Early in 1977 President Jimmy Carter, urged America, while sporting a surprisingly casual bit of beige knitwear, to turn down their thermostats. He’d been president for all of two weeks, and his position “fireside” for this little chat with the nation was no less symbolic than was his cardigan—the first ever seen on an American president.
For the better part of the decade the country had been in the midst of an energy crisis, and Carter had run, and won, on a platform of serious energy reform. We, as a nation, were going to need to do things differently. “We must face the fact,” he said that cold February in his kindly Southern lilt, “that the energy shortage is permanent. There is no way we can solve it quickly, but if we all cooperate and make modest sacrifices, if we learn to live thriftily and remember the importance of helping our neighbors, then we can find ways to adjust, making our society more efficient and our own lives more enjoyable and productive.”
In other words, cardigans, fireplaces, thermostats, and later, solar panels (thirty-two of which Carter would mount on the White House roof in 1979 in the midst of yet another crippling oil embargo)—these were to become watchwords for us all.
To modern ears, an executive call for a politics of thrift, moderate privation, cooperation between neighbors, and adjusting to (rather than mastering) circumstances sounds a bit tinny. So long have we been enjoined to consume our way out of economic crises, to buy more and spend more in order to stimulate manufactories to produce more and thus hire more, that the very notion that a sitting president might encourage us to do less of any of these things is kind of a shock. But Carter meant it. He wanted people to wear sweaters.
And people listened. We actually did start to consume less, not just during price spikes and the panics attendant to epochal shortages, but in a deeper and more abiding way conservation became a part of how Americans thought about, used, and managed energy.
This turn toward conservation and energy efficiency was the first crisis, of three, that would shock the electric utilities during the Carter era. Their business model, long premised on endlessly increasing consumption linked to endlessly increasing production of ever cheaper electric power tied, in turn, to the construction of ever bigger, more technologically advanced power plants, had begun to fail. For the first time in the storied history of electricity, consumption dropped; for the first time their power plants grew too costly to complete; and then, much to their surprise, something else happened: monopoly control of the grid was wrested from them by legislative fiat.
This was initially done in such a minor way that most utilities and many politicians (including some who had voted the change into law) didn’t much notice when it happened. The men who wrote the legislation, the men who voted for it, and the lobbyists of utility companies missed the reinstatement of a minor sub-clause of a sub-act of an omnibus bill called the National Energy Act that only just squeezed through Congress after significant cajoling and administrative arm twisting. It passed in the House by a single vote (207–206) in the autumn of 1978.
What this clause said was simply that the utilities would need to buy, and move to market, electricity produced by any facility with an output of less than 80 MW (about a tenth of what might have been produced by an average nuclear power plant at the time). And, just as important, they would be obliged to pay a nonmiserly rate for it. This rate would be set according to what were called “avoided costs”—that is, the money it would have cost the utility to make that precise amount of electricity for themselves.
Even though few realized the implications at the time, section 210 of the Public Utilities Regulatory Policies Act (PURPA for short) effectively broke the utility’s total control over everything that entered, moved through, and exited their power system. And it worked, not just because of what it mandated but because of the vehemence with which this mandate was taken up and implemented. Americans were fed up with the powers that were, and grasping at every straw made available to them (including the election of Jimmy Carter himself ), we changed the power industry, very slowly, but inexorably and forever.
One reason this subsection was little noticed or troubled over at the time was that no one could have predicted the fervor with which it would be enforced, another reason, however, for its having been overlooked was the ambitious scope of the National Energy Act as a whole.
In a 2012 address to the Senate Foreign Relations Committee Meeting, President Carter recalled that the act “put heavy penalties on gas-guzzling automobiles; forced electric utility companies to encourage reduced consumption; mandated insulated buildings and efficient electric motors and heavy appliances; promoted gasohol production and carpooling; decontrolled natural gas prices at a rate of 10 percent per year; promoted solar, wind, geothermal, and water power; permitted the feeding of locally generated electricity into utility grids; and regulated strip mining and leasing of offshore drilling sites. We were also able to improve efficiency by deregulating our air, rail, and trucking transportation systems.”
Given the litany of changes enacted by this single piece of legislation one can see why permitting “the feeding of locally generated electricity into utility grids” might initially have slipped past a radar tuned to the measure of significant things. All of the copious features of this bill had an impact on the ways in which America used, produced, managed, and imagined energy. In this, as with his other bureaucratizing and legislative attempts to rationalize America’s relationship to power, the President got it right. At the end of his lone term in office we had our nation’s first ever National Energy Plan (the National Energy Act was its legislative form), a Department of Energy instead of the more than fifty unrelated government offices previously charged with overseeing national energy policy, a Strategic Petroleum Reserve to help smooth wildly vacillating oil prices caused by our national dependence on foreign oil, and the National Renewable Energy Laboratory, whose mandate was to explore and make feasible renewable and small, decentralized power options.
In order to understand how such a seemingly minor encumbrance to utilities rose with time to the level of a crisis that in the present is often, if somewhat melodramatically, referred to as a “death spiral,” it is necessary to spend a moment in the 1970s, a time in which we as Americans were becoming deeply aware of, and increasingly concerned about, the vulnerability and incomprehensibility of the systems that sustained us.
