California: Don't forget history

Even though the threat of rolling blackouts has faded in California, we continue to face a greater danger: that a desperate craving for electricity will cloud our better judgment.

Along with long-term electricity contracts announced this week to stabilize the mounting price of power, Gov. Gray Davis promises to bring 5,000 megawatts of new generating capacity on line by summer, regardless of environmental roadblocks such as air pollution limits in urban areas.

In pushing for new power plants, Governor Davis is showing as much sense as a hungry man roaming the aisles of a supermarket. State energy figures show that California has more than 50 percent more capacity than it's used during the latest crisis, so the shortages weren't caused by a lack of generating plants.

Mr. Davis would close this imaginary gap between demand and supply with plants that run on natural gas, the very fuel whose price increased four-fold in the past year - hardly a recipe for stabilizing prices. As they attack the problem haphazardly, Davis and state legislators are in danger of forgetting two historical lessons, one dating back to the 1970s, the other to the turn of the past century.

In the early 1900s, reformers attacked railroads' stranglehold on freight and passenger traffic. Exercising their monopoly power, carriers reaped exorbitant profits at the expense of farmers and consumers. States controlled sky-high shipping tariffs through "railroad commissions," which later expanded to "public-utilities commissions" regulating electricity, water, gas, and trucking as well.

This winter's power shortages have been the result of similar market manipulation, says Tim Duane, a professor of planning at the University of California at Berkeley and a consultant to the California Public Utilities Commission. Unregulated power companies have taken their plants off-line at a rate five times greater than the historical average. "It's a fabricated shortage," he says.

Although he concedes no "smoking gun" has yet been found to prove how firms are rigging the market, Professor Duane compares the situation with finding a corpse with bullet holes: "You might not have a smoking gun or even a prime suspect, but you know a murder has been committed."

Legislators stretched California over this barrel five years ago, when they required regulated utilities to sell their power plants to unregulated generating companies. And the US government - mandated under the Federal Power Act to halt price-gouging - refused last December to curb rates even though it found them "unjust and unreasonable."

Unless the state stops power generators from distorting the market, the situation is apt to get more severe this summer, when weather conditions can combine to create a bona fide shortage.

The way to avoid that actual scarcity hearkens back to another lesson, learned after the first oil embargo 28 years ago. In the face of embargos and price spikes, conventional wisdom held that America could build its way out of the energy crisis by constructing more power plants, drilling more oil wells, and scooping more coal out of the ground.

A ragtag assortment of economists and physicists suggested instead that the solution lay on the demand side of the equation. They reckoned it would be cheaper to wring more work out of the same kilowatts than to pockmark the landscape with atomic reactors and oil rigs.

Billions of dollars in canceled nuclear plants later, the conventional wisdom proved ill-informed: Efficiency really was cheaper than new supply. And it can arrive faster, making power plants unnecessary before they are half-finished.

The conservation advantage is especially pronounced when public policies - such as efficiency standards and incentives to use energy more wisely - point in that direction. That's why California's electricity needs grew at 1.2 percent annually from 1988 to 1998, only half as quickly as US consumption.

As a quick fix, Duane suggests shaving the peak load this summer, when the state's demand is closest to its generating capacity. In return for a break on their electric bills, large customers' air-conditioning systems would be cycled on and off by central power dispatchers to keep them from all operating at once.

Compact fluorescent lights, which use one-fourth the power of a comparable incandescent, are another tool to bring demand in line with existing supply. At current wholesale prices, a compact fluorescent light returns its $10 cost in less than a thousand hours of operation, then keeps cutting demand and saving money for several thousand hours longer.

Put a bulb in each California home, and the need for a medium-size power station disappears. A host of improvements like this would break the generators' grip on California's grid, and could be brought on line much faster than new power plants.

Meanwhile, the state is getting scalped for electricity to the tune of more than $1 billion a month, and missing the chance to invest in lasting conservation. Unless politicians learn from the 1970s energy crises and 1890s robber barons, California will have wasted its $10 billion budget surplus, with nothing to show for it but a cautionary footnote in the annals of deregulation.

Seth Zuckerman writes on natural resource issues, and tends a small organic apple and pear orchard.

(c) Copyright 2001. The Christian Science Monitor

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