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Pilot Program Seeks Industry's Price Point for Cutting Energy by Andrew F. Hamm San Jose Business Journal, January 20, 2006

Just how much money will it take for Silicon Valley companies to shut down -- or at least cut down their electricity use -- during an energy crisis?

Would be $1 a kilowatt? $10? $100?

That's the question the California Independent System Operator and the Silicon Valley Leadership Group hope to find out in a unique energy savings pilot project unfolding here.

Under the program, SVLG has agreed to find at least 10 megawatts of power reduction pledges from its member companies in time for the summer peak electricity season. Cal-ISO hopes to use what it learns for a statewide program it hopes to roll out in time for the summer of 2007.

"There is a large amount of discretionary electricity out there," says Jim Detmers, vice president of grid operations for Cal-ISO. "We have to find a way to tap into it."

For years, the state relied on its interruptables program, where large energy users got a discount on everyday electricity usage in exchange for cutting some or all of its power during an electricity emergency. These companies were almost never called on until the California Energy Crisis. Then, the Cal-ISO called on companies to cut power usage so often that most dropped out of the program.

"This is all theory," Mr. Detmers says. "Not all customers can adapt to the change in pricing structure."

Most of the energy savings will most likely be found in air conditioning, lighting and refrigeration, says Chris King, chief strategy officer for Redwood City-based EMeter Inc., which handles energy conservation programs for large businesses.

While no prices have been set, the price to cutback could be lucrative, Mr. King says. Some estimates go as high as $100 a kilowatt. If that is the case, cutting 10 megawatts could cost Cal-ISO $1 million.

For SVLG's energy committee -- a group made up of some of its largest energy users -- switching from a policy-shaping body to a hands-on group is just a natural progression, says SVLG energy director Justin Bradley. "The balance between policy and tools will always be there," Mr. Bradley says. "We want to be able to take advantage of this."

While it is not the first time SVLG has gone hands on -- the organization of high technology companies has sponsored the Sustainable Silicon Valley initiative to reduce carbon dioxide emissions, energy efficiency programs and energy conservation seminars -- it is not SVLG's normal operational procedure.

"Crisis breeds creativity," says SVLG CEO Carl Guardino, a former Cal-ISO board member. "At the end of the day, we set a goal line ... and go for it anyway we can." Mr. Bradley concurs.

"This comes from our members getting frustrated with not have any choices," he says. "It's beyond policy. It's about having tools to compete in a global economy."

SVLG's members have particularly been concerned with the state's impending critical peak-pricing program. Under this program, large energy users will be charged the actual price of the power they are using in real time. This could raise prices during the summer' high-usage times by a factor of three or more in some cases.

The California Public Utilities Commission is afraid that increased energy usage will strain the state's power plant systems this summer. Last year, Southern California had several energy emergencies where companies and individuals were asked to reduce energy usage and the fear is Northern California could be in the same boat by 2008 unless new power plants are built.