"Broken" and "dysfunctional" are two of many unflattering descriptions used to describe the state of California's deregulated electricity system. Wholesale power caps have been cut from $1,000/MW to $250/MW. San Diego residents are urged to ignore their current bill and only pay as much as they paid for energy last year. A recent report created for Governor Gray Davis is critical of the current system, and while not calling for re-regulation outright, concludes that restructuring was a bad idea.

Painful Growing Pains

With rolling blackouts and soaring prices, California has become the poster child for what not to do in deregulation. However, deregulation is not the sole cause for the current electricity crisis. Perhaps the biggest problem in California today is the supply shortage.

Simply put, supply has not matched demand. For the past three years, with the current backlog in generating plant construction, utilities have felt the power crunch in the summer months in California and lost tens of millions of dollars in the volatile wholesale market.

San Diego Gas & Electric, the first utility in the state to recover its stranded costs, has passed on the price crunch to its customers, and the public outcry has been sharp. In a quick fix attempt, price caps were lowered to $250/MW. This move, however, is one frequently denounced by economists since it creates an artificial demand price. The growing pains felt in the restructured California electricity market are quite evident, but manipulation of the demand price is unlikely to result in market relief. Supply and demand in a free market cannot hope to balance if the market is manipulated.

New Energy Technology Arises

Out of all that has gone wrong in California's pioneering effort in deregulation, what has gone right is oft overlooked. The success of green power in California was an unexpected benefit to restructuring and the accomplishments are related, in large part, to deregulation. Green power includes such renewable energy technologies as wind, solar, geothermal, and biomass power, and small hydropower (less than 30MW). The definitions of what is green and what is renewable vary by state.

California's market, since its opening at the end of March 1998, has always shown a fairly slow and steady rate of customer switching. Currently, about 2.2% of eligible customers have switched suppliers. What is significant, however, is that nearly all of the approximately 160,000 customers have switched to green power suppliers.

When the market first opened, the residential market was all but ignored and most marketers focused on the larger commercial and industrial accounts. At its peak, more than 200 energy service providers had registered with the California Public Utilities Commission (PUC) for participation in the direct access market. The majority of these did not have green power offerings.

Everything's Gone Green

In February 1999, only six energy service providers remained active in the California market and all marketed green power. As of June of this year, there were 23 green power marketers registered with the California PUC providing service to residential and commercial customers. Of these providers, seven companies are certified to use the Green-e logo, which means the products that they offer meet the program's minimum requirement of 50% renewable content.

The success of green power has been indicated by consumer groups in other ways as well. The Los Angeles Department of Water and Power (LADWP) currently has the most successful green pricing program in the country. The Green Power for a Green L.A. program, launched in May 1999, has 31,000 customers as of April 2000. The LADWP program purchases four to five million kWh of renewable energy each month through the Automated Power Exchange (APX). Additionally, it purchases 1.2 MW from a landfill-gas project.

The Sacramento Municipal Utility District (SMUD) also has a successful green pricing program. The Greenergy program supports 6,100 customers (as of April 2000). While it has fewer participants than the LADWP program, Greenergy is the fifth most successful pricing program in the nation (in terms of number of customers participating).

The utility has also installed more than 450 residential and 30 commercial Photo Voltaic (PV) systems through its PV Pioneers I program (launched in 1993). Under the program, participants pay a small fee to have a grid-connected PV system installed on their roof. The electricity produced is fed back into the grid. PV Pioneers II was launched in late 1998 and is expected to result in 400 system installations a year. Under this program, customers may purchase a PV system under a net-metering agreement with SMUD "buying down" more than half the system cost.

Not All Gloom and Doom

While it is clear that California's electricity system is experiencing severe problems, it is not so clear that re-regulation is the answer. Pennsylvania is one example in which restructuring has been, for the most part, a positive experience. From the initial opening of the market at the beginning of 1999 through the end of July of this year, almost 530,000 customers have switched suppliers. An interesting contrast, however, is that while Pennsylvania has had a more successful overall deregulation experience, it has not had the success in green power that California has had. Less than 100,000 of the total customers that have switched suppliers have chosen a green power supplier.

An alternative lesson to draw in reviewing various successes and failures in deregulated states may be the great need for federal legislation regarding restructuring. Every state that has passed restructuring legislation has done so differently. Some of those that are contemplating competition have put plans on hold pending the eventual resolution in the California market. New Mexico, which had approved a start date of 2001, has now delayed until 2002.

State-by-state planning can have severe consequences from a regional standpoint. A coalition of 23 states has petitioned Congress to make them exempt from deregulation. The movement, the Low-Cost Electricity State Initiative (LCESI), has actually been in existence for over a year but is using the problems in California to gain momentum. What the LCESI brings to light is the complexities involved in fifty different approaches to deregulation. How is power transported over distances if states that remain regulated deny access to transmission lines?

Hope For the Rest of the Country

The problems in California are largely a result of mistakes in the restructuring legislation combined with a burgeoning demand that has not been met. There were no new power plants built in the last several years due to the uncertainty that surrounded restructuring legislation. Instead of a call for re-regulation, California's example should be used to help states develop better restructuring plans, and ultimately, serve as a catalyst for federal legislation to help guide the process.

Every new market experiences glitches, and electricity is no different. When markets have been deregulated in the past, the consumer has ultimately benefited. To return to the monopoly system would not only create more harm than good, it would effectively end the fledgling green power market by taking away the competitive forum that allowed its development in the first place. ES

Picking Up The Pieces

By Douglas Decker, P.E.