We, as a country, had spent decades, indeed most of the twentieth century, and billions of BTUs in the project of national uplift. By 1970 we had largely succeeded in this task. America was a wealthy nation and an infrastructurally sound one. Yet, the system we had devised to make us rich had also developed some obvious downsides. The government had gotten us ass over teakettle in Vietnam, and at home our prosperity was made fragile by our dependence on foreign oil, the steady supply of which we couldn’t control, while the material bounty that flowed from our industry had saddled us with a set of pressing environmental issues that regular folks had no power to correct. The institutions that ran America in 1970 were making decisions that increasing numbers of people didn’t agree with, and yet these power players seemed beyond the reach of anyone to affect. The protest culture of the late 1960s was in part a response to the inaccessibility and calcification of state and corporate powers, but it was also linked to a growing understanding that the steady stream of engineered goods these powers provided did not come without cost. Pollution, like shortage, was becoming part of the national consciousness. Certainly not everyone was jostled into awareness in the same way, but enough Americans had become interested in systemic change that Carter, an unusual pick, was elected to the highest office in the land.
By the time Carter took office, every home in America was its own miraculous technological node, built into a complexly woven support net of wires and pipes and ductwork. By 1976 everyone in America who wanted it had electricity, indoor plumbing, central heating, a refrigerator, and a phone. Our workplaces were similarly well served.
Living in these homes and laboring in these workplaces changed us. It only took a generation after the end of the Depression for Americans to become consummately modern individuals, until as a nation we had lost working knowledge of a coal brazier, a kerosene lamp, a latrine, an ice box, a well, a mangler, or anything else more complicated than a switch, a button, an outlet, a socket, a tap, or a flusher. And yet, it was also the case that almost no one had any idea how the replacement technology (a coal-burning power plant for a brazier, or sewer treatment plant for an outhouse, or water purification plant for a well) worked. By the mid-1970s, who, driving down the highway, could tell the difference between an oil refinery and a coal-burning power plant? A sewage treatment plant and a water purification plant (or, for that matter, a fish hatchery)? A telephone wire, a TV wire, and an electricity wire? Realistically, who needed to be able to distinguish among these classes of support? Nobody, except the professionals charged with maintaining them. As long as the switches, buttons, outlets, sockets, taps, and flushers worked, the benefit of all the rest having become distant undertakings running along long wires and through long pipes was that they were no longer our immediate concern.
Thus did America lose one kind of knowing—that involved in managing a low-tech household—without gaining another kind of knowing—that of the distant complexity undergirding a high-tech household. High-tech here doesn’t mean digital, though that transformation was also on the horizon by the late 1970s; rather, it means a modest but orderly entanglement of analog systems that provided for a comfortable life. These intimate infrastructures freed us up to live in ways unrecognizable to even big dreamers two generations earlier; our “normal” was blind luxury from the perspective of almost any other time in human history. One result of this was that we got to think about other things, do other things, and live longer, less disease-riddled lives. The problem was that all of these systems beyond the scope of daily understanding had consequences, and by the 1970s these consequences had become almost impossible to ignore.
The oil embargoes of 1973 and 1978 brought a nascent understanding to the nation as a whole of the global complexity and vulnerability of our gas tanks’ supply chain. The smog crisis in Los Angeles, which began in the 1950s and lasted through the 1960s, made the link between machines—including coal-burning power plants—and their effects palpable to Southern Californians’ lungs and red, itchy eyes. Love Canal in 1978 in tiny Niagara Falls changed pollution from an abstract evil to an immediate horror show.
Though environmentalism grew in force and impact with Love Canal and similar “Superfund” sites, the partial meltdown of one of the nuclear power plants at Three Mile Island, Pennsylvania, in 1979 shifted the tide for good. This event seemed to prove to nuclear power’s naysayers that they had been right all along. Nuclear was a no less poisonous way to make electricity than was coal that blackened lungs and smudged pores, and oil that was uncontrollable because of its origins on the far side of the planet. More than this, each mess, from DDT to acid rain, seemed to further convince a generation already angered and radicalized by the excesses of the Vietnam War that without an abiding wide-scale commitment to fundamental change disaster did indeed loom for America (and maybe, some suspected, we even deserved it).
By the late 1970s the problem was not so much awareness of what was going wrong, but rather how to change any of it. The systems in place that made smog, lakes of industrial pollutants, sweet light crude, and war had been hardening, in some cases to the point of total calcification, since the earliest years of industrial consolidation. In this the electricity business was no different: there was no way for regular people developing a new environmental consciousness to have a say in how power was made, from what, and with what after-effects except through protesting or opting out. Many Americans did both. Protests around nuclear power stations blossomed throughout the late 1960s and into the 1970s as thousands camped out around these power factories whenever they were due to open. Many more people were dissatisfied without taking to streets or going off the grid entirely. The drop in electricity consumption nationally was one sign of this discontent. Even people who couldn’t afford to “turn on, tune in, and drop out” could follow the Cardigan Path, and so they did.
Despite these developments, the industry’s stranglehold on generation meant that there was no alternate route that different logics of power production might follow. There was no place for choice or self-sufficiency and no reward for conservation or efficiency. Carter may have championed less rather than more, but before his legislation began to force change upon the status quo, acts of conservation or efficiency were without reward. One could use less power, but because of the tiered rate structures that charged the most for the first few kilowatt-hours used in any given billing period—a system put into place by Samuel Insull—these efforts were only minimally reflected in the dollar amount owed on the bill.
The impossibility of transforming a budding environmental consciousness into effective action against entrenched industries was not just an issue for individuals, but also for states and other communities attempting to enact their own responses to environmental degradation. California, for instance, had passed a bill into law, in the 1960s, that would mitigate pollution and encourage renewable forms of electricity production but could not enforce it because of the ways in which federal regulations protected big polluters from attempts at state reform. America was in a straightjacket and her frustration created a particularly fertile environment for even tiny seeds of hope, like that provided by section 210 of the Public Utilities Regulatory Policies Act. The Carter administration may have given the act its words, but the spirit of the times gave it its claws.
