Cover of Biennial Report

1994 Biennial Report

The California Energy Policy
Energy and the Economy


Executive Summary

Contents

Message from Governor Pete Wilson

Overview of California Energy Policy

Recommendations of the 1994 California Energy Policy



Governor Wilson Picture

Message From Governor Pete Wilson

 Dear Fellow Californians:

California is on the threshold of fundamental change in its energy industry. Market forces are already beginning to reshape the industry, but careful, thoughtful deliberation must now be given to the structure and type of regulatory oversight that will provide greater consumer choice and benefits in an increasingly competitive market.

Restructuring of the electricity industry in the United States and throughout the world is the most dominant issue in energy today. The United Kingdom, Norway, Sweden, New Zealand and Australia have all moved to introduce more competition into their electrical industries. Similarly, California is again leading the nation in taking industry restructuring off the drawing boards and into the crucible of public debate.

This report reaffirms my ongoing commitment to fostering market competition as a means of achieving beneficial public policy results. A simple, yet self-evident theme evolved from the 12-month public process of this report. Representatives of energy related businesses made it clear that they must have consistent and predictable application of energy policy and regulations to ensure that their investments are not jeopardized. California's energy industries, through appropriate state government support and elimination of outdated and costly regulatory micro-management, can continue to grow, compete, and provide job opportunities within the state.

In moving forward with a market-based regulatory structure, it is important that we selectively maintain those elements of our existing energy policy that have positively contributed to the economic development of our state and have established California as a preeminent international leader in a variety of energy fields.

For example, California currently leads the world in its ability to determine the energy needs of its citizens and economy. The availability of accurate, independent information on the future supply, price and demand for energy is important to both energy suppliers and consumers, particularly in a world that is more reliant on market forces to act in the public's interest. This information has allowed the state to avoid over $27 billion in unnecessary costs over the past two decades. As we move toward a new regulatory framework, analytical and forecasting programs will be increasingly important for our electricity and natural gas industries.

We must also continue to aggressively promote the export of the many energy technologies that have been pioneered here for the betterment of California's economy in a competitive global marketplace. The state's Energy Technologies Export Program has helped generate $205 million of energy-related business opportunities in foreign nations with an additional $2 billion in potential sales, equipment and construction contracts now under negotiation. By supporting the export of California energy technologies, we can maintain our leading edge and gain economic benefits and jobs as well.

By promoting competitive markets and energy efficient technologies, the cost for energy within California can be kept low. Working in partnership with the state's energy industries to research and develop new technologies, we can help create opportunities for the high-wage/high-tech jobs that will help deploy our defense and aerospace workforce into other growing markets. New combustion turbine technologies and advanced clean transportation technologies being developed with the state's aerospace and high-tech companies, for example, are contributing to these job opportunities.

One of California's greatest assets in a competitive market is its electricity system. This high voltage network ties California to the entire market in the western United States, western Canada, and Mexico. State boundaries disappear in a regional electricity market. Consumers, independent power producers, investor- and municipally-owned utilities will be able to transact electricity exchanges in a restructured market like never before. Competition, consumer choice, efficient generation and transmission must predominate as California moves toward providing greater access to this "power grid."

Energy efficiency is a natural stimulus to the economy because it avoids unnecessary investment in infrastructure and reduces business and household energy costs. Energy efficiency is the most cost-effective option for our state, and is recognized and being embraced nationwide by all states as an important component to a cost- competitive economy.

The California Energy Policy further recommends continued reliance on market forces to determine expansions to the state's natural gas pipeline system. In related action, I have indicated my support for the Mojave Northern Expansion Project. This pipeline project represents an important opportunity to expand competition among suppliers of natural gas transportation services. Such competition can be expected to compel existing suppliers of those services to operate more effectively while increasing opportunities for California gas users to take advantage of gas-on- gas competition between and among different gas supply regions.

