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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. 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

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  1. California’s Energy Economy: A Regulatory Perspective Mark Ferron California Public Utilities Commission May 16, 2012

  2. 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

  3. My observations on some key issues Investment & Financing Safety Costs Rate Design Energy Efficiency Renewables Feed-in Tariffs & DG Reliability

  4. Safety San Bruno is a game changer

  5. 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

  6. Investment & Financing What we gonna do when the money runs out? DOE ARRA Funds Granted by Year ($m) Source: US Department of Energy

  7. Investment & Financing Considering the current market environment Corporate Bond Yields and California Utilities’ Rates of Return Source: Federal Reserve Report H15, CPUC.

  8. 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.

  9. Rate Design The Rate Design Puzzle: Who pays? PG&E Residential Rates by Tier (¢/kWh) Source: PG&E, CPUC.

  10. 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.

  11. 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

  12. 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.

  13. 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

  14. 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

  15. Renewables California should get to 33% RPS by 2020 IOU RPS Procurement Forecast With risk weightings based on viability calculator

  16. Renewables We are rapidly adding new renewable generation

  17. Feed-in Tariffs & DG A Feed-in Tariff is a powerful tool.... PV installed in Germany has skyrocketed…… California

  18. 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

  19. Reliability Solar will be the most important Renewable

  20. Reliability Grid Integration: Solar has 2 big problems Supply (in theory) Demand Supply (with clouds) 6AM 6PM Source: CPUC.

  21. Reliability Reliability and long-term capacity: avoiding the cobweb Source: California ISO 2011 Summer Assessment

  22. 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

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