The lawmaking process has often been compared to making sausage – and never is it messier than in a true crisis. To an outsider, efforts by Governor Davis and the Legislature to grapple with the crisis appear slow and chaotic. Yet for months there has been agreement on a strategy consisting of three goals:
- Stabilize wholesale electricity pricing and consumer rates.
- Restore creditworthiness to the investor-owned utilities.
- Promote electricity conservation by consumers.
While the goals are simple, the means of achieving them are often in conflict with one another.
One of the most fundamental conflicts is how to reconcile the need to regain control over consumer energy prices with the need to achieve power system reliability by encouraging the construction of new power plants.
Legislation recently passed to establish rate caps for residential users and aggressive efforts by the Governor to jawbone a reduction in the cost of electricity have caused many large power generators to reconsider whether investment in new California-based generating capacity still makes economic sense.
A similar conflict faces state policymakers looking at the tradeoffs between maintaining the state's high air quality standards and the need to avoid blackouts by adding 5,000 megawatts of generating capacity by July 1st.
Many older power plants emit high levels of pollutants and can operate only by purchasing air emission credits from sources that have reduced emissions below minimum standards. As the energy emergency has escalated, these credits have dried up or become so expensive as to make their use by generators prohibitive. Small "peaker" power plants that state officials hope to have in operation by this summer will also emit air pollutants exceeding standards.
The Governor has proposed that generators unable to meet air quality standards or obtain emission credits pay mitigation fees to local air districts. However, state regulators estimate district fees could be as high as $15,000 per ton, discouraging generators from building new power plants and adding costs that will be passed on to consumers in the form of higher electricity rates. Similar conflicts could occur as policymakers attempt to reduce peak power demand from industrial and commercial customers during the summer months.
Before the crisis, many large businesses signed up for interruptible programs offered by the utilities. Customers received discounts of up to 15 percent off standard rates by agreeing to curtail energy use during peak demand periods.
As power interruptions increased in frequency and length, most heavy users sought to opt out of these programs but were prevented from doing so by the Public Utilities Commission. Manufacturers in need of more reliable power then began turning to emergency generators or leasing portable diesel generators to provide temporary electricity during curtailments.
However, the California Air Resources Board has recently issued a new policy prohibiting use of emergency electrical generators except during blackouts. Since the ARB does not consider power outages caused by a "voluntary" interruptible service program to be blackouts, the new policy may actually discourage businesses from participation and thereby greatly increase the likelihood of rolling blackouts this summer.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.