Electricity Deregulation Could Have Surprising Impact
In retrospect, no one should have been surprised by the chaos this summer in California's electricity industry.
The stage was set six years ago for a painful collision between consumer expectations and marketplace realities when the Public Utilities Commission began dismantling the tightly integrated power industry. In 1996, the Legislature expanded the PUC's efforts and practically guaranteed this summer's debacle when it hurriedly approved a complicated deregulation plan intended to reduce consumer prices by introducing competition into what had been an industry of regulated monopolies.
Nevertheless, this summer's power crisis — which saw retail rates more than double in the San Diego area, blackouts and brownouts in Northern California, and service cutoffs statewide to customers with "interruptible" contracts — caught lawmakers unprepared. As consumer indignation rose to fever pitch, the Legislature struggled to respond before its Aug. 31 adjournment. A last-minute flurry of activity produced three pieces of legislation, only one of which — an effort to speed the construction of new power plants — is likely to have any lasting, beneficial effect on California's power network.
The push to expand the state's generating capacity deserves examination because it raises important questions about the social and environmental tradeoffs Californians are willing to make in return for abundant, affordable electricity.
The legislative deregulation plan approved in 1996 split the formerly integrated system of generation, transmission and distribution into isolated components, and opened the generation component to market competition. In theory, generators competing for market share would squeeze inefficiency out of the system and vie with each other to offer the lowest prices and best customer service, the overall result being that California's electricity rates — then 50 percent higher than the national average — would fall.
Those expectations, however, were crushed in the vice of supply-demand dynamics. California's generating capacity has been stagnant for 10 years, while demand has soared thanks to population growth, a booming economy, and the rise of a technology sector dependent on abundant power to drive its manufacturing processes and to keep its products blinking and humming after consumers have brought them home. Because of the uncertainty created among investors by the complicated deregulation scheme, few proposals to construct power plants materialized during the 1990s.
Uncertainty evaporated this summer, the first extended period of high temperatures since the freeze on retail rates — imposed under the state's deregulation legislation for a period of time that varies from utility to utility — expired for customers of San Diego Gas & Electric Co. Bills for SDG&E customers promptly doubled, and continued rising all summer.
There is no simple explanation for the tumultuous combination of supply unreliability and price volatility. What is clear is that demand for electricity now exceeds supply in California. And with the prospect of generous profits to be made selling power in the nation's most wired state, it is reasonable to expect that private firms will begin trying to take advantage of the situation.
In only two years, 25 applications have been (or are expected to be) submitted to the California Energy Commission for power plant licensing. Some applications represent expansions of existing facilities, such as the big plants at Moss Landing, which PG&E sold to Duke Energy. Other applications represent new facilities.
The power plant licensing process now takes a full year if everything goes well. Design and construction typically takes another year or two.
Under the emergency legislation hurriedly passed in late August by the Assembly and Senate, and just as swiftly signed by Gov. Davis, the licensing process will be shortened to six months. Assembly Bill 979 also establishes a governor's Clean Energy Green Team comprising 15 members, including Cabinet secretaries, officials of local air quality districts, and representatives of federal environmental agencies. The team has 90 days to produce recommendations for minimizing the environmental effects of new generating plants, and is directed to help plant operators cut through state and local red tape — permit processing, land-use authorizations — to get new generators on line quickly.
The environmental concerns are appropriate; the summer power crisis has already demonstrated troubling implications for California air quality. Older plants, which tend to be dirtier than new ones, have been forced to step up operation to keep the grid juiced. Reluctant to take plants off line — which would cut profits and threaten the grid's stability — operators have been unable to perform scheduled retrofits of improved pollution-control devices.
Even more troubling, the power shortage this summer prompted the Independent System Operator — the private, nonprofit organization set up by deregulation law to manage day-to-day operation of the state's transmission system — to order the use of emergency generators at times of peak demand. These generators typically run on diesel fuel and have no emission controls; there are more than 1,000 in the San Diego area and two to three times that many in the Bay Area, according to a recent PUC report. The Air Resources Board estimates that one diesel generator operating for 200 hours will cause 100 new cancers per million people.
Although they are cleaner than emergency generators, permanent generating plants — which typically burn relatively clean natural gas — still degrade air quality. And, typically, the people exposed to those emissions live in working-class neighborhoods with large minority populations. In eastern Contra Costa County, for example, ten power plants line Highway 4 between Bay Point and Antioch, with an eleventh working its way through the permitting process. In early September, a group of Bay Area environmental groups leveled harsh criticism at the Bay Area Air Quality Management District for failing to consider the issue of environmental justice in its review of power-plant proposals.
"Most of the people living around the plants are poor, working-class people who don't have the time to commit to protesting them" Mike Boyd, president of Californians for Renewable Energy, told the San Francisco Chronicle.
The list of power plant licensing cases before the California Energy Commission reveals a distinct shortage of proposals in or near well-to-do communities with largely white populations. Instead, they are proposed for places less likely to mount well-funded, politically potent opposition: Victorville, Pittsburg, Blythe, small towns in Kern County, industrial areas of Los Angeles County.
There may be sound reasons for this, just as there is an argument to be made for allowing heavily polluting old generators to fire up temporarily to prevent crippling blackouts. It will require close scrutiny by advocacy groups, however, to make sure the power crunch is not allowed to overwhelm California's commitment to social equality and environmental protection.
Contacts:
The Public Utilities Commission report to the governor on this summer's power crisis, "California's Electricity Options and Challenges," is available online at www.cpuc.ca.gov/.
Californians for Renewable Energy: by e-mail at info@calfree.com, or on the Web at www.calfree.com/home.html