2009 Integrated Energy Policy

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CALIFORNIAENERGYCOMMISSION

2009 INTEGRATED ENERGY

POLICY REPORT

FINALCOMMISS

ION

REPORT

December 2009

CEC-100-2009-003-CMF

Arnold SchwarzeneggerGovernor


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Acknowledgments

This2009IntegratedEnergyPolicyReportwouldnothavebeenpossiblewithoutthesignificant

contributionsofthefollowingEnergyCommissionstaff:

MohsenAbrishami

BryanAlcorn

BobAldrich

EileenAllen

AlAlvarado

GraceAnderson

AnissBahreinian

KevinBarker

PanamaBartholomy

JimBartridge

SylviaBender

Libbie

Bessman

AvtarBining

KellyBirkinshaw

SteveBonta

LeonBrathwaite

GeraldBraun

MarthaBrook

DennyBrown

SusanBrown

BarbaraByron

BillChamberlain

KristyChew

SusannahChurchill

MarkCiminelli

BarbaraCrume

TedDang

PaulDeaver

AlbertDeLeon

RhettaDeMesa

JacquelineDockum

PamelaDoughman

DevorahEden

DaleEdwards

RyanEggers

MarlenaElliott

JosephFleshman

SerenaFong

JamesFore

StevenFosnaugh

GuidoFranco

NicholasFugate

MiguelGarciaCerrutti

AsishGautam

TerajaGolston

PedroGomez

TomGorin

AndreaGough

CathyGraber

Judy

Grau

MichaelGravely

CarolGreenwood

KarenGriffin

ValerieHall

NancyHassman

MarkHesters

JohnHingtgen

DavidHungerford

NickJanusch

MichaelJaske

RogerJohnson

BillJunker

HarrietKallemeyn

AdrienneKandel

ChrisKavalec

DonKazama

BrendanKeeler

LindaKelly

ThomKelly

RobertKennedy

KevinKidd

JoelKlein

DonKondoleon

KenKoyama

PramodKulkarni

LauraLawson

BryanLee

JeromeLee

KaeLewis

DavidLopez

HeatherLouie

JoeLoyer

MichaelLozano

StevenMac

JerryMagana

MignonMarks

LynnMarshall

Lana

McAllister

BobMcBride

CheMcFarlin

JimMcKinney

MadeleineMeade

DarylMetz

SarahMichael

DavidMichel

CharlesMizutani

NahidMovassagh

MarlaMueller

LarryMyer

ChuckNajarian

FaridehNamjou

BrianNeff

TerryOBrien

GaryOcchuizzo

JoeOHagan

GarryONeill

JacobOrenberg

JasonOrta

JimPage

JamiePatterson

BillPennington

PatPerez

BillPfanner

SarahPittiglio

PeterPuglia

RichardRatliffe

IvinRhyne

PaulRichins

CarolRobinson

RandyRoesser

IreneSalazar

RoySanders

SabrinaSavala

RobSchlichting

GordonSchremp

Don

Schultz

GlenSharp

ConsueloSichon

MichaelSmith

ArthurSoinski

TiffanySolorio

GeneStrecker

KateSullivan

AngelaTanghetti

RubenTavares

GabrielTaylor

LaurietenHope

MitchTian

ValentinoTiangco

ChrisTooker

ClaudiaUresti

DavidVidaver

MalachiWengGutierrez

KerryWillis

MichaelWilson

LanaWong

WilliamWood

JimWoodward

GeraldZipay

KateZocchetti


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Pleasecitethisreportasfollows:

CaliforniaEnergyCommission,2009IntegratedEnergyPolicyReport,FinalCommissionReport,

December2009,CEC1002009003CMF.


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i

Preface

The2009IntegratedEnergyPolicyReportwaspreparedinresponsetoSenateBill1389(Bowen,

Chapter568,Statutesof2002),whichrequiresthattheCaliforniaEnergyCommissionpreparea

biennialintegratedenergypolicyreportthatcontainsanintegratedassessmentofmajorenergy

trendsandissuesfacingthestateselectricity,naturalgas,andtransportationfuelsectorsand

providespolicyrecommendationstoconserveresources;protecttheenvironment;ensure

reliable,secure,anddiverseenergysupplies;enhancethestateseconomy;andprotectpublic

healthandsafety(PublicResourcesCode25301[a]).ThisreportfulfillstherequirementofSB

1389.

ThereportwasdevelopedunderthedirectionoftheEnergyCommissions2009Integrated

EnergyPolicyReportCommittee.AsinpreviousIntegratedEnergyPolicyReportproceedings,

theCommitteerecognizesthatclosecoordinationwithfederal,state,andlocalagenciesis

essentialtoadequatelyidentifyandaddresscriticalenergyinfrastructureneedsandrelated

environmentalchallenges.Inaddition,inputfromstateandlocalagenciesiscriticaltodeveloptheinformationandanalysesthattheseagenciesneedtocarryouttheirenergyrelatedduties.

This2009IntegratedEnergyPolicyReportreflectstheinputofawidevarietyofstakeholdersand

federal,state,andlocalagenciesthatparticipatedintheIntegratedEnergyPolicyReport

proceeding.TheinformationgainedfromworkshopsandstakeholdersalongwithEnergy

Commissionstaffanalysiswasusedtodeveloptherecommendationsinthisreport.The

Committeewouldliketothankparticipantsfortheirthoughtfulcontributionsoftimeand

expertisetotheprocess.

The2009IntegratedEnergyPolicyReportproposespolicyandprogramdirectiontoaddressthe

manychallengesfacingCaliforniasenergyfuturethatarediscussedthroughoutthebodyofthe

report.SpecificrecommendationsarepresentedinChapter4,buttheEnergyCommission

believesthatcertainpoliciesandprogramshavepriorityandevenurgencyifCaliforniaisgoing

toaddressitsdiversesetofenergygoals.TheExecutiveSummarythereforeidentifiesthose

actionsandpoliciesthattheEnergyCommissionconsiderstobeofhighestimportance.


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iii

Table of Contents

Preface.......................................................................................................................................................... i

ExecutiveSummary.................................................................................................................................. 1

Introduction............................................................................................................................................

1

TheElectricitySector............................................................................................................................. 2

SupplyandDemand.......................................................................................................................... 2

EnergyEfficiencyandDemandResponse...................................................................................... 3Recommendations.........................................................................................................................................4

RenewableEnergy............................................................................................................................. 5Recommendations.........................................................................................................................................7

DistributedGenerationandCombinedHeatandPower............................................................. 8Recommendation...........................................................................................................................................8

NuclearPowerPlants........................................................................................................................ 9Recommendation.........................................................................................................................................10

TransmissionandDistribution........................................................................................................ 9Recommendations.......................................................................................................................................11

CoordinatedElectricitySystemPlanning..................................................................................... 11Recommendation.........................................................................................................................................11

AddressingProcurementintheHybridMarket......................................................................... 11

TheNaturalGasSector........................................................................................................................ 12Recommendations.......................................................................................................................................13

TheFuelsandTransportationSector................................................................................................ 14Recommendations.......................................................................................................................................15

TheLandUseandPlanningSector................................................................................................... 15Recommendations.......................................................................................................................................16

ThePotentialofCarbonCaptureandSequestration...................................................................... 16

AchievingEnergyGoals...................................................................................................................... 17

Chapter1:CaliforniasEnergyRelatedPoliciesandActivities..................................................... 19

AssemblyBill32Framework.............................................................................................................. 19

ElectricitySector................................................................................................................................... 20EnergyEfficiencyandDemandResponse...............................................................................................20

RenewableEnergy.......................................................................................................................................23

DistributedGeneration...............................................................................................................................27

NaturalGasandNuclearPowerPlants....................................................................................................29

TransmissionandDistribution..................................................................................................................32

NaturalGasSector............................................................................................................................... 33

TransportationSector.......................................................................................................................... 34

LandUseandPlanningSector........................................................................................................... 39

Chapter2:EnergyandCaliforniasCitizens...................................................................................... 41

ElectricitySector................................................................................................................................... 41

ElectricityTransmissionandDistribution.................................................................................... 42


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ElectricitySupply............................................................................................................................. 43NaturalGasFiredGeneration...................................................................................................................45

HydroelectricResources.............................................................................................................................46

NuclearGeneration.....................................................................................................................................47

RenewableResources..................................................................................................................................47

CombinedHeat

and

Power

........................................................................................................................

48

ResourceAdequacy.....................................................................................................................................49

ElectricityDemand.......................................................................................................................... 49ElectricityDemandForecast......................................................................................................................50

TheEffectofEconomicUncertaintiesontheDemandForecast...........................................................52

EnergyEfficiency............................................................................................................................. 53EnergyEfficiencyandtheDemandForecast...........................................................................................54

EnergyEfficiencyandtheEnvironment...................................................................................................58

EnergyEfficiencyandReliability..............................................................................................................61

EnergyEfficiencyandtheEconomy.........................................................................................................70

DemandResponse........................................................................................................................... 72

RenewableEnergy

...........................................................................................................................

75

RenewableEnergyandtheEnvironment.................................................................................................76

RenewableEnergyandReliability............................................................................................................85

RenewableEnergyandtheEconomy.......................................................................................................86

DistributedGenerationandCombinedHeatandPower........................................................... 95ExistingCombinedHeatandPowerinCalifornia..................................................................................96

CombinedHeatandPowerandtheEnvironment.................................................................................97

CombinedHeatandPowerandReliability...........................................................................................105

CombinedHeatandPowerandtheEconomy......................................................................................106

NaturalGasPowerPlants............................................................................................................. 107NaturalGasPlantsandtheEnvironment..............................................................................................107

Natural

Gas

Plants

and

Reliability

..........................................................................................................

