January 2, 2013

Greetings! 

Happy New Year!  This newsletter provides an update on issues before State energy and environmental regulators - the California Public Utilities Commission (CPUC), the California Energy Commission (CEC), and the California Air Resources Board - that the Board of the Local Government Sustainable Energy Coalition (LGSEC) has determined are of key interest to the group.


In This Issue
LGSEC Prepares for New Opportunities in 2013
New Commissioners, Utilities Get Incentives, Coping without SONGS
New AB 1003 Regulations
No Cap and Trade Revenues for Local Governments
Upcoming Events
Quarterly Energy Managers Meeting: January 11, 2013
San Diego, CA
LGSEC Updates

As we head into the 2013, there is lots to report from the year-end deliberations at the California Public Utilities Commission ("CPUC").  For LGSEC members and other local governments, there are new opportunities as the 2013-2014 energy efficiency transition period commences. Additionally, the passage in November of Proposition 39 creates a potential five-year funding source for local governments and schools.  We will be discussing these opportunities and more at our quarterly meeting, Friday, January 11, 2013, at the San Diego Foundation, in San Diego.  The meeting will include a conversation with Commissioner Andrew McAllister from the California Energy Commission (who until his appointment to the CEC was a LGSEC member).  Commissioner McAllister is eager to discuss implementation of AB 758 (building benchmarking), energy efficiency, and related matters.  To RSVP contact [email protected].

California Public Utilities Commission

 

GOVERNOR MAKES APPOINTMENTS TO CPUC, CEC

 

Governor Brown has filled some key vacancies at the CPUC and CEC.  CPUC Commissioner Timothy Simon's term expired December 31, 2012.  Simon, a Schwarzenegger appointee, had been very public about his interest in continuing at the CPUC.  That is not going to happen. Instead, Governor Brown is moving Carla Peterman, who has been a Commissioner at the CEC since 2011, over to the CPUC.  At the CEC, Peterman was

lead commissioner for renewables, transportation, natural gas, and the 2012 Independent Energy Policy Report.  Peterman conducted research at the University of California Energy Institute from 2006 to 2011 and the Lawrence Berkeley National Laboratory from 2008 to 2010. She also served on the board of directors for The Utility Reform Network from 2008 to 2011. Peterman will complete her doctoral studies this year in energy and resources at the University of California, Berkeley.

 

Brown has reappointed CEC Commissioner Karen Douglas to a second five-year term.  Douglas fills the lawyer seat on the CEC.  Prior to joining the CEC in 2008, she worked at the Planning and Conservation League from 2001 until 2005, where she served as acting executive director and general counsel.

 

Both positions require Senate confirmation and are paid an annual salary of $128,109. Douglas and Peterman are both Democrats.

 

ENERGY EFFICIENCY

 

Shareholder Incentive Mechanism

 

The CPUC on December 20 adopted a shareholder incentive mechanism for the investor-owned utilities for the 2010-2012 program cycle, and awarded the utilities incentives totaling $42.2 million for 2010 (D.12-12-032).  PG&E will receive $21 million, Southern California Edison will receive $15 million, San Diego Gas & Electric will receive $3.3 million, and Southern California Gas will receive $2.7 million.  The Decision institutes a new method for calculating the shareholder incentive mechanism. It awards the utilities a management fee equal to 5% of actual energy efficiency portfolio expenditures (less costs associated with EM&V), and a performance bonus of up to an additional 1% of expenditures (less EM&V costs).  None of the utilities received the maximum performance bonus.

