Keeping the Lights on in California

1. Keeping the Lights on in California Part 1: Energy Update Study Overview Part 2: Energy Consensus Discussion January 19, 2006 & Unit Meetings

2. Energy Update Study Guide • Available on the League’s website at: http://ca.lwv.org/lwvc/edfund/citizened/natres/energy/index.html

3. Tonight’s Agenda • Introduction • Presentation • Discussion Questions

4. Current Energy Position • Adopted in 1978; updated in 1980 • Support state energy policy that promotes conservation • Foster renewable energy sources (tax incentives and loan guarantees) • Consider energy-development impacts on public health/safety/environment • Decrease reliance on oil and natural gas

5. Current Position Does Not Address… • Consumer rights/protection • Role of market forces • Energy industry structure • Integrated energy planning • Direct access/customer choice • Role of state agencies/one energy agency

6. California’s Demand for Electricity and Natural Gas

7. Annual Electricity Consumption

8. Peak Electricity Demand

9. Natural Gas Demand

10. State Population

11. Utility Programs’ Energy-Efficiency Savings

12. California’s Electricity System

13. Electricity supply is not a natural resource.

14. The “Big Machine”

15. California uses a diverse mix of fuels for electricity generation. • Natural gas: 34% • Nuclear: 13% • Hydro: 11 % • Coal 10%* • Other renewables: 10% * Out-of-state coal plants owned/controlled by California utilities are counted as in-state power.

16. California imports 22% of its electricity supply.

17. Transmission lines enable California to import and move electricity around the state.

18. California’s Electricity Market and Regulatory Structures

19. In the Old Days… • Vertically integrated electric utilities • Generation • Transmission • Distribution • Monopolies with their own service territories • Investor owned or publicly owned • Competition only between IOUs and public power.

20. In the old days… • IOUs earned their rate of return from infrastructure investments: an incentive to overbuild. • The regulatory process for approving “rate base” additions was always controversial. • The solution? “Let the market decide” when to build new generation and take the financial risks.

21. Direct Access Customers Out-of-State Generation ESPs Federal and Municipal Utility-Owned Generation California Independent System Operator In-state, Merchant-owned Generation, including QFs Other California Control Areas (LADWP, SMUD, IID) Electric Market Structure Today IOUs Some Municipal Utilities IOU-Retained Generation Customers of these municipal utility-run control areas IOU Customers Municipal Utility Customers

22. Federal Energy Regulatory Commission Governor and Legislature City Councils or Boards of Directors Wholesale Generators Public Utilities Commission Energy Commission CA’s Electricity Regulatory Structure Electricity Oversight Board Investor-owned Utilities Energy Service Providers Publicly Owned Utilities Community-Choice Aggregators Independent System Operator

23. Electric System Adequacy and Reliability

24. Growth in peak demand drives… • Electricity supply contracting • Infrastructure investments • Power plants • Transmission and distribution lines • Natural gas pipelines and other facilities (Multi-day, Daily Load Profiles)

25. Electricity System Reliability needs: ►Supply Adequacy►Infrastructure Adequacy ►Regional Coordination/ CommunicationWithout one of these …

26. Outages occur whenever demand exceeds supply. • Generator outages • Transmission line outages • Other component outages • Risk of outages is highest during California’s summer season.

27. Strategies to Prevent System Overloads/Outages • Extra generation is lined up in advance to replace the largest generator outage. • Alternative transmission lines are identified in advance to carry the biggest import in the event of a line loss. • Demand-side management

28. Blackouts are caused by cascading overloads.

29. 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.

30. Electricity imports & exports flow between control areas. • Control areas within California must meet West-wide reliability standards • 34 control areas in the West: • Operate transmission systems • Balance supply/demand with “real time” power purchases.

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

32. California’s Natural Gas System

33. California Natural Gas Facts • California consumes 2% of the world’s natural gas production. • Average daily demand: 6 billion cubic feet (10 Bcf per day in winter) • One-third of electricity in California is generated from natural gas.

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

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

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

37. Why the interest lately in liquefied natural gas? • Canadian and Lower 48 states’ gas production is not keeping pace with demand. • Wellhead prices are rising. • Market prices are high and volatile. • LNG links U.S. consumers to transoceanic gas supplies from many countries.

38. LNG is natural gas in liquid form. • Cryogenic liquid (-260oF) • 1/600th volume of natural gas • Can not ignite or explode

39. A West Coast LNG import terminal would enable California to access Pacific Rim supplies.

40. Proposed Terminals

41. Electricity & Natural Gas Affordability

42. Electric Bill Cost Components • Generation (the largest cost component) • Transmission and distribution • Energy Commission surcharge • Nuclear power plant decommissioning • “Deregulation”-inspired expenses • Public goods charges (renewable energy, R&D, energy efficiency, low-income) • Competitive transition charge • Rate-reduction bond charge • DWR bond charge

43. Electricity Rates • Rate classes vary. • Residential, commercial, industrial, agricultural, street lighting, etc. • Rate structures vary by customer class. • Energy charge (cents per kilowatt-hour) • Demand charge (dollars per kilowatt) • Time of use • Interruptible • All rates should give “feedback,” stimulating conservation behavior, when needed.

44. Residential electric rates are lousy price signalsbecause… • May be subsidized • Generation costs vary hourly and by location, but rates are just averages of these costs. • In the future, even residential rates may vary hourly and by location.

45. Natural GasCost Comparison(2002 versus 2005)

46. Gathering/ conditioning charge End Interstate Pipeline CA Border Begin Interstate Pipeline Transportation charge Wellhead Price $0.12 $1.08 $1.91 $2.03 $3.11 Utility distribution charges $0.25 $0.43 $2.42 Electric Generators Core Customers Industry $3.36 $3.54 $5.53 2002 Natural Gas Price Components(in U.S. Dollars per 10 therms,)

47. Gathering/ conditioning charge End Interstate Pipeline CA Border Begin Interstate Pipeline Transportation charge Wellhead Price $0.12 $.40 $11.48 $11.60 $12 Utility distribution charges $0.37 $0.40 $4.08 Electric Generators Core Customers Industry $12.37 $12.40 $16.08 2005 Natural Gas Price Components (in U.S. Dollars per 10 therms, PG&E only)

48. Environmental Impactsof California’s Energy Use and Infrastructure

49. Water-Energy Relationships • Clean water needs a lot of energy: • Delivery • Treatment • Heating • Water consumes 20 percent of California’s annual electricity production.

50. Water-Energy Relationships • Water is used to generate electricity. • Water may be used to cool thermal power plants. • Saving water saves energy and vice versa. • Desalination would increase water supply, but is energy intensive. • Water and energy are interrelated, but planning is not integrated.