110

NuclearPowerPlants.................................................................................................................... 111NuclearPlantsandtheEnvironment......................................................................................................115

NuclearPlantsandReliability.................................................................................................................119

NuclearPlantsandtheEconomy............................................................................................................124

Transmission................................................................................................................................... 126TransmissionandtheEnvironment........................................................................................................126

TransmissionandReliability....................................................................................................................128

TransmissionandtheEconomy..............................................................................................................129

NaturalGasSector............................................................................................................................. 131

NaturalGasSupplies..................................................................................................................... 131

NaturalGas

Demand

.....................................................................................................................

136

NaturalGasandtheEnvironment..........................................................................................................138

NaturalGasandReliability......................................................................................................................141

NaturalGasandtheEconomy.................................................................................................................142

FuelsandTransportationSector...................................................................................................... 145

TransportationFuelsSupplyandDemand................................................................................ 146Demographics............................................................................................................................................146


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FuelSupplyandDemand.........................................................................................................................147

InfrastructureAdequacy..........................................................................................................................154

TransportationandtheEnvironment.....................................................................................................163

TransportationandReliability.................................................................................................................167

TransportationandtheEconomy............................................................................................................168

Chapter3:

Challenges

to

Achievement

of

aVision

for

Californias

Future

Electricity

System

.................................................................................................................................................................. 173

Introduction........................................................................................................................................ 173

IssuesAffectingthePowerPlantFleet............................................................................................ 174

EffectsofOnceThroughCoolingMitigationPolicies.............................................................. 174FactorsAffectingOnceThroughCoolingReplacementInfrastructure.............................................175

PlanningforOnceThroughCoolingReplacementInfrastructure.....................................................177

EmissionCreditsforPowerPlants.............................................................................................. 178ImpactsonPowerPlantsLicensedbytheEnergyCommission.........................................................179

ImpactsonSpecificUtilities.....................................................................................................................181

PreferredResource

Additions

......................................................................................................

184

UncommittedEnergyEfficiencyGoals...................................................................................................185

RenewablesPortfolioStandardGoals....................................................................................................187

RoleofNaturalGasPlants.......................................................................................................................189

RoleofEnergyStorage..............................................................................................................................192

RoleofOtherRenewableTechnologies..................................................................................................195

RoleofImprovedProductionForecastingforRenewables.................................................................196

RoleofDistributedResources...................................................................................................... 197

TransportationElectrification....................................................................................................... 199

IssuesAffectingtheTransmissionandDistributionSystem....................................................... 199

RoleoftheCaliforniaSmartGrid................................................................................................ 202

RoleofResearchandDevelopment............................................................................................. 204InvestmentinDesiredElectricityInfrastructure........................................................................... 206

ForwardEnergyorCapacityMarkets......................................................................................... 206

ForwardGenerationInvestmentbyPubliclyOwnedUtilities................................................ 207

InvestmentinTransmissionandDistribution........................................................................... 207

EndUseCustomerInvestments.................................................................................................. 208

IssueswithIntegratingStatePolicyGoalswithElectricityPlanningProcesses....................... 209

PlanningintheElectricitySector................................................................................................. 210

NeedforStatewideIntegratedElectricityandTransmissionPlanning................................. 214

APathTowardVision,BlueprintandInfrastructureAssessment......................................... 216

Developing

a

Blueprint

for

the

Future

Electricity

System

...................................................................

217

InfrastructureAssessment........................................................................................................................219

GenerationInfrastructureAssessment...................................................................................................220

TransmissionInfrastructureAssessment...............................................................................................221

IntegratedGeneration/TransmissionPlanning.....................................................................................223

Chapter4:Recommendations............................................................................................................. 225

Introduction........................................................................................................................................ 225


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RecommendationsfortheElectricitySector.................................................................................. 226

EnergyEfficiencyandDemandResponse.................................................................................. 226ZeroNetEnergyBuildings.......................................................................................................................226

BuildingandApplianceStandards.........................................................................................................227

EfficiencyinExistingBuildings...............................................................................................................227

PubliclyOwned

Utility

Energy

Efficiency

Programs

and

Reporting

.................................................

228

DemandResponse.....................................................................................................................................229

IncorporatingEfficiencyintheDemandForecast.................................................................................230

RenewableResources.................................................................................................................... 230RenewablesPortfolioStandardTargets.................................................................................................231

RenewableIntegration..............................................................................................................................231

MaintainingExistingRenewableFacilities............................................................................................233

SupportingNewRenewableFacilitiesandTransmission...................................................................233

ExpandingFeedInTariffs........................................................................................................................234

DistributedGeneration.................................................................................................................. 235

CombinedHeatandPower.......................................................................................................... 236

MeetingScoping

Plan

Targets

for

Combined

Heat

and

Power

..........................................................

236

RenewableCombinedHeatandPower..................................................................................................237

NuclearPlants................................................................................................................................ 238

Transmission................................................................................................................................... 240

CoordinatedElectricitySystemPlanning................................................................................... 241

RecommendationsfortheNaturalGasSector............................................................................... 242

RecommendationsfortheTransportationSector.......................................................................... 243

RecommendationsforLandUseandPlanning............................................................................. 245

RecommendationsforCarbonCaptureandSequestration......................................................... 246

Acronyms................................................................................................................................................ 249

Index........................................................................................................................................................

251


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List of Figures

FigureE1:CaliforniasGenerationMix(2008)..................................................................................... 2

FigureE2:ElectricityConsumptionbySector2008............................................................................. 3

Figure1:BulkTransmissionSysteminCalifornia.............................................................................. 43

Figure

2:

Californias

Generation

Mix

(2008)

.......................................................................................

44

Figure3:CaliforniaRenewableEnergyGenerationbyTechnology,2008...................................... 48

Figure4:ElectricityConsumptionbySector2008............................................................................... 50

Figure5:StatewideElectricityConsumption....................................................................................... 51

Figure6:ProjectedStatewideElectricityConsumption,CED2009AdoptedandAlternative

EconomicScenarios................................................................................................................................. 52

Figure7:ProjectedStatewidePeakDemand,CED2009AdoptedandAlternativeEconomic

Scenarios.................................................................................................................................................... 53

Figure8:ComparisonofCommittedUtilityProgramConsumptionImpactsforInvestorOwned

Utilities...................................................................................................................................................... 55

Figure9:ExistingCombinedHeatandPowerinCalifornia............................................................. 96

Figure10:BaseCaseCumulativeCHPMarketPenetrationbySizeCategory............................. 102

IncentiveCaseResults........................................................................................................................... 103

Figure11:IncentiveCasesCumulativeMarketPenetrationResults.............................................. 103

Figure12:GHGEmissionsSavingsbyScenariousingARBAvoidedCentralStationEmissions

Estimate................................................................................................................................................... 104

Figure13:U.S.DomesticNaturalGasProduction............................................................................ 132

Figure14:2007CaliforniaNaturalGasReceiptsbySource............................................................. 132

Figure15:NaturalGasResourceAreasandPipelines..................................................................... 134

Figure16:Lower48ShaleNaturalGasProduction.......................................................................... 136

Figure17:HenryHubSpotPrices19962008.................................................................................... 145

Figure18:CrudeOilSupplySourcesforCaliforniaRefineries....................................................... 148

Figure19:HistoricCaliforniaGasolineandDieselDemand........................................................... 149

Figure20:InitialCaliforniaGasolineDemandForecastNoRFS2Adjustment.......................151

Figure21:U.S.EthanolUseandRFSObligations19932022.......................................................... 152

Figure22:CaliforniaE85DemandForecast20102030.................................................................... 153

Figure23:RevisedLowDemandForecast20102030...................................................................... 154

Figure24:KinderMorganInterstatePipelineSystem...................................................................... 156

Figure25:CaliforniaFFVLowDemandForecast20102030.......................................................... 157

Figure26:CaliforniaE85DispenserForecast20102030.................................................................. 157

Figure27:NaturalGasVehicleCountsbySpecificCounties,October2008................................. 159

Figure28:

California

Transportation

Natural

Gas

Demand

Forecast

.............................................

