3. The 1970s - setting the stage The 1970s: –World energy price shocks, aggravated by U.S. price controls and shortages –Growth of environmentalism, fears of fuel resource exhaustion and dependence –Thermal efficiency limits of large power plants reached, interests in alternative sources –Rising prices of utility-produced power, conservation seen as an alternative

4. The 1970s: Independent power and resource planning 1976 “PURPA” law requires utilities to buy power from non-utility generators –They see a competitive threat already Utilities build large coal-fired and nuclear plants, but projected demand fails to materialize at high prices Some states respond [California] by centralizing and politicizing supply planning

5. 1970s - ‘80s: Markets begin New transmission and frequency control technologies allow longer-distance flows Utilities with short or high-cost plants can buy surplus from others –California becomes a net importer Micro-planning anticipates future poorly, users must pay for high-cost plants –Conventional plants are harder to site –San Diego vows to survive on imports

6. The 1980s: non-utility power grows Decontrol of prices brings abundance of natural gas –Highest pre-2000 price was in 1984 Small, fuel-efficient gas-fired plants arrive Owners want to sell beyond their localities Large customers want to deal with them But federal law cannot order utilities to transport power (“wheel”) for others

7. Changing Nature of Industry Cost Characteristics $/MW 1930 1950 1970 1980 1990 MW 502004006008001,000 Source: Williams Company and TR Casten, “Whither Electric Generation? A Different View” Energy Daily, September 7, 2000.

8. Meet the FERC Federal Energy Regulatory Commission – Governs interstate transmission 1992 EPAct gives it new powers – Authority over all power sales-for-resale – Both parties represented, staggered terms California Public Utilities Commission (PUC) – Sets retail rates based on utility costs – Determines rights of retail customers to use transmission The legislature also has a say

9. 1999 California Power Sources