It’s the Infrastructure, Stupid

California Elects Jerry Brown -- How Might He Impact California's Energy Policy?

This is just a recap of what we will be looking at in the year to come with a new Governor and also a quick look at what happens next... 

NEW GOVERNOR

On November 2, 2010, Californian’s elected Jerry Brown as the next Governor.  So, how will the election impact the energy sector?

Appointments and Energy Advisors

As soon as this coming week, we can expect Brown to announce a team that will lead his transition into office.  This team will help organize and recruit those that will lead the various agencies and departments – but principally – the initial transition team typically ends up as part of the Governor’s Cabinet or Governor’s Office initial key advisor staff.

Specific to Energy, candidate Brown said he would appoint an energy advisor – he called that a “renewable energy jobs czar” -- Whomever he selects, they will be a driver for energy policy in California.

Candidate Brown on Energy

Candidate Brown campaigned on the following plan for energy:

• Building 12,000 megawatts of Localized Electricity Generation
• Building 8,000 Megawatts of Large Scale Renewables and Necessary Transmission Lines
• Dealing with Peak Energy Needs and Develop energy Storage
• A Timeline to Make New Homes and Commercial Buildings Zero Net Energy
• Making Existing Buildings More Efficient
• Adopting Stronger Appliance Efficiency Standards
• Developing More Cogeneration Projects to increase combined heat and power production by 6,500 megawatts
• Add 500,000 new renewable energy jobs

Agencies

Governor Brown will be appointing to the energy and environmental agencies:

CPUC – Brown will have at least 3 appointments to replace Commissioners Bohn, Gruenich and Ryan

CEC – Brown will have at least 3 appointments to replace Commissioners Byron, Eggert, and Wisenmiller

Other Agencies – Brown will also have appointments to agency secretary roles at Cal EPA and Resources, Chair at CARB (the entire CARB Board serves at the Governor’s pleasure), CAISO (Chair Willrich’s term is up, Board member Tom Habashi, was not confirmed. Kristine Hafner also did not win support of the current administration, and Board member Laura Doll told media she would not seek reappointment -- so 4 appointments for Brown here).

NEW LEGISLATURE/CONSTITUTIONAL OFFICERS

While the California Legislature remains unchanged as far as balance goes (Democrats still in control of the Senate and Assembly), there are rumors that we will see a new president of the Senate.  We may also see a shuffling of committee chairs. 

Already (on 11/4), the Republicans have announced that the new minority leader will be Connie Conway (Assemblywoman from Visalia).  On Friday (11/5), the Democrats re-elected Perez as Speaker.

While it should not impact the policy of energy too much, it is interesting to note that all Constitutional officers are Democrats [NOTE: AS OF THIS DATE, THE AG RACE HAS NOT YET BEEN CALLED].

All of these changes could bring changes in the views on energy policy. 

Energy Legislative Committee Chairs Re-Elected Easily

Senator Alex Padilla (D-Pacoima), current chair of the Senate Energy Utilities & Commerce Committee, won 69 percent of the vote; Assemblymember Steven Bradford (D-Los Angeles), current chair of the Assembly Energy Committee, won 82 percent of the vote.

PROPOSITIONS

With regard to the propositions, the failure of Prop 23 means that AB 32 can move forward.  The passage of Prop 26 could mean that the legislature will have to approve by 2/3 vote how and if fees will be imposed to implement AB 32.  So this makes for an interesting situation. 

Legislation and RPS vs. RES

Depending on whom Brown selects as his energy advisor or advisors, these have the potential to greatly impact what we see in the form of the next RPS bill (Rumor: We will see a new RPS bill in January, this bill has the potential to look very similar to SB 722 – and Senator Simitian is expected to again carry the RPS bill – 3^rd time the charm?).  Labor played a key role in the discussions in the last 2 versions of this effort, so considering that labor and the unions influenced by labor gave Brown $25 million (IEs that paid for the Whitman attack ads), I assume they will again play a major role and this time with a much more sympathetic ear from the Administration.

CONCLUSION

The most important message to take from this is the following: If you are working on projects in California, you really need to pay close and active attention to how the energy and renewable process develops under the new Governor and offer your opinions on a regular basis.