Nor was it just that the utilities had grown blind to the people; they were also isolated from governmental whimsy and reform by virtue of having their own dedicated regulatory bodies. The very institutions that had protected them initially from competition had become the agents of their cloister, divorcing the utilities from the effects of the market on their business decisions because they were guaranteed a modest return on every dollar spent. Buy a new office chair for the accountant? Earn a dime. Build a new coal-burning power plant—earn a hundred thousand dimes.
By the 1970s the utilities had ceased to live and function in the real world. Their rules were not our own. Their power had grown absolute, plodding, and blind. Energy historian Richard Hirsh takes it one step further, arguing that for decades the utilities had been attracting the bottom of the graduating classes from engineering schools: the students who didn’t want an exciting career in “the glamor industries—electronics, aerospace or computers” or who weren’t quite agile enough to land a more interesting job. It was a stagnant sector that promised no adventure and a steady paycheck. As a result, the most risk averse and least facile minds were running the game.
One of the reasons that section 210 of PURPA made it through the legislative process and into the law was that it didn’t at first glance challenge any of this. It left the utilities as monopolies untouched and instead reformed an almost accidental right they had been given all the way back in the early 1900s; it stripped them of the right to control the market for electricity not as sellers but rather as buyers. PURPA actually left their monopoly powers well enough alone, but summarily retracted their powers as monopsonies.
Most people know what a monopoly is—an entity that maintains control over the supply of a good or service, like how U.S. Steel controlled the market in rebar in 1900 or how the Soviet State controlled the availability of pretty much everything from toothbrushes to potato sacks within the vast, sprawling territory of the Soviet Union. What is less common knowledge is that the monopoly has an echo on the consumer side of the business world called a “monopsony,” which is the sole customer for a product. We don’t talk about these much in America because it is so rarely a problem. Here consumers are such a precious part of commodity systems that even companies eager to control a market as a provider of a product or service (a monopoly) will rarely so much as flirt with the notion of controlling a market by being its sole customer (a monopsony). Nevertheless, a monopsony is every bit as much a kingmaker as a monopoly—and America’s utilities before PURPA were a rare instance of both. Not only were they the only ones providing electricity within a given territory but they were legally also the only buyer available should some other intrepid industry—or one that generated a lot of excess heat in its daily operations, like a smelter—try to make and sell electricity within this same territory.
The utilities managed the grid, they made the power, they owned the wires, they distributed the electricity, and they collected the money. They were also regulated in such a way that anyone else with a notion to sell electricity couldn’t. The law prevented other electricity makers (by dint of not providing a license) from building their own distribution networks and entering into competition with the existing utility. While utilities, for their part, either refused to buy power from these third parties outright or they set such a low price per kilowatt-hour that most wannabe power plants, when they did the math, realized they would be losing money on the project and opted out. This was part of the reason there was no “alternative” generation during the middle years of the twentieth century. Even power systems that had existed well before the utility monopolies had been established, such as small hydro in streams (popular in California well into the 1920s) or cogeneration plants (which in 1908 produced almost 60 percent of the electricity made in the United States), had been almost utterly erased by the utilities’ preference for large, dedicated power plants. And since no one else could enter the market, because the utilities wouldn’t buy their product no matter how cheaply or cleanly they made it, that was pretty much that.
Regulation, back when it was hashed out in the early 1900s, had presumed exactly this kind of vertically integrated electricity system. No one really anticipated that one day more than half a century later that same entity might be in the position of a “customer” for modest quantities of electricity produced by someone else. Monopsony powers had been granted to the utilities almost by accident.
This was what PURPA reversed: The utilities could still be monopolies, but they couldn’t be monopsonies anymore. The utilities now had to buy power from entities making small amounts of electricity in their territory; and they had to pay the same rate for this independently produced power as it would have cost them to make it themselves. This second clause notably used the market to force small power producers to be more cost effective than the utility. To make any money they had to make electricity for less than the utility’s “avoided costs”—a fuzzy term that could be (and was) interpreted to include everything from the cost of fuel to the amount of new generation a utility wouldn’t have to build because of the electricity they were newly obligated to buy from other sources. PURPA was, in other words, a smart bit of anti-monopsony regulation.
So long regulated as monopolies, the utilities were not initially alarmed that they would now be regulated as monopsonies as well. This doesn’t mean they were exactly happy about the terms, it’s just that they were almost myopically concerned with losing their ability to offer so-called promotional rates.
By the late 1970s small had become beautiful and less had become more. There was no place in this new world of modest, consensual privation for rate structures designed to cajole people into using more power than they actually needed. Regardless, promotional rates were also one of the few tricks left in the utilities’ toolbox for keeping the cost of their massive investments in infrastructure from dragging them into the red. From the last chapter you’ll recall that the biggest problem with making a profit from electricity is that a power plant only pays off if it is used at close to maximum capacity twenty-four hours a day. Reduced consumption, whatever the cause, was a distinct threat to the utilities’ main way of making money. Once everyone had electric power there was no real way to grow a customer base; the only option was to manipulate how much power these customers used and when. Promotional rates were the utilities’ best way of doing this.
This tried-and-true means of convincing customers, most especially energy-intensive industries, to increase how much electricity they used was by offering special deals like almost free power in the middle of the night or half-price power after the first 60 kilowatt-hours used in any given billing cycle. Always an important part of their business model, such offers were critical in the 1970s as consumption was falling overall and power plant construction was reaching its apex. This effective means of maintaining an equilibrium in the electricity industry was also under threat from PURPA, and the utilities, as a result, were more worried about whole sections of the Energy Policy Act related to rate regulations than they were about buying a little bit of power from a scattering of tiny producers.
