Power and Energy Updates

Milbank Energy Update

March 11, 2003

On March 11, 2003, the California Energy Resources Conservation and Development Commission, the California Consumer Power and Conservation Financing Authority and the California Public Utilities Commission ("CPUC") held a Joint Public Meeting in order to hear from the public and discuss the Draft Energy Action Plan, proposed by a subcommittee of the three agencies. The Draft Energy Action Plan identifies specific goals and actions to eliminate energy outages and excessive price spikes in electricity or natural gas. According to the three agencies, the Draft Plan establishes shared goals and specific actions to ensure that adequate, reliable and reasonably-priced electrical power and natural gas supplies are achieved and provided through policies, strategies and actions that are cost-effective and environmentally sound for California's consumers and taxpayers. At the meeting, CPUC President Peevey gave an overview of the Draft Plan. This overview was followed by public comments on the plan. The Draft Energy Action Plan calls for the following actions of critical importance to be undertaken now:

• Implement a voluntary dynamic pricing system to reduce peak demand by as much as 1,500 to 2,000 megawatts by 2004;
  
  

• Improve new and remodeled building efficiency by 5 percent;
  
  

• Improve air conditioner efficiency by 10 percent;
  
  

• Make every new state building a model of energy efficiency;
  
  

• Create customer incentives for aggressive energy demand reduction;
  
  

• Provide utilities with demand response and energy efficiency investment rewards comparable to the return on investment in new power and transmission projects;
  
  

• Increase local government conservation and energy efficiency programs;
  
  

• Add new generation resources of 1500 - 2000 MW per year to meet anticipated demand growth, modernize old, inefficient and dirty plants and achieve and maintain reserve levels in the 15 percent - 18 percent range;
  
  

• Add a net average of at least 385 MW of new renewable generation sources annually;
  
  

• Finance a few critical power plants that the agencies conclude are necessary and would not otherwise be built;
  
  

• Monitor the electricity market to identify and correct any exercise of market power and manipulation;
  
  

• Build sufficient new transmission lines to assure reliable, high quality power supply in all regions of the State;
  
  

• Promote clean, small generation resources, self-generation and cogeneration, located at load centers;
  
  

• Exempt installations of clean technologies such as fuel cells, solar installations and microturbines from all exit fees (but not bond fees) until they total 1 percent of the total generation market;
  
  

• Value system benefits of distributed generation and any related costs;
  
  

• Develop standards so that renewable distributed generation may participate in the Renewable Portfolio Standard program;
  
  

• Standardize definitions of eligible distributed generation technologies across agencies to better leverage programs and activities that encourage distributed generation;
  
  

• Identify critical new gas transmission, distribution and storage facilities needed to meet California's future needs;
  
  

• Evaluate the net benefits of increasing the State's natural gas supply options, such as liquefied natural gas; and
  
  

• Support electric utilities and gas distribution companies entering into longer term contracts as a hedge against volatile and high spot market prices.

The three agencies are accepting public comments on the Draft Energy Action Plan until March 21, 2003.

Regards,

Ed Feo (efeo@milbank.com)
Doug Dunn (mdunn@milbank.com)
Steve Kramer (skramer@milbank.com)
Kevin McSpadden (kmcspadden@milbank.com)
Carla Urquhart (curquhart@milbank.com)
Orlan Johnson (ojohnson@milbank.com)
Jim Liles (jliles@milbank.com)