Policy Shifts Across Five Decades
BY Michael Picker · April, 2026
INTRODUCTION
California’s distinct pattern of energy policy after the 1973 Arab oil boycott has served the state well and, decades later, holds insights for addressing present-day energy challenges. 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.
Learnings from California’s playbook can help us with forward-looking solutions to major energy challenges we face today.
- Early efforts for energy efficiency reduced residential, commercial, and industrial demand for electricity. Expenditures to make those improvements have been costly, but as consumers use less electricity, California utility residential electric bills are close to the national average.
- State policies call for increasing improvement in air quality and reductions in carbon emissions. Just as co-gen and efficient gas turbines outcompeted coal and oil as a cheaper source for electricity, even cleaner energy technologies like renewables are now cheaper than natural gas power plants. Fuel switching to clean electric technologies can further reduce residential consumer energy costs significantly as households switch from gasoline for their cars and natural gas for appliances.
- New technologies are reshaping key industries: data centers and AI have a voracious appetite for electricity, and are predicted to transform large manufacturing, service, and logistics companies. EVs are already growing in personal transportation and offer life cycle savings in heavy-duty transport. But existing public planning tools are not adequate to predict need and infrastructure upgrades. Nor is energy efficiency a prominent part of the discussion and proposed action in these sectors.
- These transitions will reshape energy use and energy policy in large parts of the California economy. State agencies and decision-making bodies will also need to change, as the pace of innovation demands clear, coordinated, and faster action.
MARK TWAIN WARNED US THAT IF HISTORY DOESN’T REPEAT ITSELF, IT DOES OFTEN RHYME.
In 1973, Arab oil producers embargoed shipments to the U.S. in response to 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 was 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; and
- 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.” Contrary to 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.
California’s progress offers important lessons that can be applied to the pressing energy challenges facing the state and nation today.
STRIKING OUT IN A DIFFERENT DIRECTION
Even before the Arab Oil Boycott, the California Legislature in 1972 had adopted a bill to develop energy efficiency standards for ducting and insulation in 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.
As Dan Richard writes, “In those days, economic growth was assumed to be tied directly to energy consumption, which was growing 7%/year, 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 like Chico and Bakersfield 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. In summary, the RAND report noted, “In the two decades from 1975 to 1995, only a very modest addition to nuclear capacity would be needed, and in the year 2000, nuclear generation capacity is reduced… Measured in terms of the number of 1000-MW plants, only 10 nuclear power plants are required instead of 48… The combination of a number of actions, each small in itself, can be very powerful in affecting the mix of energy sources required in the future. In this example, we have combined decreases in electricity use through conservation and the substitution of solar energy with increases in electricity from geothermal and organic sources to reduce the need for nuclear power by a factor of 5.”
Even as their research was underway, conversations that mirrored findings of the RAND report provided a foundation for California’s energy policy, influencing the creation of the Energy Resources Conservation and Development Commission, colloquially known as the California Energy Commission (CEC), and its regulatory framework.
Authors of the Warren-Alquist Act often held divergent views. Senator Al Alquist weighed toward 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 demand reduction.
The Warren-Alquist Act attempted to address both of these goals. While then-Governor Ronald Reagan initially resisted, he eventually signed the Warren-Alquist 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 first-in-the-nation building and appliance efficiency standards, and set up various 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 notably commented in the findings section that “We regard conservation as the most important task facing utilities today,” continuing on to rebut the utility’s plans for new power plants, stating “unchecked proliferation could not be allowed to continue,” and calling for more adoption of energy efficiency and alternative energy sources.
Following on this admonition, the CPUC opened an Order Instituting Investigation (OII 26) asking PG&E to demonstrate how it planned to carry out procurement of these alternatives to nuclear and coal plants. Soon after, the CPUC acted on additional recommendations contained in Ross’ Order Instituting Rulemaking (OIR 2), making energy efficiency a priority for all regulated energy utilities.
