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| For Immediate Release May 22, 2003 |
Sacramento, CA- - California’s energy problems are far from over, according to a report issued today by the Bay Area Economic Forum for the California Manufacturer & Technology Association.
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“Avoiding a supply shortage in the near future will require well-reasoned action by the state’s policy makers,” said Sean Randolph, president of the Bay Area Economic Forum. “Without ongoing new construction and investment in existing power plants, California simply does not have the reserve electricity on hand or within sight to comfortably meet potential demand in the years ahead”.
Policy decisions should focus on creating an atmosphere that is more favorable to private investment in electricity generation. While recent calls for a command and control system of regulation may be politically attractive, the report cautions against ignoring the basic principles of the marketplace and burdening consumers with the financial risks inherent in developing generation capacity. Previous Bay Area Economic Forum reports have shown that enabling new private investment is a preferable option.
“Restoring utility monopolies would - at best - return California to a framework that contributed to the high prices and gave rise to the need for restructuring in the first place,” Randolph said. “A broad range of data and experience shows that well-designed, well-monitored competition leads to lower costs, better quality and higher reliability.”
Sponsored by the California Manufacturers & Technology Association, the report points to a sharp decline in planned power plant construction, reduced investment in existing power plants, and diminishing levels of conservation as key factors in driving demand closer to the edge of capacity. Of the new plants announced by generators since the wholesale market was introduced in 1998, only about 25 percent now appear likely to be built.
“There are companies out there willing to invest in new sources of power for California homes and businesses,” said Dorothy Rothrock, CMTA’s Vice President. “But that investment won’t come until our state clears up some of the uncertainty that still pervades our energy landscape. This report is a wake-up call to California - if we don’t make our state more welcome to energy investment, we won’t be able to grow California’s economy.”
Key steps to creating investor confidence and ensuring a long-term supply/demand balance for electricity include firmly recognizing the sanctity of future long-term supply contracts, creating capacity reserve requirements, preserving the right of power consumers to manage their own energy expenses, and clarifying wholesale market rules. . Further, strict oversight of market participants is necessary to prevent abuse of market power.
Important longer-term measures include implementation of real-time and time-of-use pricing to encourage conservation and dampen price spikes, and improved clarity regarding the roles of the state’s multiple power agencies.
The report noted that other states that have restructured their power markets enjoy retail electricity prices well below California’s, as well as much healthier electricity supply reserve margins. California residential customers pay 42 percent more than the national average for electricity, and business customers pay rates that are more than 70 percent above the national average. In terms of reserve power supplies, California is the only state expected to see its reserve margins drop below utility industry norms by 2006. Other restructured states, including Texas, the Mid-Atlantic States, and New England should have reserve power generation in excess of minimum utility levels well beyond 2008.
The report commends the recent adoption of the State’s key energy policy agencies of a joint Energy Action Plan, which is an important a step forward in establishing a sound foundation for policy, and calls for timely action to implement its principles.
Download report (pdf)