Fine-tuned financial and market incentives are needed to boost energy efficiency and demand-response programs across the state to increase grid reliability, reduce greenhouse gas emissions, and increase consumers' energy independence, according to speakers at a Power Association of Northern California meeting. "We are not where we need to be," said Jackie Pfannenstiel, California Energy Commission chair, May 8. During the energy crisis, the state achieved a 9 percent gain in efficiency, but it has not come close to that level since. Pfannenstiel noted that energy-efficiency programs' average costs are a little under 3 cents\/kWh, while peak generation costs close to 16.7 cents\/kWh. "Why aren't customers doing the math?" she asked. She added that "a market transformation" is needed. Efficiency is placed at the top of the energy agencies' list of strategies for meeting customer electricity use, but utilities have stalled on making it number one. The California Public Utilities Commission set a 5 percent demand-response goal for investor-owned utilities, but the performance of programs that pay customers to curb energy use during peak periods has been underwhelming to date. Last week, the CPUC approved a half-dozen demand-response contracts estimated to produce up to 86 (n)MW this summer. Most are in Pacific Gas & Electric territory (Circuit, May 4, 2007). Karen Lindh, consultant to the California Manufacturers Association, said large businesses need to make investments to cut back their energy use during peak periods and thus should receive predictable and fair payments. "My customers don't want to pay the real-time price for energy when homeowners in the Central Valley can use as much air conditioning as their little hearts desire and not pay the real price." However, big energy users put up much resistance until recently to energy pricing - known as critical peak pricing - that would give them rate discounts most hours in exchange for high rates during a limited number of peak hours. The California Independent System Operator was ordered by the Federal Energy Regulatory Commission to integrate demand-response programs into its electricity wholesale market redesign. "We view negawatts as just as good as megawatts and want to see them compete in the market," said Stephanie McCorkle, CAISO spokesperson. The demand-response piece of the grid operator's market redesign is under construction. However, it is expected to be able to respond only to large loads of negawatts and not smaller bundles, such as energy savings generated by third-party demand-response aggregators. Grid operator board chair Elizabeth Lowe said that more than peak demand needs to be targeted. The shoulder hours - those prior to times of highest demand - "are also pretty expensive." Some see demand-response programs as fragmented. Having demand-response programs compete with supply in the market is "the only beacon of hope for demand response," Lindh said. "Spending money on the utility 'trend du jour' without any thought about how the pieces fit together will cost ratepayers more, not less." A concern raised during the panel on demand response was that large customers with backup diesel generators would be paid for cutting back their electricity by firing up the polluting off-grid power supply. "We don't want to be running the diesel," Lowe warned. During the energy crisis, many large energy users turned on their diesel generators when the supply was constrained and costly, exacerbating air pollution.