Customers, environment, hurt by state's current energy policy

Wisconsin State Journal -- September 23, 2001

GUEST COLUMN

By Michael Vickerman

There is a well-known phrase in military planning--"fighting the last war"--that aptly describes Wisconsin's current mindset on electric energy. Even though the extraordinary conditions that triggered the electricity shortages of 1997--extended shutdowns at seven area nuclear power plants, including both Point Beach units--are long gone, we remain haunted by that experience, and that spells trouble for ratepayers and the environment.

The chances that we will see shutdowns of that magnitude again in the next 10 to 15 years are slim to none. Yet that doesn't seem to stop policymakers, captains of industry, utility executives, and the media from talking darkly of a continuing reliability crunch, and predicting dire consequences for the state if a major effort to expand generating and transmission capacity isn't launched post-haste. It's as though we're permanently locked into the crisis mentality that flared up four years ago, even though the electricity landscape has changed significantly in several key respects.

Unlike 1997, utilities are back in the business of building power plants, and they are thinking big. The state's three largest utilities have disclosed plans to construct 11 new generators by 2011 while retiring one unit, for a net increase of 4,370 megawatts, or four Columbia-sized plants.

Put another way, these plans call for expanding the state's generating capacity by fully one-third in just one decade. And a half-dozen of these units would burn coal, the most abundant yet dirtiest fossil fuel.

Unfortunately, the institutional capabilities in place in 1997 to plan and shape long-term investments in the state's electric infrastructure no longer exist. Power plant and transmission line permit applications are now reviewed in a piecemeal fashion. Moreover, it has become very difficult to pin down who exactly will be served by these projects. There is no venue right now for evaluating proposed improvements in concert with each other, leaving the door wide open for building too much too soon.

When the Legislature scrapped integrated resource planning in 1998, it expected the electricity system to change in two fundamental ways. First, independent power producers would replace utilities as the principal builders of new generating units. Accordingly, market forces would dictate the pace of power plant construction in the state. As evidenced by Wisconsin Electric's plans for building five new central-station generators in the next 10 years, these expectations no longer mirror reality.

If independent power producers build too much generating capacity relative to demand, they fully pay the price of their erroneous forecasts. Utilities, by contrast, expect full cost recovery on their capital expenditures, no matter how inaccurate their demand forecasts may turn out. This effectively transfers the risk of overbuilding from shareholders to ratepayers.

With the utilities poised to muscle aside their nonutility rivals in the power plant construction derby, the state must re-institute some form of integrated and inclusive planning process to size future investments on the basis of need. This is especially necessary in the case of Wisconsin Electric, whose plans have been described by ceo Richard Abdoo as "the largest construction project in the history of the state of Wisconsin." It would be a painful honor for those footing the bill if this ambitious undertaking turned out to be an exercise in excess.

What are the major areas of risk that policymakers and customers need to confront?

Demand growth. Both the utilities and the state project load growth continuing by 3% per year. That forecast assumes that demand for electricity will be unaffected by the intensifying economic slowdown worldwide. This seems hardly likely.

Fuel prices. The recent spike in natural gas prices rekindled utility interest in coal. But coal prices increased as well this year. If natural gas prices rebound from current lows, what's to stop coal producers from taking advantage of that situation and raise prices?

Environmental considerations. Until a regulatory framework emerges for carbon and mercury emissions, new coal plants increase the likelihood of added costs downstream. Wouldn't it make sense to offset these risks with more aggressive applications of conservation and clean, distributed power sources?

Electric deregulation arose in response to two factors:

excess capacity and

the high rates it caused.

Vickerman is executive director of RENEW Wisconsin, a

nonprofit organization promoting conservation and

alternative energy sources.

"Careful planning in Wisconsin enabled the state to avoid creating the conditions that drove two dozen states to deregulate their power industry. The longer we go on approving new projects in a vacuum, however, the more we risk falling into the same trap that snared California."