159

Figure29:FullElectricVehicleCountsbySpecificCounties,October2008................................. 161

Figure30:CaliforniaTransportationElectricityHighDemandForecast................................. 162

Figure31:LifeCycleAnalysisCarbonIntensityValuesforGasolineandSubstitutes...............164

Figure32:PowerPlantsAffectedbyAirCreditLimitationsinSouthCoastAirBasin...............180

Figure33:ComparisonofRecentScenariosforIncrementalandExistingRenewableEnergy

(33percentby2020)............................................................................................................................... 188


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List of TablesTable1:2008TotalSystemGeneration................................................................................................. 45

Table2:RPSDeliveryandLocationRequirementsinOtherWesternStates.................................. 80

Table3:TotalCHPTechnicalPotentialin2009byMarketSector.................................................. 100

Table4:TotalCHPTechnicalPotentialGrowthbetween2009and2029byMarketSector.......100

Table5:ComparisonofStudyResultsGHGSavingstoARBgoals............................................... 105

Table6:StatewideEndUserNaturalGasConsumption................................................................. 137

Table7:SummaryofCaliforniaOnRoadLightDutyVehicles...................................................... 168

Table8:SCECapacityImpactedbySCAQMDRule......................................................................... 182

Table9:StaffPlanningAssumptionsandReserveMarginResultsforSouthernCaliforniaUsing

HighRetirements................................................................................................................................... 183

Table10:StaffPlanningAssumptionsandReserveMarginResultsforSouthernCalifornia

UsingSWRCBOTCRetirements......................................................................................................... 183

Table11:CaliforniaUseofNaturalGasinPowerPlants................................................................. 191


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Abstract

The2009IntegratedEnergyPolicyReportevaluatesoverallsupplyanddemandtrendsfor

electricity,naturalgas,andtransportationfuelsinCalifornia,aswellasissuesassociatedwith

energyinfrastructure,efficiency,reliability,andcost.Thereportdescribesthevariousenergy

policiessignificantlyaffectingCaliforniasenergysectorsandoutstandingissuesthatwillneedtobeaddressedineachsectortomaintainreliable,affordable,andenvironmentallybenign

sourcesofenergyforthestatescitizens.Thereportfocusesonissuessurroundingthe

integrationofincreasedlevelsofrenewableenergyinboththeelectricityandtransportation

fuelsectorsandmakesrecommendationsonfutureactionsthestateshouldpursue.

Key Words

AssemblyBill32,greenhousegasemissions,loadingorder,transmission,resourceadequacy,

energyefficiency,demandresponse,RenewablesPortfolioStandard,RenewableEnergy

TransmissionInitiative,renewableenergy,demandforecast,distributedgeneration,combined

heatandpower,nuclear,oncethroughcooling,emissioncredits,transportation,naturalgas.


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Executive Summary

Introduction

As

California

pursues

its

goal

to

address

climate

change

by

reducing

greenhouse

gas

emissions,

thedrivingforceforthestatesenergypoliciescontinuestobemaintainingareliable,efficient,

andaffordableenergysystemthatminimizestheenvironmentalimpactsofenergyproduction

anduse.Althoughtheeconomicdownturnhasreducedenergydemandintheshortterm,

demandisexpectedtogrowovertimeastheeconomyrecovers.Itisessentialthatthestates

energysectorsbeflexibleenoughtorespondtofuturefluctuationsintheeconomyandthatthe

statecontinuetodevelopandadoptthegreentechnologiesthatarecriticalforlongterm

reliabilityandeconomicgrowth.

AssemblyBill32(Nez,Chapter488,Statutesof2006),theGlobalWarmingSolutionsActof

2006,establishedthegoalofreducinggreenhousegasemissionsto1990levelsby2020,and

servesas

the

comprehensive

framework

for

addressing

climate

change.

However,

many

of

the

policiesinplacepriortopassageofAB32arealsovaluedfortheirroleinmeetingthestates

climatechangegoals.Oneofthesepoliciesistheloadingorderforelectricityresources,which

callsformeetingnewelectricityneedsfirstwithenergyefficiencyanddemandresponse;

second,withnewgenerationfromrenewableenergyanddistributedgenerationresources;and

third,withcleanfossilfueledgenerationandtransmissioninfrastructureimprovements.A

secondimportantpolicyinplacepriortothepassageofAB32istheRenewablesPortfolio

Standard,establishedin2002,whichcurrentlyrequiresretailsellersofelectricitytoprocure20

percentoftheirretailsalesfromrenewableresourcesby2010.

Morerecently,GovernorSchwarzeneggerissuedExecutiveOrdersin2008and2009that

establishedtheRenewableEnergyActionTeamtodevelopaplanforrenewabledevelopmentinsensitivedeserthabitat,acceleratedtheRenewablesPortfolioStandardrequirementto33

percentby2020,anddirectedtheAirResourcesBoardtoadoptregulationsbyJuly31,2010,to

meetthatrequirement.

Whilereducinggreenhousegasemissionsisofparamountconcern,itisnottheonly

environmentalissuefacingCaliforniaselectricitysector.TheStateWaterResourcesControl

Boardhasissuedadraftpolicytophaseouttheuseofoncethroughcoolinginthestates19

coastalpowerplantstoreduceimpactsonmarinelifefromthepumpingprocessandthe

dischargeofheatedwater.AnotherissueisthelackofemissioncreditsintheSouthCoastAir

QualityManagementDistrictthatmakesitdifficulttoobtainthenecessarypermitstobuild

reliablereplacementpowerbeforeaging,lessefficientpowerplantscanberetiredor

repowered.

Thetransportationandbuildingsectorsareprimarycontributorstogreenhousegasemissions

inCalifornia.GovernorSchwarzeneggersExecutiveOrderS0107establishedalowcarbon

fuelstandardfortransportationfuelssoldinCaliforniathatwillreducethecarbonintensityof

Californiaspassengervehiclefuelsbyatleast10percentby2020.Inaddition,theAlternative


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andRenewableFuelandVehicleTechnologyProgramcreatedbyAB118(Nez,Chapter750,

Statutesof2007)isworkingtodevelopanddeployalternativeandrenewablefuelsand

advancedtransportationtechnologiestohelpmeetthestatesclimatechangepolicies.Further,

thefederalgovernmentinJune2009,grantedCaliforniasrequestforawaiverthatallows

Californiatoenactstricterairpollutionstandardsformotorvehiclesthanthoseofthefederal

government.Thestandards(AB1493,Pavley,Chapter200,Statutesof2002)areexpectedtoreducegreenhousegasemissionsfromCaliforniapassengervehiclesbyabout22percentin

2012,andabout30percentin2016,whileimprovingfuelefficiencyandreducingmotorists

costs.

ThisExecutiveSummaryfocusesonthepolicyrecommendationsthattheEnergyCommission

believesshouldbethestatestopprioritiesformeetingthegoalofprovidingreliable,efficient,

andcosteffectiveenergysuppliesforitscitizens.Additionalrecommendationsforspecific

actionsneededinthevariousenergysectorsareprovidedinChapter4.

The Electricity Sector

Supply and Demand

FigureE1showsCaliforniaselectricitygenerationsupplymixin2008.Instategenerating

facilitiesaccountedforabout68percentoftotalgeneration,withtheremainingelectricity

comingfromoutofstateimports.

Figure E-1: Californias Generation Mix (2008)

Source: California Energy Commission

Sincederegulation

in

1998,

the

Energy

Commission

has

licensed

more

than

60

power

plants:

44

projectsrepresenting15,220megawattsareonline,6projectstotaling1,578megawattsare

underconstruction,and12projectstotaling6,415megawattsareonholdbutavailablefor

construction.Inaddition,theEnergyCommissionhasahistorichighlevelofmorethan30

proposedprojectsunderreview,totalingmorethan12,000megawatts,manyofwhicharelarge

scalesolarthermalpowerplantsthatpresentnewandchallengingenvironmentalimpactsthat

mustbeconsidered.


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Onthedemandside,Californiansconsumed285,574gigawatthoursofelectricityin2008,

primarilyinthecommercial,residential,andindustrialsectors(FigureE2).TheEnergy

Commissionstaffforecastoffutureelectricitydemandshowsthatconsumptionwillgrowby

1.2percentperyearfrom20102018,withpeakdemandgrowinganaverageof1.3percent

annuallyoverthesameperiod.Thecurrentforecastismarkedlylowerthantheforecastinthe

2007IntegratedEnergyPolicyReport,primarilybecauseoflowerexpectedeconomicgrowthinboththenearandlongtermaswellasincreasedexpectationsofsavingsfromenergyefficiency.

Figure E-2: Electric ity Consumption by Sector 2008

Source: California Energy Commission

Becauseofeconomicuncertaintiessurroundingthecurrentrecessionandthetimingofpotential

recovery,theIntegratedEnergyPolicyReport(IEPR)Committeedirectedstafftolookinitsforecastatalternativescenariosofeconomicanddemographicgrowthandtheirimpactson

electricitydemand.Staffanalyzedbothoptimisticandpessimisticscenariosandfoundonly

smalldifferencesinprojectedelectricitydemand.Annualgrowthratesfrom20102020for

electricityconsumptionandpeakdemandwouldincreasefrom1.2percentand1.3percent,

respectively,to1.3percentand1.4percentintheoptimisticcaseandfallto1.1percenteach

underthepessimisticscenario.

Energy Efficiency and Demand Response

Energyefficiencyisazeroemissionstrategytoreducegreenhousegasemissionsinthe

electricitysector.Energyefficiencyandconservationprogramsalsoreduceenergycosts,which

makesbusinessesmorecompetitiveandallowsconsumerstosavemoney.Inaddition,energy

efficiencyreducesthecostofmeetingpeakdemandduringperiodsofhightemperaturesand

highprices.Byreducingthedemandforelectricity,energyefficiencyprogramsalsoplaya

majorroleinincreasingreliabilityoftheelectricitysystembyreducingstressonexistingpower

plantsandthetransmissionsystemandreducingthedemandfornewpowerplantsand

transmissioninfrastructure.