In the course of OIR 2, the concept of “avoided cost” was raised as a regulatory tool, requiring utilities to consider in their planning investments the avoided high lifetime cost of a new nuclear or coal plant, thus opening the door for cleaner resources with a lower life-cycle cost to compete. In 1979, when PG&E returned to the CPUC reporting that they had not made progress on procuring energy efficiency, the CPUC heavily fined PG&E and ordered the company to look again. The fine, while not large in today’s terms, was a surprising action, capturing not only PG&E’s attention, but also notice from investors and much of the energy policy world.
As part of the proceedings for OIR 2 and OII 26, the Environmental Defense Fund (EDF), fronted in California by attorneys Tom Graff and David Roe and supported by EDF analyst Zach Willey later bolstered their testimony with results from Electric Finance (ELFIN). ELFIN was the first open-source energy needs calculator built on transparent data sets, putting all the assumptions on the table. ELFIN reinforced the findings of the Rand Report and also brought precision into the findings of the CPUC’s decisions. ELFIN opened up energy and utility ratemaking to a larger audience by putting numbers and assumptions out for public examination and debate, making government and public interests effective actors in shaping energy decisions, rather than the subject of purely private interest choices.
ELFN opened up energy and utility ratemaking to a larger audience by putting numbers and assumptions out for public examination and debate, making government and public interests effective actors in shaping energy decisions, rather than the subject of purely private interest choices.
Spurred by the tumultuous energy landscape of the 1970s, California’s nascent energy policies quickly gained momentum and nationwide interest. In April of 1980, then President of the CPUC John Bryson convened a major symposium at Stanford University. Speakers included Amory Lovins, Tom Hayden, Lenny Ross, Daniel Yergin, Art Rosenfeld, utility leaders, federal energy officials, environmental advocates, state officials, and major investors. The list of 150-plus attendees reads like a roster of many of California’s energy leaders of the ensuing 50 years, and also showcases the progress in other states and at the national level.
FROM POLICY TO PROGRESS
ENERGY EFFICIENCY
The CEC’s 1978 Building Code 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. The first energy efficiency standard for buildings in the U.S. included:
- 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. Art Rosenfeld, after his appointment to the CEC, summarized many of his arguments visually through a chart (generally now called the Rosenfeld Curve) in a 2007 CEC energy forecast. The chart (see below) shows that over the 40 years after first putting energy efficiency to use as a priority energy policy, per capita electric energy use in California remained flat, while power demand across the U.S. had more than doubled over the same period.
THE ROSENFELD CURVE
Co–generation (also called co-gen, Combined Heat and Power or CHP)
Following the 1978 Congressional adoption of the Federal Public Utility Regulatory Policies Act (for more on PURPA, see the following section below), the CEC convened a conference in September of 1980 on cogeneration, a process for using waste heat from manufacturing and heavy industry to produce steam-powered electricity. In concert with this event, Governor Brown pushed forward new goals, calling for 6 GW of power from statewide cogeneration, and 400 MW of cogeneration from waste heat at State of California facilities.
As a tool to meet that 400 MW goal at state facilities, the Department of General Services energy lead, Michael Garland, pioneered a number of key tactics, including public-private partnerships (PPPs) with private companies that helped finance and install energy efficiency improvements and modern appliances in return for a share of saved energy costs.
This pioneering effort essentially shared the risk of underperformance with providers and allowed state agencies to move costs of energy efficiency and cogeneration from their capital budget to their operating budget. The lower costs of power were then reflected in lower state budget expenditures, allowing agencies to shift savings to increased services for Californians.
EXPANDED OPTIONS FOR CLEANER SOURCES OF GENERATION UNDER PROVISIONS OF THE 1978 FEDERAL PUBLIC UTILITY REGULATORY POLICIES STATUTE
While California was departing from many national policies and practices, some national innovations were also critical during this period. The Federal Public Utility Regulatory Policies Act (PURPA) was also a response to the energy crisis of the 1970s under President Carter. Bob Foster said, “People ask me, ‘Well, you know, governmental policy really never gets implemented, does it?’ I said, ‘I’ll show you a policy that changed the world, and it’s PURPA.’ They did it at the Federal level — that started independent generation.”
