Energy reform: Can it happen under the Hummer governor?

Economists, politicians, industry executives discuss energy woes afflicting Golden State and seek creative solutions at conference

Hillard Huntington

Hillard Huntington

James Sweeney

James Sweeney

California is famous for innovations in computers, biotechnology, entertainment and more. But can the Golden State—still mired in an energy crisis that hit the West like a perfect storm in 2000 and 2001—find innovative solutions to its energy woes? On Jan. 20, nearly 50 experts from government, industry and academia met at the Bechtel Conference Center to discuss technology, markets and California's energy plans. The forecast? Partly sunny, partly hazy, with lots of scattered showers before the state gets it all right.

The conference was organized by Stanford's Energy Modeling Forum under the leadership of Director John Weyant and Executive Director Hillard Huntington. Established in 1976, the forum is dedicated to the study of important issues of energy and the environment.

Inadequate resources made California extremely reliant on spot markets during the recent energy crisis. The practices in place at the time resulted in price gouging and were "the essence of bad risk management," said James Sweeney, a professor in the Department of Management Science and Engineering, senior fellow at the Stanford Institute for Economic Policy Research and at the Hoover Institution, and an adviser to California Gov. Arnold Schwarzenegger.

"The meltdown came only in California," Sweeney said. "The difference is the other providers of electricity protected against price variability, and the lack of protection was an explicit policy decision by the state." Resource adequacy rules and limiting long-term contracts to create more retail competition between utilities and other suppliers may assure California does not repeat the past, he said.

Many wonder if true energy reform can come under a governor who helped popularize the Hummer SUV but calls himself an environmentalist. Indeed, Schwarzenegger has proposed an ambitious network of hydrogen fueling stations by 2010. While he said he would not speak for the governor, Sweeney said his comments may offer guideposts indicating the administration's direction.

Sweeney called Schwarzenegger "more environmentally proactive than any governor," including Jerry Brown. Schwarzenegger's appointment of Terry Tamminen, former secretary of the California Environmental Protection Agency, as cabinet secretary affirms the governor's stance that the environment is a state asset, Sweeney said. Technologies that protect the environment, such as solar energy systems, are "higher in the loading order" than those that do not, such as new fossil fuels.

Even more important than new technology is energy efficiency, Sweeney said, "because what you don't use has no environmental impacts." To this end, the governor has signed an executive order requiring greater energy efficiency in new government buildings.

Terminating the energy crisisFollowing Sweeney, Jackalyne Pfannenstiel of the California Energy Commission spoke about state initiatives for energy efficiency. California's per capita electricity consumption is half that of the United States. The Golden State's leadership in energy efficiency has largely to do with incentives that Pfannenstiel called "the stick, the carrot and the hot fudge sundae."

Sticks are standards, such as requiring more insulation in buildings, that encourage energy efficiency. Carrots are monetary incentives such as rebates for energy-efficient appliances, and hot fudge sundaes are ways to make energy efficiency easy for consumers, such as research and development that eventually translate into energy-efficient products.

Each year 150,000 to 180,000 new homes are built in California, Pfannenstiel pointed out. "That's an enormous opportunity to make some changes in efficiency," she said, noting building standards will be ratcheted up next in 2008.

Last month California adopted standards for 19 categories of appliances, from light bulbs to battery chargers, Pfannenstiel said. Making it illegal to sell appliances in California that don't meet stringent standards may have a ripple effect, influencing manufacturers worldwide to improve the energy efficiency of their products, she suggested.

Economics Professor Frank Wolak, a senior fellow, by courtesy, at the Stanford Institute for Economic Policy Research, next gave a presentation that argued that a liquefied natural gas facility would make economic sense for California. The state is highly dependent on natural gas, from which two-thirds of its electricity comes. It must store natural gas in summer to meet winter demands, and it is extremely reliant on sources from outside the state.

Emitting fewer pollutants than coal or oil, natural gas needs to be cooled to minus 260 degrees Fahrenheit to produce a liquid for transportation and later regasification. Natural gas can ignite under certain conditions, so regasification facilities require a safety buffer zone to protect nearby populations. Offshore regasification facilities, such as one proposed for 20 miles off the coast of Port Hueneme, may offer a solution. The gas would then be transported to the Southern California mainland through underwater pipeline.

Daniel Sperling, director of the Institute of Transportation Studies at the University of California-Davis, discussed strategies to reduce greenhouse gases from vehicles. To reach stable carbon levels, world emissions need to decline 90 percent from projected levels, he said. The most promising solutions—vehicles powered by ethanol, batteries or hydrogen—all have major drawbacks. For example, making hydrogen vehicles commonplace would require transforming two of the world's largest industries—automotive and oil. Policies such as decisions to allow alternative vehicles greater access to carpool lanes will play important roles in driving change, and California is at the forefront, he said.

Scott L. Wellington and Renata Karlin of Shell International Exploration and Production Inc. spoke about carbon sequestration, a technology that aims to capture carbon dioxide at oil refineries, power plants and other point sources. Shell, Stanford and about 40 other organizations participate in the West Coast Regional Carbon Sequestration Partnership (www.westcarb.org) to keep carbon dioxide out of the atmosphere and reduce its impact on climate.

Ralph Cavanagh, director of the energy program of the Natural Resources Defense Council, next spoke about rate regulation, which typically penalizes utilities' investments in energy efficiency and distributed generation because much or all of the recovery of fixed costs is linked to retail electricity sales volumes.

California's power crisis in its unregulated wholesale markets during 2000 and 2001 was exacerbated in retail markets by the lack of dynamic pricing, many at the conference said. Ahmad Faruqui and Stephen S. George of Charles River Associates wrapped up the day by presenting evidence that customers conserve energy when the cost of electricity is linked to supply and demand, creating an incentive to lower loads during peak times. Conducted by California's three investor-owned utilities and two regulatory commissions from July 2003 to December 2004, the study of 2,500 residential and small commercial and industrial customers revealed an average drop in power loads of 14 percent during peak periods with higher electric prices.