Electric Power Crisis in San Diego

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utility company announces refunds to combat soaring electric bills but they are unrelated to the future market price of electricity. in the meantime residents are warned to plan for rolling blackouts and brownouts because of inadequate transmission facilities and supply shortages...

Sticker Shock:

Will the lights go out on small business in Southern California?

If you live in San Diego or elsewhere within the SDG&E service area, you better plan to be sitting down before you open your next statement from San Diego Gas and Electric this summer. The company is warning residents that because of power shortages in their service area, bills may be skyrocketing as much as 60% above the same period a year ago. Wondering how this happened? Finger pointing is by those involved has already begun. And now, reports in the national media have described the electric power deregulation effort in the state of California as "botched". The reports speak of the probability of power shortages, rolling blackouts, and brownouts as prime evidence that the movement to bring about free market competition between electric power providers has failed and that it may now be time to bring back regulatory authority and a return to business as usual. Maybe, but maybe not. Surely though solutions are urgently needed.

The sudden jump in the cost of electricity, coming on the heels of price runups in gasoline and other fossil fuels, as well as the outlook for power shortages and other disruptions, will cause great pain for individuals and families alike. And aside from the inconvenience and misery likely to arise as we find ourselves awash amidst a sea of rising electric bills and unreliable service, our local business environment may also become a victim. What will happen to our area's many emerging small business operators when the profit margins they depend upon to sustain themselves are eroded by electric bills raging at 60% above last years levels?

In the case of at least one such individual Yuman Young, owner of Younglin, a well known vegetarian market and popular food service business, the unexpected jump in electric prices is a major blow. Young told us,

"My business relies extensively on the use of refrigeration to maintain the freshness of my produce and so the reliability of electric service is everything to us. The prospect of rolling blackouts could mean exposing our foods to periods without refrigeration. That food would just become spoilage and we would be forced to throw it away at a tremendous loss".

But that's not Young's only problem. Because Mr.Young's business is so reliant on electric power, he has worked hard to find ways to conserve and be energy efficient. Although he has actually cut the businesses power consumption by 10% without any sacrifice in quality, Mr. Young was sent into sticker shock this month when he received his latest electric bill. Young explained, despite all efforts to keep his costs down,

"Our electric bill has gone from about $510 dollars in April to nearly $882 in June. Its up from $670 last June and we have cut our use of power by over 10%."

Unfortunately, Mr. Young is not alone. Many other businesses in our area will also feel the pinch, some perhaps forced to cut back on expansion plans, others letting employees go in a climate of increasing uncertainty. And according to sources at the California Independent System Operator, ISO, the problem will not go away in our area any time soon, perhaps not for several years, unless new sources of power can be developed locally. According to media reports, companies currently considering relocation into the area are actively reconsidering their plans.

Built to Fail?

Common sense says that if the problem facing the power grids this summer is an inability for the supply of electricity to keep up with the demand, then the solution would be to reduce the demand, assuming this could be done, or increase the supply of power. Increasing the amount of beaurocracy doesn't even enter into this logic.

So what's the problem then? Unlike other states like Pennsylvania where electric power deregulation is touted as a success, the California plan provides little if any incentive for consumers to switch power providers and even more importantly, it erects roadblocks to small operators and households who could actually provide the clean energy that is now in such short supply in the area.

Few Californians are aware that current national law provides households and other potential net power producers to sell back their surplus power to the utility entities. The law is called "net metering" and it was intended to create incentives for the development of small scale clean power production by independent operators and families. Such enterprise includes the use of solar panels on the roof tops of our homes, small scale hydroelectric power generation in the streams of our ranches and farms, low cost windmills on the lawns of our residences, and other simple, effective, and affordable alternatives.

The fact that ordinary residents and other operators of this low cost home technology is often times subject to government sponsored subsidies and low interest financing is seldom mentioned in public debate. The truth is though, that the problem of power shortages can be largely mitigated and most probably overcome, by encouraging the many thousand of state householders and small operators to take advantage of existing opportunities to help themselves and the rest of us by simply making the inclusion of "green energy" devices a part of the home improvement planning. Such efforts are rewarded by tax credits and property tax exemptions and would even reduce a resident's monthly electric bill, contribute to air quality, and reduce our painful national dependence on foreign fuels. Alternative energy has always been a good idea, but now its become a necessity.

