Doug Ames

Another summer of record electric power demand is on the wane, complete with 12 deaths in the Southland caused by power shortages and 600,000 households experiencing power outages. As power plants are the largest polluters, record electric demand means record greenhouse gas emissions. Another summer of suppression of energy efficiency by the electric utilities and the California Public Utilities Commission comes to a close.

Energy efficiency measures, from more efficient air conditioners to compact fluorescent lights to cool storage systems, continue to hold massive promise for meeting the summer afternoon peak electric loads as well as reducing greenhouse gas emissions. Through energy efficiency, we can defer or eliminate the need for building new power plants to meet summer afternoon peak demand at far less cost. By reducing peak demand, the most-polluting peaking power plants can be kept off-line.

There is no serious dispute as to the awesome power of energy efficiency. In 2005, the CPUC blessed the California investor-owned utilities’ plans to spend $2 billion of captive ratepayer money on energy efficiency, continuing a 25 year history of authorizations. In its decision, the CPUC rejected proposals that independent third-parties, such as the California Energy Commission or private entities, even-handedly administer the funds. According to the CPUC, only the utilities can manage these funds.

But the utilities have two fundamental and overriding conflicts of interest. They are in business to sell power, not save it. And at all costs, they are in business to maintain their government-anointed monopolies over perhaps the single most vital resource of modern civilization- electricity.

Last week, the CPUC decided to heap another $500 million for energy efficiency implementation onto the utilities in a futile effort to motivate them. The current President of the CPUC, Michael Peevy, who is the former CEO of Edison, is a big supporter of the program. By pure serendipity, the current CEO of Edison, John Bryson, who happens to be the former President of the CPUC, joins him in that support.

Let me give a real life example to my charge of gross utility/ regulatory ineptitude and conflicts. In 1983, I started a company, Transphase, which developed and manufactured a cool storage system that shifts electricity usage for air conditioning from critical daytime on-peak hours to nighttime off-peak hours. The system is based on a eutectic salt which melts and freezes at 47 degrees F. Transphase installed over 80 major systems at hospitals, universities, manufacturing facilities, and office buildings, most in Southern California, equivalent to reducing the peak demand to supply over 10,000 residences. According to a California Energy Commission report based on data from Edison’s own power plants, such cool storage systems not only reduce on-peak demand, the systems conserve total energy consumption by over 40%.

By the early ‘90s, Transphase had entered into Power Savings Agreements with various utilities, with Edison at the fore. After Transphase borrowed millions of dollars to install the systems, Edison refused to pay Transphase under those contracts, eventually driving Transphase out of business in 1996. I then went to law school at night, and sued Edison and other utilities during the day. After a seven week trial, an Orange County jury concluded that Edison had not only breached its euphemistically-named Power Savings Agreement with Transphase, but had maliciously and tortiously driven Transphase out of business, awarding Transphase $6.3 million.

I had won my multi-decade battle against the utilities, but I always felt like I had lost the war, as Transphase was out of business. So earlier this year, I decided to restart Transphase. I was particularly encouraged and gratified upon finding that many large systems Transphase had installed were still operating great 15 to 18 years after installation.

California’s demand for electricity peaks at about 50,000 megawatts on summer afternoons, while lowering to 28,000 megawatts that night. But power plants can’t be turned on and off like a light switch. These generators have to remain on at night so that they are available for use during the peak hours. As the head of the California Independent System Operator, which manages the statewide grid, said during a speech this past spring, California is so awash in electricity during summer nights that they are literally looking at giving it away.

Despite this extremely favorable underlying value to Transphase’s cool storage system, I soon learned that the utility-regulatory complex was up to its old form thwarting energy efficiency. For one, the CPUC recently approved Edison’s request to drastically reduce the on-peak/off-peak rate structure. For its large customers, rates changed from 16 cents per kilowatt-hour on-peak and 1 cent off-peak, to 11 cents on-peak and 4 cents off-peak, more than halving the rate differential.

Moreover, the CPUC had acceded to the utilities’ request to institute a program called the Capacity Bidding Program designed to pay customers for the “negawatts” of energy efficiency as if it were capacity from a new power plant. However, I was beyond shocked to learn that, at the utilities’ urging, the CPUC only allows participation in this program for temporary dislocations, such as shutting down a production line, turning off the central air conditioner, and sending people home for the day. Any permanent or durable energy efficiency measure, be it cool storage or more efficient equipment replacement, cannot take advantage of the program. A measure that reduces on-peak demand and increases efficiency on a daily basis is ineligible for these payments.

“But wait,” the CPUC and the utilities answer in unison. Edison and the others offer a separate “pilot program” for permanent measures such as load shifting. These pilot programs, established more than 25 years after the technology has been proven on a large scale, are at the complete discretion of the utility. As before, Edison has not spent the funds allocated for this pilot program or entered into contracts to install the systems. If they did, it will mean another Power Savings Agreement and the lucky opportunity to litigate for another ten years or so after they cut off the payments and drive the energy efficiency provider out of business.

When a premier “cleantech” venture capitalist learned about the insanity of the Capacity Bidding Program limitation, the investment I was so close to receiving to restart Transphase understandably collapsed. Combined with Edison’s change in rate structure, the two to three year payback had increased to seven to eight years which, for any organization other than one looking for a little green PR, is simply too long.

Edison and the CPUC had managed to quash one of many important energy efficiency technologies yet again.

The CPUC should establish standard offers which do not discriminate by technology. If the energy efficiency measure achieves the savings, the utility should be obligated to pay. No discretion should be provided to the utility to allow it to manipulate and defeat efficiency providers in its “divide and conquer” strategy.

In the long run, true deregulation would eviscerate the utilities’ ability to suppress energy efficiency measures. California’s disastrous experience at the beginning of this decade represented a bastardized mutant, complete with fixed retail electricity prices that largely eliminated time-of-day differentials. Under true deregulation, the price of electricity will respond to market forces, and the time-of-day differentials will increase dramatically.

If society is to realize the monumental benefits of energy efficiency, the CPUC must be stopped from heaping billions upon billions of dollars at the feet of an investor-owned utility whose ultimate interest is to sell power, not save it.

Doug Ames is an energy entrepreneur and attorney in Huntington Beach, CA. He is the author of Blackout, a fact-based novel about Transphase’s battle against the utility-regulatory complex. www.blackoutbook.com