California: the energy miser?

At the height of the 1973 energy crisis, Arthur 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. Now California is pushing further in its effort to cut automobile pollution, spur use of solar energy and cap greenhouse gases.

$800 annual savings

Greg Kats, managing principal at Capital E, an energy and clean-technology advisory firm, 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.

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 despite the fact that its growing population and economy are still driving up electricity demand about 1 percent a year.

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.

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.

Cooling it

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, 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.

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

Shifting gears

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 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."

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 dark to light can save as much electricity as the new solar panels generate, Rosenfeld says.

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, of 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.

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, 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.