The Oh Decade: California's electricity crisis stung – but made us stronger
Lo que no mata engorda.
By Susan P. Kennedy
Special to The Bee
Published: Friday, Jan. 1, 2010 - 12:00 am | Page 17A
In 2000 and 2001, California was rocked by energy shortages and skyrocketing electricity prices. The crisis forced Californians to recognize the shocking fact that we may actually be … mortal.
California's image as the place where "impossible" is a non sequitur, challenge is considered brain food and everyone has time to save the world and stop for a cappuccino along the way was cracked when our air conditioners went off. And it wasn't because of an earthquake.
When I was on then-Gov. Gray Davis' staff, I remember being informed that California might experience "rolling blackouts" because our available electricity supply could be outstripped by the demands of a hot summer. This was so foreign a concept that we couldn't see the threat as real. Undeveloped countries had rolling blackouts, not major U.S. cities, and certainly not California. Electricity was universally available, reliable and cheap. It was just there when we flipped a switch.
The full force of the crisis hit like an uppercut to the jaw because at the time no one knew about Enron's market games or why major power plants were suddenly in need of "unplanned maintenance" right when summer demand began to skyrocket. Literally overnight, California became a Third World country rationing electricity and struggling to keep the lights on.
California has faced many challenges, ranging from mudslides to firestorms. But Californians were deeply embarrassed by the electricity crisis. We were disgusted by how gullible and unprepared we were. There is a scar now on the public's trust in its leaders. Followed by the recurring budget deficits since the electricity debacle, Californians are more derisive than ever about the competence of our political leaders to handle anything, let alone a crisis.
The fact is – we did survive the electricity crisis. We came out stronger. The public conservation campaign under the umbrella of "Flex Your Power" and the 20/20 program shaved 3,000 to 5,000 megawatts off peak electricity usage during the summer of 2001 – a remarkable feat that saved billions of dollars to consumers and prevented more than 150 hours of blackouts. As much as 30 percent of those energy savings persist today because of our focused investment in energy-efficient appliances, green building standards and a new public consciousness that energy is a valuable and finite resource.
This new consciousness gave California a uniquely strong foundation upon which to build climate change policies that emphasize a shift to renewable energy supplies. We are way ahead of any other state – and the country as a whole – in developing solar and wind resources, low-carbon fuels and energy efficient technologies. Why? The fear and anger generated by the electricity crisis fueled California's relentless drive to invent its future – a future that can't be controlled by purveyors of fossil fuels or manipulated by another Enron.
We don't stay mad. We get even.
This drive has paid off handsomely – California attracts 57 percent of the nation's venture capital in clean tech – $3.3 billion in 2008. California companies are designing the next generation of solar roofs, algae-based fuels and micro-batteries that will literally save the world. And we still have time to grab a cappuccino.
So what are the lessons from the electricity crisis? Some try to blame deregulation. That's like building an airplane, cutting off its wings and blaming aerodynamics when it crashes.
It was a flawed market design and badly managed regulatory process that invited manipulation by Enron and others that caused the crisis. State regulators had forced our utilities to sell half their power plants to independent generators, then buy the electricity back at market prices. Retail rates were capped so the utilities could not pass those costs on to customers. When wholesale prices rose, the utilities went bankrupt.
Economics 101.
First lesson: policymakers must respect market forces. When legislators try to micromanage the market – whether by imposing prices caps or mandating certain types of investments to promote renewable energy or union jobs – the market does not function properly and consumers always get hurt.
The second and most important lesson is that energy is a resource that must be planned and managed. The transition of California's energy market took place right when a new governor began his administration.
No one in Sacramento was even thinking about electricity supply or deregulation. By the time the blackouts hit there was nothing Sacramento could do. California's $100 billion energy industry is governed by a dozen overlapping agencies administering conflicting statutes that regulate energy efficiency, grid reliability, greenhouse gases, renewable energy mandates, endangered species, air quality and more. There is no single agency responsible for monitoring supply, prioritizing permits or coordinating regulations.
The result is a patchwork of transmission lines that overload, metropolitan areas left vulnerable to blackouts because their major transmission line sits in a fire zone, and permit applications that drag on for years.
This is why Gov. Schwarzenegger proposed combining all of California's energy departments into one Cabinet-level agency with responsibility for planning, coordinating and permitting. If we learned nothing else, we know that better coordination and faster licensing can save ratepayers a ton of money and ensure California never faces an energy crisis again.
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Susan P. Kennedy is chief of staff to Gov. Arnold Schwarzenegger. Previously, she served on the Public Utilities Commission and worked as Cabinet secretary to Gov. Gray Davis.
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