In 2014, Current’s crystal ball sees through the cold January haze to developments in energy politics, policy, economics, and the environment. Key issues for the year are proposed roadmaps to expand renewables, lower greenhouse gases, resolve thorny rate issues, regional electricity supplies, and integrate electric cars into the grid. Politics: Money The proposed state budget released Jan. 9 is shaping energy economics for the year. Under the governor’s first cut at a 2014-15 spending plan, he allocates $850 million in anticipated revenue from the California Air Resources Board’s carbon cap-and-trade revenue. Alternative transportation, including high speed rail, is to receive the lion’s share—$600 million. Energy efficiency would receive $140 million (see story at page 1). Gov. Jerry Brown and the Legislature diverted the first year of auction revenue to the general fund to help close a yawning budget gap in May 2013. As the governor and state Department of Finance put the final touches on the initial proposed budget for fiscal 2014-15, environmentalists and Democratic lawmakers pushed to use future auction funds for community investments, particularly those future auction funds for community investments, particularly those that can create jobs and cut carbon. The governor backed the Assembly Democratic Caucus 2014-15 Budget Blueprint, released Dec. 11, 2013, which called for investing the money instead of continuing to use it for the general fund, but stopped short of calling for any immediate repayment of this year’s funds. Under AB 32, the state’s climate protection law, the money is supposed to be reserved for cutting carbon emissions and advancing the state’s efforts to cope with climate change. The debate about how to use the carbon auction proceeds comes as the Legislative Analyst’s Office forecasts a $5.6 billion state surplus in the coming fiscal year. The governor, however, insisted Jan. 9 that state spending continue to be constrained because of economic volatility. Politics: New Green Trumps Tradition The Legislature this session is to decide the fate of at least two blueprints for lowering greenhouse gas emissions post-2020. One now in play would replace the 33 percent Renewables Portfolio Standard. That policy expires in 2020. This bill, AB 177, initially proposed increasing the renewables mandate to 51 percent. As of this month, however, it sets no renewables bar. Assemblymember V. Manuel Pérez (D-Fresno) seeks to expand alternative energy resources that meet local needs, particularly in Orange County. The 2,100 MW San Onofre Nuclear Generating Station was permanently taken out of service in June 2013, leaving the grid operator and others concerned about generation and other electrical support in the area. The legislation also promotes energy efficiency, demand-response, and energy storage to slash the electricity sector’s carbon emissions. Under new amendments, AB 177 would require utilities and other energy providers to buy “all available cost-effective, reliable and feasible, energy efficiency, demand response, and renewable resources, so as to achieve grid reliability and greenhouse gases emission reductions simultaneously, in the most cost-effective and affordable manner practicable.” Politics: Post-2020 Carbon She’s one of the few politicians who can move energy legislation, and this year she has her sights on greenhouse gas reductions in the next decade and beyond. Sen. Fran Pavley (D-Agoura Hills), author of AB 32 and the controversial bill to regulate fracking for natural gas and oil, is set to introduce legislation to reap greater carbon reductions from the energy sector between 2020 and 2030. “The Legislature needs to ask the right questions now so that we have actionable, data driven options to pursue post 2020” to slash greenhouse gases, Pavley stated in a letter to her fellow legislators Nov. 26, 2013, seeking bill co-authors. There was no bill number as of press time and Pavley’s office did not answer queries about legislative coauthors. Policy: Zero-Based Budgeting The legislative directive to the California Public Utilities Commission to develop a budget from scratch next year aims for a more transparent relationship with Sacramento. This zero-based budgeting focuses on real budget needs, creating an opportunity to dedicate resources to a comprehensive safety review of electricity infrastructure. That effort has been hampered by perennially-constrained agency resources and the routine diversion of limited resources to the “hot issues” of the day. Policy: Rate Re-Tiering Those big wedding cakes with all the layers and the fancy icing? The commission, following the Legislature’s command, is set to flatten their less-sweet consumer rate-tiered policy cousins down to something more like an accessible Bundt cake. After years of consumers and utilities complaining about all that complicated, buttercream methodology to figure out