Transcript California’s electricity and gas: What next?

Energy in California: new crisis,
or business as usual?
Robert J. Michaels
California State University Fullerton
and
Tabors Caramanis & Associates, Cambridge MA
[email protected]
Marin County Council
of Governments
Green Brae, California
Oct. 27, 2004
That was then, this is now
Legacy of the 2000-2001 electricity crisis
The politics and economics of the legacy
Electricity: regulation, markets, or both?
Return of planning or rebirth of markets?
Customer choice and utility formations
Generation: supply and demand, once more
Transmission: the system operator and the new
markets
 Natural gas: the other half of the energy picture
 Beyond today’s horizon
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Electricity’s basic governance
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Federal Energy Regulatory Commission [FERC]
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Non-local transmission, electricity sales for resale
Interstate gas pipelines
California Public Utilities Commission [CPUC]
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Cost-based rates to final [“retail”] users
Administer corporate utility customer choice
New / old role in utility planning
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Approval of larger new powerplants, forecasts
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Federal marketing, Municipals, Irrigation districts
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Operates transmission owned by three corporate utilities
Runs day-ahead and real-time energy and reserve markets
Under 10 percent of deliveries pass through markets
California Energy Commission [CEC]
Governmental and Cooperative utilities
California Independent System Operator [ISO]
The end of the good old days
 1994: High power prices, CPUC rulings
 1996: AB 1890: new markets, transition
costs, divestitures, rate freezes
 Atop a basic supply/demand imbalance
 Numerous causes of 2000-01 price run-up
 Law was a gamble on low day-to-day prices
 Utility insolvency and bankruptcy
 State long-term contracts: deal in haste,
repent for a decade
 Prices are over market two months after signing
Today’s questions
 Federal / state tension re markets
 FERC’s “mission statement”
 Federal preemption issues [transmission]
 What rights for customers to choose?
 Utility organization in the future
 Buy or build?
 State role in resource planning, renewables
 The Governor, legislature, and CPUC
 Advisors and appointments, term limits
Aftermath of the state contracts
 State contracts plus utility resources [post1996-1998 divestitures] nearly meet load
 Contract power diminishes over 10+ years
 Allocating costs to customers of individual utilities
 Phased-in return to procurement by utilities
 AB 57, SB 1008 require CPUC to set up
procurement and planning procedures
 2004 utility procurement plans
 Important data redacted for commercial reasons
 PUC imposes resource 15-17% reserve
requirements on utilities
 May be imposed on all load-serving entities
The new planning
 “Integrated resource planning” of 1980s
 Four-year biennial plans, market modeling, politics
 Must failed reforms imply a return to IRP?
 Renewable resource requirements
 How quickly, what are definitions, how clean?
 Demand management and pricing reforms
 How frozen will plans be?
 SCE’s Mountainview episode
 Big question is who will own generation
 Utilities rewarded for what they spend
 Indep.power politically important, wants contracts
Bulk power markets
 FERC: “Dependable, affordable energy through
sustained competitive markets”
 Contract and short-term markets cover west
 Cost-based charges giving way to market-based
 California imports average 20% per year, exports 10%
 FERC favors Regional Transmission Operators and
standard market design
 Cal-ISO markets operating under redesign [“MD02”]
 Possible consolidation of RTO West (northwest),
WestConnect (sw) and Cal-ISO
 Resistance to RTOs in northwest and southeast
Retail customer choice
 Direct access to continue for 10% of load
 Poorly designed, suspended in crisis
 Almost surely coming: core / non-core
 Customer separation by size and alternatives
 Has worked well in gas, need not harm small users
but will force rational cost allocation
 Utility resistance: AB 2006 [“Edison bill”]
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New utility cost recovery guarantees
Restrictive re noncore customers, return conditions
Rewritten to death, passed narrowly and vetoed
“Electricity is different”
New utilities
 Assorted attempts to evade contract cost
allocations by forming distribution islands
 AB 117 [2002] allows “community choice
aggregation” by municipal governments
 Utilities will distribute this power as usual
 Questions re allocation of state contract costs
and customer reversion to utilities
 “Spot municipals” on undeveloped city land
 Eliminate costly, time-consuming condemnation
 Questions re costs of power supplies to meet
loads, dependence on gas-fired generation
New resources [if any]
 Flurry of new plant announcements 2001,
many since cancelled
 Financial health of builders, uncertainty re policy
 Up to 9,000 MW (12% of CA capacity) of
aging plants may be retired by 2008
 CEC sees deficiencies by or before 2006
 Inclusive of imports and demand management
 Proposals (Bay Area Econ Forum) for stopgap
generator retention policies
 Proposals (CEC and others) for pricing reforms
and additional demand response programs
Transmission: the big shortfall
 Not a “third world” grid, but badly stressed
 Problem paths in Calif. Growing
 Path 15 being built, San Diego not
 Power flows like water, no “valves” in grid
 Over 50% of N-S Calif flow goes out of state
 But 1935 law gives states siting authority
 Many states permissive re local protests
 Decline 1978-2002 of 1.5% / year in
capacity relative to throughput, up 50%
 Means higher cost generation, more health risk
Transmission: Federal or state?
 Blackouts and legislation
 Aug. 2004 National Governors’ Conference
 Reliability in failed 2004 energy bill
 Congress does not sever reliability provisions
 National Interest Economic Transmission
Corridors” [NIETC]
 Federal backstop orders if states do not approve
projects FERC says are needed
 Liberal standards (high prices) for issuing order
 Power flow patterns probably mean orders can be
issued for lines outside of corridors
Gas: the local picture
 Nationally: wellhead prices rising, reflects
increased cost of accessing new gas
 Not “running out,” just more expensive
 Reserves have risen in past three years
 Pipelines to Calif adequate except at peaks
 In-state: Southern Calif pipe capacity
adequate, northern short
 General agreement re desirability of
additional (underground) storage in-state
Gas: the bigger picture
 Regulatory change induces increased use
 Efficient small powerplants
 More stringent environmental laws
 Interstate pipes have fed eminent domain
 Feds asserting jurisdiction over liquefied NG
 Concerns re excessive gas dependence for
electricity generation in west, not east
 The biggest picture: the beginning of a
worldwide gas market
Off in the distance
 Power markets are here or arriving
worldwide, generally desirable
 California cannot dwell on memory of a bad first
experience, other states getting it right
 Incremental reform is particularly important
in electricity, because we know so little
about what markets can and cannot do
 Electricity ceased to be a local affair
decades ago, and sooner or later the law
will catch up with reality.
 Do not count on a bigger crisis (Kyoto) to
allow evasion of responsibility