Keeping the Lights on Keeping the Lights on in Californiain California

Part 1: Energy Update Study OverviewPart 1: Energy Update Study Overview

Part 2: Energy Consensus Discussion Part 2: Energy Consensus Discussion

January 19, 2006 & Unit MeetingsJanuary 19, 2006 & Unit Meetings

Energy Update Study GuideEnergy Update Study Guide

Available on the League’s Available on the League’s website at:website at:

http://ca.lwv.org/lwvc/edfund/citizened/natres/http://ca.lwv.org/lwvc/edfund/citizened/natres/energy/index.htmlenergy/index.html

Tonight’s AgendaTonight’s Agenda IntroductionIntroduction PresentationPresentation Discussion QuestionsDiscussion Questions

Current Energy PositionCurrent Energy Position

Adopted in 1978; updated in 1980Adopted in 1978; updated in 1980 Support state energy policy that promotes Support state energy policy that promotes

conservationconservation Foster renewable energy sources (tax Foster renewable energy sources (tax

incentives and loan guarantees)incentives and loan guarantees) Consider energy-development impacts on Consider energy-development impacts on

public health/safety/environmentpublic health/safety/environment Decrease reliance on oil and natural gasDecrease reliance on oil and natural gas

Current Position Current Position Does Not Address…Does Not Address…

Consumer rights/protectionConsumer rights/protection Role of market forcesRole of market forces Energy industry structureEnergy industry structure Integrated energy planningIntegrated energy planning Direct access/customer choiceDirect access/customer choice Role of state agencies/one energy agencyRole of state agencies/one energy agency

California’s Demand for California’s Demand for Electricity and Natural GasElectricity and Natural Gas

Annual Electricity ConsumptionAnnual Electricity Consumption

200,000

220,000

240,000

260,000

280,000

300,000

320,000

340,000

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016

Year

GW

h Historic

Projected

Peak Electricity DemandPeak Electricity Demand

40,000

45,000

50,000

55,000

60,000

65,000

70,000

75,000

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016

Year

MW Historic

Projected

Natural Gas DemandNatural Gas Demand

0

1000

2000

3000

4000

5000

6000

7000

8000

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Year

Mil

lio

n C

ub

ic F

eet

per

Day

Power Generation

Industrial Demand

Commercial Demand

Residential Demand

State PopulationState Population

27,000

29,000

31,000

33,000

35,000

37,000

39,000

41,000

43,000

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016

Th

ou

san

ds

Year

Po

pu

lati

on

Historic

Projected

Utility Programs’ Utility Programs’ Energy-Efficiency Savings Energy-Efficiency Savings

0

500

1000

1500

2000

2500

3000

2000 2001 2002 2003 2004 2005 2006 2007 2008

Year

An

nu

al N

et S

avin

gs

(GW

h/y

r)

PG&E

SCE

SDG&E

California’s Electricity California’s Electricity SystemSystem

Electricity supply is not Electricity supply is not a natural resource. a natural resource.

The “Big Machine”The “Big Machine”

California uses a diverse mix California uses a diverse mix of fuels for electricity generation.of fuels for electricity generation.

Natural gas: 34%Natural gas: 34% Nuclear: 13%Nuclear: 13% Hydro: 11 %Hydro: 11 % Coal 10%*Coal 10%* Other renewables: 10%Other renewables: 10%

* Out-of-state coal plants owned/controlled by * Out-of-state coal plants owned/controlled by California utilities are counted as in-state California utilities are counted as in-state power.power.

California imports 22% of its California imports 22% of its electricity supply.electricity supply.

Transmission lines enable California Transmission lines enable California to import and move electricity to import and move electricity

around the state.around the state.

California’s Electricity California’s Electricity Market and Regulatory Market and Regulatory

StructuresStructures

In the Old Days…In the Old Days…

Vertically integrated electric utilitiesVertically integrated electric utilities GenerationGeneration TransmissionTransmission DistributionDistribution

Monopolies with their own service territoriesMonopolies with their own service territories Investor owned or publicly ownedInvestor owned or publicly owned

Competition only between IOUs and public Competition only between IOUs and public power.power.

In the old days…In the old days… IOUs earned their rate of return from IOUs earned their rate of return from

infrastructure investments: an incentive to infrastructure investments: an incentive to overbuild. overbuild.

The regulatory process for approving “rate The regulatory process for approving “rate base” additions was always controversial. base” additions was always controversial.

The solution? “Let the market decide” when to The solution? “Let the market decide” when to build new generation and take the financial build new generation and take the financial risks.risks.

