It’s a new year and we’re squarely into a new decade. With it comes a new forecast--to be discussed next week by regulators--in which the California Energy Commission again has downgraded its expectation for peak electricity demand over the next two years. Peak demand is forecast to range no higher than 49,772 MW in the grid operator’s control area. That’s down from the Energy Commission’s 2009 forecast of 52,499 MW. The 2009 projection itself marked a downgraded expectation from earlier last decade. The lower number comes after state policy makers and utilities have spent a decade dealing with the growing “peakiness” of electricity demand, fueled largely by explosive growth in hot inland communities, such as Merced, Stockton, suburban Sacramento, and the Inland Empire. They’ve required and approved investment of ratepayer money in demand-response programs, peaker plants, power purchase agreements, and beefed-up transmission capacity at a cost of billions of dollars. Emphasis on peak demand continues in anticipation that growth will soon resume in the hot areas when the economy recovers. However, a growing number of urban planners foresee the hot inland areas stagnating--even depopulating--in the decade or two ahead. Meanwhile, they see recovery and growth in the coastal areas. If they’re right, the implications for the state’s power system are significant. The new economic dynamics are highlighted in a report the Mortgage Bankers Association released Jan. 6, called A Study of Real Estate Markets in Declining Cities. It draws parallels between the Rust Belt cities of the Midwest and Northeast and California’s inland areas, which have become ground zero for the home foreclosure crisis. The study by Rockefeller Institute of Government senior fellow James Follain concludes that the “Great Recession” has caused so many home foreclosures and placed so many people “underwater” in these inland communities that many have become undesirable. People who live there want to leave. People are no longer drawn there because of the conditions. Banks are cautious about lending. These areas were fueled by easy credit and cheap gas for long commutes. These factors are history, Follain points out. “The future viability of these areas may be threatened by recent economic events,” Follain concludes. For instance, since the middle of the last decade, home values in Stockton have declined from between $400,000 and $500,000 to between $100,000 and $200,000. Distress and foreclosure sales outnumber regular sales some two-to-one. The recession has turned Central Valley towns into declining cities, just like Buffalo, Cleveland, and Detroit, with the latter knocking down old, abandoned homes to reclaim land for farming. The implications for the energy industry are enormous in a system that since the mid-1990s has increasingly geared itself toward serving growth in these areas. Looking ahead, the Rockefeller fellow suggests that rather than planning for a resumption of conventional suburban growth in places like Merced and Fontana leaders should plan for “smart decline.” Meanwhile, real estate--though it’s seen a correction--remains viable in cooler, denser coastal areas where people live in smaller quarters, need less air conditioning, and commute shorter distances. Economic recovery will spur a resumption of growth in these areas, according to the Follain, which are relatively affluent and hotbeds of environmental activism. That’s why policy makers and utilities can expect economic rebound to bring an influx of electric cars and rooftop solar systems. They can expect to see new condos, institutional buildings, and commercial complexes built as so-called LEED-certified structures that use less power from the grid. Such development increasingly is sought by politicians with green agendas who lead city halls in coastal communities. With higher residential buildings going up now where one story buildings once stood, developers and buyers are beginning to press for undergrounding power lines in the Los Angeles area, for instance, in conjunction with enhancements in distribution capacity. Businesses, government, and institutions--like universities and community colleges--are likely to become more insistent about having their own onsite generation that goes beyond solar rooftops to encompass technologies like micro-turbines and eventually rooftop wind turbine systems and fuel cells. For instance, Adobe entered a deal to buy fuel cells from Bloom Energy last year to produce 30 percent of the power its San Jose headquarters complex consumes. Meanwhile, policy makers and utilities should plan for a declining customer base in inland areas as neighborhoods gradually empty out. This will increase the overhead cost for these areas, including keeping smart meter networks going amid a growing number of abandoned homes and servicing fixed infrastructure that serves fewer and fewer customers. Lines still run through largely abandoned neighborhoods in Buffalo where weeds grow through the asphalt and sidewalks. In essence, California energy policy makers and utilities increasingly can expect a world where the conventional suburban model of growth has become an anachronism. They will have to plan for smart growth in urban coastal counties and smart decline in the state’s far flung inland bedroom communities. It’s the new lay of the land.