Thus, though the utilities did lobby against section 210 of the act—at one point they even managed to cut it entirely—nobody paid much mind when it was slipped back in by New Hampshire senator John Durkin. Senator Durkin’s goal was to assure that a garbage-burning plant in his district could start to move the electricity it was making to market in the Boston area (and maybe even increase their capacity by starting to burn wood waste from New England’s forests, what we now call “biomass”). The utilities thought they had bigger fish to fry than fighting Congress about the rights of a trash burner to sell a little power. In this, as it turned out, they were wrong.
In the United States in the 1970s there were still two types of electricity producers that were not part of the national grid. First were the cogeneration plants, like the New Hampshire trash immolation facility. These produced so much excess heat that running their steam through a small electric generator had no appreciable effect on the factory’s other tasks. Second were the hippies and other do-it-yourself small power innovators. By the mid-1970s both groups were already making their own electricity, though both were infinitesimally minor players in the national electricity game. In 1975, cogeneration plants were producing about 3 percent of the nation’s power and selling none of it, while what the off-the-grid folks were up to wasn’t even worth the trouble of quantifying. Nevertheless, in the 1970s, minor players were the only real direction one could turn in hopes of breaking the stranglehold the major players had over almost everything. In crafting section 210, then, the Carter administration thought it would be wise to integrate the one (cogeneration) and politic (and perhaps interesting over the long run) to include the other (hippie power). In this they were not far wrong.
If so-called “frontier electric technologies” such as small hydroelectric dams, solar electric systems, and wind power were included in the bill as a means of supporting innovation at the smallest scale, more of an experiment than anything else, cogeneration was neither a new idea nor a new technology. From the earliest days of electric power, factories had been making electricity, at first only for themselves, but as the grid had grown, this almost incidental current had initially been included in the national mix of generations. More electricity was being produced in the United States by cogeneration than by utilities as late as 1912. But by 1962, all that had changed—industrial cogeneration plants were, at the time, delivering less than 10 percent of the nation’s electricity. By 1978 that number had shrunk to 3.2 percent. Without direct government intervention, the number seemed destined to fall all the way down to nothing at all.
As it slowly became clear during the early 1980s that PURPA would stick, cogeneration began its climb back into the double digits. As of 2015, there were more than 3,600 factories in the United States making 12 percent of our electricity as a by-product of their own industrial processes. The U.S. Department of Energy’s current goal is that 20 percent of America’s electricity come from cogeneration plants by 2030. If its nesting efficiencies suited the prevailing attitudes of the 1970s, cogeneration also maintains a solid fan base among electrical engineers because its double use of the same heat increases plant efficiency to over 50 percent, leaving Carnot’s theorem in the dust. Existing means for increasing power plant efficiency cannot be made to do better than cogeneration does by its very nature.
No longer just a question of a single New Hampshire trash burner too close to Boston to regret all the dollars it’s losing as it vents its waste heat rather than recycling it into electricity, cogeneration today has officially entered the mainstream. So, too, have the chancier technologies—wind and solar most especially—though their path toward ubiquity was much less sure.
Though the integration of cogeneration into the national grid was clearly wise, PURPA also made it explicit that alternative renewable power projects would also be granted the right to sell their power to the local utility. As long as these generators remained smaller than 80 megawatts and produced electricity for less than the avoided costs of the utility then they would, just like the cogeneration plants, be guaranteed a buyer and a fair price for their electric power.
While PURPA was wending its way through the courts—a process that lasted five years—small power producers began taking out loans, buying land, fixing up old river dams, and erecting wind turbines. Nowhere was this more true than in California, which had been preparing, institutionally, for just such exigency for more than a decade. In 1983, when the Supreme Court confirmed the legality of PURPA and put an end to further legal dillydallying, California was ready. It had a host of small energy entrepreneurs with almost operational projects and it had local legislation in place to support electricity production that was verifiably environmentally friendly—what we would now call “green.” A surprising number of permits for small-power construction were filed almost immediately, 1,800 for dams alone, as well more than 16,000 wind turbines and even some for experimental solar projects. And all this new small-power generation was scattered to the four winds—in the river canyons and old mines of the Sierra Nevadas, in the desert outside L.A., in the passes between San Francisco Bay and the Central Valley, even in downtown Sacramento, and almost all of it was variable. It blew with the wind, fell with the water, and warmed with the sun.
The utilities quickly found themselves with a plethora of new problems. Never before had they had to deal with variable generation, never before had they had to deal with distributed generation, and never in the seventy years of their existence had they lost control over the production side of their business. At issue wasn’t that they suddenly had to integrate a massive amount of new power but that they weren’t getting to decide how much, where, or when relatively small amounts of electricity would come streaming onto their power lines. They just had to pay for it and distribute it when it got there. Their business model had no provisions for this new reality.
It demanded that they behave less like Soviets.
For half a century the daily, quarterly, and annual running of the grid had been accomplished in meetings between the managers of various arms of a utility. Notes were taken, plans made, and later operationalized. In place of this centralized and somewhat perfunctory organizational routine the utilities now needed something like real-time flexibility. Even if the scale was initially modest, the introduction of variable, distributed generation for which they would have to pay a market price was, for the utilities, a little like aliens coming down from outer space and asking them to enter into an intergalactic energy alliance. It’s fine in theory, but unimaginable in its details.
Take a simple seeming thing like paying market price.
The utilities weren’t exactly clear by the late 1970s how much it actually cost to make a kilowatt-hour of electricity. Much like any monopoly, they had not needed to take the market price for their product seriously into account. For fifty years they had been free from competition, they had had the price of their sole product set for them by regulators, and they earned a return on what they spent regardless of how frivolously. Over this same period their business model had become wholly reliant on guaranteed low-cost loans for big-budget items (like nuclear power plants). As a result they were more attentive to shifting political tides than to the market. By the time PURPA rolled around there was no longer anyone working in the electricity business who remembered what it had been like before, when competition was part of what governed the winners and losers of the electricity game. In 1978 they could hardly account for uncertain fuel prices, uncertain consumption practices, and the mysterious vagaries of environmental regulation. The problem of accurately estimating cost, profits, and price only became exponentially more difficult when applied to the future, which PURPA was now asking them to predict.