Electric Market Structure TodayElectric Market Structure Today

California Independent System Operator Other California

Control Areas (LADWP, SMUD, IID)

IOUsSome

Municipal Utilities

ESPs

Customers of these municipal utility-run

control areas

Direct Access Customers

IOU Customers

Federal and Municipal

Utility-Owned Generation

IOU-Retained Generation

In-state,Merchant-

owned Generation,

including QFs

Out-of-State Generation

Municipal Utility Customers

CA’s Electricity Regulatory StructureCA’s Electricity Regulatory Structure

Electricity Oversight

Board

Energy Commission

Public Utilities Commission

Independent System

Operator

Governor and LegislatureFederal Energy

Regulatory Commission

Energy Service

Providers

Investor-owned Utilities

City Councils or

Boards of Directors

Community-Choice

Aggregators

Publicly Owned Utilities

Wholesale Generators

Electric System Electric System Adequacy and ReliabilityAdequacy and Reliability

Growth in peak demand drives…Growth in peak demand drives…

Electricity supply Electricity supply contractingcontracting

Infrastructure Infrastructure investmentsinvestments Power plantsPower plants Transmission and Transmission and

distribution linesdistribution lines Natural gas Natural gas

pipelines and other pipelines and other facilitiesfacilities

0

500

1000

1500

2000

2500

3000

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

(Multi-day, Daily Load Profiles)

Electricity System Electricity System Reliability needs: Reliability needs: ►►Supply AdequacySupply Adequacy►►Infrastructure Infrastructure Adequacy Adequacy ►►Regional Coordination/ Regional Coordination/ Communication Communication

Without one of these …Without one of these …

Outages occur whenever Outages occur whenever demand exceeds supply.demand exceeds supply.

Generator outages Generator outages Transmission line outagesTransmission line outages Other component outagesOther component outages

Risk of outages is highest during California’s Risk of outages is highest during California’s summer season. summer season.

Strategies to Prevent Strategies to Prevent System Overloads/OutagesSystem Overloads/Outages

Extra generation is lined up in advance to Extra generation is lined up in advance to replace the largest generator outage.replace the largest generator outage.

Alternative transmission lines are Alternative transmission lines are identified in advance to carry the biggest identified in advance to carry the biggest import in the event of a line loss.import in the event of a line loss.

Demand-side managementDemand-side management

Blackouts are caused by Blackouts are caused by cascading overloads.cascading overloads.

Reliability standards seek to prevent outages. Reliability standards seek to prevent outages.

California must meet the same North American Electric Reliability Council standards as the other states and provinces in the Western Interconnection.

Electricity imports & exports flow Electricity imports & exports flow between control areas.between control areas.

Control areas within Control areas within California must meet California must meet West-wide reliability West-wide reliability standards standards

34 control areas in the West:34 control areas in the West: Operate transmission Operate transmission

systems systems Balance supply/demand Balance supply/demand

with “real time” power with “real time” power purchases.purchases.

Consumer “demand response” Consumer “demand response” would enhance system reliability too.would enhance system reliability too.

California’s California’s Natural Gas SystemNatural Gas System

California Natural Gas FactsCalifornia Natural Gas Facts

California consumes 2% of the world’s California consumes 2% of the world’s natural gas production.natural gas production.

Average daily demand: 6 billion cubic Average daily demand: 6 billion cubic feet feet (10 Bcf per day in winter)(10 Bcf per day in winter)

One-third of electricity in California is One-third of electricity in California is generated from natural gas.generated from natural gas.

California California imports 85% imports 85% of its natural of its natural gas supply.gas supply.

Interstate Interstate pipelines pipelines enable enable California California to to competecompete for the for the lowest-cost lowest-cost supplies.supplies.

U.S. Gas Production TrendsU.S. Gas Production Trends(increased drilling, flat production)(increased drilling, flat production)

0

5,000

10,000

15,000

20,000

25,000

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

Gas

Pro

du

ctio

n (

Bcf

) an

d W

ells

Dri

lled

Dry Natural Gas Wells Drilled Dry Natural Gas Production (Bcf)

Why the interest lately Why the interest lately in liquefied natural gas?in liquefied natural gas?

Canadian and Lower 48 states’ gas production Canadian and Lower 48 states’ gas production is not keeping pace with demand. is not keeping pace with demand.

Wellhead prices are rising.Wellhead prices are rising. Market prices are high and volatile.Market prices are high and volatile. LNG links U.S. consumers to transoceanic gas LNG links U.S. consumers to transoceanic gas

supplies from many countries.supplies from many countries.

LNG is natural gas in liquid form.LNG is natural gas in liquid form.

Cryogenic liquid Cryogenic liquid

(-260(-260ooF)F) 1/600th volume 1/600th volume

of natural gas of natural gas Can not ignite or Can not ignite or

explodeexplode

A West Coast LNG import terminal A West Coast LNG import terminal would enable California to access would enable California to access

Pacific Rim supplies.Pacific Rim supplies.

