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The State's Electricity Markets Need to Be Mended, Not Ended

October 18, 2000|RALPH CAVANAGH | Ralph Cavanagh is director of the energy program at the Natural Resources Defense Council

Yogi Berra is widely credited with observing that what gets you into the most trouble isn't what you don't know but what you know for certain that just isn't so. With this in mind, Californians--who went through the summer with warnings of imminent electricity supply shortages and price spikes--would be well advised to reconsider three popular misconceptions. Only then can we begin to focus on long-term solutions for California's electricity markets.

* Misconception No. 1: Californians' electricity bills skyrocketed this year.

Fact: Because of earlier legislative action, most Californians were shielded from sharply higher wholesale electricity costs last summer. Brief and unanticipated exposure to those costs in the San Diego area produced both pain and outrage, starting in June, but prompt intervention by regulators, the Legislature and Gov. Gray Davis means that most San Diegans actually will end up with lower utility bills this year than last. State and federal investigations are underway to eliminate suspected pricing abuses by some Western power plant owners.

* Misconception No. 2: California's environmental regulations have blocked urgently needed new power plants.

Fact: Much power plant construction stalled in California and elsewhere during the 1990s as uncertainty about the industry's future paralyzed investors. Earlier in the decade, California environmentalists lobbied successfully for approval of new renewable energy generators and efficient gas-fired plants, only to be blocked at the last minute by federal regulators who insisted that existing capacity was sufficient. Now they know better, and a host of independent generation sponsors are pushing ahead aggressively. A new law adopted in August will further streamline the siting process for clean plants that can displace older and dirtier competitors.

* Misconception No. 3: California erred in making electric generation competitive.

Fact: The decision to abandon monopoly control of electric generation wasn't just California's. It reflects a pervasive international trend led by Congress and the Federal Energy Regulatory Commission. Few, if any, critics of the new competitive markets want to return the generation sector to the old utility monopolies, which made innumerable, costly errors in recent decades. Competitive electricity markets in California and elsewhere are relatively new and in constant need of improvement, but what's needed is mending, not ending.

What hasn't been mentioned is that California's investments in energy efficiency and renewable energy have greatly helped meet the state's electricity needs. By law and long-standing regulatory practice, California dedicates about 3% of every electricity bill to long-term investment in energy efficiency, renewable energy, low-income energy services and the development of new energy technologies. Energy-efficiency investments alone have yielded more than $2.8 billion since 1990 in net reductions in electric bills; the system is designed to reward households and businesses for adopting technologies that get more work out of less electricity. The combined impact of all the efficiency programs in the state is now equal to 15% of total statewide electricity consumption. Consequently, the state leads the nation in the amount of "gross state product" produced per unit of energy, and the Rand Corp. has pegged the resulting benefits at about $1,000 per Californian.

Over the same period, renewable energy investment has created wind, geothermal, solar and biomass generating capacity equivalent to 10 giant coal-fired power plants. The next installments are already arriving. These generators produce their power in blissful disregard of volatile fossil fuel prices, and construction lead times are measured in months rather than years.

What California and the West now urgently need is more of what has worked best to relieve strained power grids. Since 1990, power consumption growth in other Western states outstripped California's by more than 2 to 1, in part because of waning energy-efficiency efforts outside the Golden State. California is showing its neighbors the way forward with new legislation that will devote another $5 billion to clean energy technologies over the next decade, while also launching a host of new energy-efficiency initiatives and expediting the siting process for renewable generation. If others follow, the wholesale price spikes of 2000 will be remembered only as a brief stumble on the path to a sustainable energy future.

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