Meanwhile, there was some fear on the part of the Federal Energy Regulatory Commission (or FERC, founded in 1977) that the utilities would take the project of doing the math on the single “avoided costs” parameter of the transition as a means to stall implementation of the entire bill indefinitely. If each small power producer was treated to a long bureaucratic process before receiving a viable contract, then PURPA would fail; the letter of the law having become a tool in the demolition of its spirit.
To reduce wrangling and confusion and to make certain that PURPA was in fact implemented, FERC mandated that utilities, or in certain cases states, do the math thoroughly, but only once, and then use the number they found to determine all initial contracts with non-utility electricity providers. So labor-intensive was this task that the joke at the time was that PURPA ought to be called the “Full Employment Act for Economists of 1978.” Even this massive deployment of people good at figures yielded unsatisfactory results since, as then president of the California Public Utilities Commission (and later U.S. secretary of commerce) John Bryson pointed out in 1982, accuracy “will vary with the time of day, season, and term of contracts, as well as the utility’s marginal fuel or next planned facility.” The level of flexibility that the utilities found themselves needing, most especially in their attempts to link pricing models with time-of-day rates, would not be realized until the Internet would bring real-time arbitrage to electricity markets almost fifteen years in the future.
The reason the price per kilowatt-hour had to be set at the time of the initial contract, even if that contract stretched out for fifteen or thirty years, is that small power providers needed to know how much they were going to be paid for the electricity they would be selling, not just when they brought their projects online, but for the foreseeable life of their infrastructure. In order to win a contract they had to first demonstrate that they could produce electricity more cheaply than could the local utility. And second, they, too, like large power providers, stumbled over the costs of facility construction. Almost all the new players in the generation game had a significant outlay of capital at the very beginning of the process, which they were required to tackle without the low-cost-guaranteed loans that had made traditional utilities big builders since the Insull era. And though these same small producers were unencumbered by the regulations that had made traditional utilities slow to innovate, they still needed to project a guaranteed income to attract investors at the very start.
Once the initial requirements of figuring “avoided costs” were met by state regulatory agencies, often in conversation with the utilities, went about “offering” contracts in very different ways. In some states, such as Vermont and New York, the same price per kilowatt-hour was offered to any and all new electricity providers regardless of the utility doing the buying; in New York this was called the “six-cent” law as it paid out a flat, invariable, 6¢ per kWh for all early PURPA era contracts. In other states, like Virginia, non-utility providers bid for contracts. For example, in 1986, when Virginia Power wanted to add 1,000 kilowatt hours of generation, for use by 1990, they held an open auction, received 5,000 kilowatt hours’ worth of bids from fifty-three different companies from which they selected seven that promised 1,178 new kWh. This system of competitive bidding would become the most revolutionary of the many variants tried out by different states as it allowed for something like free-market competition to actually, and at long last, enter the governance of the grid. Once awarded the contract, these new, small power entrepreneurs “built out” the promised generation facilities, and on the appointed date, they began contributing a predictable kilowattage to the grid.
Not all states followed this model. Some avoided the bidding process and, rather than producing a single standardized contract, produced a series of them. California is the state that lives in the history books because of the unique (some might say spectacular) way in which their contracts opened the states’ electricity markets to “frontier electric technologies” rather than to cogeneration, which was the winner in most other places. California gave the hippies their due, and many of these leapt at the chance to make the state’s electricity, often with far more gumption than manifest skill.
In California there were four standardized offers, of slightly different lengths and with slightly different terms, which once written were made available to cogenerators and other wannabe small power providers to choose between. The first three were all a little too beneficial to the utility side of the contracting parties and as such received such a lackluster reaction that a fourth, interim choice—called by the dashing name Interim Standard Offer #ns4, or ISO4—was made available. It had terms remarkable enough (and it turns out, foolish enough) that not only did a great many small power producers sign up during the eighteen months between 1983 and 1985 that it was available, but a much larger percentage of these were “alternative” renewable projects than in other states. Unlike back east, for example, where in some states upwards of 90 percent of the new generation contracted during the first decade post-PURPA came from cogeneration, in California it would be wind that stole the show.
“The combination of federal and California incentives and innovative state regulations launched the wind industry in the U.S.,” write wind advocates Randall Swisher and Kevin Porter, and these “gave California the short lived title of having the most installed wind capacity in the world. Grid integrated wind development increased from 10 MW in 1981 statewide to a cumulative total of 1039 MW in 1985 [the equivalent of two coal-burning plants]. By the early 1990s as construction was completed on most of the remaining ISO4 contracts California had about 1700 MW of wind projects in place.” All in 80 MW chunks. “By 1990, California had become home of 85% of the world’s capacity of electricity powered by the wind and 95% of the world’s solar power electricity.”
The ISOs that helped structure the early days of PURPA’s implementation in California functioned a lot like Medicare does today. In the case of Medicare, different retirees have different needs; some need good prescription coverage, others need lots of very cheap doctor visits, others need regular high-tech services (such as dialysis). They then look to the small print of the plans (contracts, in fact) on offer and sign the one that seems to be the best fit. Every five years or so they get to revise this decision and choose again, though usually from a slightly different set of standardized contracts. It’s not free-market competition, exactly, but it means that individual cases can be “batched” while giving the minority partner in the interaction the ability to pick. No single contract is a perfect fit, but the reality of choice makes compromising on what are in fact non-negotiable terms a less bitter pill to swallow.