The nation has repeatedly followed California's lead in energy efficiency and the development of renewable energy technologies. As we carry out the state energy policies discussed in this report, it is critically important that we include the simple act of listening to those who will be affected by that policy. Those representing California state government must ensure open access to energy regulatory decision making for electricity and natural gas providers and all consumers.

In summary, the California Energy Policy recommends that we:

These eight energy policy recommendations and the accompanying action steps provide a guide to energy issues identified by industry and public participants and will serve to guide and enhance California's energy future.

Sincerely,

Pete Wilson
Governor



Overview of the 1994 Energy Policy

 The 1994 California Energy Policy includes those actions appropriate for California state government in the energy arena that is increasingly dominated by competition and market forces. This Policy provides a blueprint for state government policies and actions that pave the way for increasingly competitive markets. Consistent energy policy can provide increased certainty to support the business community in its expansion and financial decision making.

As California moves forward in revitalizing its economy, the state's energy industries can create new technology jobs and reduce costs through efficiency gains while providing environmental benefits.

The policy is a result of staff analyses, public workshops and hearings. The policy also is supported by four policy documents, the Energy Efficiency Report, the Fuels Report, the Energy Development Report, and the Electricity Report. In addition, a series of public forums in Southern and Northern California provided opportunities to listen to industry, consumers and environmental viewpoints and gain valuable insight into the challenges facing California.

This policy responds to a comment voiced by nearly all of the public forum participants: that to build private-sector confidence to invest in California, businesses must have consistent application of policies to ensure that their financial investments are not jeopardized by changes in policy decisions. It is in the best interest of the state that state energy agencies cooperate and collaborate with the private sector to ensure implementation of energy policies in a manner that complements economic activity.

A shift in state energy strategy is required to move away from micromanaging the state's electric and natural gas utilities toward a regulatory environment that supports competition and the operation of free markets. The Governor and the Legislature are addressing the issues of energy program restructuring and regulatory reform.

Energy is essential to California's economy. The state's long-term economic growth relies on, among other factors, an adequate and stable supply of energy in all major forms: transportation fuels, electricity and natural gas. It is time for reform. California needs stable energy prices, as low as can be achieved consistent with concern for the environmental impacts of energy use, as part of the foundation for a sound economy, new industries, jobs and export opportunities for California's businesses.

California's industries, which use a far greater proportion of natural gas as compared to electricity - in fact, electricity accounts for less than 10 percent of California's total energy use - have and are expected to continue to enjoy low energy costs. These costs are expected to increase no more than 2 percent (not including inflation) annually through the remainder of the 1990s. Those industries which rely on electricity as their primary source of power will reap the benefits of stable prices from a diverse energy system.

Although California's electricity customers have some of the highest rates in the nation, California's average electricity bill is just below the United States' average bill. The chief reasons for this are California's comparatively milder climate, the increasing number of new energy efficiency buildings and appliances, and the residential consumer's expected response of lowered consumption in the face of high costs. California's energy strategy must include supporting utility activities that result in improved cost control and lower rates.

California's electric utilities supply higher reliable electric power. The state's mix of low energy-intensive electronic, research and manufacturing industries requires electricity of an exceptionally "high power quality" for their sensitive production processes. This is power which is free of voltage variations and other supply fluctuations. Continuing to provide and improve these services will be key to fostering the continued growth of these industries. The state energy strategy must include policy actions that help to keep the state's businesses competitive. Providing business with secure energy at the lowest possible costs should improve the competitiveness and create and retain jobs in the state.

California's population growth has been both a burden and a blessing. To meet the state's 27 percent increase in population growth over the last 12 years, the state pursued an energy path reliant on efficiency and diversity as key elements. As a result, electricity demand was met without unnecessary, costly construction of power plants and infrastructure.

Increasing population growth over the next 18 years will present new energy challenges as peak electricity demand is expected to increase by 40 percent. Most of the growth will take place in California's inland valleys, which have greater cooling and heating loads than the more temperate areas of the state.

