Policy Shifts Across Five Decades
By Michael Picker · October 2025
Introduction
California’s distinct pattern of energy policy after the 1973 Arab oil boycott has worked well for the state. Key features where the state moved differently from more prevalent national policies of the time include:
- Gaining control of energy forecasting through publicly managed and transparent data collection and analysis.
- Tying needs identified in forecasting to procurement for those needs, including clear directions for utilities and other public electricity providers for what technologies fit best and cost least.
- Developing industrial policies that help key new energy assets to scale and reduce their costs over time.
- Setting clear longer-term directions for meeting energy needs, setting timelines and building policy and leadership tools for accountability, coordination and problem solving.
- Anticipating needs for upgrades in ancillary infrastructure like transmission lines needed for large-scale renewable energy generation and, more recently, for increasing electrification of sectors like buildings and transportation.
California’s progress offers important lessons that can be applied to the pressing energy challenges facing the state and nation today.
Mark Twain Warned Us That If History Doesn’t Repeat Itself, It Does Often Rhyme.
In 1973, Arab oil producers embargoed shipments to the United States because of U.S. support for Israel during the Yom Kippur War. The sudden and sharp impacts were a rude awakening for federal policymakers and Americans whose rising oil consumption had garnered little concern in the lead-up to the embargo, despite the nation’s growing reliance on foreign imports.
“Before 1973, energy policy could be summed up this way: America ran on oil and the oil industry ran on favorable tax treatments. Fuel was cheap, cars were large and it may shock folks to know that virtually all electric power generation that was not coal, hydro or nuclear was oil-fired. How much oil? In the 1970s, Southern California Edison was the second largest U.S. consumer of oil, surpassed only by the Pentagon.”
Consumers faced gasoline shortages and long lines at the pumps, alternating days for lining up at gas stations based on odd or even numbers on license plates, and skyrocketing fuel costs for heating oil as well as gasoline. National leaders called for emergency measures under the banner of “energy security” or “energy independence,” pressing for speedy measures to “build it, dam it, drill it.”
President Nixon announced a “Project Independence” focused on converting oil-powered electric plants to coal and completing an Alaska oil pipeline that intended to free America from its dependence on imported oil. Congress, meanwhile, created the Federal Energy Administration (FEA), charged with allocating scarce fuel supplies and imposing price controls.
Photo from Marty Lederhandler, KPBS, “The 1973 Arab Oil Embargo: The Old Rules No Longer Apply,” 10/16/2013.
Taking a different approach, California’s leadership doggedly pursued a multi-pronged effort over the following decades to address the challenge from several angles:
- Taking away sole control of energy forecasting and energy planning from utilities and oil companies and vesting a more transparent process in California’s public energy agencies.
- Squeezing efficiency out of the state’s existing energy uses before building expensive power generation deemed by private and often self-interested companies as necessary to meet new demand.
- Beginning to plan and order procurement from gas and electric utilities that jump-started new cost-effective and less volatile technologies.
These strategies were met with skepticism on the national stage, with some commentators snarkily predicting that “Californians would starve to death in the dark.” Contradicting the harsh rhetoric about high electric bills and unreliable power, the state has been relatively successful in making a transition away from the panicky mainstream reactions of 1973 toward a different, but still successful, design for energy security.
Striking Out in a Different Direction
Even before the Arab oil boycott, the California Legislature had adopted a bill to develop energy efficiency standards for new building construction. In addition, a legislative committee in 1972 had commissioned the RAND Corporation for a report to inform ongoing hearings on energy policy in the state.
The RAND research stretched over several years and focused on forecasting future energy demands in California, developing policies for power plant siting and setting regulatory responsibilities, and identifying the impact and competitive opportunity that consumer electricity conservation measures could provide.
In those days, economic growth was assumed tied directly to energy consumption, which was growing 7% per year and thus doubling each decade. RAND reported that if that trend continued, California would need a major nuclear or coal plant every 20 miles along the entire coast. Other reports at the time also identified utility plans for as many as 15 new coal plants in the California Central Valley, raising opposition in agricultural communities over competition for precious local water resources.
Findings from the RAND research planted the seeds for an alternative approach that could yield major impacts on the state’s energy needs through a portfolio of actions. RAND concluded that a combination of actions—decreases in electricity use through conservation, substitution of solar energy, and increases in electricity from geothermal and organic sources—could reduce the need for nuclear power by a factor of five.