ISO4 was unique among California’s offerings in that for the first ten years of the contract it paid more than the avoided costs to the utility; it then paid less than this amount in the final years. This was particularly appealing to entrepreneurs because of how expensive it was to build new energy infrastructure. Unlike cogeneration, which had been around in one form or another for a long time, there was no tried-and-true means of making wind power or solar power in the early 1980s. Even the many small hydro projects that blossomed across California during the first post-PURPA years, which used known technology, still involved building new dams. All of this necessitated a lot of capital up front. The ISOs, and most especially number four, provided a solid assurance of income over the long term. This in turn made wind, solar, and small hydro quite suddenly and surprisingly into good investments.
In the early 1980s Tyrone Cashman sat at the “Wind” desk of California’s aptly named Office of Appropriate Technology in Sacramento. He is largely credited with bringing wind power to California, because he understood that entrepreneurial will alone, not even when coupled with utilities’ signatures on the right pieces of paper, would be enough to bring about a renewable energy revolution (to which he was, and remains, deeply committed). Tax credits, Cashman figured, were the answer.
The Federal Government, as a part of PURPA, was already offering 10 percent credit for investment in non-utility generation, tuned up to 15 percent by the Crude Oil Windfall Profits Tax Act in 1980, and further sweetened by an additional 10 percent investment tax credit which could be applied to any capital investment “regardless of whether it was used for a robot at an auto plant in Indiana, a giant shovel at a strip mine in Ohio, or a wind turbine in California.” A 25 percent tax credit provided by the Feds for investing in the electricity generation business was already a very enticing deal to investors. What Cashman did was double it. In California, any investment in renewable infrastructure (including solar and wind power, but also solar hot water heaters and other non-electricity producing uses of renewables) was rewarded with a tax break of nearly 50 percent. Money poured into the state, and most of it was transformed into the steel stalks and massive rotating blades of wind turbines. There were veritable forests of them.
What nobody involved with crafting ISO4 or the tax credits that accompanied it had expected was how well it all might go. Doing anything new in relationship to the bulk energy game had for so long been impossible that the best these new energy entrepreneurs and ideologues had hoped for was to make a tiny dent in the existing edifice. What they got instead was a party that everybody (even people they hadn’t exactly invited) came to. Taken together, ISO4 and the state’s overly generous tax credits created a glut in the renewables market. And as oil and natural gas prices plummeted in the mid-1980s, California’s two big utilities were quite suddenly being required to purchase more power than they needed for far more money than they could recoup through their rates. Meanwhile, the Reagan-era deregulation of the savings and loans in 1986 took Cashman, and most everyone else, totally by surprise. Suddenly everyone, not just the superrich—“the baseball players, football players, plastic surgeons and Southern California actors” that Cashman’s turbine investment plan had been meant to attract—could secure the financing necessary to buy their very own personal wind turbine. Far too many people, in his opinion, did just that.
“There just weren’t any stodgy bankers out there,” he explained to me more than a quarter of a century later, in his modest Marin County living room. “There were only wildcat bankers, who weren’t going to lose a thing no matter what they invested in.” And then “all these Wall Street types turned up, hiding themselves so we wouldn’t see them, but crawling all over this place.” This sentiment of too much investment too fast is echoed by energy analyst Paul Gipe, who points out that the “tax credits were so lucrative that they attracted those who knew more about constructing a deal than about building wind turbines.” Unwittingly Ronald Reagan had created one of the weirdest marriages American business has ever seen, as Manhattan investment bankers scrambled to buy up wind turbines made by commune-living, Vietnam-era draft dodgers. The result was that California, by the mid-1980s, had a massive wind bubble, ripe for popping.
California might have been the planetary center of wind energy in the mid-1980s, but their turbines were more machines for churning out visions of greener futures than actual watts. The buy-yourself-a-wind-turbine plan had become so appealing that, in Cashman’s words, “an awful lot of machines were put up that were worthless.” Nobody, at least no one in America, had figured out how to build an industrial grade wind turbine. What we’d figured out instead was how to finance them. The state-of-the-art turbines during those early heady days were, in Cashman’s words, “prototypes” that, unfortunately for California, operated according to the wrong logic.
America’s first turbine engineers were aeronautical engineers who had opted out of working for Vietnam-era helicopter companies. As a result they designed their turbines with floppy flexible blades based on the aerodynamics of helicopters. It turns out that the blades you need on a helicopter are the exact opposite of the ones that make for a successful wind turbine.
“On a helicopter,” Cashman explains, “you need lightness because you have to get off the ground, but you don’t want lightness in a wind turbine. Heavy is what you want, brute force, and another thing—when a helicopter goes in the air it has a chance to move with big movements of wind whereas a turbine can’t … it’s just standing there beating its brains out against the wind all the time … and there were other problems too: flexibility of joints and everything; wind turbines don’t need that either.” Since the helicopter guys had the wrong theory, once they got to the trial and error phase of things they never got very good results without really understanding why. Their machines couldn’t be tinkered into efficacy.
By 1989, a decade after the passage of PURPA, the average time a California wind turbine worked at capacity before breaking down and needing repair was seven hours. California had thousands upon thousands of these and none of them really worked.
“We kept saying a turbine lasts twenty years. That was our vision.” Cashman laughs. “But none of our turbines lasted twenty years. As a matter of fact, Alcoa Aluminum had a huge Darrieus Rotor that they had made, just straight aluminum. They thought they were going to be the wind energy guys, you know, really big. It fell down the day before we had the annual American Wind Energy Association Conference at their headquarters. It was going to be the big symbol, and it fell down—it got resonant vibrations.”
