1. California’s Electricity Industry: yesterday and today James Bushnell University of California Energy Institute www.ucei.berkeley.edu

2. Three Eras Cost of Service Regulation –1920-1996 Restructuring & Crisis –1996-2001 Today?? –2002-??

3. ERA ONE: Vertical Integration Utilities build, own and operate transmission, generation, and distribution networks They have a monopoly franchise for selling electricity to end-use customers Prices of IOUs are regulated under “cost-of- service” principles –Muni operate as “non-profits” - prices set by public governing bodies Some experimentation with utility procurement of “non-utility generation”

4. Different approaches give different results

5. ERA TWO: Restructuring Generation is unbundled from T&D –Wholesale prices set by markets - NOT cost-of-service –Nuclear and hydro retained by IOUs Transmission and Distribution continue to be regulated –Wires fees collected as “access” charges ISO created as the “traffic-cop” of the network –Promote non-discriminatory access –Ensure reliability - (balance supply and demand in real-time) Customers free to “choose” their retailer –Rates frozen initially to recover stranded costs –Eventually retail rates would be unregulated

7. The Troubles Problems with competition Problems with long-term contracts –Makes competition problem worse, makes high prices felt more acutely Problems with market design

10. ERA THREE: ???? Market is stable –Most electricity procured far in advance –CAISO finishing a redesign of its markets There has been investment in new plants –but concerns over the sustainability of investment –and over the costs of investment Generation ownership remains mixed –A return to (some) cost-of-service construction –Much focus on utility procurement –Large renewable generation commitments Retail choice suspended - sort of –AB 1x restricts direct access –But SB 117 Makes community choice agg. easier –Utilities reluctant to enter into contracts for energy »afraid of new stranded assets

13. What’s Happening Now? Costs of crisis starting to roll off –But new costs are replacing them Resource Adequacy/Capacity Markets –Regulations to make LSEs buy “something” –What is that something? Environmental Initiatives –RPS, AB 32, Solar –Require SIGNIFICANT investment dollars

14. Thank You