Even as this research was underway, conversations that mirrored RAND’s findings provided a foundation for California’s energy policy, influencing the creation of the California Energy Commission (CEC) and its regulatory framework. Authors of the Warren-Alquist Act, which established the CEC, often held divergent views.
Senator Al Alquist believed a key issue was a need to increase supply by speeding siting of large and expensive new power plants, while Assemblymember Charles Warren emphasized the need to avoid costs of potentially excessive construction and protect both ratepayers and the environment by more precise forecasting and reducing demand.
The Warren-Alquist Act attempted to address both of these goals. While then-Governor Ronald Reagan initially resisted, he eventually signed the bill in 1974. The Act, which became effective in 1975 under newly elected Governor Jerry Brown, empowered the CEC to preempt local zoning decisions on major power plants.
At the same time, the new statute required that no plant could be built unless deemed “needed” in accordance with independent energy forecasts done by the CEC, circumventing self-interested parties such as power-plant-owning utilities and fuel suppliers. It also mandated the nation’s first building and appliance efficiency standards and set up state-run renewable energy R&D programs.
Among those leading the development of a new approach to meeting the state’s energy needs was Lenny Ross, a 30-year-old UC law professor and early Jerry Brown appointee to the CPUC. Assigned to the 1973 PG&E General Rate Application, Ross wrote that “We regard conservation as the most important task facing utilities today,” rebutted the utility’s plans for new power plants, and called for greater adoption of energy efficiency and alternative energy sources.
Following on this admonition, the CPUC opened an investigation asking PG&E to demonstrate how it planned to carry out procurement of alternatives to nuclear and coal plants. Soon after, the CPUC acted on additional recommendations, making energy efficiency a priority for all regulated energy utilities.
The concept of “avoided cost” emerged as a key regulatory tool, requiring utilities to consider in their planning investments that avoided the high lifetime cost of new nuclear or coal plants, thus opening the door for cleaner resources with lower life-cycle costs to compete.
In 1979, when PG&E reported that it had not made progress on procuring energy efficiency, the CPUC heavily fined the company and ordered it to look again. The fine, more than the regulatory debate itself, captured the attention not only of PG&E but of much of the energy policy and investor community.
As part of these proceedings, the Environmental Defense Fund (EDF) used an open-source energy needs calculator built on transparent data sets, known as ELFN. ELFN reinforced RAND’s findings, provided precision to CPUC decisions, and opened energy planning and ratemaking to a larger audience by putting numbers and assumptions out for public examination and debate.
Spurred by the tumultuous energy landscape of the 1970s, California’s new energy policies quickly gained momentum and nationwide interest. In April 1980, CPUC President John Bryson convened a major symposium at Stanford University that brought together environmental leaders, utility executives, federal energy officials, investors, and advocates—many of whom would shape California energy policy for decades to come.
From Policy to Progress
Energy Efficiency
The CEC’s 1978 building energy efficiency standard—formally known as Title 24, Part 6 of the California Building Standards Code—was a landmark regulation aimed at reducing energy consumption in buildings.
- Mandatory efficiency measures: Required insulation, efficient windows, and HVAC system improvements to reduce energy waste in new construction.
- Performance-based standards: Allowed builders flexibility in meeting efficiency goals rather than prescribing specific technologies.
- Periodic updates: Established a framework for regular revisions to keep pace with technological advancements.
The CEC followed up with energy efficiency standards for major energy-using appliances like refrigerators and air conditioners. After his appointment to the CEC, UC’s Art Rosenfeld popularized the impact of efficiency using what is now known as the Rosenfeld Curve, which showed that over 40 years, per-capita electric energy use in California remained flat while power demand across the U.S. more than doubled.
The Rosenfeld Curve
The Rosenfeld Curve, illustrating California’s flat per-capita electricity use versus rising U.S. averages over four decades.
Co-generation (Combined Heat and Power, CHP)
Following the 1978 adoption of the Federal Public Utility Regulatory Policies Act (PURPA), the CEC convened a 1980 conference on cogeneration, a process that uses waste heat from manufacturing and heavy industry to produce steam-powered electricity.
Governor Brown set ambitious goals of 6 GW of cogeneration statewide and 400 MW from waste heat at State of California facilities.
To help meet that 400 MW goal, the Department of General Services energy lead, Michael Garland, pioneered public-private partnerships that financed and installed energy efficiency and cogeneration projects in exchange for a share of energy cost savings. This shared-risk model moved costs from capital budgets to operating budgets and allowed agencies to redirect savings to public services.