Oh yes though, there is a catch though. When the state of California allowed us the opportunity to put free market forces to work to reduce our use of fossil fuels and nuclear power in the state's investor owned, giant utility monopolies, the established order was threatened. To protect the turf rights of the powerful few who play for profit in the $250 billion dollar a year electric power market, a "Catch 22" was added to the plan. Before anyone could sell the power surplus produced by alternate energy sources back to the grid, they must negotiate a contract with the utility providers or join the power exchanges, the electronic brokers for the sale and purchase of bulk electric power. These exchanges, Cal-PX and APX, impose daunting financial requirements on prospective members, making it all but impossible for many small operators to join or profit.

The problem of finding a buyer for small power producers is but one of many major disincentives making it all but certain that "mom and pop" will never even dream about challenging the entrenched special interests let alone tipping their multibillion dollar a year electric power applecart. Among the other disincentives? Producers of green power find that their products are sold arbitrarily at above market prices on the power exchanges, making them less attractive to bargain seeking bulk power buyers. The logic is that only environmentally conscious buyers will be interested in the cleaner alternatives and so its use has been relegated to boutique status and to just a smaller, niche market share. This contrasts with the motivation of successful start up businesses that fight to see that their products are brought to the marketplace at the most competitive prices available and bought by as many users as possible.

Also curious? While they surely knew about supply problems from the beginning, it is unlikely that SDG&E will do anything to improve the situation before the year 2004 when it may be possible for SDG&E to import more power from the power exchanges. And, although the base rate for electric service has recently been as low as 3 cents per kilowatt, consumers in San Diego however, are reporting paying SDG&E bills nearly five times as high.

In an apparent effort to sway public opinion, SDG&E has recently asked the California Public Utility Commission to refund customers from a special account set up to keep prices down during the transition to deregulation. At the same time, ratepayers will be receiving checks reflecting the proceeds from the sale of "stranded assets", a plan also adopted several years ago as part of the transition. Many local residents though have mistakenly taken this to mean that price rollbacks are underway to permanently bring down their energy bills. In fact though, the refunds will change nothing and electricity prices, currently as high as 14 cents per kilowatt hour will continue to be set as the result of supply and demand. In the meantime, SDG&E customers may have to suffer with intermittent power disruptions, uncertainty about the future availability and cost of natural gas and other fossil fuels, and higher electricity prices passed through to ratepayers by SDG&E. Until the problem of SDG&E's inadequate transmisson facilities are corrected 4 or more years from now, even if sources of usable power are available to the brokers elsewhere on the grid, SDG&E may be unable to deliver it to customers during peak load periods -at any price! The result? Load shedding, rolling blackouts, and brownouts.

But power shortages are nothing new whether it be in states that are "deregulated" or otherwise. The prospect of similar problems in California this summer as residents turn up the air conditioning in response to hot summer weather doesn't mean that deregulation can't work in our state. When the California legislature approved the public applauded plans to move ahead with electric power deregulation, they didn't fail to plan for the reality of these so called "capacity shortages". Unfortunately, however, the realities of skyrocketing electricity prices, the inaction of those minding the store, and the potentially gigantic windfall profits for companies like SDG&E, make it look as if someone instead simply planned to fail.

Powerful Solutions

But there are solutions. As early as seven years ago, local author and nationally acclaimed expert Jim Bell, published a book, "Achieving Eco-nomic Security on Spaceship Earth" in which he reviewed studies demonstrating that San Diego has the potential to develop a local solar power industry which not only could solve the current emergency but which could also export a surplus of power each year. Is this practical? Alternative energy specialist and California licensed contractor Mark Snyder, of Mark Snyder Electric says "Yes!" What's more, Snyder says that despite SDG&E's problems importing power over the grid,

"Local home owners and small businesses can solve these problems right away by installing alterative energy systems for their own private consumption and enjoy the financial benefits for doing so as provided by the California alternative energy buy down subsidies."