Primary goals of the statute included promoting energy efficiency, encouraging competition in electricity generation, and reducing dependence on fossil fuels by fostering the development of small-scale renewable energy and cogeneration facilities. PURPA required utilities to purchase power from qualifying facilities (QFs) at a set rate assumed to be at or below the cost of a new gas, diesel, coal, or nuclear power plant.
Projects came forward that could meet this “avoided cost rate” test, and California saw the rapid emergence of a class of non-utility “independent power providers” of generation. While PURPA was instrumental in diversifying both power provider technologies and California’s energy mix, implementation also faced challenges, including disputes over avoided cost calculations and evolving regulatory frameworks.
When the CPUC later sought to determine a regulatory process for evaluating “avoided costs,” Dan Richard relates, it produced two standard offer contracts that utilities would offer to test market prices for independent power producers, but “energy price fluctuations made financing projects under the standard offers impractical.” While it took years to produce an enduring means of setting avoided costs, by 1990, the CPUC was finally ready to proceed with an auction for new resources as part of a Biennial Resource Plan Update (BRPU). The results stunned the utilities, as bids from non-utility generators came far below expected numbers, due in part to dramatic improvements in the efficiency of gas turbines through the 1980s. Prodded by Dian Grueneich and aided by energy economics consultant Bill Marcus, the CPUC began in 1987 to explore decoupling mechanisms to separate utility revenues from electricity sales, ensuring that utilities are incentivized to support energy efficiency and clean energy procurement through contracting out, rather than continuing to build, own, and operate their own power plants. A significant milestone came with CPUC Decision 97-05-040, issued on May 6, 1997.
DEREGULATION
The eventual success of these efforts — PURPA’s mandate to procure QFs, the success of the BRPU competitive bidding process set forward at the CPUC, and decoupling — came at a time in the Reagan Administration when telecommunications and the airlines had been deregulated nationally, leading to more competition in those industries, lower prices, and new services. This, in turn, led to a focus on the electric industry and eventually, to discussions on restructuring the role of the CPUC as well as deregulation of power utilities.
The head of the CPUC’s Strategic Planning Division at this time, Gigi Coe, led a team that examined how deregulation in the phone and airline industry had fared, as well as the experience of the British deregulation of their electric and coal industry. This regulatory examination was published in a report called the “Yellow Book,” and later Coe’s team issued a “Blue Book” of detailed exploration of options for California’s reform of the utilities and the CPUC.
The regulatory studies and recommendations were supplanted by a hurried legislative process in 1995, with SB 1890 signed into law by Governor Pete Wilson in 1996. SB 1890 created competitive wholesale and retail electricity markets, and the new market structure began to emerge in 1998 as the legacy utilities began to sell off their generation to independent power providers and energy traders.
The legislative market design failed catastrophically in 2000 during a statewide heat event, leading to an ongoing energy crisis with rolling blackouts and massive spikes in wholesale energy prices and market manipulation by wholesale traders. The immediate crisis was eventually resolved by the State of California signing contracts for power, achieved at great cost to California consumers and significant strains on regulated utilities, which, under California law, had to serve their customers, but were prevented from passing on the full costs of power that those utilities were mandated to buy from a manipulated market. PG&E, running out of credit, eventually declared bankruptcy. The Legislature later reversed many provisions of SB 1890.
Still, an enduring result that significantly shapes California energy policy today was a mandate for regulated utilities to sell their generation (except for legacy hydroelectric plants and nuclear power stations). The failed deregulated market was replaced by a new “bilateral” market whereby the CEC issues an energy needs assessment every two years, the CPUC orders regulated utilities to issue a request for bids, and the incumbent electric utilities evaluate the bids based on “least cost/best fit” criteria, and sign contracts that meet requirements. An Independent Evaluator and a Procurement Review Group of nonmarket advisors provide additional oversight on proposed contracts before the CPUC approves them.
The California Independent Systems Operator (CAISO), created as part of deregulation, keeps the grid in balance, accepting bids for the least cost resources to generate electricity daily, weekly, and monthly as power needs change on account of weather conditions and predictions of electricity demand.
