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California: Deregulation Bog, Not Energy Hog
If it wasn't California's overconsumption of kilowatts, then what caused the recent energy crisis in the West and what are we doing to make sure it doesn't happen again? Two recent studies from energy experts provide some insight: "Energy Efficiency Leadership in a Crisis: How California is Winning," from the Natural Resources Defense Council (NRDC ) and the Silicon Valley Manufacturing Group (SVMG ), and "California Electricity: Facts, Myths, and National Lessons," a presentation by Amory Lovins , CEO of the Rocky Mountain Institute .
The NRDC/SVMG study indicates Californians recently implemented the most successful statewide energy conservation campaign in history, averting predicted summer blackouts. The study shows energy consumption in the Golden State increased at a similar rate to population growth from 1990 to 1999. By June, energy savings in California this year reached 4,800 megawatts (MW) about 10 power plants worth reflecting a drop of more than 12 percent in peak use. In June alone, 29 percent of PG&E's residential customers cut use by at least 20 percent.
The state jumped in to push energy efficiency/conservation with these actions:
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Extending the system benefits charge on distribution to 2012 investing more than $5 billion into efficiency and renewables;
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Boosting efficiency programs by $50 million with $730 million for efficiency and low-income assistance from a budget surplus;
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Allocating $190 million annually for energy efficiency and low-income assistance;
- Upgrading codes to provide 10 to 15 percent energy savings in all new construction.
"We are retaking control of our energy destiny, although we cannot afford any weakening of resolve or action," the study's conclusion reads. "Californians have demonstrated that they know what is needed to ensure affordable and reliable electricity services while preserving environmental quality."
Amory Lovins, in a presentation at the Worldwatch conference in July, supported much of what the NRDC/SVMG study reports, especially in the long-term. "In short, nothing very unusual happened to demand," Lovins said.
The biggest culprit of the California energy crisis is a botched restructuring of the industry, according to Lovins. The 1996 restructuring law contributed to an overly concentrated power market with too many resources in too few hands, he argued. The law also capped electricity prices, taking away incentives to conserve energy. Historically, demand side management fell and utilities slashed programs more than 40 percent. Generators weren't motivated to build big plants as enthusiasm matched low prices. Operations and maintenance scheduling also suffered from a lack of system-wide coordination. "Nobody looked after the public interest," Lovins explained.
A spike in wholesale power prices and a drop in Northwest hydro production due to low water complicated matters. Natural gas prices jumped, pushing gas-fired generation from 2 to 3 cents per kilowatt hour up to 15 cents. Electricity reserves tightened across the region, he said.
To avoid another energy crunch, Lovins said policy makers need to encourage more diversity in ownership, force generators to run capacity rather than holding out for increased prices, increase conservation programs and invest in renewables. In addition, the industry faces a financial risk by overbuilding new generation. According to Lovins, 12,000-33,000 MW are planned in California, 102,000 MW in the Western System Coordinating Council region and 200,000 MW in the U.S. by 2007.
Corinne Hollister