Expanded Options Under the Federal PURPA Statute
PURPA promoted energy efficiency, encouraged competition in electricity generation, and reduced dependence on fossil fuels by fostering development of small-scale renewable and cogeneration facilities.
Utilities were required to purchase power from qualifying facilities—such as cogeneration, small hydro, geothermal, biomass, wind, and solar—at a rate based on the “avoided cost” of building new conventional plants. In California, this led to a rapid emergence of non-utility independent power providers and diversified the state’s energy mix, even though disputes over avoided-cost calculations and evolving regulatory frameworks posed challenges.
By 1990, a competitive auction for new resources as part of the Biennial Resource Plan Update (BRPU) produced bids from non-utility generators that came in far below expected costs, thanks in part to dramatic improvements in gas turbine efficiency during the 1980s.
Beginning in the late 1980s, the CPUC also explored “decoupling” mechanisms to separate utility revenues from electricity sales, so that utilities could be rewarded for supporting energy efficiency and clean energy procurement rather than for selling more power from plants they owned.
Deregulation
The success of PURPA, competitive bidding, and decoupling came as telecommunications, airlines, and the British electric and coal industries were being deregulated, spurring similar conversations about restructuring California’s electric sector.
Studies known as the “Yellow Book” and “Blue Book” examined options for reforming utilities and regulation, but a hurried legislative process ultimately produced SB 1890 in 1996. The law created competitive wholesale and retail electricity markets, and utilities began selling off their generation to independent producers and traders.
The market design failed catastrophically in 2000 during a statewide heat event, leading to rolling blackouts, wholesale price spikes, and market manipulation. The state responded by signing costly power contracts, reversing many provisions of SB 1890, and seeing PG&E enter bankruptcy.
An enduring result, however, was a mandate that regulated utilities sell most of their generation. The failed market was replaced by a bilateral procurement system, in which the CEC assesses energy needs, the CPUC orders utilities to solicit bids, and utilities sign long-term contracts evaluated on “least cost/best fit” criteria, subject to independent evaluation and oversight. The California Independent System Operator (CAISO) balances the grid and dispatches resources based on cost and reliability.
Under this model, utilities no longer earn profits by selling more electricity. Instead, they are paid for procuring power under CPUC rules and for building and operating transmission and other infrastructure.
Renewable Portfolio Standard and AB 32
In 2002, in the wake of the energy crisis, California adopted the Renewables Portfolio Standard (RPS) to spur new generation and reduce the ability of a few gas plants to manipulate wholesale markets. The RPS required utilities to procure increasing shares of electricity from renewable sources.
Assembly Bill 32 (AB 32), the Global Warming Solutions Act of 2006, required California to reduce greenhouse gas emissions to 1990 levels by 2020. The RPS was strengthened to align with this climate goal, and it also functioned as an industrial policy to scale up new clean technologies.
- 20% renewables by 2010 (original target)
- 33% by 2020
- 50% by 2030 (SB 350, 2015)
- 60% by 2030 and 100% carbon-free electricity by 2045 (SB 100, 2018)
California phased out coal-fired power and replaced it with renewables whose fuel is free and not subject to volatile global markets. Solar and wind now provide more than half of retail electricity sales for major utilities, and as supply chains have matured, technology costs have dropped sharply. Investments in energy storage and transmission have helped integrate these intermittent resources and pressured new coal and gas development throughout the West.
Policy and Organization to Support the Transition
Niccolò Machiavelli warned that leading the introduction of a new order of things is difficult and uncertain. California’s experience shows the importance of clear direction, coordination, and accountability in managing energy transitions.
As the Legislature adopted the RPS, agencies created the Energy Action Plan, which laid out a roadmap for developing new electricity resources. A core element was the California Energy Loading Order, which prioritizes:
- Energy efficiency and demand response.
- Renewable energy generation.
- Clean distributed generation, including combined heat and power.
- Conventional fossil-fuel generation as a last resort.
The Legislature later codified this loading order, making energy efficiency the top statutory resource. To coordinate implementation, a group of leaders known as the Energy Principals—heads of the CPUC, CEC, CalEPA, and CAISO—worked together as a high-level interagency body, especially during the 2008–2014 period of rapid renewable development.
ARRA and the Renewable Energy Action Team (REAT)
The 2009 American Recovery and Reinvestment Act (ARRA) accelerated California’s RPS by providing 30% federal tax credits, encouraging fast-track permitting, and funding grid upgrades to integrate renewable power plants.
