ACEEE NEWSLETTER

September 15, 2003

THE ENERGY CRISIS TRIFECTA

For most of 2003, the hot national energy issue was the high prices and tight supplies for natural gas. Secretary of Energy Spencer Abraham held a Natural Gas Summit on June 26, and has since launched the Smart Energy Campaign to encourage consumer action on energy efficiency and conservation. The National Petroleum Council is about to issue a report on natural gas supply and demand projections, and the Administration has been working on a range of supply and demand policy options to resolve the gas problem. Congress, about to go to conference on the first major energy bill in a decade, has also been wrestling with these issues.

Then in the dog days of August, electricity arced back to the top of the energy agenda due to the largest power blackout in U.S. history. Electric system reliability is suddenly a national crisis: DOE is heading an investigative effort, and Congress is struggling to strengthen electric reliability solutions in the pending energy bill. And as if that weren't enough, by late August an Arizona oil pipeline break, coupled with refinery capacity limits and surging late-summer travel, drove gasoline prices to record highs.

We thus have a veritable trifecta of energy crises: not even in the darkest days of the 1970s energy crises were all three major energy sources at risk in this way.

Never in our nation's history has the need to rethink our energy policy been more pressing. The conventional strategy of aggressively producing and wastefully consuming fossil fuels and electricity is exacting a price we may not be able to afford much longer. A price felt not only at the pump, in our utility bills, or at unemployment lines, but also in dirtier air and water, an increasingly unstable climate, vulnerability to disruptions in supply, and wild price swings.

We can and must take immediate steps to relieve the intolerable pressures on our energy systems. The fastest, cleanest, and most economical options are energy efficiency policies and conservation efforts that moderate energy demand, thus taking the wind out of prices and relieving the strain on our energy infrastructure.

ACEEE is contributing to the efficiency solution through an Energy Foundation-funded study of the effects of energy efficiency and renewable energy on natural gas prices. Using the same models and the same firm employed by the National Petroleum Council for its upcoming study, our analysis examines the impact of modest reductions in energy use and moderate increases in renewable energy generation in the next one to five years on wholesale and retail natural gas prices. The results show that small changes in energy demand can result in large decreases in natural gas prices (just as modest increases in gas consumption have caused natural gas prices to skyrocket). Much of the recent increases in gas consumption has been for electric power generation, meaning that saving electricity is one of the most effective ways to save natural gas. Electric and natural gas use reductions in the 1 to 6 percent range would result in national wholesale gas prices dropping by about 20% relative to the business-as-usual forecast.

Extra good news in our study is that the same electricity savings that aids in reducing natural gas prices (especially during peak hours) also aids in reducing the strain on electricity grids that helped trigger the August blackout.

ACEEE is working with Congress and the Administration to use the findings to support new efficiency measures in the pending energy bill and in the Administration's ongoing response to the gas and reliability problems. The study's summary report is available for free download at http://aceee.org/energy/natgassummaryreport.pdf. For more resources on the natural gas crisis, check out http://aceee.org/energy/natlgas.htm. ACEEE's Utilities Program has studied the use of energy efficiency programs by various utilities around the nation as a strategy to help ensure electric system reliability; check http://www.aceee.org/pubs/u031.htm for details. For ACEEE's recommendations to Congressional energy bill conferees, check http://www.aceee.org/energy/03nrgbillconfree.pdf.

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