For the regulated utilities, this basic formula persists: they don’t make their money from selling electricity. They get paid a fixed cost for the service of procuring contracts, and then separately earn a percentage on their costs for the construction and operations of transmission lines and other hard infrastructure.
RENEWABLE PORTFOLIO STANDARD AND (AB 32) - THE GLOBAL WARMING SOLUTIONS ACT OF 2006
Coming out of the 2000 energy crisis following the collapse of flawed electricity deregulation in California, the Legislature approved a Renewables Portfolio Standard (RPS) in 2002, in part to spur development of new generation and to reduce the ability of a few natural gas plants to manipulate the wholesale markets. The RPS mandates that California’s utilities procure increasing amounts of electricity from renewable sources, expecting that those contracts would induce competition to build large-scale independent renewable power plants in California, and as new technologies scale, their costs would drop.
AB 32, also known as the Global Warming Solutions Act of 2006, was a landmark climate policy adopted by the Legislature and signed by Governor Schwarzenegger. The measure required California to reduce greenhouse gas emissions to 1990 levels by 2020. AB 32 was the first law in the U.S. to set legally binding emissions reduction targets. The RPS was strengthened to align with AB 32’s climate goals.
As well as a tool for procuring clean power, the RPS also functions as an industrial policy which seeks to scale, by preferences and mandates, new technologies to transform the electric industry. As the RPS became a success, it grew in scope:
- 20% by 2010 (original target)
- 33% by 2020 (expanded under Governor Schwarzenegger)
- 50% by 2030 (under SB 350 in 2015)
- 60% by 2030 and 100% carbon-free by 2045 (under SB 100 in 2018)
AB 32 and the RPS have dramatically reshaped California’s energy landscape: California phased out coal-fired power plants, replacing them with renewables. Because wind and solar don’t depend on fuels that must be purchased in volatile national — and now global — markets, renewable power plants offer price certainty for decades.
According to the Energy Commission website, in 2023, 42.9 percent of California’s retail electricity sales were served by RPS-certified renewables. Together with large hydroelectric and nuclear power, 67 percent of California’s retail electricity sales come from zero-carbon, clean generation. And, as the supply chain for renewables has matured, prices for these technologies have dropped.
Investments mandated in statutes and regulations for energy storage and transmission upgrades have helped integrate intermittent renewables. All in all, the fast decline in the cost of renewables has put the same economic pressures on new development of coal and natural gas power plants throughout the Western U.S. as California’s turn toward energy efficiency and co-gen did to fuel oil power plants.
POLICY AND ORGANIZATION TO SUPPORT THE TRANSITION TO RENEWABLES
The Italian advisor to local nobility, Niccolò Machiavelli, observed in his guidebook to governing, The Prince: “It ought to be remembered that there is nothing more difficult to take in hand, more perilous to conduct, or more uncertain in its success, than to take the lead in the introduction of a new order of things.” One of the important steps in California’s transition was a recognition of the importance of setting clear direction, providing coordination, and creating accountability for policy implementation.
While the Legislature was approving the RPS, California energy agencies worked together to create the Energy Action Plan, which created a roadmap to develop more electricity resources in California. Part of the Energy Action Plan was the California Energy Loading Order. The Loading Order dictates which resources the agencies and the IOUs should prioritize. Specifically, the Loading Order calls for priorities in power generation and dispatch through California’s grid:
- Energy efficiency and demand response — reducing consumption through efficiency measures and shifting demand to off-peak hours.
- Renewable energy generation.
- Clean distributed generation, including combined heat and power (CHP) systems.
- Conventional generation: fossil fuel-based power plants as a last resort.
Ultimately, the Legislature codified energy efficiency as the priority in the Loading Order, solidifying regulatory decisions as statute. To coordinate efforts on these new challenges, a group of key policymakers and agency leaders known as the Energy Principals formed and became instrumental in cohesive progress and success. The initial lineup was:
- Michael Peevey (President of the CPUC)
- William Keese (Chair of the CEC)
- Mary Nichols (Secretary of the California Environmental Protection Agency)
- Robert Foster (President of the California Independent System Operator)
Even as agency leadership changed, the Energy Principals continued to work together as a high-level interagency body that vigorously supported implementation of AB 32 and coordination of siting, permitting, and interconnecting large renewable energy projects during the American Recovery and Reinvestment Act period from 2008 through 2014.
