California dreamin'

Power, Jun 2003 by Peltier, Dr Robert

For the short term, California appears to be OK. When its 30 million residents switch on their air conditioners this summer, they'll work. The future, however, isn't so bright. A recent forecast by the California Energy Commission (CEC) predicts power shortages in 2006 and blackouts in 2007. It warns that California must fix its dysfunctional power market by 2005 or face the grim consequences. In a nutshell, this is the problem: Not enough new plants and transmission lines are being built quickly enough. The train wreck is coming, and no one seems to know how to prevent it.

History may be the best teacher, but only when you're paying attention and willing to learn from past mistakes. Not so long ago, California's version of piecemeal deregulation drove PG&E into bankruptcy and saddled consumers and their children with $40 billion in rate surcharges over the next 20 years. Now Sacramento is dealing with a $35-billion deficit and toying with issuing $10 billion in bonds to help balance the budget. What in the world is the state going to do when the next power crisis hits?

Meanwhile, the California Independent System Operator (CAISO) predicts no shortages this summer, because 3,000 MW are expected to come on-line before the summer peak. But CAISO understands that, as in the stock market, current results are no guarantee of future returns. One CAISO manager recently said, "There seem to be some mismatches between demand and supply down the road." That's bureaucratic-speak for, "Houston, we have a problem."

Not enough capacity

By August 2007, not even California's highly touted emergency response programs should be able to avert rolling blackouts and major power shortages. In four years peak demand could reach 66,000 MW--up 12.5% from the peak predicted for this August. The CEC forecasts that demand will rise another 1,000 MW by 2008.

Of course, forecasts and predictions guarantee nothing and are often wrong. To be sure, California's problems are a complex web of politics, environmentalism, consumerism, and economics. Yes, the CEC spent two years working at breakneck speed trying to fulfill Governor Gray Davis' promise that 5,000 MW of new capacity would be put on-line in each of the past two summers. But in this business, promises don't count; results do. Only 5,600 MW were added by the end of the summer of 2002, while more than 60 projects were postponed or canceled.

Some very large plants have come on-line to help offset California's large load growth. For example, there's Constellation Energy Group's recently commissioned 830-MW High Desert Power Project in Victorville, which will deliver all of its power to the state's Department of Water Resources through 2011. Governor Davis praised the plant as "important new capacity . . . [that will help meet] California's future energy needs." What the governor failed to mention was the project's eight-year development and construction process.

Recent moves by San Jose's Calpine Corp. exemplify the paralysis currently affecting California's power politics. Citing poor economic conditions and the difficulty of finding a solvent utility buyer, Calpine canceled or put on indefinite hold 34 plants, including the 1,100-MW East Altamont Energy Center east of Livermore and the 600-MW Russell City Energy Center in Hayward. There are just no economic incentives for developers to build merchant plants in California today.

Not enough leadership

A key characteristic of leadership is the ability to develop a vision for success and communicate it effectively. Case in point: the latest CEC/California Public Utilities Commission (CPUC) "Draft Energy Action Plan" released at the end of April. The plan's suggested strategies for keeping the lights on include giving consumers more purchasing options, "encouraging" development of more distributed generation projects, and relying more on conservation. Another one is my personal favorite: requiring the state's three investor-owned utilities to add up to 600 MW of renewable energy capacity to their portfolios, as part of a goal to have renewables account for 20% of total purchases by 2010.

On the other side of Sacramento, the California State Assembly is crafting legislation that would create a new California Energy Agency. The new, governor-appointed body would rule over all other energy policy-making entities in the state, including the CEC and the CPUC. Democratic Assemblyman Joe Canciamilla, a cosponsor of the bill, said, "AB 808 will help end this chaos and ensure that California sends a clear message to the public, the business community, the energy industry, and the financial markets on energy."

In my opinion, that's not the right message. What most rational people think about California's energy policy is neatly summed up in the words of Canadian writer Robert Fulford: "I have seen the future and it doesn't work."

Credit: Dr. Robert Peltier Editor-in-Chief