The oil supply disruptions of the 1970s taught California important lessons in meeting future energy needs, First, long-term energy planning at the state level is critical to reduce vulnerability to energy supply disruptions from geopolitical events or natural disasters. Second, energy efficiency, energy diversity and competition are cost-effective means to increase energy security. Third, the introduction of new energy technologies should be accomplished in light of environmental costs and benefits

California is distinguished in the nation for its diverse electricity supply system, a direct effect of the state's consistent energy policy. In 1980, more than 25 percent of the electricity generated was supplied by petroleum; currently the amount that petroleum supplies is less than one percent. In addition to hydroelectric, out-of-state coal and nuclear sources of power, natural gas and renewable energy resources have become key components of the generation mix. As a result of its portfolio approach, the state's electricity supply system has functioned efficiently during drought, oil price spikes, recent earthquakes and increased environmental concerns.

Today, California companies are leaders in alternative energy technology development and experience. Capitalizing on international recognition, California energy policy has created even more business development opportunities as California energy companies market and sell their expertise and products abroad. In five short years, the California Energy Commission provided liaison services for California energy technologies companies, resulting in more than $200 million in export sales and two billion dollars in potential export sales.

In 1993, six energy project totaling 1,076 megawatts were in licensing process. They represent $978 million in capital investment for the state's economy and the creation of 1,291 construction jobs and 96 permanent operational jobs for California. Three additional energy facilities with a total capacity of 342 megawatts are expected to be filed within the next 12 months. The new projects will represent an additional capital investment of $428 million, 766 construction jobs and 96 operational jobs.

Comprehensive planning challenges continue to confront the state's transportation sector. Consuming more than one billion gallons of gasoline each month, and nearly 100 percent dependent on petroleum, transportation in California remains vulnerable to oil supply disruptions and price spikes that can play havoc with consumer pocketbooks and the state's economy.

Recognizing the opportunity to advance state energy policy and environmental goals, the California Energy Commission formed partnerships with energy companies, natural gas and electric utilities and automotive manufacturers to develop clean, alternative fuel and vehicle technology. Compressed natural gas, electric and methanol/gasoline vehicles all offer great air quality benefits, while setting the stage for fuel competition and a balanced portfolio approach.

As California advances the market for clean, alternative fuel vehicles, there is an increasing opportunity for job creation. Declining defense expenditures have caused severe cutbacks in the state's aerospace and defense industries. Yet, this talented, skilled, well-educated work force has the expertise needed to develop and commercialize clean, alternative-fuel vehicle technology.

The state's commitment to clean, alternative-fuel vehicles, investment in energy related defense conversion programs and partnerships with the state's utilities to further natural gas and electric vehicle markets will result in a cleaner environment, a more competitive energy marketplace, new industries and jobs. California has long championed clean, alternative-fuel vehicles and has been on the leading edge of vehicle technology development. The state is in a position to capitalize on important energy and environment policies with new industries and jobs.

The Energy Policy includes discussion of the relationship between energy and the economy, California energy systems, the development and commercialization of energy technologies and opportunities for cost-effective energy efficiency.


Energy Technologies

California leads the world in developing advanced energy technologies. With support of state policies, California's energy industries have developed solar, geothermal, cogeneration and wind resources, high efficiency combustion power plants and efficient end-use technologies that help keep energy costs competitive. Energy research and development have created a foundation for business development. Since 1974, California's investment in renewable energy sources and cogeneration has resulted in over $30 billion in sales and more than 30,000 jobs.

With the support of consistent energy policy, the state's government agencies and educational institutions can work in partnership with industry to further expand California's technological base. To accomplish this, the state must continue to foster energy research and development and promote commercialization of transportation alternatives, including fuels, vehicles, technologies and infrastructure development.


Energy Efficiency

Because California's population is expected to increase 44 percent by 2011, energy demand will grow as well. Energy efficiency is expected to provide three-quarters of increased electricity needs. Since 1977, building and appliance efficiency programs administered by the California Energy Commission have saved over $11 billion in energy costs. By 2011, these savings can grow to over $43 billion -- a significant source of funds for other economic activities within the state.

