Turn Out the Lights; the Party's Over

By KIRK JOHNSON

The electricity business was starting to get sort of sexy as deregulation brought new ideas and styles to New York starting in the late 1990's. Blow- dried hipster capitalists were in; starchy government regulators were out. A frontier mentality, epitomized by companies like Enron, the once-giant Houston-based energy trader, blew into New York bearing all the trappings of Marlboro Country. Wildcatters, roughnecks and bright- eyed dreamers staked their claims.

Pass the word: the starch is back in town. Government, which was, at least in theory, supposed to be exiting stage right as deregulation proceeded, is instead assuming in many ways a more central role than ever in how energy in New York - and other states as well, notably California - gets made, distributed and sold. The even keel for electricity supply that has been predicted for New York City this summer is made possible not so much by the rough-and-tumble open market as by the state bureaucrats at the New York Power Authority, which built 10 house-size power plants around the city last year, providing 400 extra megawatts of power, which is expected to be crucial come July and August.

At the same time, state conservation and efficiency programs put together last year promise to reduce electricity use during peak periods, like hot summer days, energy experts say, giving New York important breathing room this year to address its long-term energy needs.

But the frontier mentality is also on the run for reasons that go deeper than mere megawatts. The terrorist attack in September, state officials said, reinforced as never before the connection between energy dependability and energy security, which they say must be the government's province. Protecting the system - through measures like diversification of fuel supplies - has become a major element in the state energy plan being completed this spring.

At the same time, the collapse of Enron, which was considered the leading voice for reducing government regulation to a minimum, has made fusty bureaucrats look good by comparison.

California - both in its energy meltdown last year and its subsequent response, with things like energy-efficiency construction standards - has further inspired those who think that more should be rendered unto the public sphere and less to the market.

"The Enron mantra that government can screw up anything it touches and markets are superior - this argument no longer has any credibility whatsoever," said William Hogan, a professor of public policy and administration at Harvard's Kennedy School of Government, who is a leading authority on electricity regulation.

"If you stand up after Enron and 9/11 and say something like that, people look at you like you're crazy," he said.

Few experts suggest that the pendulum has shifted so far that states like New York will reverse course altogether and return to the old fully regulated monopoly days, even if they could. (Most power plants that were owned by utilities have been sold to other owners, for one thing.)

But experts from fields as varied as environmentalism and economics say the momentum is clearly toward government, as one industry official put it, "with a thumb on the scale."

Historians say that the deregulatory tilt also had very broad social and economic forces behind it. Many people probably now associate the beginnings of deregulation, in the 1970's, with the conservative get-government-off-our-backs mentality that propelled people like Ronald Reagan into office, as governor of California, and later, as president. But crucial support also came from the political left, said Richard Abrams, a professor of history at the University of California at Berkeley who studies government-business relations.

Although business was irked by pollution and affirmative action laws passed in the late 1960's and early 1970's, Professor Abrams said, there was also a groundswell of opinion against big monopolies fueled by the leftover social impulses of the 1960's. Ma Bell became an object of ridicule, and was later broken up. Ralph Nader argued that regulation tended to reinforce the status quo, rewarding companies that were already connected.

Now, some energy industry officials say they fear things could tip too far the other way.

"The rush to regulation scares me," said M. William Brier, a vice president for communication at the Edison Electric Institute, a trade group. He said that the industry's task, at a moment when people are anxious and things seem to have broken down, is to keep things in perspective. The Enron scandal, he said, is about financial markets and accounting, not about energy and electricity.

"It doesn't have anything to do with us," he said.

For the new government interventionists, there is also a fine line to be walked. The chairman of the New York State Energy Planning Board, William M. Flynn, said that the terrorist attack last fall forced a shift in thinking about energy security by the people formulating the state's new energy plan, which will be released in late spring or early summer.

But Mr. Flynn, who is also president of the New York State Energy Research and Development Authority, which administers a $150 million- a-year fund for conservation and efficiency programs, said his marketing efforts have drawn the line at linking things like energy self-sufficiency or conservation programs directly to public concerns about possible terrorist disruptions.

"It makes talking about these issues much more serious," he said. "But no, we don't have an overt emphasis on security. The programs speak for themselves."

Some electrical-system administrators say that the current period of quiet in the electricity market in New York - with lower prices, lower demand and adequate supplies forecast through the summer - also heightens and complicates government's responsibility to keep residents and business leaders focused on long-term needs.

Many power plants that were proposed for New York are now unlikely to be built because of a tightening in the financial markets as a result of the Enron debacle, and many ratepayers might not think about electricity when the lights stay on and the bills don't go up.

But that is when it falls to government to stand at the mountain top and take the long view, said Steve Sullivan, a spokesman for the New York State Independent System Operator, which runs the state's power grid.

New York State will need 7,300 megawatts of new power supply over the next five years, he said, but the money and the will must be committed now.

Other experts say that government gets too much credit as it is.

Jerry Taylor, the director of natural resource studies at the Cato Institute, a research group in Washington that favors limited government and free markets, argues that most state conservation and efficiency programs do not really work at all.

The real reason that demand was shaved off the anticipated peaks in New York last year and the summer before, which was far hotter, was the rate structure, Mr. Taylor said. The system allowed higher prices to be passed onto consumers. That meant that when supplies got tight, prices rose, sending a powerful economic signal to customers - especially big businesses that had the most to lose - to cut back energy use.

In California, by contrast, price caps on electricity kept it cheap even during last year's crisis, which gave people and businesses little economic incentive to conserve, compounding the crisis, Mr. Taylor said.

In New York, the rate structure for utilities sends signals that many environmentalists say are also completely contradictory to the state's official goals.

Because utilities like Consolidated Edison, which serves New York City and its northern suburbs, make their profits by moving as much energy through their wires as they can, they have no interest - or at best a conflicted interest - in having their customers using less electricity through steps like conservation.

Under the old regulated system, by contrast, utilities were rewarded for reducing demand. Now the state discourages conservation with one hand and encourages it with the other, the critics say. The result might look like smart government, but it depends on your point of view.

"We still don't have a good long- term strategy, or even a medium- term strategy," said Ashok Gupta, a senior energy economist at the Natural Resources Defense Council, a New York-based conservation group. "We have ideology followed by crisis management, but no strategy."