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Becauseofthestatesenergyefficiencystandardsandefficiencyandconservationprograms,

Californiasenergyuseperpersonhasremainedstableformorethan30yearswhilethe

nationalaveragehassteadilyincreased.However,stabilizingpercapitaelectricityusewillnot

beenoughtomeetthecarbonreductiongoalsofAB32.Tomeetthosegoals,thestatemust

increaseitseffortstoachieveallcosteffectiveenergyefficiency.Manyoftheseeffortswillbe

carriedoutbytheinvestorownedutilitiesandthepubliclyownedutilities,bothofwhicharegovernedbylegislativeandregulatorymandatestoidentifyanddevelopenergyefficiency

potentialandtosetannualsavingsgoals.TheEnergyCommissionthenusesthesegoalsasthe

basisfordevelopingitsstatewideenergyefficiencygoals.

Strategiestoachieveallcosteffectiveenergyefficiencyandgreenhousegasemissionsreduction

goalsincludepromotingthedevelopmentofzeronetenergybuildings,increasedbuildingand

appliancestandards,andbetterenforcementofthosestandards.

Azeronetenergybuildingmergeshighlyenergyefficientbuildingconstruction,stateoftheart

appliancesandlightingsystems,andhighperformancewindowstoreduceabuildingsload

andpeak

requirements

and

can

include

on

site

solar

water

heating

and

renewable

energy,

such

assolarphotovoltaic,tomeetremainingenergyneeds.Theresultisagridconnectedbuilding

thatdrawsenergyfrom,andfeedssurplusenergyto,thegrid.Makingzeronetenergy

buildingsarealityby2020forresidencesand2030forcommercialbuildingswillrequire

ongoingcollaborationamongtheEnergyCommission,theCaliforniaPublicUtilities

Commission,andtheAirResourcesBoard;coordinationwithlocalgovernmentsthathavethe

authorityoverlandusedevelopmentandplanning;andcollaborationwiththebuilding

industry.

Californiasbuildingandappliancestandardsprovideasignificantshareofenergysavings

fromreducedenergydemand.The2008BuildingEfficiencyStandardswilltakeeffecton

January1,2010,andwillrequire,onaverage,a15percentincreaseinenergyefficiencysavingscomparedwiththe2005BuildingEfficiencyStandards.The2009ApplianceEfficiency

RegulationsbecameeffectivestatewideonAugust9,2009,and,asrequiredbyAB1109

(Huffman,Chapter534,Statutesof2007),setnewefficiencystandardsforgeneralpurpose

lightingofaphased50percentincreaseinefficiencyforresidentialgeneralservicelightingby

2018.ThefirstphasetakeseffectJanuary1,2010.

Anotherissueassociatedwithenergyefficiencyishowtoincorporatetheexpectedenergy

savingsfrommeetingthestateslongtermenergyefficiencygoalsintotheEnergy

Commissionselectricityandnaturalgasdemandforecast.Notallofthespecificeffortsand

programstoachievethosegoalsareinplace,sinceutilityprogramsandeffortsareonly

approvedbytheCaliforniaPublicUtilitiesCommissioninthreeyearcycles.However,itis

importanttounderstandtheimpactsoftheseexpectedincrementalsavingsaspartofthe

EnergyCommissionsdemandforecastingefforts.

Recommendations

TheEnergyCommissionidentifiedthefollowingefficiencyrelatedrecommendationsasthe

highestpriorityactionsCalifornianeedstotaketoreachitsenergyefficiencygoals:


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TheEnergyCommissionwilladoptandenforcebuildingandappliancestandardsthatput

Californiaonthepathtozeronetenergyresidentialbuildingsby2020andzeronetenergy

commercialbuildingsby2030.

TheEnergyCommissionandtheCaliforniaPublicUtilitiesCommissionshouldwork

togethertodevelopandimplementaudit,labeling,andretrofitprogramsforexisting

buildingsthatachieveallcosteffectiveenergyefficiencymeasures,maximizethebenefitof

existingutilityprograms,andexpandtheuseofmunicipalandutilityonbillfinancing

opportunities.

TheEnergyCommissionwillusethe2009adoptedforecastasastartingpointtoestimate

theincrementalimpactsfromfutureefficiencyprogramsandstandardsthatarereasonably

expectedtooccur,butforwhichprogramdesignsandfundingarenotyetcommitted.Staff

isplanningtouseandpossiblymodifyItronsforecastingmodel,SESAT,forthisnew

purpose,withItronprovidingtrainingforthemodelinearly2010.TheEnergyCommission,

incooperationwiththeCaliforniaPublicUtilitiesCommission,theinvestorownedutilities,

andthepubliclyownedutilities,willdevotesufficientresourcestodevelopinhouse

capabilitytodifferentiatethesefutureenergyefficiencysavingsfromenergyefficiency

savingsthatarealreadyaccountedforinthedemandforecast.

Renewable Energy

Renewableenergyisthefirstsupplysideresourceintheloadingorderandakeystrategyfor

achievinggreenhousegasemissionreductionsfromtheelectricitysector.Increasingtheamount

ofrenewableenergyinCaliforniaselectricitymixalsoreducestherisksandcostsassociated

withpotentiallyhighandvolatilenaturalgaspriceswhilealsoreducingthestatesdependence

onimportednaturalgasusedtogenerateelectricity.Renewableresourcesalsoprovideother

benefitssuchaseconomicdevelopmentandnewemploymentopportunitiesbenefitsthat

havebecomeincreasinglyimportantgiventhecurrentrecession.

ChallengeswithincreasingtheamountofrenewableresourcesinCaliforniaselectricitymixare

plentiful.Theyincludethedifficultyofintegratinglargeamountsofrenewableenergyintothe

electricitysystem;uncertaintyonthetimelineformeetingRenewablesPortfolioStandards

goals;environmentalconcernswiththedevelopmentofrenewablefacilitiesandassociated

transmission;difficultyinsecuringprojectfinancing;delaysandduplicationinsitingprocesses;

timeandexpenseofnewtransmissiondevelopment;thecostofrenewableenergyina

fluctuatingenergymarket;andmaintainingthestatesexistingbaselineofrenewablefacilities.

TheRenewablesPortfolioStandardrequiresretailsellers(definedasinvestorownedutilities,

electricservice

providers,

and

community

choice

aggregators)

to

increase

renewable

energy

as

a

percentageoftheirretailsalesto20percentby2010.Statelawalsorequirespubliclyowned

utilitiestoimplementthestandardbutgivesthemflexibilityindevelopingspecifictargetsand

timelines.InNovember2008,GovernorSchwarzeneggerraisedCaliforniasrenewableenergy

goalsto33percentby2020inhisExecutiveOrderS1408,andinSeptember2009,Executive

OrderS2109directedtheAirResourcesBoardtodevelopregulationsbyJuly31,2010,fora33

percentRenewableEnergyStandard.


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InJuly2009,theCaliforniaPublicUtilitiesCommissionreportedthatthethreeinvestorowned

utilitiesweresupplyingapproximately13percentoftheiraggregatedtotalsalesfromeligible

renewableresourcesasof2008,farbelowthe20percentrequiredby2010.Publiclyowned

utilitiesareshowingsomeprogressinrenewableenergyprocurementwithexpectationsforthe

15largestpubliclyownedutilitiesof12.4percentofRenewablesPortfolioStandardeligible

renewableretailsalesby2011,butthisprogressstillfallsfarshortoftherenewabletarget.

Notallrenewablegeneratorsprovidetheoperatingcharacteristicsthatthesystemneedsto

maintainlocalareareliability,andintegratingcertainrenewabletechnologiescanmakeitmore

difficulttooperatethesystemreliably.Whilegeothermalandbiomassresourcescanprovide

baseloadpower,resourceslikewind,hydro,andsolarareintermittentandnotalwaysavailable

tomeetsystemneedsduringpeakhours.Intermittentresourcescanalsodropofforpickup

suddenly,requiringquickactionbysystemoperatorstocompensateforthesuddenchanges.

Significantenergystoragewillberequiredtointegratefuturelevelsofrenewables,thus

allowingbettermatchingofrenewablegenerationwithelectricityneeds.Thesetechnologiescan

alsoreducethenumberofnaturalgasfiredpowerplantsthatwouldotherwisebeneededto

providethecharacteristicsthesystemneedstooperatereliably.However,manystoragetechnologiesarestillintheresearchanddevelopmentstage,arerelativelyexpensive,andneed

furtherrefinementanddemonstration.

GovernorSchwarzeneggersExecutiveOrderS0606furtherrequiresthestatetomeet20

percentoftheRenewablesPortfolioStandardwithbiopower.However,newbiomassfacilities

continuetofacebarrierstodevelopment.Thereissignificantpotentialforrenewablegeneration

fueledbybiomethanefromthestatesdairies,butthehighcostofemissionscontrolsinterferes

withdairiesabilitytoobtainairpermits.Newsolidfuelbiomassfacilitiesalsofacechallenges

inobtainingairpermits,aswellastheaddedchallengeintheSouthCoastAirQuality

ManagementDistrictofobtainingpermitstoemitparticulatematter.Existingbiomassfacilities,

whichprovideasignificantportionofthestatesbaseloadrenewablecapacity,alsoface

challengesfromtheexpirationattheendof2011oftheRenewableEnergyProgram,which

providesproductionincentivesthatenablethemtokeepoperating.

Whilerenewableenergyprovidesobviousenvironmentalbenefitsbyreducinggreenhousegas

emissionsandcriteriapollutantsassociatedwithelectricitygeneration,theinfrastructure

requiredtoaddlargeamountsofrenewableresourcescanhavenegativeenvironmentaleffects.