California had already completed the Renewable Energy Transmission Initiative (RETI), which mapped likely sites for renewable projects and transmission routes, helping developers identify least-conflict locations.
In 2009, Governor Arnold Schwarzenegger and U.S. Interior Secretary Ken Salazar signed an MOU to expedite renewable energy development. A joint Renewable Energy Policy Group and a smaller Renewable Energy Action Team coordinated siting, permitting, and interconnection to meet ARRA timelines. These efforts produced roughly 20,000 MW of new wind, solar, and geothermal projects that qualified for ARRA support.
What Next?
Once ridiculed for conservation and technology-forcing policies, California is now widely seen as a model. Its experience offers guidance for the major energy challenges ahead.
Electrify Everything
The RPS alone cannot achieve California’s climate goals. Only about 15% of the state’s carbon emissions come from the electric sector; about 42% come from transportation and 20% from buildings. Even at 100% carbon-free electricity, California could still miss its economy-wide targets.
The Energy Loading Order has evolved to emphasize electrification of high-emitting sectors. New building codes require net-zero housing, efficient heat-pump water heaters, and stronger efficiency standards. Clean electricity must increasingly replace natural gas in buildings and gasoline and diesel in vehicles.
Energy efficiency will remain the least-cost resource, but its meaning is changing: more clean electricity will be needed overall, while end-use technologies like heat pumps and electric vehicles must become more efficient. This transition will demand upgraded low-voltage distribution systems, smarter devices and transformers, more communications with system operators, and increased panel capacity in homes and businesses.
Affordability
Electricity rates in California are high compared with many states, but thanks to decades of efficiency, Californians use less power and often have comparable or lower monthly bills.
U.S. residential electricity prices versus monthly consumption, showing California’s relatively low usage despite higher per-kilowatt-hour prices.
Southern California Edison’s Pathway 2045 report outlines steps to reach carbon neutrality by 2045, including 100% carbon-free retail electricity, large-scale transportation and building electrification, 30 GW of utility-scale storage, major grid modernization, and policy alignment.
While electric demand is projected to rise by about 60%, the report finds that a decarbonized, electrified world can deliver overall energy savings for the average household. Although electricity bills increase, total energy spending drops by roughly one-third by 2045, largely due to reduced gasoline consumption from widespread electric vehicle adoption.
Illustration of household energy spending for non-adopters, average customers, and adopters of electrification and rooftop solar in 2019 versus 2045.
Many Fear That Growth in Demand Will Strain the Grid
Recent reliability assessments warn that rising loads from data centers, electrification, and industrial growth could stress grids during extreme weather. Regional grid operators forecast significant demand growth over the next decade, and some project steep increases driven by AI-related data centers.
In California, PG&E has reported surging interest from data centers seeking interconnections, with project sizes growing from 50–100 MW to 500–1,000 MW each. Similar trends in Texas and other states have fueled calls for rapid construction of new generation, including nuclear power for the AI boom.
Approaches to Meeting Rising Demand
Despite enthusiasm for large new power plants, nuclear and gas expansion face steep hurdles. New large reactors have experienced severe cost overruns and delays, while small modular reactors are unlikely to be widely available until the mid-2030s. Gas plants face rising costs, turbine supply constraints, and uncertainty about future demand.
Meanwhile, U.S. policy seeks both to lead in AI and to ensure sufficient power for data centers. To avoid overbuilding expensive generation, California and other jurisdictions can apply lessons from past transitions:
- Require more realistic evidence of project viability—such as executed contracts—in interconnection queues, both for new power plants and for large data centers.
- Encourage aggressive energy efficiency in data centers, including advanced cooling strategies that can significantly reduce projected loads.
Electric vehicles offer another opportunity: current models can be energy-intensive, especially in heavy-duty applications. Smarter rate designs, such as time-of-use charging that ramps up over time, can reduce peaks and create incentives for manufacturers to improve vehicle and battery efficiency.
Final Notes
California can still gain benefits from the same policy tools deployed in the 1970s:
- Keep a steady hand on energy forecasting, avoiding the urge to surrender that tool wholesale to self-interested parties, whether they are oil companies, utilities, or large customers.
- Set clear goals for meeting demand and manage procurement so that new transitions incorporate cleaner, more efficient, and reliable technologies that reduce price volatility.
- Keep government processes efficient and accountable by identifying key leaders with real authority and maintaining open coordination between agencies with different missions and powers.
Contact: www.caliberstrat.com | michael@caliberstrat.com
