# Presentation: 132833

## California’s Energy:

***Where do we go from here?***
***Mark Bernstein ***
***RAND***

## Slide 2

## In 1998, RAND Created Two Scenarios,One Sunny and One Like This 

**Adapted from a presentation given at  the Anderson School of Business, UCLA, September 1998 **

## Prices Can Be An Indicator ofMarket Behavior

**Maximum day-ahead market clearing price**

**Dollars****per**
**MWh**

**0**

**200**

**400**

**600**

**800**

**1000**

**1200**

**1400**

**Apr**

**98**

**Jul**

**98**

**Oct**

**98**

**Jan**

**99**

**1999**

***Prices Can Be An Indicator of******Market Behavior***

**Retail competition**

**1600**

**1998**

## The Effects of RestructuringWere Not Yet Felt in 1999

**Dollars****per**
**MWh**

**0**

**200**

**400**

**600**

**800**

**1000**

**1200**

**1400**

**1600**

**Apr**

**98**

**Jul**

**98**

**Oct**

**98**

**Jan**

**99**

**Apr**

**99**

**Jul**

**99**

**Oct**

**99**

**Jan**

**00**

***The Effects of Restructuring******Were Not Yet Felt in 1999***

**Maximum day-ahead market clearing price**

**1998**

**1999**

## Prices Drove the Perception of a “Crisis”

**Dollars****per**
**MWh**

**0**

**200**

**400**

**600**

**800**

**1000**

**1200**

**1400**

**Apr**

**98**

**Jul**

**98**

**Oct**

**98**

**Jan**

**99**

**Apr**

**99**

**Jul**

**99**

**Oct**

**99**

**Jan**

**00**

**Apr**

**00**

**Jul**

**00**

**Oct**

**00**

**Jan**

**01**

**1998**

**1999**

**2000**

***Prices Drove the Perception of a “Crisis”***

**1st FERC soft****price cap**

**2nd FERC soft****price cap**

**$800/MWh**

**$1,500/MWh**

**1600**

**Maximum day-ahead market clearing price**

## By February 2001, State Was in Crisis Mode

**Maximum day-ahead market clearing price**

**2001**

**Dollars****per**
**MWh**

**0**

**200**

**400**

**600**

**800**

**1000**

**1200**

**1400**

**1600**

**Apr**

**98**

**Jul**

**98**

**Oct**

**98**

**Jan**

**99**

**Apr**

**99**

**Jul**

**99**

**Oct**

**99**

**Jan**

**00**

**Apr**

**00**

**Jul**

**00**

**Oct**

**00**

**Jan**

**01**

***By February 2001, State Was in Crisis Mode***

**State begins to buy power; discontinues retail access**

**PX closes****Feb 01**

**1998**

**1999**

**2000**

## Was the Situation Stabilizing by March 2001?

**2001**

**Efficiency****programs**

**Dollars****per**
**MWh**

**0**

**200**

**400**

**600**

**800**

**1000**

**1200**

**1400**

**1600**

**Apr**

**98**

**Jul**

**98**

**Oct**

**98**

**Jan**

**99**

**Apr**

**99**

**Jul**

**99**

**Oct**

**99**

**Jan**

**00**

**Apr**

**00**

**Jul**

**00**

**Oct**

**00**

**Jan**

**01**

**Apr**

**01**

******* After January 2001, these are representative  border prices**

**Maximum day-ahead market clearing price**

**1998**

**1999**

**2000**

## If Prices Drove the Crisis, Then Is the Crisis Over?

**2001**

**Dollars****per**
**MWh**

**0**

**200**

**400**

**600**

**800**

**1000**

**1200**

**1400**

**Apr**

**98**

**Jul**

**98**

**Oct**

**98**

**Jan**

**99**

**Apr**

**99**

**Jul**

**99**

**Oct**

**99**

**Jan**

**00**

**Apr**

**00**

**Jul**

**00**

**Oct**

**00**

**Jan**

**01**

**1998**

**1999**

**2000**

**Apr**

**01**

**Jul**

**01**

**Oct**

**01**

**FERC**
**Order #1**

**FERC**
**Order #2**

**Maximum day-ahead market clearing price**

**1600**

## There Are Significant TransmissionConstraints in California

- CEC website: www.energy.ca.gov/maps/transmission_lines.html

***There Are Significant Transmission******Constraints in California***

**Geographic location of new plants**
**Moving power to where it is needed**
**Cost of transmission losses**
**Role of new technologies**
**Not only a California problem**