EffortsliketheRenewableEnergyTransmissionInitiativeareworkingtofacilitatetheearly

identificationandresolutionortoavoidlanduseandenvironmentalconstraintstopromote

timelydevelopmentofCaliforniasrenewablegenerationresourcesandassociatedtransmission

lines.

Also,

Governor

Schwarzeneggers

Executive

Order

S

14

08

establishes

a

process

to

conservenaturalresourceswhileexpeditingthepermittingofrenewableenergypowerplants

andtransmissionlines.TheExecutiveOrderestablishedtheRenewableEnergyActionTeam,

comprisedoftheEnergyCommission,theCaliforniaDepartmentofFishandGame,thefederal

BureauofLandManagement,andtheU.S.FishandWildlifeService,toidentifyandestablish

areasforpotentialrenewableenergydevelopmentandconservationintheColoradoand

Mojavedesertstohelpreducethetimeanduncertaintyassociatedwithlicensingnew

renewableprojectsonbothstateandfederallands.AspartofimplementingtheExecutive


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Order,theagenciesaredevelopingtheDesertRenewableEnergyConservationPlan,aroad

mapforrenewableenergyprojectdevelopmentthatwilladvancestateandfederalconservation

goalswhilefacilitatingthetimelypermittingofrenewableenergyprojectsindesertregionsof

thestate.

Recommendations

TheEnergyCommissionidentifiedthefollowingrecommendationsforrenewableenergyasthe

highestpriorityactionsCalifornianeedstotake:

TheEnergyCommission,theAirResourcesBoard,theCaliforniaPublicUtilities

Commission,andtheCaliforniaIndependentSystemOperatormustcontinuetowork

togethertoimplementa33percentrenewableelectricitypolicythatappliestoallload

servingentitiesandretailproviders.

Toreduceregulatoryuncertaintyformarketparticipantsandensurealongtermandstable

renewableenergypolicyframeworkforCalifornia,thestateshouldpursuelegislationto

codifythe33percentrenewabletargetthatwasidentifiedinGovernorSchwarzeneggers

ExecutiveOrdersS1408andS2109.

TheEnergyCommissionwillworkwiththeCaliforniaPublicUtilitiesCommission,the

CaliforniaIndependentSystemOperator,thefederalBureauofLandManagement,the

CaliforniaDepartmentofFishandGame,andotheragenciestoimplementspecific

measurestoacceleratepermittingofnewrenewablegenerationandthetransmission

facilitiesneededtoservethatgeneration.Thesemeasuresincludetheeliminationof

duplication,shortenedpermittingtimelines,andplanningprocessessuchastheRenewable

EnergyTransmissionInitiativeandtheDesertRenewableEnergyConservationPlanthat

balancecleanenergydevelopmentandconservation.

TomeettheGovernorstargetof20percentofthestatesrenewableenergygoalsfrom

biomassresourcesthatwasidentifiedinExecutiveOrderS0606,theEnergyCommission

willfacilitateandcoordinateprogramswithotherstateandlocalagenciestoaddress

barrierstotheexpansionofbiopower,includingregulatoryhurdlesandprojectfinancing.

TheEnergyCommissionwillalsoencourageadditionalresearchanddevelopmenttoreduce

costsforbiomassconversion,biopowertechnologies,andenvironmentalcontrols.

TheEnergyCommissionwillconductfurtheranalysistoidentifysolutionstointegrate

increasinglevelsofenergyefficiency,smartgridinfrastructure,andrenewableenergywhile

avoidinginfrequentconditionsofsurplusgeneration,orovergeneration,inwhichmore

electricityisbeinggeneratedthanthereisloadtoconsumeit.Potentialsolutionsinclude

bettercoordinationofthetimingofresourceadditionsandthemixofresourcesaddedto

meetcustomerneedsefficientlyandmaintainsystemreliability,aswellasadditional

research,development,anddemonstrationofexistingandemergingstoragetechnologies.

Inaddition,therewillbeeffortstodeterminewhatnew,moreflexible,andefficientnatural

gastechnologiesbestfitintoanelectricitygridintransition.TheEnergyCommissionwill

completeaninitialstudyofthesurplusgenerationissuetoidentifyspecificresourceand

dataneedsaspartofthe2010IntegratedEnergyPolicyReportUpdate,withanindepth

analysisforthcominginthe2011IntegratedEnergyPolicyReport.


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Distributed Generation and Combined Heat and Power

Distributedgenerationresourcesaregridconnectedorstandaloneelectricalgenerationor

storagesystemsconnectedtothedistributionlevelofthetransmissionanddistributiongridand

locatedatorverynearthelocationwheretheenergyisused.Thebenefitsofdistributed

generationgofarbeyondelectricitygeneration.Becausethegenerationislocatednearthe

locationwhereitisneeded,distributedgenerationreducestheneedtobuildnewtransmission

anddistributioninfrastructureandalsoreduceslossesatpeakdeliverytimes.Customerscan

usedistributedgenerationtechnologiestomeetpeakneedsortoprovideenergyindependence

andprotectagainstoutagesandbrownouts.

Californiaispromotingdistributedgenerationtechnologiesthroughseveralprogramsthat

supportdistributedgenerationonthecustomersideofthemeter,suchastheCaliforniaSolar

Initiative,whichincludestheNewSolarHomesPartnership,theCaliforniaPublicUtilities

CommissionsSelfGenerationIncentiveProgram,andtheEnergyCommissionsEmerging

RenewableFacilitiesProgram.Largescaledistributedgenerationsuchascombinedheatand

power,

also

referred

to

as

cogeneration,

is

an

efficient

and

cost

effective

form

of

distributed

generation.TheClimateChangeScopingPlanhasatargetofadding4,000megawattsofcombined

heatandpowercapacitytodisplace30,000gigawatthoursofdemand,thusreducing

greenhousegasemissionsby6.7millionmetrictonsofcarbonby2020.

DespiteconsistentemphasisinpastIntegratedEnergyPolicyReportsontheneedtoaddress

barrierstothedevelopmentofcombinedheatandpowerfacilities,insufficientprogresshas

beenmade.Inanefforttopushforward,theEnergyCommissiondevelopedanewstudyof

marketpotentialforcombinedheatandpowerfacilitiesthatincludesfacilitiessmallerthan20

megawattsinsizethatdonottypicallyhaveexcesspowertoexporttothegrid.Thestudy

examinedmarketpenetrationoverthenext20yearsforabasecase(statusquo)andfour

alternativecases

that

included

various

stimulus

and

incentive

measures.

The

base

case

showed

about3,000megawattsofcombinedheatandpowermarketpenetration,includingboth

generationcapacityandavoidedelectricairconditioning.(Thestudyincludedalternative

incentivescenarios,oneofwhichmadeavailableanadditional497megawattsofcombinedheat

andpowerforadditiontothebasecaseintheeventofthepassageofSB412[Kehoe,Chapter

182,Statutesof2009].ThebillbecamelawinOctober.)Implementationofallofthestimulus

effortsandincentivesusedinthealternativecaseswouldmorethandoublemarketpenetration

overthenext20yearstoabout6,500megawatts,exceedingtheAirResourcesBoards4,000

megawatttargetforcapacityadditions.

Recommendation

TheEnergyCommissionidentifiedthefollowingrecommendationasthehighestpriorityaction

Californianeedstotaketosupportcombinedheatandpowerdevelopmentinthestate:

TheEnergyCommissionwillworkwiththeAirResourcesBoardinthedevelopmentof

combinedheatandpowertomeetthestategoalsforemissionreductionsfromthis

technology.Actionsincludemandatestoremovemarketbarrierstothedevelopmentof

combinedheatandpowerfacilitiesandtheprovisionofanalyticalsupportonefficiency


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requirementsandothertechnicalspecificationssothatcombinedheatandpowerismore

widelyviewedandadoptedasanenergyefficiencymeasure.

Nuclear Power Plants

Aspartofthe2008IntegratedEnergyPolicyReportUpdate,theEnergyCommissiondevelopedAn

AssessmentofCaliforniasNuclearPowerPlants:AB1632Report,asdirectedbyAB1632(Blakeslee,

Chapter722,Statutesof2006).Thereportaddressedseismicandplantagingvulnerabilitiesof

CaliforniasinstatenuclearplantsPacificGasandElectricCompanysDiabloCanyonPower

PlantandSouthernCaliforniaEdisonsSanOnofreNuclearGeneratingStationincluding

reliabilityconcernsaswellasconcernsoversafetyculture,plantperformance,andmanagement

issuesatSanOnofre.TheAB1632ReportalsorecommendedadditionalstudiesthatPacificGas

andElectricCompanyandSouthernCaliforniaEdisonshouldundertakeaspartoftheirlicense

renewalfeasibilitystudiesfortheCaliforniaPublicUtilitiesCommissionanddirectedthe

utilitiestoprovideastatusreportontheireffortstowardimplementingtherecommendationsin

theAB1632Reportinthe2009IntegratedEnergyPolicyReport.

Majorpolicydecisionsthatwillbemadeinthenextseveralyearswillshapethenextthree

decadesofnuclearenergypolicyinCalifornia.Anoverarchingissuewiththestatesnuclear

facilitiesisplantlicenserenewal.TheNuclearRegulatoryCommissionoperatinglicensesfor

SanOnofreUnits2and3aresettoexpirein2022,andforDiabloCanyonUnits1and2,in2024

and2025,respectively.PacificGasandElectricannouncedonNovember24,2009,itsintention

tofilealicenserenewalapplicationforDiabloCanyon,andSouthernCaliforniaEdisonplansto

fileforlicenserenewalforSanOnofreinlate2012.