CAISO CEO Says Grid Needs 6 New Major Transmission Lines in Addition to Sunrise Powerlink and Tehachepi Transmission Line

Yakout Mansour, CAISO CEO, delivered keynote addresses this past week at the California Manufacturers and Technology Association’s Annual Energy Conference and at the California Council for the Environmental and Economic Balance conference.  In his nearly identical remarks at both conferences (Wednesday and Thursday, respectively), Mr. Mansour made some interesting pronouncements.  Following are the highlights:

 

·       California’s Transmission and Generation Siting process must be streamlined as it poses incredible challenges (particularly to goals for renewable portfolio standard— RPS, generation integration and greenhouse gas reduction – as well as providing necessary generation for California’s continued energy consumption growth)

·       Current

California

nameplate capacity is critical in meeting the 20% RPS under current law, achieving 33% RPS will be even more difficult

·         Current CAISO interconnection cue is 110K MWs – of this 70K MWs are renewable-this is generation proposals that are under consideration and must be studied by the CAISO to determine how and where they would connect to the grid

·         CAISO expects that 85% of this generation will not be built

·        CAISO study concludes that in addition to the Tehachepi and

Sunrise

transmission lines, 6 additional major transmission lines will be needed to help CA meet RPS, GHG and growth requirements.

Here We Go Again, A Stressed Out Grid

For the past three summers, we have had the same story.  Early in the year, the government agencies will state: "not to worry, the grid looks fine for this summer and it appears we will have plenty of energy to keep the lights on."  But as we have experienced in the past two consecutive summers, this one is no different.

For starters, this summer's fire season started a bit earlier than normal.  At one point in the last couple of weeks we were up to 1700 fires burning across California.  One national television network called their headline "California On Fire" -- indeed.  While we can be thankful for the brave men and women that have battled back these fires and have knocked the numbner down to around 500 fires currently burning, the problem is that 3 of those fires are currently threatening transmission lines in northern and central California.

Now add heat to the equation.  California this week is experiencing our second heatwave of the summer.  Stronger than the last one earlier in the year, the California Independent System Operator (CAISO)is predicting that consumtion may near the records we saw in 2006 (heaviest consumption of electricity is predicted for Wednesday and Thursday, given the anticipated high temperatures in major parts of the state).  The only potential good news is that the heatwave will likely be concentrated to California and not affect the rest of the West -- if it does, we are in trouble.

What happens if the heatwave does hit other Western states?  Well, that means that the power they would normally ship to California will likely be consumed at home, so the power for the region will be constrained and in short supply.  Ugly, right?

One more thing... The aging infrastructure.  Will our older power plants hold up to a third summer in a row of heatwaves, fires and transmission issues?  I know that the good folks that work at those places will do what they did the last two summers in a row and work their hardest to make sure that the facilities run and produce power.  But will the aging steel cooperate?

Once again, 2008 is what I call a "Summer of Hope."  Hope the fires don't disrupt transmission, hope the heatwaves don't engulf the whole west and that they don't last too long, and hope that the againg infrastructure holds up.  Wouldn't it be nice to say, "good thing we are building the necessary infrastructure to deal with this problem?"

Well, I "hope" that legislators and the regulators are paying attention. 

FERC Says SoCal in Danger of Blackouts

Southern California faces a greater threat of power outages this summer, according to a statement by FERC due to shrinking power reserves.

“This remains a concern despite implementation of demand response of more than 1,400 MW” projected by the state grid operator in late April, said Charles Whitmore, FERC’s senior market advisor.  FERC staff pointed to supply risks arising from decreased power imports to the state, as well as possible generation and transmission outages and summer temperatures on par with last summer’s heat waves.

CAISO, however, does not predict blackouts in Southern California this summer.  They quickly pointed to measures to curb peak demand and new generation coming online, adding that demand response programs have grown, but stressing that “Southern California’s load continues to grow--and most of the new generation that has come on line in the state since 2001 has been in Northern California.”  

FERC also noted that wholesale power prices are rising.  The continuing increase is attributed to higher natural gas prices because of increased demand from the fleet of new gas-fueled power plants, lower imports of liquefied natural gas and lower gas storage.

 

Interestingly, CEC also issued their summer assessment on the heals of this comment from FERC, and in thier assessment, they said that Southern California has a 3.8% chance of a staged emergency this summer, but that it still remains "below target reliability standards."

 

If nothing else, this should be read as a warning that our infrastructure to deal with our current and future energy demand is not in place.  Will we get lucky and squeeze through a hot summer without blackouts, or will we have finger pointing when the lights go out in the middle of July, August or September?

As the Dust Settles in Borrego Springs… What Now for the Sunrise Powerlink?

The CPUC held two back-to-back public participation hearings in Borrego Springs on Monday (5/12). The most notable difference from all of the previous hearings held thus far was that almost all of the commissioners were in attendance. CPUC President Peevey and Commissioners Bohn, Simon and Grueneich were present for over eight hours of public comment on the project.

What did we see or learn from the testimony? Nothing new, in fact, it was very similar to the five previous hearings that were held in the last few months in various San Diego communities. If I closed my eyes and listened – the song remains the same.

What we did see – were numbers. The opposition really did show up and this time they brought a few folks that are no strangers to spotlights. And if I have learned nothing else about Mike Aguirre, he never met a camera he didn’t want to jump in front of, and now as City Attorney, the next word you can always expect is “lawsuit.” He may have a case, but having watched him on energy matters (ever since the energy crisis of 2000-2001) before, this is likely to be more spotlight than action.

