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.

A New Renewable Plan for California?

There is a rumor that the Schwarzenegger Administration is in the process of preparing an executive order and legislative package to expand the Renewable Portfolio Standard (RPS -- this is the requirment that in state utilities procure a specific amount of generation from renewable sources) from 20% to 33% by 2020.  There may be three options to get to 33%: 1) a legal mandate, 2) a goal set in law (thorough legislation) or 3) set by the Air Resources Board in the AB 32 Scoping Plan.  There will be three elements in implementing this policy.  There will be an executive order (EO) with two primary elements on transmission and siting.  There will be a third element which will be a legislative package of bills.

The devil is always in the details, but if the move to 33% will truly streamline the siting process, which is the only reason to do this, then I would say that this is not only necessary, but it would become the only way that the state might actually achieve this goal.  Of course, no investment will be attracted if contracts are not offered to attract that business.  I do hope everyone is mindful of that. 

While I understand tha this is still under development, sources close to the proces indicated that this has moved from a conceptual draft and is closer to being official in the coming weeks.  Stay tuned!

  

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?

Governor Schwarzenegger Says CA Will Be First to Clean Energy Independence

While touting the potential of renewable power but remaining silent with regard to --the “hydrogen highway”--(I still believe someone talked him into touting this early in his governorship) Governor Schwarzenegger said California will be the first state in the nation to reach energy independence while fighting global warming.

In a speech last week on May 13 at a meeting sponsored by the University of California, Irvine, and the Milken Institute, he called on business leaders and scientists to protect the state’s economic and environmental future.

He urged energy and other industry leaders to think about the long-term benefits of investing in renewable resources. The Governor touted AB 32, the Million Solar Roofs initiative, his executive order to create a low carbon fuels standard, and the state’s green building initiative.

Sounds great... But message to the Governor and his staff: PLEASE, take a moment to reach out to your own Administration -- particularly your appointees at the various energy agencies and environmental agencies. The only way that the energy industry will realize all the goals established to date, is if the industry is afforded a market with market signals and rules that will allow all of that to happen. Hate to say, this, but so far, so bad...

From regressive policy initiatives at the SWRCB to protracted permitting at the CEC and CPUC... in some cases, the process has turned from stumbling blocks to snares. Trust me, if these were to see improvements, the industry would respond and the infrastructure to deliver that green independent future would be closer to reality. And sooner than we all might otherwise expect. To do nothing, will mean that we will get nothing. Markets and industry need meaningful signals -- we don't have them today. We need tose market signals so that the infrastructure can secure the financing to get this stuff built.

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.

Happy Earth Day! Now, How Will We Get to the Green Future?

OK, first let me hug the planet with my public service announcement for EARTH DAY 2008 -- so lets start with my basic message: do the right thing.

And now, my commercial:

Did you know that electric demand for lighting could be cut in half if every household replaced its five most commonly used incandescent light bulbs with compact fluorescent bulbs? Earth Day 2008 is a great chance to start thinking about small, everyday decisions that can have a big impact on the environment. For example, turn your lights off when they are not in use and replace incandescent light bulbs with newer, efficient models.

While Earth Day comes just once a year, protecting and preserving our environment for future generations is something to think about every day.

There, I feel greener already.

But how will we really get there? Last week I attended a meeting of the California Foundation for the Environment and the Economy. The conference concentrated on the role that natural gas will play in getting us to a green future -- basically how natural gas could be the bridge to that new green future -- the transition form carbon to clean.

Natural gas is an excellent clean fuel source that can allow us to bridge to green -- a blue bridge to a green future.

New state-of-the-art clean-burning natural gas facilities are going to be needed in order to really afford us the ability to sustain and support a transition to green. In the last year, over 7500 MWs of new coal generation facilities have been cancelled. But what will replace them as the consumption continues to grow?

My suggestion: conservation, efficiency, new renewables, new transmission and new gas fired generation. Again, we need it all. And lots of it. Even if we are even moderately successful in curbing our apetite for more energy, we will need to need to secure the new infrastructure that will replace the current aging system -- something I will go into on another post.

So, do your part -- and Happy Earth Day!