TheNuclearRegulatoryCommissionlicenserenewalapplicationprocessdetermineswhethera

plantmeets

its

renewal

criteria,

but

not

whether

the

plant

should

continue

to

operate.

The

NuclearRegulatoryCommissionspecificallystatesthatithasnoroleintheenergyplanning

decisionsofStateregulatorsandutilityofficialsastowhetheraparticularnuclearpowerplant

shouldcontinuetooperate.Itislefttostateregulatoryagenciestodeterminewhetheritisin

thebestinterestofratepayersandcosteffectivetocontinueoperationoftheirstatesnuclear

plants.

AlthoughtheCaliforniaPublicUtilitiesCommissiondoesnotapproveordisapprovelicense

applicationsfiledwiththeNuclearRegulatoryCommission,bothPacificGasandElectricand

SouthernCaliforniaEdisonmustobtaintheCaliforniaPublicUtilitiesCommissionsapproval

topursuelicenserenewalbeforereceivingCaliforniaratepayerfundingtocoverthecostsofthe

NuclearRegulatoryCommissionlicenserenewalprocess.TheutilitiessubmissionoflicenserenewalfeasibilityassessmentstotheCaliforniaPublicUtilitiesCommissioninitiatesthe

CaliforniaPublicUtilitiesCommissionslicenserenewalreviewproceedings.TheCalifornia

PublicUtilitiesCommissionproceedingswillnotonlyconsiderenergyplanningissuesand

whethercontinuedoperationofthenuclearpowerplantsisintheratepayersbestinterest,but

willalsoconsidermattersofstatejurisdictionsuchastheeconomic,reliability,and

environmentalimplicationsofrelicensing.


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TheCaliforniaPublicUtilitiesCommissionsGeneralRateCaseDecision0703044required

PacificGasandElectrictoincorporatetheEnergyCommissionsAB1632assessmentfindings

andrecommendationsinitslicenserenewalfeasibilitystudyandtosubmitthestudytothe

CaliforniaPublicUtilitiesCommissionnolaterthanJune30,2011,alongwithanapplicationon

whethertopursuelicenserenewalforDiabloCanyon.LettersonJune25,2009,fromthe

presidentoftheCaliforniaPublicUtilitiesCommissiontoPacificGasandElectricandSouthernCaliforniaEdisonreiteratedtherequirementforeachutilitytocompletetheAB1632Reports

recommendedstudies,includingtheseismic/tsunamihazardandvulnerabilitystudies,and

reportonthefindingsandtheimplicationsofthestudiesforthelongtermseismicvulnerability

andreliabilityoftheplants.ThesestudiesarenecessarytoallowtheCaliforniaPublicUtilities

Commissiontoproperlyundertakeitsobligationstoensureplantandgridreliabilityinthe

eventthateitherDiabloCanyonorSanOnofrehasaprolongedorpermanentoutageandfor

theCaliforniaPublicUtilitiesCommissiontoreachadecisiononwhethertheutilitiesshould

pursuelicenserenewal.However,theutilitiesreportstodateindicatetheyarenotonschedule

tocompletetheseactivitiesintimeforCaliforniaPublicUtilitiesCommissionconsideration.In

addition,both

utilities

have

Pacific

Gas

and

Electric

has

indicated

objections

to

providing

some

ofthestudiesand/orrequirementsindicatedbytheAB1632ReportandtheCaliforniaPublic

UtilitiesCommissionGeneralRateCaseDecision.

TheEnergyCommissionbelievesthatthecomprehensiveness,completeness,andtimeliness

withwhichbothutilitiesprovidethestudiesidentifiedintheAB1632Reportwillbeacritical

partoftheCaliforniaPublicUtilitiesCommissionandNuclearRegulatoryCommissionreviews

oftheutilitieslicenserenewalapplications.

Recommendation


Californianeeds

to

take

to

help

ensure

nuclear

plant

reliability

and

to

minimize

costly

outages:

PacificGasandElectricCompanyandSouthernCaliforniaEdisonshouldcompleteallofthe

studiesrecommendedintheAssemblyBill1632Report,shouldmaketheirfindingsavailable

forconsiderationbytheEnergyCommission,andshouldmaketheirfindingsavailableto

theCaliforniaPublicUtilitiesCommissionandtheU.S.NuclearRegulatoryCommission

duringtheirreviewsoftheutilities licenserenewalapplications.

Transmission and Distribut ion

Thestatestransmissionanddistributionsystemisanothercriticalcomponentoftheelectricity

sectorforservingCaliforniasgrowingpopulationandintegratingrenewableenergy.The2009

StrategicTransmissionInvestmentPlandescribestheimmediateactionsthatCaliforniamusttaketoplan,permit,construct,operate,andmaintainacosteffective,reliableelectrictransmission

systemthatiscapableofrespondingtoimportantpolicychallengessuchasachieving

significantgreenhousegasreductionandRenewablesPortfolioStandardgoals.Theplanmakes

anumberofrecommendationsintendedtomakethecriticallinkbetweentransmission

planningandpermittingsothatneededprojectsareplannedfor,havecorridorssetasideas

necessary,andarepermittedinatimelyandeffectivemannerthatmaximizesexisting


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infrastructureandrightsofway,minimizeslanduseandenvironmentalimpacts,andconsiders

technologicaladvances.

Recommendations

TheEnergyCommissionsupportsthemanyrecommendationsmadeinthe2009Strategic

TransmissionInvestment

Plan

and

highlights

the

following

recommendations:

TheEnergyCommissionstaffwillworkwiththerecentlyformedCaliforniaTransmission

PlanningGroupandtheCaliforniaIndependentSystemOperatorinaconcertedeffortto

establisha10yearstatewidetransmissionplanningprocessthatusestheEnergy

CommissionsStrategicPlanproceedingtovettheCaliforniaTransmissionPlanningGroup

plandescribedinChapter4ofthe2009StrategicTransmissionInvestmentPlan,withemphasis

onbroadstakeholderparticipation.

TheEnergyCommissionstaffwillworkwiththeCaliforniaIndependentSystemOperator,

theCaliforniaPublicUtilitiesCommission,investorownedutilities,andpubliclyowned

utilitiestodevelopacoordinatedstatewidetransmissionplanusingconsistentstatewide

policyandplanningassumptions.

Coordinated Electricity System Planning

Californiahasnumerousagenciesthatareinvolvedinelectricityplanning.Whilethereissome

degreeofcoordinationamongvariousagenciesandprocesses,thestateneedstofindbetter

waystocoordinateandstreamlinethecollectiveresponsibilitiesofthoseagenciestoachievethe

statesgreenhousegasemissionreduction,environmentalprotection,andreliabilitygoalswhile

reducingduplicativeorcontradictoryprocesses.Californianeedstobettercoordinateits

electricitypolicy,planning,andprocurementeffortstoeliminateduplicationandtoensurethat

plannersandpolicymakersunderstandtheinteractionsandconflictsthatmayexistamong

stateenergypolicygoals.

Recommendation


neededforthestatetoidentifyresourceneedsoverboththeshortandlongterm:

TheEnergyCommissionwillworkwiththeCaliforniaPublicUtilitiesCommissionand

CaliforniaIndependentSystemOperator,alongwithotheragenciesandinterested

stakeholders,todevelopacommonvisionfortheelectricitysystemtoguideinfrastructure

planninganddevelopment.Suchcoordinatedplanscanbeusedtoguideeachagencysown

infrastructureapprovalandlicensingresponsibilitiesandthusmaximizecoordinatedaction

toachieve

state

energy

policy

goals.

Address ing Procurement in the Hybrid Market

AttheOctober14,2009,IntegratedEnergyPolicyReportCommitteeHearingonthedraftIEPR,

theIEPRCommitteesolicitedcommentsfrompartiesonhowthestateshouldaddressthe

currenthybridelectricprocurementmarket(amarketsplitbetweenutilityownedgeneration

andcontractedthirdpartygeneration)andimprovetheinvestorownedutilityprocurement

processforelectricgeneration.Theseissuesarecriticaltostateenergypolicybutdidnotreceive


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sufficientanalysisthroughoutthe2009IEPRprocess.TheIndependentEnergyProducers

Associationsubmittedcommentsexpressingsupportforanexaminationofthehyridmarket

structuretodetermineifitisfunctioningproperlyandachievingitsoriginalgoalofprovidinga

levelplayingfieldforutilityownedandindependentpowergeneration.Inaddition,the

WesternPowerTradingForumsubmittedcommentsexpressingconcernsthatutility

dominationofinfrastructureinvestmentispotentiallydetrimentaltocompetitivewholesaleandretailmarketsandthereforepotentiallydetrimentaltotechnologicalinnovation.TheForum

assertsthattheexistinghybridmarketstructurerequiresratepayerstobearthefinancialand

operationalrisksassociatedwithnewinvestmentandignoresthemarketscapabilitiesto

activelymanageandhedgethoserisks,anditbelievesthatimprovingcompetitionatthe

wholesaleandretaillevelswouldcreatedownwardpressureonprices.

