In Energy Conservation, Calif. Sees Light
Progressive Policy Makes It a Model in Global Warming Fight

By Steven Mufson
Washington Post Staff Writer
Saturday, February 17, 2007

At the height of the 1973 energy crisis, Arthur H. Rosenfeld had a revelation.

Disturbed about having to spend half an hour in line at a gas station one Friday night, the particle physicist calculated that keeping his floor of offices brightly lit all weekend as usual would consume the equivalent of five gallons of gasoline. So Rosenfeld took what then seemed like a bold step: He turned off the lights.

For 30 years, Rosenfeld has been one of the forces guiding California on a mission of conservation. And today the state uses less energy per capita than any other state in the country, defying the international image of American energy gluttony. Since 1974, California has held its per capita energy consumption essentially constant, while energy use per person for the United States overall has jumped 50 percent.

California has managed that feat through a mixture of mandates, regulations and high prices. The state has been able to cut greenhouse-gas emissions, keep utility companies happy and maintain economic growth. And in the wake of the Intergovernmental Panel on Climate Change report on global warming, California serves as a model for other states seeking a similar path to energy reduction. Now California is pushing further in its effort to cut automobile pollution, spur use of solar energy and cap greenhouse gases.

"California really represents what the rest of the country could do if it paid a bit more attention to energy efficiency," says Greg Kats, managing principal at Capital E, an energy and clean-technology advisory firm. "California is the best argument we have about how to very cost-effectively both reduce energy consumption and cut greenhouse gases. And they've made money doing it." Kats estimates that the average Californian family spends about $800 a year less on energy than it would have without efficiency improvements over the past 20 years.

Today, as an energy consumer, California is more like thrifty Denmark than the rest of the energy-guzzling United States. While the average American burns 12,000 kilowatt-hours a year of electricity, the average Californian burns less than 7,000 -- and that's counting renewable energy sources.

California has managed to cut its contributions to global warming, too. Carbon dioxide emissions per capita in California have fallen by 30 percent since 1975, while U.S. per capita carbon dioxide emissions have remained essentially level.

"If we're going to delay global warming, what we can do in a big hurry is energy efficiency: better cars, better buildings, better industry," says Rosenfeld, who is now a member of the California Energy Commission and who last year won the Energy Department's $375,000 Enrico Fermi Award for his contributions to national energy efficiency. "It's not the whole story. But I think it's at least half the story."

California does have natural advantages. The climate is mild in much of the state, and its high-tech and service sectors are less energy-intensive than older, heavy industry in some other states. However, even accounting for those differences, California has vastly improved its energy efficiency. The growing population and economy are still driving up electricity demand about 1 percent a year, enough to require a new power-generating station every couple of years. But if the state had not changed its pre-1974 trend of electricity consumption, by today it would have needed the equivalent of one nuclear plant every eight miles between San Diego and San Francisco, Rosenfeld says.

The reason for California's success is no secret: Electricity there is expensive, so people use less of it. Thanks to its use of pricey renewables and natural gas and its spurning of cheap coal, California's rates are almost 13 cents a kilowatt hour, according to the Energy Information Administration. The other most-energy-frugal states, such as New Jersey and New Hampshire, charge about 12 cents and 14 cents a kilowatt hour, respectively. Hawaii, which relies on oil-fired plants, tops EIA's list at about 21 cents.

"If the history of energy consumption in the U.S. has taught us anything, it is that cost drives conservation," says Chris Cooper, executive director of the Network for New Energy Choices.

Three of the nation's most profligate users of energy -- Wyoming, Kentucky and Alabama -- have one thing in common: low prices. Their electricity prices range from 5.25 cents a kilowatt hour to 7.06 cents, according to the EIA.

"What's dirt cheap tends to get treated like dirt," Rosenfeld says.

The District, also a wasteful user of energy, has a rate of 10.70 cents a kilowatt hour, only after recent rate increases. Virginia charges average 6.78 cents, and Maryland is at 10.03 cents.

Besides high prices, California has long-standing mandates. In 1974, the state enacted its first building standards for energy efficiency.

In 1976, the governor, Jerry Brown, was looking for a way to make good on his pledge to stop the construction of the proposed one gigawatt Sundesert nuclear plant in Southern California. The answer turned out to be refrigerators -- more efficient refrigerators.