Proposed Proposed Terminals Terminals

Electricity & Natural Gas Electricity & Natural Gas AffordabilityAffordability

Electric Bill Cost ComponentsElectric Bill Cost Components Generation Generation (the largest cost component)(the largest cost component) Transmission and distributionTransmission and distribution Energy Commission surcharge Energy Commission surcharge Nuclear power plant decommissioningNuclear power plant decommissioning ““Deregulation”-inspired expensesDeregulation”-inspired expenses

Public goods charges Public goods charges (renewable energy, R&D, energy (renewable energy, R&D, energy efficiency, low-income)efficiency, low-income)

Competitive transition charge Competitive transition charge Rate-reduction bond chargeRate-reduction bond charge DWR bond chargeDWR bond charge

Electricity RatesElectricity Rates Rate classes vary.Rate classes vary.

Residential, commercial, industrial, agricultural, Residential, commercial, industrial, agricultural, street lighting, etc.street lighting, etc.

Rate structures vary by customer class. Rate structures vary by customer class. Energy charge (cents per kilowatt-hour)Energy charge (cents per kilowatt-hour) Demand charge (dollars per kilowatt)Demand charge (dollars per kilowatt) Time of useTime of use InterruptibleInterruptible

All rates should give “feedback,” stimulating All rates should give “feedback,” stimulating conservation behavior, when needed.conservation behavior, when needed.

Residential electric rates Residential electric rates are lousy price signalsare lousy price signals

because…because… May be subsidizedMay be subsidized Generation costs vary hourly and by Generation costs vary hourly and by

location, but rates are just averages of location, but rates are just averages of these costs.these costs.

In the future, even residential rates may In the future, even residential rates may vary hourly and by location.vary hourly and by location.

Natural GasNatural GasCost ComparisonCost Comparison

(2002 versus 2005)(2002 versus 2005)

2002 Natural Gas Price Components2002 Natural Gas Price Components(in U.S. Dollars per 10 therms,)(in U.S. Dollars per 10 therms,)

WellheadPrice

Begin InterstatePipeline

End Interstate Pipeline

CA Border

$1.91

$0.12

$2.03

$1.08

$3.11

$2.42$0.43

$5.53$3.54

Utility distribution charges

$3.36

$0.25

Gathering/ conditioning

charge

Transportation charge

Electric Generators Industry

Core Customers

2005 Natural Gas Price Components 2005 Natural Gas Price Components (in U.S. Dollars per 10 therms, PG&E only)(in U.S. Dollars per 10 therms, PG&E only)

WellheadPrice

Begin InterstatePipeline

End Interstate Pipeline

CA Border

$11.48

$0.12

$11.60

$.40

$12

$4.08$0.40

$16.08$12.40

Utility distribution charges

$12.37

$0.37

Gathering/ conditioning

charge

Transportation charge

Electric Generators Industry

Core Customers

Environmental ImpactsEnvironmental Impactsof California’s Energy Use of California’s Energy Use

and Infrastructureand Infrastructure

Water-Energy RelationshipsWater-Energy Relationships

Clean water needs Clean water needs a lot of energy:a lot of energy: DeliveryDelivery TreatmentTreatment HeatingHeating

Water consumes Water consumes 20 percent of 20 percent of California’s annual California’s annual electricity electricity production. production.

Water-Energy RelationshipsWater-Energy Relationships

Water is used to generate electricity.Water is used to generate electricity. Water may be used to cool thermal power Water may be used to cool thermal power

plants.plants. Saving water saves energy and vice versa.Saving water saves energy and vice versa. Desalination would increase water supply, Desalination would increase water supply,

but is energy intensive.but is energy intensive. Water and energy are interrelated, but Water and energy are interrelated, but

planning is not integrated.planning is not integrated.

Global Climate ChangeGlobal Climate Change

Warming trend for past 50 yearsWarming trend for past 50 years Greenhouse gas produced primarily from Greenhouse gas produced primarily from

fossil-fuel burning (cars, power plants)fossil-fuel burning (cars, power plants) Potential effects:Potential effects:

More rain, less snowMore rain, less snow More hot daysMore hot days Rising sea levelRising sea level Worse air qualityWorse air quality Higher fire dangerHigher fire danger

State’s Response to Global Climate ChangeState’s Response to Global Climate Change

Fossil-fueled power-supply bids increased by Fossil-fueled power-supply bids increased by CPUC’s “greenhouse gas adder” CPUC’s “greenhouse gas adder” $8 to $25 per ton of carbon emitted $8 to $25 per ton of carbon emitted

June 1, 2005 Governor’s Executive OrderJune 1, 2005 Governor’s Executive Order 2010 GHG level to be at 2000 level.2010 GHG level to be at 2000 level. 2020 GHG level to be at 1990 level.2020 GHG level to be at 1990 level. 2050 GHG level to be 80% below 1990 level.2050 GHG level to be 80% below 1990 level.

Discussion QuestionsDiscussion Questions1.1. How much reliability are you How much reliability are you

willing to pay for?willing to pay for?2.2. Given our large % of electricity Given our large % of electricity

generated by natural gas and generated by natural gas and the recent rise in natural gas the recent rise in natural gas prices…prices…What should we doWhat should we do??