The 1970s - setting the stage

• The 1970s: – World energy price shocks, aggravated by U.S.

price controls and shortages – Growth of environmentalism, fears of fuel resource

exhaustion and dependence– Thermal efficiency limits of large power plants

reached, interests in alternative sources– Rising prices of utility-produced power,

conservation seen as an alternative

The 1970s: Independent power and resource planning

• 1976 “PURPA” law requires utilities to buy power from non-utility generators – They see a competitive threat already

• Utilities build large coal-fired and nuclear plants, but projected demand fails to materialize at high prices

• Some states respond [California] by centralizing and politicizing supply planning

1970s - ‘80s: Markets begin

• New transmission and frequency control technologies allow longer-distance flows

• Utilities with short or high-cost plants can buy surplus from others– California becomes a net importer

• Micro-planning anticipates future poorly, users must pay for high-cost plants– Conventional plants are harder to site

– San Diego vows to survive on imports

The 1980s: non-utility power grows

• Decontrol of prices brings abundance of natural gas – Highest pre-2000 price was in 1984

• Small, fuel-efficient gas-fired plants arrive

• Owners want to sell beyond their localities

• Large customers want to deal with them

• But federal law cannot order utilities to transport power (“wheel”) for others

Changing Nature of Industry Cost Characteristics

$/MW

1930

1950

1970

19801990

MW50 200 400 600 800 1,000

Source: Williams Company and TR Casten, “Whither Electric Generation? A Different View”Energy Daily, September 7, 2000.

Meet the FERC• Federal Energy Regulatory Commission

– Governs interstate transmission• 1992 EPAct gives it new powers

– Authority over all power sales-for-resale– Both parties represented, staggered terms

• California Public Utilities Commission (PUC)– Sets retail rates based on utility costs– Determines rights of retail customers to use transmission

• The legislature also has a say

1999 California Power Sources

Coal 19.8 % 1990 SW imports 12.0%Hydroelectric 23.5 % 1999 “ “ 8.5%Gas 31.0 %

Nuclear 16.2 % 1990 NW imports 12.6%

Biomass 2.0 % 1999 “ “ 9.5%

Geothermal 4.9 %

Solar 0.4 % 1990 Ca non-utility 20.2%

Wind 1.5 % 1999 “ “ 34.7%