California’s energy future is balanced precariously between runaway costs and the threat of severe shortages, particularly in a “hotter-than-average” summer, according to the California Energy Commission’s (CEC) draft 2005 “Integrated Energy Policy Report,” released last Friday. Touching on everything from global climate change to the cost of gasoline and growing reliance on natural gas, the 157-page report delivers a sobering message for Californians.

“California’s way of life is threatened by its growing dependence on oil and natural gas, spiraling energy prices, potential supply shortages and an inadequate and aging energy delivery infrastructure,” the draft said. Since the last integrated report in 2003 and recommendations on a variety of strategies “only minimal progress” has been made in implementing the recommendations.

In the current 157-page draft, the CEC said California “must increase its efforts and take immediate action to address problems in the energy sector to meet the state’s policy goal of ensuring adequate, affordable and reliable energy.” California needs a more cohesive long-term approach to energy. The report’s focus is on ways to increase supplies and infrastructure capacity, reduce demand through efficiency and demand-side management (DSM) programs and broaden the state’s options for meeting increased demand in the years ahead.

“The 2005 Energy Report assessment of electricity supply and demand reinforces the conclusion that maintaining adequate electricity reserves will be difficult over the next few years,” the draft said. Sustained hot weather and/or lower hydroelectric supplies of bulk electricity could result in “dangerously low reserve margins” in the years ahead.

While progress for private sector utilities has been solid, the state needs new legislation to require public sector utilities and merchant generators to meet minimum power reserve levels, too. “The legislature should adopt resource adequacy requirements for all load-serving entities.”

Supplies are not keeping up with demand and the infrastructure is still in need of significant upgrades.”Weather-adjusted electricity consumption in California increased an average of 2% over the last two years and is continuing to rise.”

The report goes on to worry about California’s increasing dependence on natural gas to generate electricity, as well as in the residential and commercial sectors. It noted the state is second only to Texas in its dependence on natural gas.

In addition to large sections on electricity and natural gas, the CEC draft report tackles transportation fuels, outlining a variety of supply and environmental concerns, not to mention the wholesale (and retail) price spikes in recent weeks and months. Meanwhile, demand for transportation fuels increased 48% over the last 20 years and it is continuing to grow at an alarming rate.

The draft report also makes a pitch for having a “more open and transparent” resource procurement process, acknowledging complaints of independent power producers that private-sector utilities are allegedly skewing the process toward more utility-owned and operated generation.

Finally, the draft makes a strong recommendation for the development of more distributed generation, calling cogeneration (combined heat/power) “the most efficient and cost-effective form of distributed generation.” Some draft report language chides some private-sector utilities for not renewing qualifying facility (QF) contracts and, thus, allegedly causing some customers to shut down cogeneration facilities, which are needed to help reduce the pressure for new generation and transmission in the state.

A final version of the energy commission’s state legislative-mandated document is due to the governor and state legislature by Nov. 1. A series of public hearings will be held in Sacramento to gain public comment on specific parts of the draft later this month and the first week of October: Sept 27 (climate change, water-energy and border energy issues); Sept. 29 (transportation fuels); Oct. 6 (DSM, distributed generation, renewables); Oct. 7 (electricity procurement/transmission), and a second Oct. 7 session (natural gas). Given the continuing gap between the governor and the state lawmakers, it is unclear what will be done with the updated report.

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