in clean energy   NE Power Outage report   Letter to Mass. Governor

Cutbacks to California conservation and renewable energy programs helped cause power shortages during 2000 and 2001. Increasing energy efficiency and renewable energy must be part of the solution to the crisis in California and to avoiding similar problems elsewhere.

What has caused power shortages in California?

Many factors have contributed to California’s power shortages. California’s electricity demand increased 13 percent from 1988 to 2000, but that is only half the national average [1]. Rapid growth in other western states has reduced a regional power surplus. Low rainfall has also reduced imports of hydropower from the Northwest. Cutbacks to energy conservation and renewable energy programs have also contributed significantly to the problem, along with unprecedented power plant outages.

• Cutbacks in conservation. Programs to conserve energy by improving energy efficiency have reduced electricity demand in California by almost 10,000 megawatts (MW) since 1975, a major success story [2]. But during the deregulation debate, California utilities slashed their energy conservation budgets by more than half [3]. These cutbacks created a "need" for as much as 1,800 MW of added power plant capacity [4].
  
  
• Cutbacks to renewables. California added 768 MW of renewable energy supplies in the 1990s, another success story [5]. But in 1995, utilities persuaded the Federal Energy Regulatory Commission to kill a state program that would have built an additional 1,400 MW of renewable energy -- wind, solar, geothermal and biomass -- and high-efficiency natural gas cogeneration [6].
  
  
• Power plant outages. As much as one-third of power plant capacity was unavailable during periods when rolling blackouts were initiated, far above normal levels [7]. Utility officials have accused power plant operators of creating artificial shortages to drive up prices [8]. Independent studies have concluded that market abuses caused electricity prices to far exceed levels that can be explained by high fuel prices or other factors [9].

Solutions to the California crisis must include:

• Increasing funding for improved energy efficiency and tougher energy efficiency standards. As of 2001, nineteen states have adopted energy efficiency funds, but many are below historical levels of spending, and none of them is large enough to capture all cost-effective energy efficiency improvements [10].
  
  
• Further diversifying the power supply with renewable energy sources. As of 2001, twelve states have adopted minimum renewable energy content standards and fourteen states have adopted renewable energy funds [11]. In most cases, these policies should be strengthened. Renewable electricity standards and funds should also be implemented in other states and at the federal level.
  
  
• Extensive market reforms to preclude market abuses. Initiating demand-response programs—paying customers to reduce electricity use during peak demand times by conserving or using clean distributed generation—is a critical first step for each region [12].

Solutions to the California crisis should NOT include:

• Gutting power plant siting rules. California siting rules have not prevented power plant construction. Not a single major new power plant was proposed during the California deregulation debate. State regulators were flooded with natural gas plant proposals starting in January 1998. From April 1999 to March 2001, ten major power plants were approved, totaling over 6,300 MW. Six plants, with a capacity of 4,308 MW are under construction, with 2,363 megawatts to come expected on line during 2001. Another 7,000 MW is in the licensing process [13].
  
  
• Weakening air quality regulations. As of March 2001, no proposed plant in California has been rejected for failing to meet air quality standards. A single old 100 MW plant has been idled because of an annual cap on its emissions. Had the plant’s owner chosen to buy emission reduction credits, the plant could have continued to operate [14]. Emission-credit prices are currently high because two-thirds of Southern California power plant capacity has not installed cost-effective pollution controls. They should be required to install such controls in exchange for any temporary relief from emission caps during shortages.
  
  
• Oil drilling in the Arctic National Wildlife Refuge. As oil is used for only 1 percent of electricity generation in California, and less than 3 percent nationally, drilling for oil in the Arctic cannot help avoid power shortages or reduce prices [15].

Federal policy changes can affect the likelihood of future crises:

• Nationally, utility spending on energy efficiency also declined 45 percent between 1994 and 1998. Renewable energy generation fell from 66 billion kWh in 1993 to 49 billion kWh in 1998, as utilities bought out contracts and plants shut down or reduced output. Congress should enact matching funds for state efficiency and renewable energy programs, extend and expand renewable energy production tax credits, and enact a renewable energy standard of 20 percent by 2020.
  
  
• Senator Murkowski’s proposed federal energy policy bill would repeal the Public Utility Holding Company Act (PUHCA) and the Public Utilities Regulatory Policies Act (PURPA), two federal laws intended to prevent the kind of problems California is experiencing today [16].

1. California Energy Commission, 1990-2000 California Electricity Consumption by Sector, www.energy.ca.gov/electricity.
   
   
2. California Energy Commission, The Energy Efficiency Public Goods Charge Report, December 1999, p. 12. www.energy.ca.gov/reports/1999-12_400-99-020.PDF.
   
   
3. Environmental Working Group, California's Power Crisis: Utilities Preach Conservation but Cut Funds for Efficiency Programs, August 2000, www.ewg.org/reports_content/CA_Dereg_Aug00/dereg.pdf.
   
   
4. William Marcus and Jan Hamrin, How We Got into the California Energy Crisis, February 2001.
   
   
5. California Energy Commission, QF Projects in California (last updated July 2000).
   
   
6. Federal Energy Regulatory Commission, Docket No. EL95-16-00, February 23, 1995; see Marcus and Hamrin, op. cit.
   
   
7. California ISO, DMA Director Report for November 2000; presentation November 30, 2000, p. 6.
   
   
8. Steve Wiegand, "Sticker shock -- Power users are asking: Where did the money go?" Sacramento Bee, January 7, 2001.
   
   
9. See CA ISO report (footnote 6) and P. Joskow & E. Kahn, A Quantitative Analysis of Pricing Behavior in California's Wholesale Electricity Market During Summer 2000, November 2000.
   
   
10. See http://ucsusa.wsm.ga3.org/clean_energy/clean_energy_policies/clean-energy-policies-and-proposals.html.
    
    
11. See http://ucsusa.wsm.ga3.org/clean_energy/clean_energy_policies/clean-energy-policies-and-proposals.html.
    
    
12. See Richard Cowart, Regulatory Assistance Project, Efficient Reliability: The Critical Role of Demand-Side Resources in Electricity Markets, www.raponline.org.
    
    
13. California Energy Commission, www.energy.ca.gov/sitingcases.
    
    
14. "Bush's Idea of Easing Smog Rules Won't Help, Experts Say," Los Angeles Times, January 25, 2001.
    
    
15. See Arctic National Wildlife Refuge fact sheet, ucsusa.wsm.ga3.org/clean_energy/clean_energy_policies/will-drilling-the-arctic-refuge-really-solve-our-oil-woes.html.
    
    
16. See ucsusa.wsm.ga3.org/clean_energy/clean_energy_policies/public-utility-holding-company-act-puhca.html and ucsusa.wsm.ga3.org/clean_energy/clean_energy_policies/public-utility-regulatory-policy-act-purpa.html.