The utilities needed prodding to do these things, because even though saving energy was beneficial to ratepayers and society in general, it was against their own financial interests. They made money by selling kilowatt-hours. The more they sold, the more they made. They had a far greater economic incentive to hand out free hair dryers (which some actually did) than to subsidize setback thermostats and CFLs for their customers.

What the market, based solely on maximizing the profits of the energy producers, created was a perfect racket leading to the energy crisis of 2000-2001. It was then that ole supply-side himself, Dick Cheney *, opined that California had not been building sufficient capacity and that the state relied too much on conservation.

California responded by putting together a crash course in more conservation. The state poured $1 billion dollars into deploying energy efficient technology by creating the Flex Your Power program to address the most important demand in the homes, in the cities and towns, and in the factories.

• Households replaced nearly 8 million incandescent lights with compact fluorescent lights
• Cities and towns replaced millions of wasteful traffic lights with frugal LED traffic lights
• Factories swapped out thousands of old motors for new more efficient ones.

California's recommitment to energy efficiency is partly a return to the past, but with a significant new wrinkle. Now, when utilities plan for long-term growth in electricity demand, efficiency is the resource of first resort, with renewable energy sources next in line. Utilities and regulators call this the "loading order." What it means, in Kennedy's words, is that "before our electric utilities spend a dollar to buy power in the market or build a new generation plant, they will first invest in ways to help us use energy more efficiently." If efficiency measures don't free up enough generating capacity to meet the growth in demand, the next resource in the loading order is renewable sources. Only then can utility companies turn to fossil-generated power (whether bought or built), and even then any new plants that are constructed must be no dirtier than a state-of-the-art natural-gas generating plant.

So what should we do first? Let's follow California's sensible lead.

• Waste less energy.
• Use renewable power wherever we can.
• Become carbon neutral.

One complaint I've seen is how expensive electricity is in California and that this results in companies wanting to do business elsewhere. Yet, each kwh of energy used in California goes farther than a kwh in another state (see chart). In fact, when the Chinese investigated adopting some of California's standards and calculated the costs, they concluded that they could invest a quarter of what it would cost to generate 1 MW into technology that could save 1 MW. California's approach to charging more to save more is cheaper in the long run.

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