Brown learned, in a meeting with Rosenfeld, who by that time had turned his full attention toward promoting energy efficiency, that California's refrigerators were using the equivalent of five Sundesert plants. A modest improvement in their efficiency would more than offset the need for new power plants, Rosenfeld told him. So the state adopted stringent appliance standards -- before the federal government did -- and staved off construction of the Sundesert plant. The change in California's refrigerators has saved energy equal to all the hydroelectric power produced nationwide, Rosenfeld says.

Next, California adopted an innovative approach to utility regulation called decoupling so that the utilities' profits were no longer linked to simply increasing sales.

Before then, electric utilities made more money when people bought more electricity. So a Midwest utility gave away energy guzzling light bulbs; in California and elsewhere, electric utilities promoted electric stoves or electric water heaters, appliances that run more cleanly and efficiently on natural gas. In December 1973, Rosenfeld had called Pacific Gas & Electric to challenge a newspaper ad the utility was running that said: "Don't mess with the thermostat. You'll use more gas heating your house in the morning than you'll save overnight." Rosenfeld asked the company's research head if he kept his coffee on the stove all night to avoid reheating it in the morning.

In 1982, the state Public Utilities Commission came up with the decoupling idea that would allow utility profits to grow while sales declined. It set separate targets for utility revenue and electricity usage; excess revenue would be returned to consumers; a shortfall in revenue would be added to the next year's consumer bills. Greater efficiency could boost profit margins. Rates are now reviewed every six to 12 months instead of every three years. (A similar approach for natural gas utilities had been adopted in 1978.)

The power companies quickly altered their focus. Now, Rosenfeld says, the state and the utilities spend $700 million a year to promote energy efficiency. "It's cheaper than building power plants," he says. At the moment, the program has expired but is up for renewal.

California remains the only state to have adopted decoupling, though proposals are pending in seven states.

"There's an element of stability of revenues that is very attractive," said Steve Kline, a vice president at Pacific Gas & Electric. "We don't have those huge swings that other companies do if there is an incredibly cold or hot winter." And that, he added, "is viewed favorably in the financial community."

Some utilities that favor decoupling are getting support from their traditional foes: environmentalists. Ralph Cavanagh, senior attorney for the Natural Resources Defense Council in California, has filed written testimony on behalf of Idaho Power Co., which is asking that state's Public Utilities Commission to implement the practice.

"We have to break the link between their financial health and their electricity and natural gas sales," says Cavanagh. "If their financial health is tied to increasing sales, they're unlikely to be efficiency partners."

Energy-efficiency targets are also built into California's solar promotion program. To qualify for a $2,000 rebate, homeowners must show that their homes beat building standards for energy efficiency by 15 percent or more. Often, a change in the color of a home's roof from black to white can save as much electricity as the new solar panels generate, Rosenfeld says.

Many of these techniques grow out of work Rosenfeld did at the Center for Building Science at the Lawrence Berkeley National Laboratory, which he founded in 1975. Over 20 years, the lab developed a variety of energy-efficiency technologies, including electronic ballasts that led to compact fluorescent lamps and a coating for glass that allows light in but blocks heat from either entering (during summer) or escaping (during winter).

But much of the motivation remains economic. The state's disastrous experiment in electricity deregulation -- deregulating supplies while capping retail prices -- led to a supply crisis and rolling blackouts in 2001. Soon, prices rose; PG&E sought bankruptcy protection.

Many manufacturers complain that the high electricity prices make the state an unappealing place to do business. Since 2001, California has lost 375,000 manufacturing jobs, a 19.9 percent drop that slightly exceeded the nationwide decline of 17 percent. Some firms -- such as Buck Knives, with 250 jobs, or bottle manufacturer Bomatic, with 100 jobs -- moved to states such as Idaho or Utah, where they said expenses, including energy, were lower.

Gino DiCaro, a spokesman for the California Manufacturers and Technology Association, says manufacturing investment is also "stalled" because of uncertainty about how the new legislation authorizing limits on greenhouse gases will affect energy costs.

"We've lost a lot of manufacturing jobs and we can't replace them," says DiCaro. While it's hard to blame the state's high energy costs alone, he says, "we know that . . . energy is one of the largest portions of a manufacturer's operating budget."

But for those homeowners and businesses staying in California, the high prices have provided a big incentive for greater efficiency.

Laura Scher, chief executive of Working Assets, a wireless, long distance and credit card company that donates part of its revenue to socially progressive organizations, said she checked her home's meter every week during the electricity crisis in the summer of 2001 and unplugged her family's second refrigerator. "Part of it is our prices got really high," she said. But she added that California's habits go back much further. "It's sort of a culture to be an energy conserver here," she said.

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