Senate Energy, Utilities and Communication Committee
Debra Bowen, Chairwoman
California’s Energy Supply:
Will It Be Full Power Ahead or Lights Out?
State Capitol, Room 4203
February 8, 2000
1:30 p.m. to 4:00 p.m.
I. Opening Comments
- Senator Debra Bowen, Chairwoman
II. California’s Energy Supply
- William Keese, Chairman, California Energy Commission
- Carl Wood, Commissioner, California Public Utilities Commission
- Kellan Fluckiger, California Independent System Operator
- Jim Kritikson, California Power Exchange
- Marcie Edwards, Los Angeles Department of Water & Power
III. Meeting California’s Needs – Focusing On The Demand
- Ralph Cavanaugh, Natural Resources Defense Council
- Mike Weedall, Sacramento Municipal Utility District
- Mike Florio, The Utility Reform Network
- Rich Ferguson, Sierra Club
- Pat McLafferty, NEXTEC Power Systems, representing California Association of Distributed Energy Resources
- Barbara Barkovich, California Large Energy Consumers Association
IV. Meeting California’s Needs – Focusing On The Supply
- Steven Schleimer, Pacific Gas & Electric Company
- Ron Nunnally, Southern California Edison
- Geoff Gaebe, San Diego Gas & Electric
- David Parquet, Enron Corporation
- Nick Wallace, Dynegy Corporation
V. Public Comments
- Any members of the public who wish to comment on the issue and/or the testimony given during the hearing are invited to address the committee.
Ensuring Energy Supply Adequacy In An Emerging Marketplace
Issue Overview
February 8, 2000
As California continues its unprecedented growth, the demand for power is in danger of stretching the state’s electric supply to the breaking point. The question for policymakers, consumers, and the power industry is what – if any – steps should be taken to ensure that the growth in demand doesn’t eventually outstrip the growth in supply. To be more direct, what does the state need to do to guarantee that the light will always come on when a ratepayer flips the switch – and that the ratepayer can afford to flip the switch? Should California require better demand side management from power users and power suppliers? Should new generation plants be built? Should more transmission lines be installed so California can import more power? The real world solution no doubt relies on tapping all three strategies, but who should decide to what extent each strategy is relied upon?
The California Energy Commission (CEC) issued a report entitled “High Temperatures & Electricity Demand: An Assessment of Supply Adequacy in California” in July 1999. In the report, the CEC found that periods of hot weather and high energy usage in the summer of 1998 caused the state’s reserve supply of electricity to dip to dangerously low levels. The California Independent System Operator (ISO) is required to maintain an operating reserve of at least 7% but in 1998, the system reserve fell below 5% on four separate occasions. That forced the ISO to issue a “Stage II Alert,” asking utility distribution companies to curtail their interruptible load customers so the ISO could re-establish its 7% reserve. As the CEC documented in its report, this operating reserve – which acts as the state’s electricity buffer zone – has been dropping for more than a decade.
The depletion in California’s reserve capacity, combined with more predictions for extreme temperatures and the often-present potential for drought, sets the stage for more interruptions – not to mention higher prices – if the status quo is allowed to continue. According to the CEC, new power plants proposed for construction and filing for siting approval from the CEC aren’t projected to come on-line until sometime in 2002 and 2003, meaning the state is particularly vulnerable to outages over the next three years.
Looking at whether California’s energy supplies are adequate isn’t just a question of asking how the market can create more supply – it’s also asking how the current energy demands can be better managed or even reduced.
Demand side management programs can be effective, but that effectiveness depends on user awareness and commitment – not to mention the ability of the ratepayer to see a tangible savings on their monthly bill as the payoff for making that commitment.
Beyond programs that simply encourage people to flip the air conditioner off, new demand side building technologies include improved heating and cooling systems, building insulation, and the use and placement of energy efficient windows, just to name a few. Creating an effective demand side management program, instead of pulling more power off the grid, can require a larger up-front capital cost, but the tangible and intangible benefits from such an investment are usually paid back through reduced operating costs within a few years of operation.
As the traditional generation and transmission structures struggle to keep pace with the demand, the new competitive market for energy envisioned by AB 1890 has emerged, although it’s continuing to evolve and take shape. The question is, does the market structure which grew out AB 1890 provide the reliability and affordability that Californians demand?
Arguably, in a truly competitive marketplace, price elicits supply and rations demand. But on the demand side of the equation, most small and residential customers are still under the rate freeze imposed by the electrical restructuring process. While the freeze protects ratepayers from potential price hikes, one downside is that users are insulated from what the real cost of the energy they’re using is, so any incentive to reduce their energy demands is severely limited. As a result, ratepayers under the rate freeze may be using more electricity today than they otherwise would be if they saw and were required to pay for the true cost of the energy they’re using.
Clearly, ratepayers should be guaranteed access to an adequate, reliable and affordable energy supply. The question is, how can the state turn that guarantee into a reality?