THE AMERICAN RECOVERY AND REINVESTMENT ACT OF 2009 (ARRA) AND THE RENEWABLE ENERGY ACTION TEAM (REAT)
The American Recovery and Reinvestment Act (ARRA), promoted by President Obama and adopted by Congress in 2009, also played a crucial role in accelerating California’s Renewable Portfolio Standard (RPS) efforts by providing financial incentives that leveled the playing field with previously existing hefty subsidies for fossil fuels.
- Federal Tax Credits: ARRA allocated a 30% federal tax credit for eligible renewable energy projects, making large-scale solar and wind developments more financially viable.
- Fast-Track Permitting: The law encouraged expedited environmental reviews to accelerate project approvals.
- Transmission Investments: ARRA funding supported grid upgrades to integrate new renewable power plants.
California had already carried out a planning effort through a collaborative exercise called the Renewable Energy Transmission Initiative (RETI). The participants, including environmental and clean energy advocates, labor groups, utilities, and other stakeholders, mapped out the most likely sites for various renewable energy projects and designated likely transmission routes to markets. This, in turn, helped renewable energy developers locate the least conflict sites for their projects.
In October 2009, Governor Arnold Schwarzenegger and U.S. Secretary of the Interior Ken Salazar signed a Memorandum of Understanding (MOU) to expedite renewable energy development in California. The agreement established a joint state and federal Renewable Energy Policy Group and a smaller leadership group, the Renewable Energy Action Team (REAT), that coordinated and kept the process accountable to the ambitious ARRA timeline. Driven by four high-level staff in the Governor and Secretary’s office, meeting with developers and agency staff on a daily, weekly, and monthly basis, the REAT provided close coordination and troubleshooting for permitting and siting activities. These efforts resulted in a stunning 20,000 MW of new wind, solar, and geothermal power plants in California that qualified for ARRA funding by commencing construction before the end of December 2011.
WHAT NEXT?
While California was held out to national ridicule in the 1970s for pursuing strategies to reduce demand and force new technologies into the electric sector, its progress has seen the state’s energy policies modeled in jurisdictions across the nation and the globe. Learnings from California’s playbook can help inform forward-looking solutions to the major energy challenges we face today. These include:
ELECTRIFY EVERYTHING
The RPS can only do so much. Currently, only about 16% of California’s carbon emissions come from the electric industry; some 39% comes from transportation of people and goods, and another 20% comes from buildings. California can reach a goal of 100% carbon-free electricity, but still fails to reach its economy-wide greenhouse gas emissions goals.
The California Energy Loading Order has evolved significantly over the past two decades, adapting to new technologies, policy shifts, and the urgency of climate change. The Loading Order now emphasizes electrification as a primary strategy, particularly in those emission-rich transportation and building sectors.
This will require increasingly switching to clean electricity as a fuel in place of natural gas used in air conditioning and heating, and gasoline and diesel used as vehicle fuels. In the future, energy efficiency will still be recognized as the least cost/best alternative for clean energy and clean air. But energy efficiency can no longer be simply defined as using less electricity. When electric generation was dirty, one of the most accessible ways to reduce pollution was to reduce electricity consumption. As electric generation moves closer and closer to being carbon-free, decarbonizing the overlying energy sector will depend on using more clean electricity.
- The CEC’s newest building codes require “net zero housing,” with solar on the roof or from utilities, highly efficient heat pump water heaters, and more energy-saving building construction standards.
- A natural gas-powered heater uses a source of energy that causes pollution. A high-efficiency heat pump will be “plugged into” an electric grid that is cleaner and increasingly carbon-free.
- A gasoline or diesel-powered car uses a source of energy that is polluting and causes pollution. An electric car is “plugged into” an electric grid that is clean/carbon-free. Hydrogen fuel cell cars are also not polluting, and the hydrogen can be generated with solar, wind, or other clean electricity.
