Climate Change Mitigation Policy and Energy Markets: Cooperation and Competition in Integrating Renewables into Deregulated Markets Noah Dormady & Elena Maggioni Forging Closer Ties: Transatlantic Relations, Climate and Energy Berlin, November 29 – December 5, 2009

Agenda Theoretical Context California’s Energy Markets Case of Los Angeles Department of Water and Power (LADWP) – Green Path North (GPN) California’s Policy Response Implications and Conclusions

Theoretical Context Scale Economies Determine Appropriate Organizational Form (Joskow & Schmalensee 1983; Joskow 1998; Williamson 1975, 1982, 1985; Wilson 1998) Regulation, Political Economy, and Industrial Organization (Krueger 1976; Peltzman 1976; Stigler 1968, 1971) Environmental Regulation and Competition (Hahn 1984; Helland & Matsuno 2003; Heyes 2009; Misiolek & Elder 1989; Salop & Scheffman 1983; Sartzetakis 1997; Von der Fehr 1993) Deliberative Democracy as a Method for Solving Complex Policy Problems (Dryzek 2000; Friedman 1989; Hajer 2003)

California Market Bilateral Contracting & Generator Bidding Several Markets Long-term Markets Short-Term Markets (Day-ahead, Hour-ahead, Spot) Locational Marginal Pricing (LMPs) Financial Transmission Rights (FTRs/CRRs)

B $40 C $48 Generator City A $ 42 $ 2.00 $1.00 NFS

RPS and Investors Owned Utilities –33% by 2020 Table 1 - Timeline for Electricity from. Renewables Portfolio Standards in California 2002: S.B. 1078: 20% by : Energy Action Plan accelerates: 20% in : 20% by 2010 deadline into law 2008: AB 32 anticipates RPS at 33% by : Executive Order: 33% renewables by 2020 RPS: Investors Owned Utilities

Major California Municipal Renewable Portfolio Standards City of Anaheim Public Utilities20% by 2015 City of Los Angeles Department of Water and Power 35% by 2020 City of Palo Alto Municipal Utilities33% by 2015 City of Riverside Public Utilities20% by 2020 City of Sacramento Municipal Utilities33% by 2020 City of Santa Clara (Silicon Valley Power)31% by 2010 Source: CEC 2008 RPS: Publicly Owned Utilities

Green Path North LADWP needs to increase its renewable portfolio and wants to: – Tap into geothermal resources in the Southeastern part of California – Build its own power lines It is encountering strong opposition from local communities

Southern California Geothermal Resources and Connecting Transmission Lines

Community Opposition

Market Available Transmission Capacity Also physical capacity constraints ATC=TTC-OTC-TRM-ETComm-CBM-AS

Collaborative Efforts to Break the Impasse Renewable Energy Action Team: streamline cross- agency approval process RETI - Renewable Energy Transmission Initiative: plan areas and corridors for renewables California Transmission Planning Group: crossectoral integrated transmission plan

Conclusions Disconnect between energy markets and renewables policy Small institutions and municipalities may be disadvantaged by: Market Complexity Quasi-competitive Markets Available Physical Capacity Uncertain success of current institutions Firms are asked to cooperate to form the very markets on which they compete