Rule May Spur Firms to Waste Energy

The fluorescent lights are burning bright on the top floor of a Hewlett-Packard Co. office building here, even as sunlight streams in from skylights and windows, and it pains HP electricity conservation czar Erik Andres.

Although the Silicon Valley computer firm has spent more than $1 million on the latest conservation software and gadgetry and has cut electricity consumption by 12% from a year ago, Andres won’t switch off any more lights.

If he did, it would make it harder for the company to comply when Pacific Gas & Electric orders Hewlett-Packard to cut its power use by as much as 15% in 15 minutes. That’s the curtailment promise HP and more than 50 other large companies around the state recently made to their utilities to win exemptions from rolling blackouts.

“We could cut our power 10% right now and not feel it,” Andres said, gesturing upward. “The only reason the lights are on in here is for the curtailment.”

Andres’ dilemma illustrates an unfortunate paradox: California’s main program for protecting businesses from blackouts is perversely rewarding firms that, on most days, conserve the least. Power wasted in the resulting game-playing is driving up demand and may increase the likelihood of blackouts for Californians who aren’t exempt, according to utility customers and analysts.

Since few companies will confess to using more power than they need, it’s impossible to know how much energy is squandered. But few believe Hewlett-Packard, considered to be among Silicon Valley’s better corporate citizens, is alone.

“HP isn’t the only one who’s got smart people,” said Richard McCann, a partner at energy consulting firm M.Cubed in Davis, Calif. “Every program you have, you’re going to have people that figure out how to work the system.”

A lot is at stake in the curtailment program, which was approved in its current form in May by the California Public Utilities Commission. PG&E;, which has signed up the most customers for the plan, says a 10% power savings from those companies would amount to 77 megawatts--enough to keep the lights on in 50,000 homes. That kind of savings could have mitigated the effect of the last rotating blackouts PG&E; had to impose. Southern California Edison and smaller utilities are also participating in the program.

But if companies can win blackout exemptions later by burning a few more bulbs now, they will.

“Anything a business can do to avoid rolling blackouts has a tremendous appeal,” said Joe Desmond, a software executive who works on energy issues for the Silicon Valley Manufacturing Group.

Firms Agree to Energy Cuts Under Program

The prospect of dozens, even hundreds, of hours of outages this summer has large companies fretting about millions of dollars in lost productivity, ruined equipment and other damages. Given that, industry experts say companies in the curtailment program are only responding logically to the details in the PUC plan, which carries a title so bureaucratic they find it hard to say with a straight face: the Optional Binding Mandatory Curtailment Program.

The program works like this:

If a company pledges to cut power use from a utility’s circuit, the utility will leave that circuit on when it blacks out other areas. (Smaller businesses and other users that share a circuit have a much harder time meeting the requirements, so fewer have applied.)

Failure to meet the utility’s reduction target--whether 5%, 10% or 15%--is severely punished. The excess use is billed at $6,000 a megawatt-hour, compared with recent market prices of about $100 an hour. And repeated misses get companies barred from the program for five years.

The trick lies in what usage level the reductions are measured from.

Under PUC rules, that baseline level is an average of the power consumed during the 10 most recent days without calls for power curtailment. Weekends are excluded, if the call comes during the workweek.

That means the more power a company uses now, the easier it is to meet the target when the call comes.

“It has taken away the incentive for people to do voluntary conservation,” said Oracle Corp. Energy Director Mukesh Khattar. “There is a dark side that comes to your mind” and suggests letting the air conditioning rip. Oracle and most other companies interviewed say they haven’t stopped saving electricity.

But anecdotal evidence shows that “some people are reluctant to conserve, so that they can keep their average high,” said Jennifer Tachera, a staff attorney at the California Energy Commission.

Hewlett-Packard, Oracle and others complain that the curtailment program gives them little credit for the conservation measures they have already taken, such as installing more efficient air conditioners and lights. HP has cut its electricity use by 12.5% in the six months through April from a year earlier.

The companies also point out that the 10 most recent days without a curtailment call are likely to have lower temperatures, and lower air-conditioning demand, than the first day with a call. That makes the baseline artificially low--and makes it even more tempting to conserve less in advance.

“They’re measuring on the 10 days when it’s cool, as opposed to the one day when it’s 103 in San Francisco,” said consultant Carolyn Kehrein of Energy Management Services.

Solutions to Problem Aren’t Readily Found

The big energy users and trade groups have suggested alternatives for setting the baseline.

One scenario would set the baseline at the level used on the same day a year earlier. But many companies have added or closed facilities since then.

Another solution, said William Booth of the California Large Energy Consumers’ Assn., would be to allow each customer to negotiate a reasonable baseline with its electricity supplier.

“Any blanket approach is going to affect different companies in different ways,” Booth said. But the utilities say they don’t have the staff for that.

A third proposal would set the baseline at the level of consumption when the call comes in. But opponents are worried that as daily demand projections get more sophisticated, companies could manipulate that baseline as well.

“We understand that the reluctance to go there is mainly based on the fear of ‘gaming,’ where a customer will jack up their usage just before they believe they will be called,” said Dorothy Rothrock, vice president of the California Manufacturers and Technology Assn. She said monitoring could catch that type of maneuver.

And a fourth idea, supported by Hewlett-Packard and other industrial users, would adjust the baseline for temperature changes.

“It would be a lot better than what we have now,” said Bill Smith of the Electric Power Research Institute, a utility think tank, who for a year has been advocating the use of such a formula.

Jonathan Lakritz, an energy expert at the PUC, said all baselines are subject to manipulation and the agency had to pick one quickly before temperatures started rising.

“We were doing this under extreme time pressure,” Lakritz said. “Certainly some people are going to find it in their best interest to raise their baseline.”

In the program as it stands, the PUC and the utilities say they hadn’t heard about companies manipulating the system.

Then again, Lakritz said, “there weren’t very many people that were coming to the commission and explaining how they were going to game the system.”

Lakritz said that the PUC is making minor adjustments to the program but that more serious changes probably won’t be made until the summer is over.

Lynda Ziegler, Southern California Edison’s director of business and regulatory planning, said she was disappointed to hear of possible abuses.

“I think that is very unfortunate,” Ziegler said. “It’s against what everyone in California is trying to do, which is make it through this summer.”

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