The news coming out of California these days has me thinking about that 1960's song “California Dreamin' ” from The Mamas and the Papas. Especially these two verses: “All the leaves are brown, and the sky is gray. I've been for a walk on a winter's day.” It makes me wonder what the California politicians were doing when they drafted the guidelines for the state's deregulation plan some years ago.
But are any of you really surprised about the news coming out of California? I'm not. Anyone with half a brain working in the power industry over the last several years should have seen this coming. Unfortunately, the politicians in charge of implementing deregulation policy in California chose to ignore power market realities. They set up a power market that guaranteed prices would be set too low to support timely investment in new supply. Now, the citizens, businesses, and utilities will be the ones paying the price for their stupidity.
But don't blame deregulation. The problems in California are the result of a flawed process. Other restructured power markets in Texas, New England, and the Mid-Atlantic region addressed the capacity issue by including a capacity payment mechanism in their new market structure. It's a good thing these states didn't follow California's lead!
So now what? How does the state get itself out of this predicament? In the short term, it will have to rely on end users to conserve energy and even shut down facilities (if necessary) to reduce system load. Anyone with backup or emergency power generating systems will rely heavily on these systems in the coming months—maybe years.
California officials should take a lesson from Wisconsin Electric when it comes to load management programs. Wisconsin Electric's Dollars for Power and Power Market Incentives programs pay customers to voluntarily cut back on or switch off power during heavy load periods. In fact, the Cleveland Cliffs iron ore mine in Michigan's Upper Peninsula made more than $80,000 in just three hours this past May by shutting down its plant and taking the afternoon off. How's that for ingenuity!
Somehow, the state also needs to expedite permit approval processes and construction of new power plants. Reports currently indicate the state is about 5000MW short of supply. Its current approval process creates significant obstacles to building new plants. These include a liberal environmental review process and stringent siting and permitting procedures. They also need to push for mothballed generating units to be rekindled.
But what the state really needs to do is fix the poorly designed power market. State officials must implement a capacity payment mechanism now to fix its ailing market woes. This would pay for the much-needed capacity to keep up with consumer demands and put the state back on the right track. Other states have proven this system works, so why ignore it?
I guess the silver lining I see through this gray winter sky is the renewed focus on on-site power. You can bet the citizens and businesses in California will push the development of microturbine, fuel cell, UPS, and generator technologies to a new level as they scurry to fend for themselves. Distributed generation will prosper as the good people in this state continue to look for alternative sources of power to keep their homes and businesses running. What other choice do they have?