 

D.12-12-032 was sponsored by Commissioner Mark Ferron, and was an alternate to the Proposed Decision put forward by Administrative Law Judge ("ALJ") Pulsifer. The ALJ's decision would have denied the utilities any award for 2010-2012 and instead moved right in to developing a mechanism for the 2013-2014 Transition Period.  The new methodology replaces one that had never produced an incentive award timely, and was controversial.  The Decision justifies providing an incentive to the utilities as follows:

 

"We believe that denial of a shareholder incentive payment sends the wrong signal to the greater market place. For 2010-12, the utilities managed a $3 billion portfolio comprising an energy resource at the top of the state's loading order. Effective management of EE also ensures progress towards a significant component of California's greenhouse gas reduction goals. We believe it would be a bad policy outcome to deny a shareholder incentive for energy efficiency. Rather, we agree with NRDC and PG&E that continued regulatory certainty in this area will help motivate the IOUs and investors to continue to support and commit to a long term, aggressive EE program that will help meet state policy goals." (D.12-12-032, p. 23)

 

The Decision was approved on a split vote, with Commissioners Peevey and Florio voting no.  Peevey opposed the decision as being a complex process that did not sufficiently reward utilities compared to prior years and other states.  Florio opposed it because it comes at the end of the program cycle, when it cannot influence performance objectives.  Florio also noted that the shareholder incentive mechanism has become highly political, when it was intended to be an objective review.

 

The utilities will file advice letters for incentives for 2011 and 2012 in 2013 and 2014, respectively. The 2011 and 2012 awards will be based solely on expenditures as audited by the CPUC for each year, and will use the formulas and incentive percentages outlined in D.12-12-032.  The proceeding will remain open so the CPUC can continue to revise the mechanism for 2013-2014. 

 

Upcoming Compliance Filings

 

On January 14, 2013, the utilities, the Regional Energy Networks, and the Marin Energy Authority will submit compliance filings that present their updated workpapers and Program Implementation Plans for the 2013-2014 Transition Period.  The utility filings will include any updates to local government partnership programs made since the utility applications were submitted in July.  There will be a review and approval period.  In the meantime, local governments should have draft contracts in hand for the Transition Period by January 14. 

 

RESOURCE PLANNING AND RENEWABLES

 

Long Term Procurement

 

On December 18, the CPUC approved planning assumptions for utility long-term procurement planning in Decision 12-12-010.  These assumptions will be used for forecasting system reliability needs for California's electricity grid.  Based on these forecasts, future decisions will determine specific procurement system and bundled need authorizations or requirements for California investor-owned utilities.  The Commission formally requests that the California Independent System Operator use the Standardized Planning Assumptions and Scenarios in the Decision to conduct operational flexibility modeling.

 

The first test of the planning assumptions will come in the form of a Proposed Decision specific to Southern California Edison, issued December 21.  That Proposed Decision directs SCE to procure electrical capacity in specific sub-areas of its service territory to ensure adequate available electrical capacity to meet peak demand, and ensure the safety and reliability of the local electrical grid.  The Proposed Decision further specifies how much of the new capacity should be energy storage and natural gas.  Parties will comment on the Proposed Decision in January, and the issue could come to the CPUC for consideration at the end of the month.

 

San Onofre Nuclear Generating Station Still Out

 

It has been nearly a year since the San Onofre Nuclear Generating Station ("SONGS") was taken off line due to abnormal wear.  State and federal energy regulators are looking at what they should do without SONGS for the foreseeable future.  The CPUC is examining what Southern California Edison, the majority owner of the plant, should do in terms of resource planning, and whether ratepayers should be on the hook for costs associated with capital payments and maintenance while the plant is offline.  SCE recently submitted a plan to the Nuclear Regulatory Commission to partially restart one of the two units that is offline. The NRC has indicated it will take months for it to decide whether to approve the restart plan.

 

In the meantime, without SONGS the California Independent System Operator ("CAISO") is looking at how it will replace power SONGS provides.  The CAISO is looking at repowering various plants, building new generation, and/or constructing new transmission and transmission upgrades.  Accommodating the loss of electricity from SONGS has been a major issue as well in the CPUC's proceeding on utility long term procurement plans. 