Recommendation

TheEnergyCommissionsupportsthefollowingrecommendation:

TheEnergyCommissionbelievestheseissuesdeserveafullervetting,includingan

assessmentof

alternative

market

models

that

would

better

serve

the

goal

of

reduced

cost

to

customers.TheEnergyCommissionwillinvitetheCaliforniaPublicUtilitiesCommissionto

participateinamorecompleteevaluationoftheexistinghybridmarketstructureaspartof

the2010IntegratedEnergyPolicyReportUpdatetoidentifypossiblemarketenhancementsand

changestoutilityprocurementpracticesthatwouldfacilitatethereemergenceofmerchant

investment.

The Natural Gas Sector

Naturalgasisthecleanestofthefossilfuelsusedinthestateandwillcontinuetobea

significantenergysourcefortheforeseeablefuture.Maintainingareliablenaturalgasdelivery

andstorageinfrastructureisthereforeimportanttosupportthereceiptanddeliveryofadequate

supplytoCaliforniasmillionsofnaturalgasconsumersandkeeppriceslowfortheresidential,

commercial,industrial,andelectricgenerationsectors.AnexpandingCalifornianaturalgas

infrastructurealsowillallowfortheefficientdeliverytoCaliforniaofincreasingdomesticshale

gasproductionandliquefiednaturalgasimports.

Recenttechnologicaladvancementsinexploration,drilling,andhydraulicfracturinghave

transformedshaleformationsfrommarginalnaturalgasproducerstosubstantialand

expandingcontributorstothenaturalgasportfolio.Recoverableshalereserveestimatesrange

ashighas842trillioncubicfeet,a37yearsupplyattodaysconsumptionrates.Whilenatural

gasproductionfromshaleformationshassignificantlyincreaseddomesticproduction,thereis

ongoinginvestigationofpotentialenvironmentalconcernsrelatedtoshalegasdevelopment,

includingcarbonemissionsandpossiblegroundwatercontamination.

Asrecentlyastwoyearsago,domesticnaturalgasproductionandimportstoCaliforniawere

onthedecline,andliquefiednaturalgaswasseenasasourcetobetterservethenaturalgas

needsofCalifornia.Therecentdevelopmentofnaturalgasshaleformationshascontributedto

increaseddomesticproductionofnaturalgas,andliquefiednaturalgasdoesnotseemtobea


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priorityfuelforCaliforniaatthistime.Ifprivateinvestorsarewillingtoinvestinliquefied

naturalgasfacilitieswithoutcommittingtaxpayerorratepayerfunds,however,liquefied

naturalgasshouldbeconsideredaviableoption.TheEnergyCommissiondoesnotoppose

developmentofliquefiednaturalgasfacilitiesaslongasliquefiednaturalgasdevelopmentis

consistentwiththestatesinterestsinbalancingenvironmentalprotection,publicsafety,and

localcommunityconcernstoensureprotectionofthestatespopulationandcoastalenvironment.

Whilethereiswidespreadagreementthatthephysicalmarketfactorsofsupplyanddemand

areprimarycontributorstonaturalgaspricesandvolatility,therealsoisgrowinginterestand

concernabouttheinfluencefinancialmarketfactors,particularlycommodityspeculation,have

onnaturalgaspricesandvolatility.Thegrowthinspeculativecommoditytradingfrom

nontraditionalparticipants,suchaspensionfunds,universityendowments,hedgefunds,and

indexportfolios,haschangedthefuturesmarket.Unliketraditionalparticipantslikeutilities

andrefinerswhousedthemarkettohedgeagainstvolatileenergycosts,thesenewparticipants

usethemarketasanopportunityforprofit.Significantdisagreementexistsabouttheinfluence

speculativetradinghasonthenaturalgasmarket,prices,andvolatility.

Finally,pasteffortstoforecastnaturalgaspriceshavebeenhighlyinaccuratecomparedto

actualprices,evenwhenpricevolatilitywaslargelydominatedbytraditional,physicalmarket

factors.Additionally,astheUnitedStatescontinuesmovingtowardacarbonconstrained

existence,futuregreenhousegaspolicieswillfurthercomplicatetheseefforts,likelyrendering

futurenaturalgaspriceforecastsevenlessaccurateandmoreuncertain.Theuncertainty

associatedwithpredictingmajorinputvariablesandtheresultingnaturalgaspriceforecasts

bringintoquestionthevalueofproducingdatespecific,singlepointnaturalgaspriceforecasts.

Recommendations

TheEnergyCommissionidentifiedthefollowingrecommendationsasthehighestprioritiesfor

thestatesnaturalgassector:

Californiashouldworkcloselywithwesternstatestoensuredevelopmentofanaturalgas

transmissionandstoragesystemthathassufficientcapacityandalternativesupplyroutesto

overcomeanydisruptioninthesystem,suchasweatherrelatedlinefreezesandpipeline

breaks.ThestateshouldsupportconstructionofsufficientpipelinecapacitytoCaliforniato

ensureadequatesupplyatareasonableprice.

TheEnergyCommissionwillcontinuetomonitorthepotentialenvironmentalimpacts

associatedwithshalegasextraction,includingcarbonfootprint,volumeofwateruseand

riskofgroundwatercontamination,airpollution,andpotentialchemicalleakage.

Specifically,theEnergyCommissionstaffwillcoordinateandexchangeinformationwith

energyagenciesinstateswithshalegasdevelopment,suchasNewYork,Texas,andother

midcontinentstates,andwillreportnewfindingsintheIntegratedEnergyPolicyReport

andotherEnergyCommissionforums.


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The Fuels and Transportation Sector

Stateandfederalpoliciesencouragethedevelopmentanduseofrenewableandalternative

fuelstoreduceCaliforniasdependenceonpetroleumimports,promotesustainability,andcut

greenhousegasemissions.GovernorSchwarzeneggersExecutiveOrderS0606established

cleartargetsforincreaseduseandinstateproductionofbiofuels.Californiaandthefederalgovernmentalsohavepoliciestoimprovevehicleefficienciesandtoreducevehiclemiles

traveledineffortstoachieve2050greenhousegasreductiontargetsof80percentbelow1990

levelsasdirectedintheGovernorsExecutiveOrderS305.Untilnewvehicletechnologiesand

fuelsarecommercialized,petroleumwillcontinuetobetheprimaryfuelsourceforCalifornias

vehicles,andthestatemustenhanceandexpandtheexistingpetroleuminfrastructure,

particularlyatinstatemarineports,whileatthesametimeworkingtodevelopanalternative

fuelinfrastructure.

Thefuelsandtransportationenergysectorisresponsibleforproducingthegreatestvolumeof

greenhousegasemissionsnearly40percentofCaliforniastotal.AB32doesnotdirectly

addressgreenhousegasemissionsreductioninthetransportationsector.Instead,reductionsare

addressedthroughCaliforniasLowCarbonFuelStandard,AB1493(Pavley,Chapter200,

Statutesof2002),AB1007(Pavley,Chapter371,Statutesof2005),andAB118,theAlternative

andRenewableFuelandVehicleTechnologyProgram.Thepoliciesandstandardsresulting

fromthesemandateswillultimatelychangevehicleandfueltechnologiesinCaliforniaand

acceleratethemarketforlowcarbonfuelswellbeyondthecurrentlevelofdemand.

Thecurrentrecessionhashadasignificantimpactonthestatestransportationsector.

Californiasaveragedailygasolinesalesforthefirstfourmonthsof2009were2.1percentlower

thanthesameperiodin2008,continuingareductionindemandobservedsince2004.Daily

dieselfuel

sales

for

the

first

three

months

of

2009

were

7.7

percent

lower

than

the

same

period

in2008,continuingadecliningtrendsince2007.Jobgrowthandindustrialproduction

driversofairtravelarealsodeclining,causingtheaviationsectortoexperienceadropinair

traffic.Recentdemandtrendsforjetfuel,whichsawan8.9percentdeclinein2008,aresimilar

todieselfuelandreflecttheimpactoftheeconomicdownturnandhigherfuelprices.

TheinitialyearsintheEnergyCommissionstransportationfueldemandforecastshowa

recoveryfromtherecession.Becausetheeconomicanddemographicprojectionsusedinthese

forecastsindicateareturntoeconomicandpopulationgrowth,fueldemandinthelightduty,

medium andheavydutyvehiclesandaviationsectorstendstoresumehistoricalgrowth

patterns.However,themixoffueltypesisprojectedtochangesignificantlyasthestate

transitionsfrom

gasoline

and

diesel

to

alternative

and

renewable

fuels.

Californianeedssufficientfuelinfrastructuretoensurereliablesuppliesoftransportationfuels

foritscitizens.Relianceonforeignoilimportsincreasinglyputsthestatesfuelsupplyatrisk,

notonlybecauseofsecurityandreliabilityconcerns,butalsobecausethemarineportsarenot

expandingtomeetexpectedgrowthindemand.Alternativeandrenewablefuelscouldfacethe

sameconstraintsattheportsshouldthestatebegintorelyonimportsofthosefuelstomeet

stateandfederalrenewablefuelstandards.Infact,renewableandalternativefuelsfaceeven


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moreseriousinfrastructureissues,asmuchoftheinfrastructurethatwillsoonbeneededisnot

eveninplace.Bothpetroleumandrenewablefuelsfaceinfrastructurechallengesfromthe

wholesaleanddistributionlevelallthewaythroughtotheenduser.