To achieve potential efficiency gains in the transportation sector, continued coordination is needed among energy, transportation and environmental agencies. California also needs to continue to advocate higher vehicles efficiency standards at the federal level. Recent announcement by the current Federal administration and the Big Three American automakers to develop high-mileage vehicles are encouraging.

More emphasis on collaboration between government, utilities and industry is needed to achieve potential energy efficiency gains in the industrial, commercial, residential and agricultural sectors. Cost-effective energy efficiency requires working closely with the building industry, architects, building officials, industrial, commercial and agricultural industries and manufacturers to ensure a sound analytical base and implementation of efficiency measures.

Along with increased collaboration, the state should increase its activities to create markets for energy efficient buildings, work to increase compliance with existing standards and improve installation of new equipment to yield energy savings and provide information to increase consumer confidence in energy efficient products.

The state can increase its economic base by supporting new energy technology industries and cost-effective efficiency gains. The specific recommendations emphasize actions to achieve this and support a revitalized partnership between government and industry.


Recommendations of the 1994 California Energy Policy


icon bulletDevelop programs that create new high-tech/high wage jobs and leverage private capital and government funding to meet energy and environmental quality needs.


  1. Consistent with recommendations of the Governor's Competitiveness Council and the Governor's Team California economic development network, California's energy strategy should support energy utility and independent power producers' efforts to retain business customers in California.

  2. California's energy strategy should continue direct financial support through grant and loan programs to encourage and stabilize public and private investments in energy research, development and demonstration.

  3. California's energy strategy should promote commercialization programs that build confidence in the performance, reliability and cost effectiveness of opportunity technologies and clean advanced transportation technologies.

    California's energy strategy should support a level of funding for energy research, development and demonstrations of opportunity technologies that is increased to a level more commensurate with technology research, development and demonstration in other non-energy industries.



icon bulletWork closely with private and regulated industries to reduce regulatory roadblocks and streamline bureaucratic processes.


  1. California's energy strategy should support streamlining its energy regulatory structure to consolidate energy policy, planning and programs, thereby ensuring consistent implementation of the Governor's Energy Policy and reducing uncertainty for business investment in California. Toward this goal, the decisions of California's energy regulatory agencies should conform with the policy recommendations of the Governor's Energy Policy.

  2. California's energy strategy should support identifying the costs and benefits of regional and state environmental rules and regulations on long-term energy costs.

  3. California's energy strategy should continue to support streamlining a one-stop energy facility siting process to ensure its efficiency and responsiveness to California's economic development needs.

  4. California's energy strategy should continue to support regional power planning in order to capitalize on the economic efficiencies gained from sales and exchange of power with western states.

  5. California's energy strategy should provide that an energy project proponent and the appropriate local government agency are together allowed to voluntarily apply to the state power plant siting agency for a project license when a project's design contains a power plant having less than 50 megawatts of electric generation capacity. Such an application can be made for the entire industrial project or that portion of the project devoted to electric generation.

  6. California's energy strategy should not waver from the position that market forces determine expansions to the state's interstate natural gas pipeline system.



icon bulletPromote competitive markets and energy efficient technologies.


  1. California's energy strategy should encourage private and federal funding to increase research and development funding for the California-based photovoltaic manufacturers and other opportunity technology industries.

  2. California's energy strategy should support communication and cooperation among utilities, the private sector and government agencies to commercialize photovoltaics, energy efficiency technologies and other opportunity technologies.

  3. California's energy strategy should continue to bring all cost impacts into decision making, specifically, but not limited to, expanding valuing externalities beyond air quality to include water and site remedies and recognizing the uncertainties inherent in quantification of externalities.

  4. California's energy strategy should support efforts to identify and evaluate inequities that exist in tax codes related to renewable energy technologies and recommend actions needed to mitigate inequities.