It is not clear that existing policymaking, clear goals, and coordinating programs adequately support a new clean energy transition that seeks convergence between the currently separate gas, electric, and petroleum industries. Leadership at the highest agency level has yet to create the right kinds of rules for success for this new path.
“Electrifying everything” is a task akin to the transformation of telecommunications, where phone service, cable, and the internet were once separate industries — but where nowadays, the same companies from those formerly very different industries now provide the same overlapping and bundled service through cell phones, fiber to homes and businesses, and access to the internet.
For this new transition to be durable and to scale affordably and reliably, we’ll need both a willingness to develop, coordinate, and implement the programs needed to get there and more leadership to make those programs accountable to a clearer long-term direction.
AFFORDABILITY
Current policies remain very aspirational and need work to become effective. Examples include:
- Renewable energy developers seeking to meet procurement targets set by the CEC and the CPUC point to the need for faster development of transmission to meet those timelines. They also seek better coordination between state goals and local land use planning. Existing programs and direction to the staff implementing these programs need to change to overcome conflicts with other existing policies and to fully map out the transition.
- Heavy vehicle operators need substation improvements to handle the timelines set by the CARB. Utilities need better insight as to where land use and transportation planners see the growth, and permission from the CPUC to make these expensive upgrades.
- New technologies like rooftop solar, natural gas, and hydrogen fuel cells, software programs that allow variable consumer use, like smart thermostats that track variable rates in homes. Operations in the low-voltage grid are harder to predict and manage. The fast-paced adoption of these tools offers benefits and risks. But the vision and architecture of two-way distribution systems are still unclear and lack clear leadership and governance. The electrification transition will require upgrading the low-voltage distribution systems: more smart devices like meters and neighborhood transformers, more communications with central operators, newer low-voltage transmission, more capacity on residential and commercial breaker panels, etc.
Rates that set the price of electricity in California’s electricity rates are high in comparison to those in many other states. But, because of California’s policy of energy efficiency as a top energy resource, consumers use less power, resulting in lower bills than in many other states. Simply put, although California’s electric rates are higher than other rates around the nation, the energy efficiency measures that have been deployed mean the typical California consumer’s electric bill is still close to the national average — $160 in California versus $142 nationally.
U.S. residential electricity prices versus monthly consumption, showing California’s relatively low usage despite higher per-kilowatt-hour prices.
How do these higher rates and lower bills fit with California’s efforts to electrify everything? Southern California Edison’s Pathway 2045 report outlines the steps California must take to achieve carbon neutrality by 2045:
- 100% Carbon-Free Electricity: All retail electricity sales must come from carbon-free sources.
- Electrification of Transportation: 26 million EVs and 1 million+ electrified medium/heavy-duty vehicles will be needed.
- Building Electrification: 70% of buildings must use efficient electric space and water heating.
- Energy Storage Expansion: 30 GW of utility-scale storage will be required to balance intermittent renewables.
- Grid Modernization: The grid must be hardened and expanded to accommodate increased electrification.
- Policy Alignment: Regulatory frameworks must evolve to support electrification and clean energy expansion.
As a result of this transition, electric demand will increase by 60%. But overall, the report finds consumers will save: “The good news is that, when assuming reasonable cost and efficiency improvements over time, a decarbonized, electrified world produces energy savings for an average household due in part to significant energy efficiency gains. While electricity bills increase over time, the energy consumption cost for an average household decreases by one-third by 2045. Household savings are driven by reduced gasoline consumption due to the high market penetration of electric vehicles.”
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 AND HINDER ECONOMIC GROWTH
“All regions of the North American electric grid are expected to have sufficient resources under normal operating and weather conditions this summer, but some may face supply shortfall risks during periods of extreme heat,” the North American Electric Reliability Corp (NERC) said recently in its annual 2025 Summer Reliability Assessment.