which consumer should pay how much for electricity use, regulators are beginning to whip up a new batch of fewer tiers with the intent of less cross-subsidies. The couple at the top of the tier will still pay the most for their high roost on the consumption scale. Those at the bottom are set to pay more. Those in the middle are expected to get some weight removed. Policy: Rates for San Onofre Controversial rates, including those from the costs of San Onofre’s shutdown and local power replacement needs, are ongoing issues at the commission. But, pressure should increase this year because the governor is running for reelection and commission president Mike Peevey’s second six-year term is up at the end of 2014. Ratepayers continue to pay for the non-operational nuclear facility while regulators review whether to remove the ongoing cost of the San Onofre plant from rates. That review began in November 2012. In December 2013, the commission delayed voting on refunding $94 million of the $5.67 billion in ongoing San Onofre costs put into Southern California Edison and San Diego Gas & Electric customers’ ratebase. Commissioner Catherine Sandoval set an “all party” meeting Jan. 15, 2014, on the potential customer credit. A related controversial matter is how regulators are to incent Southern California Edison to build local capacity to fill the void left by a shuttered San Onofre. This is the crux of the regulator’s current Long Term Procurement Planning process. Policy: Gas Safety Fines While regulators plod ahead on deciding the rate fate of San Onofre, they have no compunction about kicking Pacific Gas & Electric in the seat of the pants for failures in the gas pipeline safety department. While the CPUC voted Dec. 19 to fine the utility $14.75 million, still hanging over PG&E’s head is a possible $2.25 billion penalty for the havoc wreaked by the San Bruno blast in 2010 that killed eight and destroyed more than three dozen homes. In August 2013, PG&E threatened to file for bankruptcy if it is hit with a $2 billion-plus fine. The utility argued that the state’s proposed penalty is illegal and out of regulatory bounds. Policy: Multi-Year Supply Cushion Regulators are in the midst of a proceeding considering extending the one-year resource adequacy requirement for utilities and other energy providers for up to five years. Moving beyond a one-year supply cushion requirement of 15 percent is widely supported, with many votes lining up capacity for three years. What role the California Independent System Operator may play remains to be seen. Policy: Cars for Storage The federal government thought the CAFE (Corporate Average Fuel Economy) standards were tough to get approved. What may prove a close match in California policy is the start this year to tackle what should turn out to be national technology standards, communications, and other tools to allow vehicles to nurse the grid. The Energy Commission, CPUC, California Independent System Operator, and California Air Resources Board all are paying more attention to plug-in vehicles’ ability to act as mini storage boxes for electricity as the number of plug-in hybrids and battery electric vehicles increases. The CPUC, for instance, is pursuing a rulemaking to establish tariffs, programs, and policies for electric vehicle charging, including vehicles in demand-response programs, and enabling them to store power and feed the grid. The effort involves players—such as automakers, vehicle charger manufacturers, and vehicle component makers—that are well beyond the reach of the CPUC’s legal jurisdiction. California cannot go it alone, cautions GM. The automaker is interested in the state’s efforts, but is warning that any tariffs and policies should not get too far ahead of the electric vehicle marketplace, including still-nascent and quickly changing ideas about how charging networks are expected to be deployed and how communications between the grid and chargers, or vehicles themselves, ultimately will develop. For instance, when it comes to demand-response, should the call for shutting off vehicle charging operations ultimately go to vehicle chargers or to vehicles? GM also poses the question of whether enabling cars to feed the grid could boost the price of electric vehicles enough to stymie the market for the emissions-free cars. Policy: Blueprint for a New Structure The Energy Commission’s 2014 Integrated Energy Policy Report is expected to be adopted next week. If it does what it’s supposed to do, politicians and others will use it as a basic blueprint for new laws, regulations, and policies. While a work of great investment by the commission, sometimes it doesn’t get all that much attention. Current expects a bigger splash this year. This year’s IEPR is anticipated to give considerable attention to electrifying the state’s transportation system to reduce greenhouse gases from biggest source of emissions in California.