1. Electricity Outlook: Summer of 2005 and Beyond." Before the Senate Energy, Utilities and Communications Committee February 22, 2005 Steve Larson Executive Director California Public Utilities Commission

2. 2 The CPUC Converts Policy Into Practice The CPUC regulates electric, natural gas, telecommunications, rail, and transportation utilities Regulatory actions ensure the investor-owned utilities provide reliable, affordable, and environmentally-sensitive essential services. Establishes the framework for how the IOUs plan, procure resources, and make the investments necessary to meet customer needs. Ensures that utility rates are just and reasonable. The CPUC has more limited authority over non-utility Energy Service Providers (ESPs) and Community Choice Aggregators (CCAs).

3. 3 California’s Energy Action Plan Developed by the California Public Utilities Commission, California Energy Commission, and California Power Authority. Provides a blueprint for implementing unified state energy policy. Establishes a “loading order” to ensure resource adequacy.

4. 4 Energy Action Plan Establishes A Loading Order The “loading order” prioritizes the types of resources utilities and energy service providers must purchase*: 1. Energy efficiency 2. Demand reduction 3. Renewables 4. Generation 5. Distributed generation 6. Transmission *Utilities and ESPs are collectively referred to as Load Serving Entities (LSEs).

5. 5 The CPUC Issues Formal Decisions To Implement the EAP Loading Order In 2004, the CPUC: Developed a comprehensive and integrated system of energy procurement. Adopted resource adequacy requirements. Assigned the IOUs specific responsibilities to ensure reliability.

6. 6 The CPUC Returns Utilities To Energy Resource Planning and Procurement December 2004 Procurement Decision: Granted the IOUs procurement authority on a rolling 10-year basis. Authorized long-term power contracts. Integrated renewables into general procurement. Resolved IOU procurement cost recovery issues. No preapproval required for contracts under 5 years No recovery of initial capital costs over final bid price for utility-owned resources.

7. 7 Load Serving Entities* Must Meet Resource Adequacy Standards CPUC’s October 2004 Resource Adequacy decision adopted a mandatory procurement schedule. LSE’s must: Have reserve margins of 15-17% by June 1, 2006. Lock up 90% of summer requirements one year in advance. (90% of Summer 2006 energy purchases must be made by September 30, 2005.) Purchase 100% of requirement one month in advance CPUC adopted uniform protocols for LSEs to forecast customer load and “count” resources. By June 2005, the CPUC will adopt rules regarding location procurement and deliverability. *Includes utilities, electric service providers, and community choice aggregators.

8. 8 CPUC Adopts Interim Reliability Measures For Summers 2004-2005 To assist the ISO with maintaining grid reliability, CPUC’s July 2004 decision directed the IOUs to: Consider factors other than least-cost, such as transmission congestion and reliability, when purchasing and scheduling energy resources. Include all anticipated ISO-related costs when evaluating procurement options. Procure and schedule resources that will enhance local area reliability and minimize the need for more expensive ISO-procured contracts. Seek cost recovery of certain above-market costs via FERC Reliability Services tariff.

9. 9 Robust Investments in Energy Efficiency Continue Energy efficiency aims at maintaining a comparable level of service while reducing energy consumption. Typically refers to permanent installation of efficient technologies or elimination of energy losses in existing energy-using systems. CPUC-authorized programs are expected to increase energy savings statewide from 380 MWs in 2004 to 750 MWs in 2005.

10. 10 Examples of 2004-2005 Energy Efficiency Programs Targeting Peak Demand Rebate programs-offer financial incentives to residential and nonresidential customers for purchase of energy efficient products such as Energy Star CFLs and fixtures, windows, HVAC and refrigeration systems, programmable thermostats, and replacements. Appliance recyling-provides cash incentives for surrender of older, inefficient refrigerators and freezers. Upstream HVAC and motors programs-provides incentives to distributors to stock and sell high efficiency products.

11. 11 Demand Response Programs To Increase 2005 Energy Savings CPUC-approved utility demand response programs expected to save additional MWs over those available in 2004. Examples of demand response programs: Day-ahead programs-Demand Bidding, Demand Reserves Partnership,E-SAVE,20/20 for customers over 200kw Day-of reliability programs-Base Interruptibles, Air Conditioner Cycling, Smart Thermostat, Assistance, education, and outreach programs-technology assistance and incentives, partnerships with schools, water districts, and communities, Flex Your Power Now, and 20/20 for small customers. The CPUC is considering mandatory critical peak pricing tariffs for large commercial customers to reduce peak demand in Summer 2005.

12. 12 Enhanced Procurement Rules Accelerate CA Renewables Goals California adopted the Renewable Portfolio Standard (RPS) in 2002, which establishes a target of 20% of energy needs from renewables in 2017. The CPUC established measures to advance the RPS goal of 20% by 2010: Established contract terms and conditions. Authorized a market price referent methodology to evaluate RPS bids. Adopted a method to calculate transmission costs associated with new renewable development. PG&E and SDG&E issued solicitations for renewable generation in July 2004, and filed RPS contracts with the CPUC in December 2004. SCE is currently negotiating with bidders from its 2003 interim solicitation, and will include the as-yet undetermined capacity in its next long-term procurement plan.

13. 13 Transmission: New Projects, Streamlined Planning and Siting Processes Projects approved by the CPUC in 2004 will provide much-needed transmission capacity. SDG&E’s Mission-Miguel upgrade adds 250-350 MWs in Summer 2005; another 100 MWs by 2006. PG&E’s Jefferson-Martin transmission line adds 400 MWs of transmission capacity between San Francisco and the Peninsula by June 2006. SCE’s Viejo project adds 1,000 MWs in Orange County in 2006. CPUC, CEC, and ISO in discussions regarding streamlining of transmission planning and siting.

14. 14 CPUC Electric Plant Inspection Program and the Summers of 2005 and 2006 The Commission enforces Operation and Maintenance Standards to ensure reliability. The Commission inspects a plant each time a plant has an outage. The Commission conducts intensive audits of the plants. Three important Operation Standards the Commission can exercise to help ensure power plant availability during the summers of 2005 and 2006 are: The Commission requires power plants to be ready to operate when needed and to maintain necessary personnel and supplies. If needed, the Commission may require that a power plant remain ready for service even if it plans to retire, provided there is a mechanism to compensate the plant. The Commission requires plants to provide all available power to the CAISO, when requested to do so, during grid emergencies.