Peak demand across NERC’s 23 assessment areas is forecast to increase by 10 GW since summer 2024, “more than double the increase from 2023 to 2024,” NERC said in a news release. Data centers, electrification, and industrial growth are driving demand higher.
“The electrification of heating systems and the adoption of electric vehicles are expected to drive New England’s annual electricity consumption to rise 11% over the next decade,” according to the region’s grid operator. Other regional grid operators report electric demand increasing rapidly as states build energy-hungry data centers to support the emerging AI industry.
California utilities are joining the chorus: in 2025, PG&E announced a process for data center developers interested in connecting to the utility’s system. The so-called cluster study yielded 4.1 gigawatts of interest, on top of 8.7 gigawatts announced during the company’s most recent earnings call. Not only did the pipeline of prospective data centers being built within PG&E grow, but the size of the projects has also jumped. Last year, the typical data center wanting to power up through PG&E had 50 to 100 megawatts in capacity. Current proposals are for projects of 500 megawatts to as much as 1,000 megawatts.
Calling to mind the discourse surrounding the 1973 energy crisis, current national policy discussions focus primarily on removing barriers to financing and constructing new power plants.
APPROACHES TO MEETING RISING DEMAND
The Republican policy journal, Reason, printed an article with the banner headline “The U.S. Needs More Nuclear Power To Fuel the AI Boom,” and outlined plans in Texas, Virginia, and Pennsylvania for using nuclear power to meet data centers’ energy demands. Texas is already seeing requests for enormous new connections as data centers, cryptocurrency, and electrified oil operations drive load growth.
Despite the appetite in some corners to meet the increasing demand through new power plants, this approach faces several challenges. The White House has called for 300 GW of net new nuclear capacity by 2050 and 10 large reactors under construction in the U.S. by 2030. Even optimistic predictions for new small modular nuclear reactors do not expect them to be available until the mid-2030s. Efforts to restart mothballed older large nuclear plants will take years, and new large-scale reactors are unlikely to arrive quickly.
Natural gas plants intended to produce power for AI data centers and other drivers of growth in electric demand face their own challenges as well — the cost of new gas-fired generation is rising just as the cost of renewables and batteries is dropping. Analysts point to a lack of turbine manufacturing capacity, escalating costs, tariff uncertainty, and uncertainty about whether all of the projected data center demand will actually materialize.
While U.S. policy seeks to lead in AI development and to speed data centers to support this new technology, it is not clear that we will overcome the many obstacles to building power plants that meet assumptions. There are some steps we can take to reduce the projected power need and to avoid overbuilding expensive generation.
- In response to overly speculative transmission interconnection requests, grid operators are increasingly seeking evidence of power project viability — executed contracts, for example — that shows that there is a real project. The same logic can help make expectations more real for data centers as well.
- Google has publicly discussed its efforts to find more efficient ways to cool massive chip arrays needed for data centers. A stronger effort toward energy efficiency that meets cooling needs can drastically reduce the high projections for energy needs — and likely produce results faster.
For EVs, a partial answer may be energy efficiency, as well. Current EVs are energy hogs — while cheaper than gasoline, they are still in need of more efficient design and batteries. This will be especially important for major concentrations of heavy-duty EVs. While current EV drayage vehicles can’t offer much, time-of-use rates for charging that ramp up over time can smooth demand peaks and potentially serve as one of many incentives for expedited research by vehicle and battery manufacturers.
FINAL NOTES
California can still gain benefits from the same policy tools deployed in 1973:
- Keep a steady hand on energy forecasting, and avoid the urge to surrender wholesale that important tool to self-interested parties, whether they are oil companies, utilities, large customers, or anticipated large future loads like data centers or AI.
- Set clear goals for meeting demand and manage procurement so this transition also takes into account newer technologies that are cleaner, more efficient, and reliable, and that reduce price volatility. Some nimbleness and flexibility is needed in rules and regulations because clean energy technologies move at such a rapid pace.
- Keep government processes efficient and accountable through identifying key leaders with real authority, with tangible deliverables, and through clear and open coordination between agencies with different missions and authorities.
Policy Shifts Across Five Decades
By Michael Picker · April 2026
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