 

The CPUC will be holding a public participation hearing to hear from the public about whether the Commission should remove the value of any portion of the SONGS facility from rate base, disallow rate recovery of any expenses related to the operation of SONGS, and/or direct SCE to take other actions (Investigation 12-10-013).  The notice for the hearing states "During the first hour of the PPH, local government representatives will be given priority for public comment."

 

2:00 - 5:00 p.m. and 6:00 - 9:00 p.m.

Thursday, February 21, 2013

Costa Mesa Neighborhood Community Center

1845 Park Avenue

Costa Mesa, CA  92627

 

COMMUNITY CHOICE AGGREGATION

 

CPUC Adopts Code of Conduct for Utility Interactions with Community Choice Aggregators

 

On December 28, the CPUC issued Decision 12-12-036 Decision 12-12-036, implementing Senate Bill 790 (Leno) and adopting a code of conduct to govern how utilities interact with community choice aggregators ("CCAs").  SB 790 was motivated in large part by PG&E's marketing and other interactions around CCA, particularly in Marin County, and the utility's $46 million sponsorship in 2010 of Proposition 16, which would have virtually eliminated CCA. 

 

The Decision requires a separation between a utility's marketing division and its other functional divisions, such as billing and customer service, for any utility that intends to market against actual or potential CCAs within its territory.  This includes a "revolving door" clause, which prohibits temporary assignment of employees to the independent marketing division, a one-year period before an employee can return to the main utility, and, if the employee does return to the utility, two years before the employee can be re-assigned to the independent marketing division.  It also prohibits utilities from offering goods, services, or programs to local governments in exchange for the local government not pursuing CCA.  The decision institutes a number of related requirements, and reiterates some previous policies, all supposed to limit the ability of utilities to undermine CCA initiatives.

 

Petition on Cost Allocation

 

On November 30, the Marin Energy Authority and 40 other parties, including direct access customers and energy service providers, petitioned the CPUC to review the cost allocation that applies to CCAs (P.12-12-010).  Specifically, MEA et al. want the CPUC to reverse policies that they assert has allowed the utilities to shift costs to departing customers, including stranded cost recovery and mandatory charges for departing load customers.  They call on the CPUC to adopt policies that will facilitate competition between utilities and other providers, such as community choice aggregators and energy service providers.  These concerns have been brewing for many years.  The CPUC only began to process the case at the end of December.  The petitioners want the CPUC to open a rulemaking to determine how cost allocation policies can be realigned.    

 

Sonoma County Moves Ahead

 

On December 4, the Sonoma County Board of Supervisors and Water Agency Board of Directors approved a CCA ordinance and formation of a joint powers authority that will operate the program: Sonoma Clean Power. The Board approved a $50,000 funding agreement with the Marin Energy Authority, whereby MEA will provide consulting services to Sonoma Clean Power as it targets a launch in 2014. 

 

East Bay Municipal Utility District Halts Exploration of CCA

 

On December 11, the East Bay Municipal Utility District's Board of Directors decided 7-0 against dedicating additional resources to a CCA exploration effort.  The board made it clear that EBMUD will not be taking the lead on forming an aggregation program that would procure power on behalf of customers in its service territory.  This is a blow to local CCA advocates, who had hoped that EBMUD would serve as the aggregator for a CCA that would include Berkeley, Oakland, Emeryville, Albany, and any of the 31 other cities in the EBMUD service territory.  Berkeley, Oakland, and Emeryville had preliminarily considered CCA about five years ago, but did not proceed.  The EBMUD study identified several options for EBMUD, including forming an electric utility, forming a JPA, or joining the Marin Energy Authority.  You can see the full report at EBMUD CCA Staff Report

 

RATES AND OTHER MONEY MATTERS

 

In November, the CPUC approved increases in SCE's revenue requirement for 2012, 2013, and 2014 (

D.12-11-051 

in Application10-11-015).   

The Decision approved rates that are 5.04 percent above current rates.  SCE had requested a 16.6 percent increase. 

