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California DSM: A Pyrrhic Victory for Energy Efficiency?

Fortnightly Magazine - October 1 1995

this reason, Southern California Edison (Edison) has asked the CPUC for incentive rates for offsystem sales so that "additional value captured from [its] gas-fired generation units will decrease

customers' rates in the long term."13

By analogy, every unit of generation left unused by DSM has a negative impact on ratepayers. In fact, the cost/rate discrepancy makes the economics of electric conservation worse in California than in virtually any other state in the country. It is true as well for natural gas, since California leads the country in peak-month excess capacity.

An expanding electric market begs the question: Will more generation pose environmental problems? The good news is "no."

Natural gas serves as the swing fuel for electric generation in California.14 Oil burning in the state's power plants has been minimal; no coal plants are located in California; coal-by-wire from neighboring states tends to serve base loads. Available nuclear power is also baseload.

Yet the NRDC portrays coal (really coal-by-wire from the Southwest) as the marginal resource. Its analysis begins by using general terms such as "fossil fuels" and "power plants," and ends by specifically citing the negative environmental effects of mine-mouth coal plants. Natural gas, curiously, is not even mentioned in its three-page environmental impact section.15

The NRDC is right (em there will be more "fossil fuel burning" in a competitive electric industry. But it is wrong to portray that increase as an environmental problem since natural gas serves as the marginal fuel. Natural gas represents the cleanest burning fossil fuel for the California generation market. As compared to scrubbed coal, combined-cycle natural gas plants reduce air and water emissions:

s 50 percent less use of process water

s 58 percent less carbon dioxide

s 81 percent less nitrogen oxide

s 95 percent fewer particulates

s 100 percent less sulfur dioxide

s 100 percent less ash and sludge16

Moreover, any increased reliance on California's heretofore chronically underutilized gas-fired plants must still meet stringent clean-air rules that "internalize" many environmental externalities. As Pacific Gas & Electric testified before the CEC:

"In the late 1980s ¬ utility powerplants accounted for 3-5 percent of statewide NOx emissions. Many plants did not have advanced NOx control equipment, such as Selective Catalytic Reduction. Since then, air-quality regulators have imposed 'Best Available Retrofit Control Technology' requirements and other regulations that will drastically reduce NOx emissions. In effect, NOx emissions from utility powerplants are being internalized."17

Edison also addressed environmental concerns in light of the prospect of increased gas burning in the Los Angeles Basin:

"Edison's offsystem sales from existing units will not increase system generating capacity, but only better utilize existing generating capacity. If Edison needs to bring standby reserve units back to dependable service, Edison will retrofit these units with additional emission controls such as Selective Catalytic Reduction equipment. If Edison requires additional capacity . . . [emission trading] offsets will be required. . . . Edison's current air quality plans will not be affected by increased offsystem sales."18

Technological advances have allowed NOx emissions to be reduced by over 90 percent from uncontrolled levels (which were