Recommendations

TheEnergy

Commission

identified

the

following

recommendations

as

the

highest

priorities

for

thefuelsandtransportationsector:

WiththeadventofnewCaliforniaprogramssuchastheAlternativeandRenewableFuel

andVehicleTechnologyProgram(acomprehensiveinvestmentprogramtostimulatethe

developmentanddeploymentoflowcarbonfuelsandadvancedvehicletechnologies),the

LowCarbonFuelStandard,andafederalwaiverallowingCaliforniatosetitsowncarbon

dioxidemotorvehicleemissionstandards,Californiaiswellpositionedtodevelopasystem

ofsustainable,clean,alternativetransportationfuels.Thestateshouldcontinueonits

presentcourseofactionbyprovidingresponsibleagencieswiththetimeandfundingto

implementtheseprograms.

TheEnergyCommissionwillcollaboratewithpartneragenciesandstakeholderstodeveloppolicychangestoaddressregulatoryhurdlesandpriceuncertaintyforalternativefuels,

particularlybiofuels,inCalifornia.

Tomaintainenergysecurity,stateandlocalagenciesneedtoensurethatthereisadequate

infrastructureforthedeliveryoftransportationfuels.Thestateshouldmodernizeand

upgradetheexistinginfrastructuretoaccommodatealternativeandrenewablefuelsand

vehicletechnologiesastheyaredevelopedandtoaddresspetroleuminfrastructureneedsto

preservepastinvestmentsandtoexpandthroughputcapacityinthestate.

TheEnergyCommissionbelievesthattransportationenergyefficiencyshouldbepursued

throughincreasedfederalvehiclefueleconomystandardsandmoresustainablelanduse

practicesinconjunctionwithlocalgovernments.

The Land Use and Planning Sector

Althoughlandusedecisionsaremadeonthelocallevel,theyoftenhavestatewideimplications

bydirectlyinfluencingconsumertransportationchoices,energyconsumption,andgreenhouse

gasemissions.The2006IntegratedEnergyPolicyReportUpdatestatedthatthesinglelargest

opportunitytohelpCaliforniameetitsstatewideenergyandclimatechangegoalsresideswith

smartgrowthdevelopmentthatrevitalizescentralcitiesandoldersuburbs,supportsand

enhancespublictransit,promoteswalkingandbicycling,andpreservesopenspacesand

agriculturallands.The2007IntegratedEnergyPolicyReportfurthernotedthattoreduce

greenhousegasemissions,Californiamustbeginreversingthecurrent2percentannualgrowth

rateofvehiclemilestraveled.

TheEnergyCommissionisoneofseveralstateagencieshelpinglocalandregionalgovernments

makesustainablelandusedecisions.TheCaliforniaDepartmentofTransportationcoordinates

localandstateplanningthroughitsRegionalBlueprintPlanningProgram.SenateBill375

(Steinberg,Chapter728,Statutesof2008)requirestheAirResourcesBoardtosetregional


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emissionsgoalsbyworkingwithmetropolitanplanningorganizations.SB732(Steinberg,

Chapter729,Statutesof2008),recognizingtheneedforstateagenciestoworkmoreclosely

togetheronthisissue,createdtheStrategicGrowthCouncil,acabinetlevelcommittee

composedofagencysecretariesfromBusiness,TransportationandHousing;CaliforniaHealth

andHumanServices;theCaliforniaEnvironmentalProtectionAgency;andtheCalifornia

NaturalResourcesAgency,alongwiththedirectoroftheGovernorsOfficeofPlanningandResearch.

Thesestateagenciesneedtocoordinatemorecloselytohelplocalgovernmentsachievethe

benefitsofsustainablelanduseplanning.Beforeadoptingnewstatepolicies,stategovernment

mustimproveitsoutreachtolocalgovernmentstobetterunderstandtheproblemstheyface.

Thisincludestakingintoaccountandaddressingthefiscalrealitieslocalgovernmentsconfront

indifficulteconomictimes.

Recommendations

TheEnergyCommissionmakesthefollowingrecommendationrelatedtolanduseplanning

anddecisions:

Toreduceenergyuseandsupportthetransportationgreenhousegasemissionreduction

goalsofSB375,stateagenciesincollaborationwiththeStrategicGrowthCouncilandlocal

andregionalgovernmentswillcontinuetoconductresearch,developanalyticaltools,

assembleeasytousedata,andprovideassistancetolocalandregionalgovernmentofficials

tohelpthemmakeinformeddecisionsaboutenergyopportunitiesandundertake

sustainablelandusepractices,whilerecognizingthedifferentneedsofruralandurban

regions.

The Potential of Carbon Capture and Sequestration

Californiawillneedinnovativestrategiestoaddressgreenhousegasemissionsassociatedwith

energyproductionanduse.Onesuchstrategyiscarboncaptureandstorage,alsoknownas

carboncaptureandsequestration.The2007IEPRfocusedongeologicsequestrationstrategies

forthelongtermmanagementofcarbondioxide,buttherehavebeenencouragingtechnology

advancementsandinvestmentssincethen.Technologydevelopersandpolicymakerswhoare

examiningcarboncaptureandsequestrationapplicationshaveexpandedfromaninitialfocus

oncoalandpetroleumcoketonaturalgasandrefinerygas,thepredominantfossilfuelsusedin

Californiapowerplantsandindustrialfacilities.

Recommendation

TheEnergyCommissionmakesthefollowingrecommendationrelatedtocarboncaptureand

sequestration:

TheEnergyCommissionrecommendsthat,asamechanismforachievingstateenergyand

environmentalobjectives,itcontinuetosupportandconductcarboncaptureand

sequestrationresearchtodemonstratetechnologyperformanceandfacilitateinteragency


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coordinationtodevelopthetechnicaldataandanalyticalcapabilitiesnecessaryfor

establishingalegalandregulatoryframeworkforthistechnologyinCalifornia.

Achieving Energy Goals

Californianeedsreliable,affordable,andcleansuppliesofenergytoserveitscitizensand

maintainastrongeconomy.Thestateselectricity,naturalgas,andtransportationsectorsmust

continuouslyrespondtochangesinsupplyanddemand,newpoliciesandtechnologiesand

theirassociatedchallenges,andincreasingenvironmentalregulation.Californiamustbolsterits

currentenergyfoundationwithanaggressiveandwiderangingagendathatwillcontinueto

reduceenergydemand,promotedevelopmentofrenewableenergyresources,ensure

developmentofcleanerfossilresources,giveconsumersmoreenergychoices,andbuildthe

necessaryinfrastructuretoprotectthestatefromfuturesupplydisruptionsandhighprices.


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Chapter 1: Californias Energy-Related Policies andActivities

In2006,theLegislaturepassedandGovernorSchwarzeneggersignedAssemblyBill32(Nez,

Chapter488,Statutesof2006),theGlobalWarmingSolutionsActof2006,whichestablishedthegoalofreducinggreenhousegas(GHG)emissionsto1990levelsby2020.AB32wasthefirst

lawofitskindtoaddressclimatechangebyimplementingregulatorymarketmechanismsto

achieverealandmeasurableGHGreductiontargets.AB32isthedrivingforceforCalifornias

energypolicyandprograms,andthestatemustintegratemanyexistingpoliciesandlegislation

intoasymbioticwholeunderAB32sbroadumbrella.

Atthesametime,itisimportanttorecognizethatAB32isoneofmanypoliciesthatguide

energydevelopment,production,anduseinCalifornia.Manypoliciesandprogramsin

existencepriortopassageofAB32helpedthestatemakesteadyprogresstowardmore

responsiblestewardshipoftheplanetanditsresources.Thesearediscussedlaterinthechapter

andincludethegoalofachievingallcosteffectiveenergyefficiency,theRenewablesPortfolioStandard,theCaliforniaSolarInitiative,thepowerplantEmissionPerformanceStandard,and

regulationstoreduceGHGemissionsfrommotorvehicles.Whilemanyoftheenergypoliciesin

place arecomplementary,therecanalsobeoverlaporconflictamongthosepoliciesbecause

theyareoftendesignedtoaddressdifferentproblems.

Inadditiontothechallengeofintegratingnewandexistingpolicies,laws,andregulations,

therearechallengesincoordinatingthevariousagenciesthatimplementthosepolicies.The

EnergyCommission,theCaliforniaPublicUtilitiesCommission,CaliforniaIndependentSystem

Operator,theCaliforniaAirResourcesBoard,CaliforniaEnvironmentalProtectionAgency,and

theStateWaterResourcesControlBoardallhaveveryspecificmissions,jurisdictions,and

expertise.Workingcollaborativelyisachallengingandongoinggoal,asagenciesstriveto

integratepoliciestoestablishprioritiesandtransformbroadlyframedobjectivesintoconcrete,

efficient,andcoordinatedprogramsandactions.

Thischapterprovidesbackgroundonandabriefstatusofcurrentpoliciesandprogramsthat

affectCaliforniasthreemajorenergysectorselectricity,transportation,andnaturalgas as

wellasthosethataffectlanduseandplanning.Thepurposeistoprovidedecisionmakerswith

thecontextforthemoredetaileddiscussionsinsubsequentchaptersofthevariouspolicyefforts

underwayandthechallengesassociatedwithmeetingCaliforniasenergypolicygoals.The

descriptionoftheenergypolicylandscapemayalsohelpdecisionmakersseehowpolicies

overlapor

complement

each

other,

as

well

as

where

gaps

may

exist

that

require

additional

actiontoensureaclean,efficient,andaffordableenergyfutureforCalifornia.

Assembly Bill 32 Framework

AB32legislationchargedtheCaliforniaAirResourcesBoard(ARB)wit

Documents

2009 Integrated Energy Policy