywhere for $400.” True. In twenty years of business travel, plane tickets haven’t budged much at all, EVEN with much higher fuel costs. I bet that non-fuel cost per passenger mile has actually declined over the same period because new low-cost carriers like Southwest, Frontier, and Jet Blue have joined the market. I call this a huge victory for consumers. Telecom, the costs for which I know much less about, has been a similar smashing success. Long distance is so cheap at any time of the day, it isn’t worth tracking – better than the buck a minute for “collect calls” from the 1970s. Half the readers probably don’t know what a collect call is. Again, a few bankruptcies of cement-shoed companies later, consumers have benefited hugely.
Deregulating utilities, electricity in particular, has never been successful to my knowledge because it meets none of the criteria above. Consider water and sewer, which, like electricity, are necessary for modern life. It is less expensive (and hassle) to hook up to a central municipal system that uses vast economy of scale to provide these critical services at a virtually negligible “startup” cost, and very low operating cost. It also provides environmental benefits of lower risk by poking fewer holes into the water table and better containment of nutrient-rich sewage. I’ve seen lakes go from green algae bombs to nice clear water in just a few years with the installation of municipal sewage systems for homes that lined the lake shore.
Regulated monopolies that exist with large centralized providers of “the necessities of life” will continue to be the best option for consumers – for as far as the eye can see. Policies to minimize cost with reasonable environmental regulation are necessary, while consumer choice is preferred.
This is why, in my opinion, our industry needs to lay off mandates for “unequal” alternatives. Unequal alternatives include standard and halogen incandescent light bulbs, CFLs and LEDs. Each has one or more substantial differences in cost and output, including color rendering and full startup time. Conversely, standards for some consumer appliances have demonstrated in numerous cases to be huge successes. One example is the lowly refrigerator. Energy consumption for refrigerators has fallen by almost three quarters since the early 1970s while inflation adjusted cost has barely budged at all. More importantly, cold is cold. The beer, ice cream, and lettuce don’t know the difference.
Other success, of course, includes cost effective lead-by-carrot programs that incentivize cost effective, efficient alternatives – and no, I am not repeating myself. The programs AND the products and/or services shall be cost effective for consumers. Energy efficiency shall be the lower cost resource alternative to more power plants, fuel, poles and wires. This is something the tea partiers should get behind with some well-presented market information.