Deregulating with mandates

Even in a move toward deregulation, the urge to regulate remains strong.

Nearly everyone agrees that deregulating the U.S. electric energy industry is the right thing to do. Serious issues linger over how best to do it. Yet the reason to deregulate the power industry is compelling: By stimulating competition and reducing inefficiency, deregulation will reduce electricity costs to many consumers.

Several deregulation bills in Congress, however, contain provisions that would work the opposite way. They would provide consumption guarantees for renewable fuels (see related stories, p. 42).

Mandating shares

The extreme example was introduced in the Senate as the Electric System Public Benefits Protection Act of 1997. It would require each generator of nonhydroelectric power to increase the renewable share of its primary fuel mix in annual steps. The minimum renewable share would start at 2.5% in 2000 and increase to 20% in 2020.

House legislation called the Electric Consumers' Power to Choose Act of 1997, meanwhile, would set the minimum renewable share for each generator at 2% during 2000-04, 3% in 2005-09, and 4% in 2010 and afterward. And the Electric Consumers Protection Act of 1997, introduced in the Senate, would set minimum renewable shares at 5% in 2003-07, 9% in 2008-12, and 12% in 2013 and later.

The bills differ in how they would administer and enforce the consumption-share minimums. Most of them would use renewable energy credits issued by the Federal Energy Regulatory Commission. This, of course, would be good for federal employment. It would require no small number of government clerks and lawyers to enforce fuel market thresholds down to the fraction of a percentage point. Resulting litigation might help employ utility lawyers displaced by deregulation.

The costly challenge of administration, however, hardly represents the largest problem here. How can anyone want to return government to the business of selecting fuels? Past failures of energy regulation show that markets outperform bureaucrats and politicians in matters of fuel choice. Bureaucrats and politicians always favor noncommercial energy. And their choices always push economically unwarranted costs onto consumers. Who can forget the

Synthetic Fuels Corp.?

This rule has no exception. Commercial energy competes on its own and needs no government help. Government does not act except on behalf of energy rejected by the market, usually because it's too expensive. Since state aid to noncommercial energy inevitably hurts consumers by replacing something cheap with something dear, politicians must invent high-minded excuses for the mischief. For their claims, no amount of suspicion can ever be too much.

The history of energy governance demonstrates nothing more clearly than the potential of government to create havoc in markets and hurt consumers. How can anyone have missed the lesson? Indeed, why bother to deregulate the electricity business if not to rid the system of noncommercial influence?

Congressional lurch

Oil and gas companies have a strictly commercial reason to be alarmed at the proposals for congressional selection of power generation fuels: Mandates for renewable energy would foreclose parts of what could be a growth market for natural gas. The Natural Gas Supply Association estimates that each 1% of the current electricity market set aside for renewables represents the equivalent of 300 bcf/year of natural gas.

But a greater reason to worry is the apparent eagerness of some members of Congress to lurch into business best left to markets. The consumer interests of choice, cost, and market efficiency overwhelm whatever benefits lawmakers think would derive from fuel use mandates. In legislation designed to promote competition and cut electricity costs to consumers, in fact, official promotion of noncommercial energy amounts to a laughable paradox.