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California’s Energy Economy: A Regulatory Perspective. Mark Ferron California Public Utilities Commission May 16, 2012. An Evolving Mission. Safety and Reliability cannot be compromised Encourage new innovation and attract new capital Demand Value for Money

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california s energy economy a regulatory perspective

California’s Energy Economy: A Regulatory Perspective

Mark Ferron

California Public Utilities Commission

May 16, 2012

an evolving mission
An Evolving Mission
  • Safety and Reliability cannot be compromised
  • Encourage new innovation and attract new capital
  • Demand Value for Money
  • Promote a healthy environment and economy
  • Look out for the underdog across all stakeholders
  • Expose entrenched, anti-competitive players to market forces

Urgent but not Important

Important but not Urgent

my observations on some key issues
My observations on some key issues

Investment & Financing

Safety

Costs

Rate

Design

Energy Efficiency

Renewables

Feed-in Tariffs & DG

Reliability

our aging electrical grid needs billions of dollars in investment

Investment & Financing

Our aging electrical grid needs billions of dollars in investment

Total market capitalization of U.S. shareholder-owned electric companies

Cumulative Incremental Investment Needed for US Electricity Infrastructure

$bn

$732bn

$407bn

$107bn

Source: Edison Electric Institute

Source: American Society of Civil Engineers, 2012

what we gonna do when the money runs out

Investment & Financing

What we gonna do when the money runs out?

DOE ARRA Funds Granted by Year ($m)

Source: US Department of Energy

considering the current market environment

Investment & Financing

Considering the current market environment

Corporate Bond Yields and California Utilities’ Rates of Return

Source: Federal Reserve Report H15, CPUC.

is electricity sticker shock inevitable

Costs

Is Electricity “Sticker Shock” inevitable?

Actual and Projected Electricity Costs

Total Statewide Expenditure ($bn)

+50%

4.1% CAGR

+45%

5.4% CAGR

Source: CPUC.

the rate design puzzle who pays

Rate

Design

The Rate Design Puzzle: Who pays?

PG&E Residential Rates by Tier (¢/kWh)

Source: PG&E, CPUC.

the cost of electricity is a serious disadvantage for california industry

Rate

Design

The cost of electricity is a serious disadvantage for California Industry

Average Industrial Rates for the 50 largest US Utilities

California

$/kWh

Average = 0.75

Source: US Energy Information Administration Form EIA-826 Data Monthly Electric Utility Sales and Revenue Data, 2011. Note: excludes Hawaii.

california s history of energy efficiency action

Energy Efficiency

California’s History of Energy Efficiency Action

IOU administration restored; new incentive mechanism; AB 2021 requires POUs to set targets

SB 1037 makes EE top priority and requires POU reporting

Utilities’ resume portfolio management;

PGC takes effect

IOU decoupling restored; CPUC sets aggressive 10-year targets

Energy Action Plan makes EE top priority

Deregulated market begins

Electricity

Crisis

Decoupling

for electric

Decoupling

for gas

Source: Natural Resources Defense Council (NRDC), as modified by Energy Division 4/25/2011

challenges to california s ee programs

Energy Efficiency

Challenges to California’s EE Programs

Declining IOU Portfolio

Cost Effectiveness over time

2010-2012 Funding Sources

(prior to 2011)

Public

Goods

Charge

Benefit / Cost (TRC)

Procurement

Funds

Portfolio Cycle

3 yr total= $3.1 Billion

(excluding Low Income EE Programs)

Source: CPUC.

2013 2014 transition guidance themes

Energy Efficiency

2013-2014 Transition Guidance: Themes
  • Expand deep retrofit strategies for existing building stock
  • Leverage ratepayer energy efficiency funds with private financing
  • Coordinate and improve product development and adoption processes in the emerging technologies and the Codes and Standards programs
  • Increase the delivery of efficiency programs by third parties and local governments
the green sector can be a job creator

Energy Efficiency

The Green Sector can be a Job Creator

Cumulative new jobs projected from 2011 to 2020

Source: California Clean Energy Future, Jan 2012

california should get to 33 rps by 2020

Renewables

California should get to 33% RPS by 2020

IOU RPS Procurement Forecast

With risk weightings based on viability calculator

a feed in tariff is a powerful tool

Feed-in Tariffs & DG

A Feed-in Tariff is a powerful tool....

PV installed in Germany has skyrocketed……

California

but a feed in tariff is not a magic wand

Feed-in Tariffs & DG

.. But a Feed-in Tariff is not a magic wand

The levels of European FiT subsidies are unsustainable

Estimated

Cost to German Ratepayers:

$8 billion per year

MW

Euros

Feed-in Tariff range

Annual MW installed

Source: DB Climate Change Advisors “The German Feed-in Tariff for PV” May 2011

grid integration solar has 2 big problems

Reliability

Grid Integration: Solar has 2 big problems

Supply

(in theory)

Demand

Supply

(with clouds)

6AM

6PM

Source: CPUC.

reliability and long term capacity avoiding the cobweb

Reliability

Reliability and long-term capacity: avoiding the cobweb

Source: California ISO 2011 Summer Assessment

questions and discussion
Questions and Discussion
  • Mark Ferron, Commissioner mark.ferron@cpuc.ca.gov
  • Charlotte TerKeurst: Chief of Staffcharlotte.terkeurst@cpuc.ca.gov
  • Sara Kamins, Energy Advisorsara.kamins@cpuc.ca.gov
  • Michael Colvin, Energy and Water Advisor michael.colvin@cpuc.ca.gov
  • Charlyn Hook, Legal Advisor charlyn.hook@cpuc.ca.gov