 

 

PG&E has applied for an 8 percent increase in its revenue requirement for 2014-2016, or $2.2 billion.  The request is being considered in Application 12-11-009.

 

On December 20 the CPUC approved a pipeline safety plan for PG&E (D.12-12-030).    Ratepayers will pay 65 percent of the $1.8 billion PG&E requested to inspect and upgrade its 1,100 mile urban gas transmission system. PG&E had wanted ratepayers to foot the entire bill.  This decision is in large part a response to the 2010 San Bruno pipeline explosion, which killed eight people and destroyed a neighborhood.  The Commission declined to impose a fine in the form of a five-year profit sanction. The Administrative Law Judge had recommended reducing PG&E's legally guaranteed rate of return on what it spends on the overhaul from the current 11.35 percent to 6.05 percent.  PG&E has yet to pay fines for safety violations resulting from the San Bruno explosion. 

 

Separately, the CPUC voted to cut the 2013 rate of return for all capital spending by major utilities - including PG&E - to a little more than 10 percent. The Commission took care to state this is not to punish the companies, rather to reflect reduced financing costs. 

The CPUC also adopted new protections for safety whistleblowers, in accordance with Assembly Bill 705.  The new protections ensure that all natural gas utilities in the state post in a prominent physical location, as well as in electronic form on their website where employees are likely to see it, information about whistleblower protections, including the CPUC's Whistleblower Hotline.

 

Also on December 20, the CPUC in D.12-12-031  approved a plan that allows the investor-owned utilities to enter into a five-year reseach and development agreement with the Lawrence Livermore National Laboratories.  Utilities will be allowed to recover $152 million from ratepayers to fund research on cyber security, renewable integration modeling, and gas safety issues.  Ratepayer groups had opposed the proposal, saying the benefits are theoretical and CPUC President Peevey was too intimately involved in developing it.  http://docs.cpuc.ca.gov/PublishedDocs/Published/G000/M041/K694/41694931.PDF

 

In early December, the Little Hoover Commission released a report calling for a streamlining of California's energy regulatory structure.  The report, Rewiring California: Integrating Agendas for Energy Reform Rewiring California: Integrating Agendas for Energy Reform, was prompted by the Little Hoover Commission's concerns about system reliability, lack of clarity regarding the cost of California's energy policy goals, and the interplay of renewable energy targets with greenhouse gas reduction goals and system reliability.  The Commission "believes the state must provide greater clarity to California utility customers as to how implementation of the state's new energy policies, and attendant environmental policies, will affect their electricity bills."  The report criticizes California for having noble energy policies, but no plan for integrating and achieving them.  It reiterates previous calls to consolidate the many agencies that have a role in energy policy under an Energy Secretary who reports to the Governor. 
California Energy Commission

 

Revised AB 1103 Building Energy Use Regulations

 

On December 12, the CEC adopted revised regulations for the Nonresidential Building Energy Use Disclosure Program, pursuant to AB 1103 (Saldana, 2007) and AB 531 (Saldana, 2009).  The revised regulations require the owner of a non-residential building to benchmark the building's energy use in the U.S. EPA Portfolio Manager database before a building is sold, leased, or financed.  The revised regulations also require utilities or energy service providers to release the most recent 12 months of energy usage data to Portfolio Manager. 

For more information: http://www.energy.ca.gov/ab1103/rulemaking/documents/index.html

 

CEC Solicits Ideas for Natural Gas Research

 

In December, the CEC took proposals for how to spend $24 million in Research, Development, and Demonstration ("RD&E") funds for natural gas, including energy efficiency, renewable energy, natural gas infrastructure, natural gas related environmental research, and natural gas related transportation research.  Since 2008, the CEC has developed annual budget plans for natural gas RD&D activities. Currently, the Energy Commission is developing the budget plan for fiscal year 2013-14.