I was a bit surprised by Supervisor Diane Jacob, she raised points about the firefighting hazards that she had not raised before – or maybe I had just missed that before. Senator Christine Kehoe (also Chair of the Energy Committee) did not attend, but did have a representative read a letter into the record. Other than making it clear that she opposes any route through the State Park, she stressed that distributed generation is being overlooked as part of the solution to San Diego's energy needs.

What does all this mean? I think that the opposition scored one for their side – and the CPUC will now have to sharpen the pencil to draft an alternate proposed decision that outlines a clear path to construction for this project if it is going to get built. I still believe it will get built, and I further believe that the Commission will find a way to secure the right formula to getting this project approved. The big question now is what will the route be and when will the line be energized? Every year of delay, will mean one more year of tighter energy reserve margins for the region. And while no one wants to hear the word “blackout” – the CAISO will tell you that delays may really pinch system reliability.

Schwarzenegger Administration Holds Meeting on RPS/Senate Asks About Costs

The Administration is growing more concerned over the high probability of missing the Renewable Portfolio Standard mandate of utilities securing 20% renewable generation by 2010.

Though unpublicized, the Administration met last week with several stakeholder groups to discuss what might be done. I am told that the Governor had several pointed questions and that the staff did as well. How might we get to 20% renewables, and why will we miss the mark?

It is highly likely that we will see an Executive Order that will address how to get to the 20% -- and beyond -- the 33% that is being kicked around.

Why is this important now? Because of the initiative that has qualified for the ballot that would take us to 50% renewables by 2020. Is it doable? Sure, if we eliminate all of the barriers to building the infrastructure that would be needed. Will we do that? Even if it were done through regulation, the legal side will always slow the process down.

We need the infrastructure to get us to that green future – and to echo what the Governor said in his speech at Yale last month: "There's no two ways about it. Neither business nor environmentalists nor Republicans nor Democrats can be set in their ways. I suggest to them: Relax, exhale, just exhale and relax and let things move forward.”

In a hearing yesterday, the Senate Energy Committee had sharp questions about costs for the President of the CPUC, Michael Peevey: "How much is all of this, GHG reduction, RPS and other mandates going to cost?"

Great question!!! But we have no answers because we have not really looked at it...

I expect that a possible Executive Order on RPS will ignore the cost question, but maybe someone in the legislature will ask for an informational hearing to discuss the numbers that are out there already (EPRI calls it somewhere between $100 billion to $500 billion between 2020 and 2050 -- the smaller number to reduce GHGs by 25% and the larger number to reduce GHGs by 80%).

As I have stated before, going green is going to cost a lot of green... the better questions is who will pay for it? Will it be all ratepayer classes, or will we single out a few groups? The popular theme will be to make the wealthy pay for it... but how do we define that? Oh, get ready for that fun discussion that we will need to have at some point -- assuming we really do want to go green.

CAISO Summer 2008 Outlook: Clean Energy Presents New Benefits and Challanges

CAISO has issued the Summer 2008 outlook and in it they say that the clean energy future we are moving toward will present new benefits -- but also new challanges. While the summer outlook looks good, the grid operator will have continued reliance on conservation and demand response (demand response: this is a program that allows the utilities/CAISO to shot down participating businesses when the grid is stressed for electric capacity -- when we are short electricuty -- typically on really hot days or when the grid experiences disruptions -- like fires near transmission).

The challanges that California will face as we transition to the new cleaner energy sources is exactly that "the transition." How to get to greener from the existing mix of supply? I think it will require a bridge -- earlier I called it a blue bridge (referring to clean burning natural gas). The blue bridge will be in the form of new state of the art generation that will provide grid support and reliabilty as the new green generation is developed and interconnected by new transmission. So I am back to my old song and dance: we need everything--new transmission, new gas fueled generation, conservation, demand response, and renewables of all kinds. Guess what? The CAISO agrees. They also agree there needs to be a delicate balance for how we bring these resources ton-line.

As for the summer... well, I am not as confident as the CAISO, I think that when the temperatures hit the century mark, all bets are off and folks just do not conserve. The demand response programs are grossly under subscribed, so I would not lean on those too much. Having said that -- the reserves look good, but that means that all the conservation that can occur and all the demand response that can occur, will occur. It also means that we get all of the transmission flowing without interruption (the energy imports from other part of the West) and that we have no major, fires or hydro disruptions. That's a lot of if's.

So, until we build the infrastructure we desperately need, we will be counting an many moving parts and leaning on hope to keep our lights from flickering. Good luck to us all this summer!

To see the CAISO release, go to: www.caiso.com