What’s Coming Down with Energy in California

1. What’s Coming Down with Energy in California Lon W. House, Ph.D. 530.676.8956 www.waterandenergyconsulting.com ACWA Fall Conference 2003 San Diego, CA December 4, 2003

4. Natural Gas Prices and Electricity Prices

5. Electricity Use Depends Upon Temperature

6. California Electricity Use Per Person Stable

7. Electricity Use Becoming More Peaked

8. New Generation and Retirements

10. California Strategic Plan Recommendations • Increased emphasis on the need for infrastructure improvements (transmission) to keep up with the growth in demand for petroleum, natural gas and electricity. • More stringent energy efficiency targets for 2008, public funding for energy efficiency programs above current levels to achieve at least an additional 1,700 megawatts of electricity by 2008. • Recommendation that the State implement real-time and dynamic pricing of electricity. Deploy advanced metering systems and rate structures to help link retail prices with wholesale costs. • Accelerating the timeframe to meet the 20 percent goal for the Renewables Portfolio Standard (RPS), and requiring all retail sellers of electricity to meet the goal. The report also recommends developing more ambitious targets beyond the current 20 percent goal. • Direct access for large consumers - move to a core/noncore market structure for electricity. • Recommendations to establish a coordinated permitting process for facilities that would import Liquid Natural Gas (LNG) to the West Coast, including Baja. At the same time, in-state production of natural gas should be encouraged. • Encouraging additional cogeneration and distributed generation in California, and examining the implications of retiring or replacing aging, inefficient power plants. • An emphasis on the use of non-potable water sources for power plant cooling. • A recommendation that the State take into account the cost of greenhouse gas emissions and their environmental consequences when making energy decisions. • Establishing the goal of reducing petroleum consumption used for transportation by 15 percent from current levels by 2020.

11. Feasibility of Implementing Dynamic Pricing In California • “These preliminary results show that the short-term peak reduction expected during high-priced summer days from the introduction of dynamic pricing rates for all non-agricultural customer classes is between 4.7 and 24 percent of California’s estimated peak load by 2013.”

12. Can Still Add Self Generation • Self-Generation - CPUC D.03-04-030 Departing Load Obligation - exemptions • Generating before February 1, 2001 • Biogas digestors • <1 MW and subject to net metering (solar) • Eligible for CPUC/CEC self-generation programs: photovoltaics; wind turbines; fuel cells; microturbines, small gas turbines and internal combustion engines with waste heat recovery. No diesel or back-up • >1 MW “ultra-clean and low emissions” do not pay DWR ongoing charges or HPC • 3,000 MW cumulative total - do not have to pay DWR ongoing charges: 1500 MW renewable, nonrenewable generation amounts caps: • 2004 600 MW • 7/1/2008 500 MW • 2008+ 400 MW • California Energy Commission is adopting a set of regulations governing the process for determining which departing load customers are eligible for an exemption from Cost Responsibility Surcharges. Fill out CEC Form 03-CRS-01.

13. New Demand Side Options • Technical Assistance Available • $50/kW. Can be either equipment or behavior. $25/kW when expected load drop certified by registered engineer, $25/kW when 50% of estimated load is dropped • Has to have advanced meter (interval meter, communication pathway, and internet-based access to usage information) • Reduction = load drop from average of same hour in 3 highest use days during the past two weeks • CPP - Critical Peak Pricing - All Utilities • 12 summer weekdays/year, notification the day before • CPP days: 3-6pm energy 5x regular on peak price (10x SDG&E) noon-3 and 6-7pm energy 3x partial peak price (5x SDG&E) • Non CPP days - energy costs discounted • Rate protection available - never pay more than under old tariff • HPO - Hourly Pricing Option - SDG&E • Day ahead price signal • DBP - Demand Biding Program - All Utilities • You offer amount (MW) and hours you’re willing to curtail. • Between noon and 8 pm weekdays • Triggered when energy price >15¢/kWh • Emergency test trigger twice a year for less than 4 hours, will pay you 50¢/kWh

14. Summary of Curtailment Programs

15. Arnold’s Energy Program- Encourage Private Investment In Generation Facilities- Mandate Generating Reserves- More Renewables- More LNG- More Transmission- Link Customer Prices to Wholesale Market Costs- Implement Real Time Pricing- More Conservation

16. Conclusions/Recommendations • High electricity (through 2011) as we pay off our 2000/2001 hangover • High natural gas prices ($4-$6) around for awhile • Changes are coming • Traditional tariffs (I-6) disappearing • Real-time pricing for everyone is coming • Some form of direct access (core/noncore) is coming • Even more rate options will be available (e.g., 2-part RTP) • Recommendations - know your system and what you can do • Take advantage of technical assistance $$ now, figure out what you can do before you have to do it • Look into demand reduction pilot programs (e.g. CPP or DBP) to test your operational changes while you are still protected on the down side • Look into self generation options • Look into more storage • Figure out what will happen to your budget when you go to real time pricing • Flexibility is the key - the more flexible your operations are the more opportunities you can take advantage of