 

CEC Economic Workshop on January 24

 

On January 24, 2013, the CEC will host its 2nd Economic Workshop, featuring three panels: 

  • Factors Affecting California's Economy Now and in the Decade Ahead.  Panelists include Jim Diffley of IHS Global Insight, Ed Martinez of Moody's Analytics, Jerry Nicklesberg of the UCLA Anderson Forecast, and Jeffrey Michael of University of the Pacific Forecasting Center. 
  • Economic Recovery Prospects for California Business and Industry.  Panelists include representatives from the building, manufacturing, petroleum, and green energy industries.
  • California Changing Demographics.  Panelists include demographers from Public Policy Institute of California, California Census Data Research Center, California Department of Finance and Southern California Association of Governments.

The all day event will be held at the Energy Commission located on 1516 Ninth Street, Sacramento, CA starting at 9:00 AM.  See http://www.energy.ca.gov/listservers/ or contact [email protected].

Cap and Trade


CPUC Leaves Out Local Governments in Cap and Trade Revenue Distribution

 

On December 28, 2012, the CPUC unanimously issued Decision 12-12-033, which establishes a methodology for allocating revenue from auctions of greenhouse gas cap and trade revenues. The Decision is the same as a Proposed Decision issued in November, on which we reported in our last newsletter.  Notwithstanding the position of the LGSEC and a coalition of environmental, social justice, and low income housing groups that some of the revenues should be directed to local governments, the Decision directs that residential customers will get 85 percent of the funds, emissions-intensive and trade-exposed retail customers will get 5 percent, and small business customers will get 10 percent. Revenue to ratepayers could total $5.7 billion to $22.6 billion from 2013 to 2020. 

 

The LGSEC had joined several other parties that were calling for the CPUC to increase the 20 kw cap for defining small business, which the CPUC did not do.  At an all-party meeting in December, LGSEC Board member Tim Anderson, from the Sonoma County Water Agency, spoke eloquently of the importance of recognizing local governments in reducing GHG emissions. 

 

The Decision justifies its denial of the LGSEC and our Coalition's position as follows:

 

"We decline at this time to allocate any revenues toward clean energy or energy efficiency measures, preferring to focus our initial efforts on maximizing the amount of revenues returned directly to residential ratepayers (after returning revenues to emissions-intensive and trade-exposed and small business ratepayers). We take this approach to mitigate the increased cost of goods and services that will be ultimately borne by residential ratepayers as businesses pass on the carbon cost embedded in their electricity rates." 

 

The Decision also notes that there are "many ongoing proceedings that specifically address carbon mitigation measures such as energy efficiency and renewable energy and these proceedings provide a more appropriate venue for consideration of proposals to increase ratepayer expenditures to advance those particular mitigation approaches."  The Decision also notes that parties can bring forward specific proposals at any time. 

 

The LGSEC will continue to advocate for cap and trade revenues to accrue to local governments, before the CPUC and other regulatory bodies.

 

Next Cap and Trade Auction Set for February

 

The California Air Resources Board ("ARB") has set February 19 as the date for the next cap and trade auction.  Nearly 13 million greenhouse gas allowances of 2013 vintage will be offered, along with 9.5 million allowances of 2016 vintage.  These include allowances assigned to the electric utilities.  The first auction in November sold out completely 23 million allowances of 2013 vintage, at a price of $10.09/allowance.  It is the revenues from the allowances sold by the electric utilities that will accrue to ratepayers as the CPUC has directed in Decision 12-12-033, described above.  As more entities are required to participate in cap and trade, allowances from other sectors will be introduced.  The disposition of those revenues lies with the Department of Finance.


We hope you have enjoyed this e-newsletter. It is one of the benefits of your membership in the LGSEC.  Please send us feedback, and contact us with any questions or comments! And we hope to see you next week in San Diego for our quarterly meeting. We have lots to discuss! 

Jody London
Regulatory Consultant to the LGSEC
510/459-0667

Howard Choy
LGSEC Board Chair and Director, County of Los Angeles Office of Sustainabilty