## Natural Gas Plays A Role

**60**
**50**
**40**
**30**
**20**
**10**
**0**

**Natural Gas Spot Contract Market Prices****Dollars per million British thermal units**

**Source:  enerfax.com**

**	****10/13****	****  11/10****	****12/8****	****1/5****	****2/2****	****3/2****	****3/30****	****4/27****	****5/25****	****6/22****	****7/20****	****00****	****  00****	****00****	****01****	****01****	****01****	****01****	****01****	****01****	****01****	****01**

**Dollars****per****MMBtU**

**Northern California**

**Southern California**

**Henry Hub, LA**

***Natural Gas Plays A Role***

## Where Will Gas For New Generation Come From and What Will It Cost?

**California’s in-state fuel mix**

**Natural gas****52%**

**Large hydro****18%**

**Renewables****10%**

**Nuclear****17%**

**Coal****2%**

**Other****1%**

**2000**

**Large hydro**

**California is adding 5,000 MW of natural gas**
**In the West, 8,600 MW of new gas generation is coming on line**
**10,000 MW has been approved and 15,000 MW is under review**

## Have Seasonal Consumption Patterns Changed?

- 0

- 50,000

- 100,000

- 150,000

- 200,000

- 250,000

**Monthly natural gas consumption**
** ****(Million cubic feet)**

- Source: EIA, "Natural Gas Monthly," Feb. 2000 and
- EIA, "Natural Gas Monthly," Feb. 2001

- 2000

- In 2000 the peak
- month for gas
- consumption was
- August -- different
- from past years

- 1999

- 1998

** ****Source: Natural Gas Monthly **

## It Impacts Storage

- -40,000

- -30,000

- -20,000

- -10,000

- 0

- 10,000

- 20,000

- 30,000

- 40,000

**Net withdrawals from storage in**
** ****California (Million cubic feet)**

- Source: EIA, "Natural Gas Monthly," Feb. 2000 and
- EIA, "Natural Gas Monthly," Feb. 2001

- Withdrawals from storage

- Injections into storage

- In 2000 California withdrew
- almost as much in the summer
- as in the winter

- 1998

- 1999

- 2000

** ****Source: Natural Gas Monthly **

## PG&E Expects a 25% Chance of High Demand Risking Price Spikes

***PG&E Expects a 25% Chance of High Demand Risking Price Spikes***

**CA State Assembly Hearings, March 23, 2001**

## Environmental Issues Will Continueto Play a Role

**Pollution is still a problem**
**Natural gas plants don’t necessarily help**

## Consumers Tend To Be Overlooked

**Energy costs as a percentageof income**

**Household income in $1,000s**

**5**

**15**

**25**

**35**

**45**

**55**

**65**

**75**

**12**

**Increase in burden if price doubles**

**16**

**18**

**14**

**10**

**8**

**6**

**4**

**2**

**20**

## Here’s What We Still Need to Know

**Market stability:****  What are the mechanisms and conditions for creating competition and controlling volatility?**
**Restructuring:****  How will restructured markets work under stress?**
**Pricing:****  What impact will time of use rates and real time pricing have?**
**State power authority:**** What should its role be?**** **
**Demand:****  How much was efficiency and how much was conservation?**

## Here’s What We Still Need to Know

**Consumers: ****Should there be lifeline rates and how much?**
**Natural gas supply and price:****  What do we really know about the gas supply?**
**Diversity of supply:****  What roles do efficiency, renewables, and distributed generation play in balancing the portfolio?**
**Environmental outcomes:****  What effect will regulatory changes and new capacity have on air and water quality?**

## Slide 20