  5. California should maintain its leadership in research, development and demonstration programs. Specifically, California's energy strategy should include a continuation of work with the California Utility Research Council to foster the coordination of research, development and demonstration programs carried out by investor-owned and municipal utilities and independent power producers.

  6. California's energy strategy should support the funding to allocate resources between short-, medium- and long-term research, development and demonstration of generation, non-generation and transportation technologies based on need and opportunity.

  7. California's energy strategy should continue to support sustained orderly development of renewable resources that are cost-effective over the long-term at a level sufficient to enhance system diversity, economic stability and environmental quality of California's electric system.

  8. California's energy strategy should encourage the research, development and use of cost-effective technologies to improve transmission system efficiencies.

  9. California's energy strategy should aid in improving the competitiveness of California's agricultural industry by supporting demonstrations of technologies that will improve energy efficiency, and by providing information that will allow informed energy efficiency decisions.

  10. California's energy strategy should encourage continued funding of research, development and demonstration, with a minimum of 50 percent of these funds allocated to opportunity technologies.

  11. California's energy strategy should establish the means to explore and make recommendations to the Legislature on how all power producers, including qualifying facilities and independent power producers, can contribute to collective energy research and development on an equitable basis taking into account private research, development and demonstration efforts.

  12. California's energy strategy should support development of incentive mechanisms for shareholders to participate with ratepayers in both the costs and benefits of utility energy research, development and demonstration projects.

  13. California's energy strategy should support granting exclusive rights to utilities to license the use of energy technologies developed through utility funded projects to provide ratepayer and shareholder benefits.

  14. California's energy strategy should encourage the Electric Power Research Institute and the Gas Research Institute to modify their membership requirements to allow participation by independent power producers and small utilities.

  15. California's energy strategy should include the evaluation of the desirability, feasibility and consequences of retail wheeling and trading electricity as a commodity in a futures market in the context of the larger issue of the development of competitive energy markets.

  16. California's energy strategy should continue to support the development and use of cost-effective combustion methods to improve efficiency on the supply side.


icon bulletExpand export opportunities.


  1. California's energy strategy should expand programs that help California firms export their energy technologies internationally while strengthening California's international competitiveness.

  2. California's energy strategy should support exploring development of an international trade finance fund to provide sources of capital to California energy companies for project-financing grants and loans that have direct benefit to the California economy.

  3. California's energy strategy should support the exploration of opportunities with the Governor's overseas trade offices to identify and pursue energy technology export projects.

  4. California's energy strategy should encourage the U.S. Department of Commerce to promote export assistance programs for California energy firms on an industry-by-industry basis to stimulate economic development in California.

  5. California's energy strategy should support continued negotiation of an agreement with the U.S. Agency for International Development to develop and fund energy policy and technology training programs for international delegations to stimulate business opportunities for California companies.

  6. California's energy strategy should encourage the World Bank to conduct renewable energy resources studies in developing nations to confirm potential sites for project development.



icon bulletBalance energy, economic and environmental goals.


  1. California's energy strategy should include working closely with the petroleum refining industry to ensure an adequate and reliable supply of transportation fuels in concert with air quality goals.

  2. California's energy strategy should include working with local air districts and management boards to assist in successfully implementing workable emissions trading programs to encompass stationary and mobile sources, consistent with policies to rely on market mechanisms such as the guidelines published by the California Environmental Protection Agency (California Air Resources Board).

  3. California's energy strategy should continue to actively support the evaluation of low-emission and zero-emission vehicle regulations.

  4. California's energy strategy should support working closely with state and national agencies, utilities and environmental groups on electric and magnetic field research and education. In conjunction with this recommendation, California's energy strategy should be to evaluate recommendations and/or requirements that encourage low-/no-cost measures to reduce electric and magnetic fields.

  5. California's energy strategy should continue to support working closely with industry and state agencies to identify research priorities and other actions to ensure that current and future building efficiency standards do not cause adverse indoor air quality impacts.



icon bulletCollaborate with the electricity and natural gas industries to redefine government's energy regulatory role.




icon bulletAggressively pursue transportation alternatives: fuels, vehicle efficiency, technologies and modes.


