Countdown to an Energy Crisis

August 12, 2004

Media Contact(s):

Wendy Koch, 202-507-4753, Senior Director, Marketing & Communications

WASHINGTON, D.C. — With oil prices spiking above the record $45 per barrel level this week, the public may forget the other energy challenges that are confronting the United States. A year ago, following the largest electric blackout in U.S. history that took place August 14, 2003, the American Council for an Energy-Efficient Economy (ACEEE) warned that the country's appetite for energy was exceeding the market's ability to provide stable supplies. High electricity demand was straining the electric transmission systems and demand for natural gas was driving prices to record high levels. We called for our nation's leaders to implement a balanced energy policy that recognized the potential of energy efficiency to balance energy markets by reducing energy demand, a step that can lead to increased reliability and reduced energy prices.

What has changed in the past year? On the policy front, not much. In the wake of last summer's August blackout, we have seen upgrades to utilities' control and management plans, but little investment in additional transmission and distribution capacity. "Our demand for electricity is outstripping the capability of our infrastructure to deliver power," said Dr. Neal Elliott, ACEEE's Industrial Program Director. High load conditions make it more difficult for system operators to manage problems in their systems. "Like an overloaded truck, an overloaded electric system is more difficult to control. The margins of safety are reduced, so a minor event can cascade into a major problem very quickly."

"Natural gas markets are tighter today than a year ago because demand continues to grow while supplies are tighter," said Anna Shipley, energy analyst with ACEEE's Industrial Program. "The National Petroleum Council's natural gas report last year said that the only option to re-balance natural gas markets in the next few years is to reduce consumption through energy efficiency."

Elliott stated, "We are seeing a contraction of all our energy markets. In the past when supply markets tightened for one fuel we saw shifting to another fuel, because we always had excess capacity in one market or another. Today, we are running up on our infrastructure's ability to meet growing consumer demands. Increased demand for gasoline has resulted in reduced supplies of heating oil, driving its price to record levels. Increased natural gas prices have increased the demand for electricity from coal, leading to dramatic price increases that will be passed along to consumers."

Economists are now beginning to worry that increased consumer energy bills will jeopardize the economic recovery. Energy efficiency offers the potential to reduce energy bills through the double effect of reducing both consumption and prices. In a study last fall, ACEEE found that a 2% reduction in natural gas consumption nationwide could reduce wholesale gas prices by 20% (see http://www.aceee.org/sector/national-policyefnatgas-study.htm). Preliminary analysis of the current market indicates that the impact of energy efficiency on natural gas prices would be even more dramatic today. "A little bit of savings would have big price impacts," added Shipley.

Energy Efficiency Improves Electric Reliability

Moderating demand through efficiency and other measures also provides insurance against blackouts by reducing the strain on the grid. "Energy efficiency reduces congestion on transmission and distribution systems, and should be included in any comprehensive policy to address electric system reliability," said Dr. Martin Kushler, ACEEE's Utility Program Director. "The current market situation dramatizes the effects of our failure to create effective national, state, and regional energy efficiency policies."

In 2002, ACEEE published a report—Energy Efficiency and Electric System Reliability—that reviewed energy efficiency programs that were specifically run to address electric system reliability concerns during the summer of 2001 (see http://aceee.org/pubs/u021.htm). These energy efficiency programs achieved impressive results in a short period of time and at a cost far less than would have been required to build new power lines and generating plants. Most notable were programs in California, where the state launched a massive energy efficiency and conservation effort in early 2001 that has successfully helped prevent further power outages since that time.

"Investing now in energy efficiency would reap huge benefits for American consumers and our power system. By shaving peak demands for electricity, oil, and natural gas, we could reduce prices, make energy bills manageable, avoid costly disruptions, and put the American economy more firmly on the road to recovery," concluded Steven Nadel, ACEEE's Executive Director. "It is past time for the United States to make energy efficiency a top national priority."