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Energy Crisis: Cutting Through the Myths
By William Keese

Myths and legends have played a role in shaping and influencing American thinking and culture. So it should probably come as no surprise that, as the story of California's energy crisis has been discussed and retold by countless people over many months, myths have evolved and taken on a life of their own.

One myth that we often hear repeated is that California's environmental regulations precluded the building of power plants in the Golden State during the past decade. Another myth is that the boom of the computer industry and the blossoming of the Internet age led to sharp increases in the demand for electricity in California, especially the last two years. Finally, there's the image of Californians as energy hogs, owning every type of personal electronic device. Well, not surprisingly, what is accepted by many as fact turns out not to be true.

In the summer of 2000 we had our first blackouts. More followed this winter. Why has this happened? Can we blame the weather, unexpected demand, or the lack of hydroelectric resources?

This much is true: California entered the 1990s with significant excess generation over demand. Reserve margins of generating capacity were sufficient to ensure the reliable operation of our electric system. There wasn't a short-term need for power and few power plants were proposed. In 1992 the federal government passed the Federal Energy Policy Act, which, among other things, led to a re-thinking of the role of the utility to continue to be responsible for building the generation needed to supply its retail customers. In addition, with the recession of the early 90s, there was little interest in building power plants.

Uncertainty over the future of the electricity industry, and the role of the state's investor-owned utilities, increased in the mid-90s as the California Public Utilities Commission began to pursue the restructuring of the state's electricity industry and deregulation of generation. This uncertainty further diminished interest in building power plants. Electricity prices were low, relatively speaking, at this time due to adequate reserve margins and inexpensive natural gas. This provided additional disincentive to potential developers and market participants. New power plants that would have come on line in 1997 were at risk of losing money based solely on the prices paid in the state's Power Exchange in 1998 and 1999.

As our reserve margins were falling in California, our power plants were aging (over 60 percent are over 30 years old). In addition, our ability to import power was decreasing as other Western states experienced significant growth and declining reserve margins (they also had built few power plants), and the result was a very thin market throughout the West, which generally leads to pricing problems.

Passage of AB 1890 in the summer of 1996, the legislation that restructured California's electricity industry, finally created a climate conducive to the development of power plants. However, it wasn't until 1998 that the Energy Commission started to receive power plant applications in significant numbers. It is important to note that the planning (one year), permitting (one year), and building (two years) of large power plants means that cumulatively it can take over four years to bring a plant on line.

William Keese 
is chair of the California Energy Commission, formally called the California Energy Resources, Conservation and Development Commission.

In the 1990s demand increased at a fairly steady 2 percent per year, in line with Energy Commission projections dating back as far as 1988. In fact, peak demand in 2000 was actually lower than peak demand in 1999. No power plants were rejected by the commission in the 1990s because of environmental concerns or regulations. Also for the record, people should know that California ranks 49th in per-capita electricity consumption among the states, in large part due to the pioneering work of the Energy Commission in appliance and building efficiency standards. Finally, the summer of 2000 was not hotter than normal, and adequate rainfall during the year meant we had ample hydroelectric resources.

An inescapable conclusion based upon these facts is that we have suffered from a lack of generating capacity and adequate reserve margins. This situation has been greatly exacerbated by the fact that many of the existing power plants, for whatever reasons, have been unavailable due to forced and planned outages. Consequently, we have been having difficulty meeting demand in months where demand has historically been low when compared to our summer peaks.

Fortunately, California's supply of electricity is improving. Since April 1999, the Energy Commission has approved 14 power plants with a combined generating capacity in excess of 8,500 megawatts. Eight power plants, with a generation capacity over 5,000 megawatts are now under construction, with 1,474 megawatts expected to be on-line this summer.

At the same time, another 13 generating facilities totaling approximately 8,000 megawatts are under consideration for licensing by the commission.

To help meet peak demand this summer, as of this writing, three small peaker plants have been approved by the commission to bring an additional 276 megawatts of power on-line. An additional five plants - totaling nearly 282 megawatts - are being reviewed in our emergency, 21-day licensing process. More applications are expected in the near future for projects that should be up and running prior to September 30, 2001.

Through its Renewables Program, the Energy Commission is helping to bring on-line 17 new renewable electricity projects, utilizing such technologies as wind, landfill gas, geothermal, and hydro. These plants are expected to be on-line by early August 2001 and will add an additional generating capacity of about 120 megawatts.

While licensing power plants continues to be a critical function of the Energy Commission in helping to address our current energy crisis, particularly regarding this summer's peaker plants, the expeditious building of the now-approved facilities is even more important at this point in time. In addition, conservation and energy efficiency are taking center stage as a way to insure that California has adequate resources to meet peak demand this summer.

The summer of 2001 presents extraordinary challenges to the citizens of California. It is now critical for the public to do everything they can to conserve and use energy wisely, and for the private developers to expeditiously construct the generation facilities we have licensed.