The genie is out of the bottle, and the taxpayers of California will pay a large price for the very complex problem of deregulation, or more accurately re-regulation.

One thing is for certain. With the utilities out of the generating business, the legislature will not be able to regulate and go back to business as usual. California politicians, led by the author of deregulation, Senator Steve Peace, have set deregulation back a decade with their actions. They are attempting to have government manage the electric industry and have ignored the physics and engineering restraints of electric power distribution.

Electricity cannot be stored, has inefficiencies going long distances, and requires long time spans to build plants and transmission systems. California lawmakers also have miscalculated the supply and demand constraints of the marketplace and think they can provide government price control to regulate the supply and demand of power. This will affect the consumer in three ways: reliability, price, and hidden taxes on electricity through artificial price control.

The problem is entrenched in the state because of past actions. As it stands now, no new generating plants have been built in California in a decade and that is unlikely to change because of the uncertain future such a plant would have. Will the owner get a return on his/her investment or will the government seize it in an act of regulation?

Additionally, for the last 15-20 years, utilities have successfully lobbied against cogeneration, making it difficult to build these plants, which could provide a relief to the problems of reliability and price. What is the answer? Here are some thoughts.

  • Immediately provide incentives for conservation through rebates and tax incentives.
  • Promote cogeneration to relieve peak demand on the system, incorporate energy initiatives outlined in my Measurement, Monitoring and Management article (see previous sidebar), particularly the management information on price signals so users are more informed as to their appropriate strategies.
  • Governor Gray Davis should issue an executive order on all state buildings to encourage conservation.
  • The Legislature should redesign the law and simplify the process of utilizing the Energy Efficiency Fund.

These actions would result in rapidly incorporating energy efficiency in the marketplace.

On a brighter note, it is a good opportunity for manufacturers of measurement systems, cogeneration equipment, and others in the business of energy efficiency. And industry is stepping up to the plate.

The research and education arm of the National Association of Manufacturers, The Manufacturing Institute, recently conducted a survey that found 85% of manufacturers made energy-efficiency improvements over the last five years. When manufacturers reduce energy usage by just 10%, they shave $18 billion off their energy consumption costs.

The Manufacturing Institute will soon send an informational brochure to its 14,000 members with important ways to reduce their energy usage. Other voluntary efforts, such as the Energy Star Buildings Program and the U.S. Green Building Council's Leadership in Energy and Environmental Design, provide direction, definition and markets for those in design, construction, and energy services.

There's a lot of work to be done. Let's get started.

With over 38 years of experience in the energy industry, Douglas A. Decker, P.E., is a senior advisor to Johnson Controls, Inc. (Milwaukee). A vigorous promoter of energy efficiency in both government and industry, Decker is the former vice president of government affairs for Johnson Controls and the founder of the Energy Efficiency Forum.

Hvac Power Problems in the Age of Deregulation

by Caroline Fuller

Deregulation is coming. What can building owners and facility managers do to protect themselves against the two-headed monster of power reliability problems and high cost in the era of deregulation?

As it turns out, a lot, and not a lot.

There are a number of reasons why power reliability problems exist, said Kevin Helsin, editor of Engineered Systems' sister publication Energy User News. Poor planning, however, is the main reason, and owners/facility managers are usually powerless to stop it.

"Cities are largely captives of states, which have not generally provided a favorable market for new plant construction or transmission construction for years," Heslin says. This is true in California, where no new power generating plants have been built in a decade.

Heslin suggests that reliability concerns should be taken into account earlier in the deregulation process. "In areas where inadequate generating and distribution exist, states must take a more proactive role in ensuring that adequate supply is available while drawing up deregulation plans, not after," he said.

While there is no federal control over power reliability, the Federal Energy Regulatory Commission (FERC) has issued suggestions on both short-term and long-term measures that could be used to ensure power reliability for energy providers. Aside from lobbying power companies to ensure reliability, there is not much users can do besides make sure they have adequate onsite backup power, said Roberto Torres, Latin America research manager for Frost & Sullivan (San Jose, CA).

Other proactive measures can be used by owners/facility managers to avoid the high cost of energy and initiate energy conservation such as forming an in-house energy management team, writes Douglas A. Decker, P.E., is a senior advisor to Johnson Controls, Inc. (Milwaukee). In a series of articles for Engineered Systems (February-March 1997), Decker predicted that this team should implement what he calls the "M3 formula" consisting of measurement, monitoring, and management.

Measurement calls for analyzing a building's energy usage through billing data to get a clearer picture of seasonal patterns and, major sources of energy use, and to analyze equipment for energy savings, Decker said. Some examples of this are electric usage during time and type of day and in real time.

Monitoring energy usage and management skills are the second step of the formula. Solving power-quality problems and using power efficiently and wisely are excellent management techniques to use to lower energy bills.

The final part of the equation, managing energy usage, can be accomplished many ways, from installing a building automation system (bas) to collect metering data and generate reports to conservation measures such as load shedding. Other conservation alternatives include ice storage, cogeneration, and, once again, onsite backup power. Alternately, "green" conservation methods are probably not a viable option.

"Alternate fuels might have a place in some facilities, but I'm not sure that any non-fossil fuel alternative sources are feasible in the short-term to be of much help," Heslin said. "Conservation measures would certainly be more attractive if electricity prices can be guaranteed to stay high. Good, solid load management and peak shaving strategies would also help."

Hopefully, California's problems are the exception rather than the rule. Steps taken now can avoid the shock of huge energy bills and/or potential brownouts and blackouts.

Fuller is ES' associate editor. Reach her at fullerc@bnp.com.