  1. California's energy strategy should support, through research, development and demonstration, leading-edge energy technologies such as electric and hybrid vehicles, batteries, fuel cells and infrastructure programs to facilitate the transition to future transportation technologies.

  2. California's energy strategy should support the process of coordination between CALSTART, Project California, University of California at Riverside Center for Environmental Research and Technology, U.S. automakers, aerospace companies based in California and state agencies concerning electric and natural gas infrastructure for low-emission vehicles.

  3. California's energy strategy should encourage the thorough evaluation of the economics of importing increasing volumes of petroleum and petroleum products from foreign sources, considering both short- and long-term costs and benefits on a sector-by-sector basis to better understand the effects on employment, the trade deficit and economic growth.

  4. California's energy strategy should aid California's energy-related businesses to obtain funds from federal energy and transportation agencies for alternative-fuel vehicle technologies.

  5. California's energy strategy should include a specific, long-term policy commitment to encourage market acceptance of low-emission and alternative-fuel vehicles in the various sectors of California's economy.

  6. California's energy strategy should encourage demonstration of the benefit of existing telecommunications technologies in reducing energy use, improving air quality and the transportation system and relieving highway congestion.

  7. California's energy strategy should include requesting the federal government to broaden its support of alternative fuels in transit districts from only capital assistance to also include operating assistance.

  8. California's energy strategy should continue to support higher Corporate Average Fuel Economy Standards for light-duty vehicles.

  9. California's energy strategy should include consideration of the potential for job creation in reviewing new transportation energy technologies.

  10. California's energy strategy should encourage developing and promoting transportation alternatives in vehicle efficiency, technologies, fuels and modes. Specifically, California's energy strategy should designate Caltrans as the lead agency responsible for promoting transportation system efficiency.

  11. California's energy strategy should support expanding the state fleet demonstration program for high-efficiency, alternative-fuel light-duty vehicles.

  12. California's energy strategy should include developing appropriate incentives, consistent with Project California recommendations, to develop and demonstrate electric vehicle technology and recharging infrastructure, and to evaluate energy efficiency and performance of electric and hybrid vehicles.

  13. California's energy strategy should support continued examination of the effects of electric and hybrid vehicles on electricity systems, and work with state agencies, electric utilities and electric and hybrid vehicle developers to facilitate introduction of electric and hybrid vehicles in a manner that does not adversely impact the state's electric generation system.

  14. California's energy strategy should continue to support assistance to vehicle- fleet managers to improve energy efficiency through operation and maintenance of their fleets.



icon bulletImplement policies to achieve cost-effective building and appliance efficiency.


  1. California's energy strategy should support timely, clear, simple, implementable, enforceable, cost-effective, analytically sound building and appliance standards using a collaborative process that allows and encourages all affected parties to participate.

  2. California's energy strategy should include working with the building industry and utilities to evaluate the energy savings of building efficiency standards.

  3. California's energy strategy should support assistance for architects, building officials and the building industry to better understand and implement building efficiency standards.

  4. California's energy strategy should encourage individual, commercial, industrial and institutional consumers to increase use of energy efficient products or practices.

  5. California's energy strategy should support working with utilities, professional groups and educational institutions to develop curricula and courses to educate and inform the building industry, architects, engineers, facility managers, building maintenance and operation specialists and others in energy efficient design, construction, commissioning, and operation and maintenance of buildings, lighting systems, appliances and other energy-using devices.

  6. California's energy strategy should facilitate the introduction of energy efficient and renewable energy goods and services by establishing alliances, partnerships and other cooperative working relationships with utilities, industry trade associations and private companies selling or distributing energy products and services.



For a copy of the 1994 California Energy Policy including complete recommendations, please contact the California Energy Commission's Publications Unit, (916) 654-5200.

Single copies are free of charge. Ask about prices for multiple copies.