I can’t tell at this point in the story whether Cashman finds all of this tragic or funny. After all, California’s success in building wind power in the 1980s was critical in establishing the idea that renewables could be used to generate electricity for power grids at a scale comparable to fossil-fuel-powered plants. In 1984, according to Cashman, even with the questionable life span of their machines, California’s nascent wind industry produced as much electricity as San Francisco used that year. They had proved that even with prototypes they could make enough energy out of thin air to power a major American city. This was a real victory.
If American war defectors had been the only ones trying to figure out how to make electricity with wind, PURPA, ISO4, and some of the most generous tax credits in history couldn’t have saved it. The industry would have crashed and burned; it almost did. But as it turned out, the American hippies weren’t the only ones turning their sights to the wind. The Danish hippies, with their small, flat, windswept country, had the same idea, and if Americans were mostly trained as engineers, the Danes were former blacksmiths. “They had a totally different relationship with metal,” Cashman explains. “They spent their time fixing large-scale farm equipment, so machinery was their model.”
“Our first and second generation of prototypes, still needed … reconceiving,” Cashman says, trying to put it nicely. “Whereas their second to third prototypes were good. They could just manufacture them because they were all done on the right principles so they threw up factories as soon as our tax credit in California went into effect. They just threw up factories in Denmark and just kept shipping them over. Shipping them over, shipping them over.” California slowly filled up with Danish turbines, and even today if you drive over Altamont Pass, due east of the San Francisco Bay Bridge, you can still see some of those first Danish-made, movie-star-owned, S&L-financed turbines chugging away, with their stiff, heavy, inflexible blades. It’s been thirty-five years and they still work.
As California’s native wind industry was faltering by the end of the 1980s, Denmark’s was surging forward, and they colonized the world differently, spreading wind power first to Spain before jumping back over the pond to Texas, Iowa, the Dakotas, and eventually back to California, which in 2015 with 6,018 megawatts of installed wind was the second-largest wind-power-producing state in the country, just after Texas, with 15,635 megawatts, or 10 percent of its in-state generation.
In other words, PURPA worked. There were bumps in the road, great swerving moments at which it seemed that the path toward more efficient, smaller scale, and renewable power generation might be lost completely. But it wasn’t. Cogeneration is now a common way to make electricity in the United States, and more important, it has become part of what is commonsensical to us: that excess heat, for example, not be wasted, or that efficiency be a value in and of itself. Likewise, renewables, if not exactly a proven or even cheap technology in the 1980s, had become a way to think about making power. The wind-power boom in California changed Carter’s Cardigan Path from a notion to a visible, mappable route leading to new ideas that would follow in the wake of these first, flawed efforts. That even Wall Street accepted that these machines were a way to make money also helped as the moderation of the 1970s slipped over into the resoundingly immoderate 1980s.
Today renewables comprise 13 percent of installed electricity generation in the United States, but that’s not news. What is news is that in 2014, 53.3 percent of new generation installed in the United States was either wind or solar, and this percentage is predicted to only grow. Texas is aiming for 75 percent renewable power generation by 2050. The United States as a whole has a more modest goal of 20 percent by 2030, though a recent report from NREL, the National Renewable Energy Laboratory that President Carter helped to establish, holds that we are already capable, with existing technology, of making 80 percent of American power from renewable sources.
What happened in California cemented something of the spirit of the times into national consciousness. There was a better, less harmful, and ideally less costly way to make electricity than with coal, or nuclear, or even natural gas. But PURPA was not only important because it changed our ideas about how power might be “better” made, it also opened the door to honest-to-goodness competition in electrical power generation. As bidding auctions between small power providers gradually became the most effective way to integrate new forms of generation, and the companies making it, PURPA helped to prove that bigger wasn’t better and that monopoly-governed, vertically integrated, government-regulated megacompanies were far and away not the best way to make and manage American power. Small was not only beautiful but efficient, and, as it has turned out, cost-effective.
The unexpected success of PURPA was a momentous outcome for the culture of electricity in this country. “Passed more on faith than on knowledge of its real potential effects,” PURPA helped to destroy the rationale for the regulation of the utilities as natural monopolies. By the early 1990s their monopoly status was indubitably unnatural; it was rather entirely cultural—the remnants of an earlier time when building monopolies was how one did things. What PURPA made clear was that this monopoly structure, at least on the supply side of the system, was a real and proven detriment to the efficient and humane functioning of the business as a whole.
Thus did the 1970s sweep the 1890s from power; the Cardigan Path became the new ideological baseline for thinking as much as making and regulating the electric power industry—though only after it had been adequately proven that smaller, privately owned and managed generation was not only a good way to make electricity but also a good way to make money.
It is often presumed that the Carter-era reforms died a slow death as Reagan-era debauchery and easy wealth expanded to capture the imagination of the nation. We love to read about the excesses of Wall Street as its brokers took a last running gasp at the possibility of outthinking machines. Money flew through fingertips, up noses, between lips and hot, sweaty, very well-paid legs. Overconsumption was back in vogue, too much color (remember neon pink?), way too much hairspray, twenty-four-hour music television, Miami Vice, and slippery easy credit. Deregulation was in the air. What hope could a bunch of off-the-grid organic farmers with Ph.D.s and too many pairs of bell-bottoms, like Cashman, have in the face of the brighter, cheaper, gaudier epoch that overflowed the cusp of the 1970s to make the 1980s a decade of big risks in hopes of big returns? The Cardigan Path, on the surface of things, had been utterly erased by Duran Duran, crack cocaine, and the drive to deregulate and make a profit off everything.
In the electricity business, however, the move to deregulate, which would blossom in earnest in the 1990s, was not entirely counter to the counterculture, for it was regulation that had kept alternative generation out of the grid; it was regulation that had privileged the construction of ever larger, often carelessly polluting power plants through the 1960s and into the 1970s; it was regulation that had made conservation and energy efficiency not matter. If, as one industry critic pointed out, the electricity business is the only one in which you can make a profit by redecorating your office, what did it matter if some people, or even the president himself, were wearing sweaters and turning down their thermostats?
