Before You Pay for Green Power

Utilities siphon some of the funds for marketing, while the benefits of renewable-energy programs to consumers and the environment are murky

By Heesun Wee

Soaring prices of natural gas and coal -- the fossil fuels that largely power the nation -- and California generating eerie Third World images of persistent brownouts have revived an interest in so-called green electricity. But in a new twist on an old idea, utilities are asking their customers to volunteer paying more for electricity derived from renewable fuel sources. Power companies then use part of the extra money to invest in these options.

It's a noble sentiment and certainly a way to move toward better energy-conservation practices by consumers and utilities alike. "Somebody has got to start it," says marketing executive Ken Lamm, who pays Wisconsin Electric, a unit of Wisconsin Energy Corp. (WEC ), an extra $30 a month on his utility bill. But users best check the fine print: The real winners in these programs are utilities, which are using up to 30% of funds from such programs for marketing efforts -- not renewable-energy investments. And because of electricity's distribution system, there's no guarantee that the green power for which consumers are paying extra actually flows into their homes. Fact is, they're paying extra and still likely to be receiving fossil-fuel-generated electricity.


  Winners and losers aside, selling green programs to utility users has a rich vein of irony. Just look at the economics: Some consumers are willing to pay more for renewable energy, when nonrenewable energy sources like coal are the choices that are more expensive because of the long-term costs associated with their environmental impact. Instead of "pay more for green," power companies should say: "Pay more for the regular stuff." But that's an unlikely scenario as competing utilities in deregulated markets stay focused on doing what they can to attract and retain customers. Going green is one way to differentiate yourself from the pack, but it's a marketing device that flies in the face of real energy economics.

Green power, or energy from renewable sources -- like wind, hydroelectricity, and garbage byproducts -- isn't new. During the 1970s' oil crisis, green power was a hot topic. But after the crisis ended, interest waned. Then in the mid-1990s, utility deregulation sparked competition, and the power companies began to market green pricing to environmentally conscious customers. While the programs are available to businesses, the overwhelming majority of those who commit are residential customers.

Roughly 30 investor-owned utilities and 30 quasi-governmental municipal utilities offer green-pricing programs in regulated markets, according to the Green Power Network, which tracks such data for the U.S. Energy Dept.'s National Renewable Energy Laboratory. The group includes large utilities with billion-dollar market caps -- Florida Power & Light, part of utility holding company FPL Group (FPL ); Dallas-based TXU (TXU ); and UtiliCorp United (UCU ) in Kansas City, Mo. About 25 utilities offer green-marketing options, as they're called in deregulated states.


  Utilities use the additional money to buy green power or invest in renewable-energy projects such as wind turbines. Since the debut of its green program four years ago, 11,000 of Wisconsin Electric's 1 million electricity customers -- or 1% -- have enrolled. Many other utilities report similar participation levels. "Everybody knows the scale of this activity is relatively small," says William Hogan, a public-policy professor at Harvard University's Kennedy School of Government who has lectured on energy.

Even sky-high prices and a West Coast energy crisis aren't enough to convince consumers that it's worth some short-term financial pain for long-term environmental gain. Boil down utilities' many approaches to green power -- including green pricing and marketing programs -- and renewables still account for only 1% or 2% of power companies' energy mix. Nationally, renewable energy provides roughly 3% of America's electricity supply.

Without attracting the masses, these programs will have only a small bearing on renewable-energy policy. "They will not make a significant dent in the energy supply," says Nancy Rader, a California-based energy consultant. Rader argues that the programs are fundamentally flawed because most consumers don't want to voluntarily pay more for benefits that the larger public would enjoy. Just look at the small number of people who donate money to keep public radio stations running. It's a loyal audience, but it's not very big.

In addition to lack of mass participation, the electricity distribution dilutes the impact of these green programs. Where the options are offered, a local pool of green power is used to supply customers. But the utilities can't make the power go to one specific home or another. It's just as likely that your neighbor who passed on the green program gets green power, while yours is coal generated -- even though you paid the green premium. Wisconsin Electric customers like Lamm, however, do get one tangible benefit for participating in the green program. They're buffered from fossil-fuel-related surcharges when commodity prices spike. Alas, not all utilities offer similar price breaks for its green customers.


  Distribution issues aside, the extra green money doesn't all go toward renewable energy. Most programs use as much as 30% of the green premium on administrative and marketing costs. So if you're a green customer, follow through and figure out where your money goes. Is your power company using your premium to immediately purchase green power or invest in "future" renewable-energy capital projects? It's pretty hard to know for sure unless you ask.

The bottom line is that while green programs' benefits for the environment and changing overall energy policy are few, utilities are benefiting handsomely. "Many utilities have undertaken these programs to look ahead to the competitive market. They have to get more smart about who their customers are and what they want," says Blair Swezey of the National Renewable Energy Laboratory in Golden, Colo. In the meantime, unless you're like Lamm of Milwaukee and protected from fluctuating fuel charges, the best you can do is chalk up your green pricing or marketing money to altruism.

writes about financial markets for BW Online in New York

Edited by Beth Belton