The San Jose Mercury News
www.mercurycenter.com

Cutback in conservation contributed to current energy crunch

Emergency plant at San Francisco Airport could power about 50,000 homes.

BY JOHN WOOLFOLK
January 2, 2001

California would have a lot more energy at its disposal -- the equivalent of two major power plants -- if it hadn't let its energy conservation efforts wither six years ago, as it began planning its deregulation experiment.

Now, with the state in the grip of an acute power shortage, and the state's two largest utilities back before the California Public Utilities Commission today to plead for electricity rate hikes, energy officials have desperately urged consumers to save electricity. But had earlier conservation efforts been maintained, daily peak power demand could have been as much as 1,100 megawatts lower, analysts say. That savings could have eased the shortages plaguing the state and provided enough power for 1.1 million homes.

``A thousand megawatts is important when you're teetering on a stage three,'' said California Energy Commission analyst Mike Messenger, referring to the highest-level electrical shortage that can trigger blackouts. ``On the margin, it's very significant.''

Energy conservation wasn't a top priority among state lawmakers when they drafted the 1996 legislation that restructured California's electricity market, and funding to promote it almost was left out altogether. Now, lawmakers are scrambling to beef up spending.

``I wouldn't say anybody dropped the ball, it's just that there wasn't as much attention paid to it,'' said Julie Fitch, spokeswoman for the PUC.

``The theory was that restructuring would cause all of these economic investments in efficiency to occur anyway, that the market would take care of it,'' Fitch said. ``Obviously, it didn't turn out that way.''

The potential daily savings of 1,100 megawatts is comparable to the combined output of Calpine Corp.'s proposed 600-megawatt San Jose power plant and the company's 500-megawatt Pittsburg project.

The June 14 rotating blackouts to nearly 100,000 Bay Area customers were triggered by a shortage of only 100 megawatts. And when the California Independent System Operator, which runs most of the state's electric grid, declared its first stage-three alert Dec. 7, the shortage was 500 megawatts with demand that day of about 33,000 megawatts.

The PUC is scheduled to vote Thursday on whether Pacific Gas & Electric Co. and Southern California Edison can hike electricity rates to offset spikes in wholesale prices they pay for the power. PG&E wants to raise rates by an average of 26 percent immediately and get the go-ahead for future hikes if wholesale prices stay high. Southern California Edison has asked for a 30 percent rate increase with possible future hikes that could total 76 percent within two years.

State officials and environmentalists agree that flagging conservation efforts aren't solely to blame for California's current electricity troubles. The state needs new power plants because construction hasn't kept up with demand. And authorities suspect power output has been manipulated by corporate plant owners to drive up prices.

``We'd be better off if we were using less, and there are definitely huge benefits to conservation,'' said Marcel Hawiger, a consumer-advocate attorney for The Utility Reform Network. ``But there are some fundamental market problems now relative to the gouging of California by power generators that would not be fixed just by energy conservation.''

Still, many find it ironic that the politicians and utilities now pleading for conservation had in recent years cut spending to promote electricity savings.

``One thing I find so galling about this whole thing is the hypocrisy,'' said John Coequyt, an energy analyst for the Washington, D.C.-based Environmental Working Group who recently studied California's efficiency efforts.

Before deregulation, the state gave utilities an incentive to promote effective conservation by paying them for every kilowatt-hour saved.

But as deregulation approached, utilities spent less on such efforts, fearing they could no longer afford them and remain competitive. Meanwhile, state lawmakers assumed market competition would promote more efficient energy use.

Environmentalists' concerns that conservation efforts would wither prompted state lawmakers to include a ``public purpose programs'' charge in the 1996 deregulation law to promote energy saving. But the 3 percent charge on consumers' bills generates less funding than utilities were spending on conservation before deregulation.

Energy conservation was born in response to the oil embargo of the early 1970s, which caused long lines at the gas pump and abrupt rises in electricity prices.

Urged by regulators, electricity conservation spending by the state's three major corporate utilities -- Pacific Gas & Electric, Southern California Edison and San Diego Gas & Electric -- rose to $132 million in 1984, the energy commission said. When fuel prices fell in the late 1980s, so did funding for conservation.

Concerned government, utility and public interest groups rekindled the effort in 1990 with a new system of rewarding utilities for the energy they saved. By 1994, utility spending on conservation efforts had soared to a high of $247 million.

Results over the years have been substantial. Since 1975, utility conservation programs and state efficiency standards for buildings and appliances have saved 10,000 megawatts, the energy commission said.

But after 1994, conservation spending by the major utilities fell more than 40 percent, the commission said. Municipal utilities and power companies in other states also reduced spending, Coequyt said.

The public purpose charge generates $227 million a year for electricity conservation efforts. But utilities haven't spent all the money. Earlier this year, the utilities commission stepped in and assigned $70 million in unspent funds to conservation programs.

As spending declined, so did the savings. Reduction in peak electricity demand fell from 3,148 megawatts in 1996 to 2,960 megawatts last year, according to the energy commission.

Had funding levels for energy efficiency remained at the 1994 level of $247 million, an additional 450 to 1,100 megawatts would have been saved today, said energy commission analyst Dennis Smith, who studied the figures in response to a Mercury News request.

The focus and oversight of conservation efforts also changed under deregulation. Programs previously encouraged people to save electricity, for example by turning off unnecessary lighting. The focus shifted to improving efficiency over time through appliance and building standards, such as double-pane windows.

That shift forced utilities to overhaul their programs, said PG&E spokesman Staci Homrig. ``We didn't spend all the money available simply because the programs weren't up to speed yet,'' she said.

Critics say utilities no longer have incentives to promote conservation.

``You've got a company whose shareholder interests depend on increasing energy sales in charge of programs designed to reduce energy sales,'' consumer advocate Hawiger said. ``It's an absolute conflict of interest.''

But Homrig said PG&E remains committed to saving energy, particularly as the company absorbs billions of dollars in debt from buying wholesale electricity that is overpriced due to shortages.

Since the electricity shortage came to a head this year, lawmakers have refocused attention on conservation. Gov. Gray Davis signed legislation extending the public purpose charge 10 years.

Another law Davis signed provides $50 million for conservation efforts next summer that are expected to save 200 megawatts. Those efforts include installing low-watt LED bulbs in traffic signals and light-colored paint on rooftops to reflect heat and reduce air-conditioning demand.

Concern that federal authorities won't rescue California from its crisis prompted Davis in December to promise $1 billion for conservation efforts in his 2001-2002 budget. That would roughly double the current funding for gas and electric conservation efforts, Fitch said.

Environmentalists say the silver lining to California's electricity crunch may be a renewed awareness that energy conservation pays.

``This is the fastest, cheapest way to lighten the load on the Western power grid without a doubt,'' said Ralph Cavanagh, an energy analyst for the Natural Resources Defense Council. ``The governor gets this. We definitely had a reduction of effort in the mid-1990s and now we're coming back.''