Though it is fashionable to use the term “deregulation” to refer to this epoch in grid history when the utility consensus was first fractured by legislative action, a more accurate term would be something like “reregulation.” The National Energy Act of 1978 was a regulatory intervention in the culture of the industry, and it was pushed into efficacy by federal, state, and utility regulators’ enthusiasm for the law. Likewise, the next big piece of federal “deregulatory” legislation, the Energy Policy Act of 1992, essentially ushered in a new set of regulatory norms rather than deregulating older ones.
For the utilities, despite the quaking of the ground under their feet, these regulatory shifts from on high also felt a lot like the status quo. They were still being very heavily regulated, just as they had been since the earliest days of the twentieth century, at their own behest. In the intervening years, state and federal political bodies had become used to regulating the utility companies and the utilities had also become very used to being regulated. This did not change with PURPA or with the “deregulatory legislation” that followed in its wake—it felt natural to all parties that any new regulations would oblige, rather than request, utility compliance. This was true at the state and federal level.
PURPA cracked open the utilities’ monopsony control of the grid and initiated what would become the end of their “natural” monopoly control over our electricity system as a whole. What it did not change, however, was the prevailing attitude on the part of lawmakers and the utilities that the only way to exert control over the behavior of the latter was through requiring absolute adherence to whatever happened to get legislated. Over time this culture of obligation has had the unfortunate effect of making the utilities even less capable of adapting to the rapidly changing electricity landscape than they had been originally.
When California implemented the first state-level “deregulation” bill aimed squarely at the reform of the utility sector in 1998 several years before the Energy Policy Act became law in the early 2000s they created a debacle, not only because the bill was a very poorly constructed piece of legislation—little more than a remarkable series of loopholes twisted through with some regulatory language—but because it obligated utility and regulatory compliance to its terms.
Or as Fred Pickel, an industry insider during this period, explained to me, deregulation in California failed because it betrayed “an engineering mentality. They tried to set up commercial systems in too much detail and in the process they started up an administrative process in which it takes two years to change a rule.”
Sadly for California, in 1998, as the Internet first creeped and then swooped into the national economy, two years was the time scale of dinosaurs. Information was newly electric, and it moved at electricity’s own speed, a change of tempo that made loophole exploitation one of the main components of the early Internet economy. The process at the time was called finding “the killer app” (for example, someone figures out that “gas stations in Germany are exempt from the country’s rigid early closing laws for most stores. Voilà! German gas stations become virtual shopping malls”). California’s “groundbreaking” deregulation bill made it easy, and even fun, to find “the killer app.” A number of companies got in the game, none more infamously than Enron. One of the first companies to operationalize online trading of energy futures as well as the exploitation of spot (just-in-time) markets, Enron found some resoundingly killer apps indeed. These included playfully named schemes like Death Star, Ricochet, Fat Boy, and Bigfoot as well more straightforwardly named, equally new, procedures like “megawatt laundering.”
Enron was not alone in exploiting the loopholes of California’s poorly made deregulation bill; smaller companies in San Francisco were doing the same or very similar kinds of transactions. But Enron’s relative size in concert with its broad organizational commitment to making money by whatever means possible lent a monstrousness to its undertakings that other new economy companies could only but aspire to. It has also been useful for the historical record that Enron collapsed, and criminally so, opening their internal workings in 2002 to intense public and legal scrutiny.
Enron’s collapse was not the direct result of malfeasance in the manipulation of electricity markets; rather, it was a consequence of their poor management of debt, greed, and risk. Despite the fact that their profitability (or lack thereof) as a company was not primarily rooted in their activities on the ground, these nevertheless have had enduring consequences for the electricity industry. In California these consequences included the near bankruptcy of its two largest investor-owned utilities, the consumption of an $8 billion state budget surplus, and almost nine months in 2000–2001 of uncertain electricity supply as power plants were taken offline for “repairs” or the lines necessary to carry essential current between the northern and southern halves of the state were “overbooked.” As rolling blackouts became the rule, many new economy businesses, like Apple and Cisco Systems, as well as other electricity-dependent undertakings such as military bases and prisons, began to think about ways they might detach themselves from grid-provided power. Institutional grid defection in the wake of 2000–2001 became a sign not of radicalism but the inverse: wise organizations engineered ways to use the grid as a backup power system rather than as something upon which they must rely regardless of how poorly it was managed or how sporadically its product was delivered.
Gray Davis, then governor of California, though he would soon be recalled largely because of his failures to contain, or even deal reasonably, with the energy crisis, put it perhaps best as he summed up deregulation in his 2002 State of the State address, saying: “We must face reality: California’s deregulation scheme is a colossal and dangerous failure. It has not lowered consumer prices; it has not increased supply. In fact it has resulted in skyrocketing prices, price gouging, and an unreliable supply of electricity. In short, an energy nightmare.” On this almost everyone would agree.
It was not, however, “deregulation” per se which caused the debacle, but that the state required the utilities to comply to its poorly crafted legislation while smaller, more flexible, more innovative companies ran rings around them both. This, too, was the result of the culture of PURPA, which presumed the stodginess and unadventurousness of the utilities to be inherent and thus unreformable characteristics of the industry. The utilities could be regulated, wisely or foolishly, but they would not be asked to learn adaptability, flexibility, or creativity themselves; instead they would be told what to do and they would be expected to do it. One result of this is that as the holes PURPA rent in the system have grown larger over the decades, the electrical utilities in their hamstringed attempts to reinvent themselves all too often remain an impediment in the task of reimagining and remaking our grid.