Aside from the disincentives preventing the implementation of alternative energy plans, there is also no shortage of disinformation. After all, conventionally fueled, investor owned utility companies are in competition with alternative power sources and are threatened by their success and the prospect of falling market share. What's more they have the public relations resources of the mighty fossil fuel lobby behind them. Consider the conventional notion that solar energy is a poor home investment: Imagine learning that you could add 24% to your home equity and that you wouldn't have to pay any additional property tax on the improvements. You could recover the benefit in terms of appreciation when you sell your home or if you choose ever to take out a home equity loan. Not bad. But what if you also learned that the 24% improvement would only cost you about 50 cents on the dollar and that it would produce an income stream that would virtually pay for itself during its useful lifetime? Snyder points out,

"With the California solar buy down program, residential customers can receive a rebate of about 50% against the cost of all parts and labor incurred during the purchase and installation of your home system. All improvements made under the program are exempt from property taxation."

Stated otherwise, a $100,000 home with a 4,000 watt solar system installed on the roof top would produce about 3,200 usable watts of power during each of the average 6 peak hours per day. Assuming a price of about 10 cents per kilowatt (its actually 14 cents this month in California) that comes to about $1.60 per day or $48 per month credited against your electric bill. Over a year's time, $576. Estimated out of pocket costs for parts and labor? If you live in Nebraska, $24,000 but for California residents taking advantage of the buy down incentives, roughly half, or $12,000.

But suppose you chose to move out of your home only seven years after installing your system. You could sell your home ordinarily for about $100,000 plus appreciation. But with the new system the home may now be worth $124,000 and because you saved another $576 per year in the form of reduced power bills, you might be ahead another $4,032. Including the savings from your electric bill and the $12,000 of added valuation subsidized from the buy down program, your original investment of $12,000 has risen in just 7 years to a total of $28,032. That's an average annual return of over12% ! Commercial installations do even better-they are entitled to accellerated depreciation and a 10% investment tax credit against their initial investment cost.

Of course as with any investment, results may vary. But if the cost of electricity and the underlying price of fossil fuels continues to outpace inflation, your home power investment provides you with an excellent hedge. And Snyder adds,

"Solar power has proven itself already elsewhere in the state. The Sacramento Municipal Utility District (SMUD), has wisely adopted programs like 'Pioneer 1' whereby families and small business have volunteered the use of their rooftops for the placement of solar devices. This has all but eliminated capacity shortages in their district. Now they have adopted a program called 'Pioneer 2' where low interest financing allows families to own and install the solar devices and watch their meters spin backwards."

Snyder urges persons interested in doing to act soon though. Unless state legislators can be compelled to act promptly, the discounts and subsidies now available under California law will expire by the end of next year, far too soon to enable residents to ride out this crisis which may be persist through 2004 and, in view of new questions about the price and future availability of natural gas and other fossil fuels, perhaps far beyond.

Power experts in Los Angeles apparently agree with Snyder's assessment. Just this week, Robert C. Mckinney with the Los Angeles Department of Water and Power announced the launch of the Department's aggressive 5 year plan to encourage residents of the one of nations largest cities to install alternative energy devices on their rooftops and elsewhere through out Los Angeles. Why? According to Mckinney, unlike San Diego, Los Angeles already has a net surplus of electric power. But Mckinney speaks of an additional benefit of solar power, "Air quality."

Opening up the electric power industry to small entrepreneurs and independents is a great step towards establishing true free enterprise as envisioned by our nations founders. True competition among producers can only serve the interests of the consuming public. San Diego Residents already have the option of switching providers from SDG&E to the "Green Power" providers who offer environmentally friendly power generation and in some cases, instant rate relief in the form of a California state sponsored discount of 20% on monthly power bills.

Jim Bell notes,

"Truly, electric power deregulation is merely in its infancy. If there is a problem, let's simply fix it. As long as we still have hammers and nails, the solution is only as far off as our own rooftops. We must start though to remove the disincentives and demand that our legislators extend the present laws which will ultimately lead to reasonable electricity rates and freedom from power disruptions."

Advocating against pulling the plug on the emergent electric power restructuring effort, Bell adds,

"Let's not throw the baby out with the bath water."

for more information about this report contact Stuart H. Rodman info@elsi.org

-- Stuart H. Rodman (jrodman527@aol.com), July 25, 2000


SDG&E appears to be in real bad shape. I'm surprised. I would have thought the first power company in California to go down, if things got bad, would be PG&E.

-- QMan (qman@c-zone.net), July 25, 2000.

If the power goes out in San Diego, my heart goes out to all those cold weather animals at the San Diego zoo; how are they going to manage?

-- Nancy7 (nancy7@Hotmail.com), July 25, 2000.

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