Good morning. Today I would like to share some of my views on global climate change. I will also talk about some activities that the California Public Utilities Commission has been taking to help raise awareness and reduce the impact of climate change. Some have said that it is not our role to take on the climate change issue. I reject this view. I come at this issue with a personal commitment and the view that there is a lot that we can all do to help.
When I first accepted the job as a PUC Commissioner, the only fixed commitment I had was a request from then Governor Gray Davis that I work to make the PUC "greener." I think the PUC has kept that commitment. Most of the activities we have undertaken in the past three years have had an indirect impact on climate change, but very recently we have turned our attention toward making a direct impact on climate change.
In February, we held an en banc meeting on the subject. This was the first-ever such meeting hosted by a PUC anywhere in the country. We had with us a number of important policymakers in California including representatives of the Energy Commission, the California EPA, the Air Resources Board, and the State Controller's office. A contingent of at least ten policymakers stayed through a day-long series of presentations from experts on the subject, business and industry leaders on best practices for climate change, representatives from the financial community, as well as the PUC's regulated utilities.
This event was important for a number of reasons. First, it sent a signal that California policymakers are very focused on this issue and that we take it seriously. Even for leaders of businesses not directly regulated, having ten California policymakers united in their commitment to this issue sends a strong signal. We did our best to publicize the event and draw in more than just the usual PUC crowd. Somewhat appropriately, our attempts to draw attention to the event were overshadowed to some degree by the timing of the Kyoto Agreement going into effect right around the same time in February. In any case, we held an event and people came, listened, and participated, which itself raises awareness.
I would also like to tell a story about some events that surrounded our planning of the en banc and a little telecommunications company that serves California. I do this not to single them out, but to show a positive example of the importance of raising awareness and how corporate attitudes can shift when they become aware. Many of you know that SBC California last week joined the Registry. But most of you probably don't know that when I first wrote to inform them that the PUC was hosting an en banc on climate change, I got a reply from them saying they were a telecommunications company, not an energy company, and that they did not see what they could do on the subject of climate change. Through a series of correspondence and then SBC's participation in the en banc meeting, they have recognized that there are many steps that a non-energy company can take to help reduce climate change impacts. I am pleased that SBC has made this shift. In my correspondence with them, I gave the example of FedEx. Although they are a transportation-based company and can surely make changes on their delivery vehicles, they have also put a huge solar system on their facility in Oakland. This represents outside-the-box thinking. All of the industries that the CPUC regulates have some type of carbon footprint. They all have buildings and facilities around the state. They all buy electricity and gas, even if they don't produce or sell it. They all have fleet vehicles. They all have employees. Verizon had an interesting presentation on their telecommute policy, which allows electronic working by many types of employees and saves on transportation and fuel use by reducing employees commuting to work every day.
These are the types of innovative approaches that we have to start taking if we are going to make a sizeable impact. My view is that over the next several years this will become less of a political issue and more one of taking concrete steps. An April 6 article in Energy Washington Week comes to the same conclusion. The headline reads "investors outpacing Congress in push for climate change action." The key point is that policymakers are being left behind by practical, on-the-ground decisions being made by the financial sector, corporations (through shareholder resolutions and socially responsible investing), and even energy companies. For my part, I do not want to be a policymaker who is left behind. Although the PUC cannot directly impact the largest source of emissions in California – automobiles – we have a lot to say about the second largest source, which is the energy sector. I had a fascinating experience a few months back when I attended a meeting of regulators from around the country sponsored by an organization called the National Regulatory Research Institute. The group convened to discuss what topics the research institute should be addressing in the coming year. Many commissioners nominated topics, and I submitted global climate change. I was surprised to find that I was the only commissioner to vote for that as a key issue to be studied. The majority of my utility commissioner colleagues from around the country preferred to list nuclear energy as the top priority for discussion in the coming year. I fear that attitude. I do not see that nuclear energy is going to be a hot topic in California in the future, but I do see a coming storm on the issue of coal-fired electric generation. Many of you have probably heard that the Governors of Wyoming, Utah, Nevada and California have announced joint support for a proposed transmission line called the "Frontier Line" that will carry as much as 6,000 MW of new coal generation. The announcement also says, by the way, that there may be an additional 6,000 MW of renewable power that could also utilize the transmission line. I am concerned about this proposal. Although I know that California will need more power to serve our growing needs, I do not believe this power should come from coal, despite its "fuel diversity" benefits, unless the coal is extremely clean. If California is to focus on fuel diversity, we should be doing it in the form of renewable power, not conventional coal power. There are new developments in coal technology that could potentially make coal attractive, if we can use integrated gasification combined cycle (IGCC) technology with appropriate sequestration. Anything less than this, however, leads to higher emissions than natural gas, and is the opposite of the direction California should be heading. California is still in the process of formulating its policy on coal power, but I, for one, think we need to support only the cleanest options available, in building any new plants, wherever they are located throughout the West. We must move toward cleaner power generation options, not dirtier ones. The power the CPUC has in the area is it can set standards for the generation that our investor-owned utilities are authorized to purchase or build to serve customers. Over the coming year, we will look very closely at the procurement requirements for the utilities to ensure that we are not supporting development of more emissions. There are many other activities that the PUC has undertaken or is in the process of undertaking that can have a significant impact on climate change. As many of you know, in 2003 California adopted an "Energy Action Plan" which lays out a "loading order" concept, where energy efficiency and demand-side investment are our first priority, followed by renewable energy, distributed energy resources, and finally conventional transmission and generation investment. The Energy Action Plan was adopted by the CPUC, and the California Energy Commission, and endorsed by the Governor. This "loading order" has become conventional wisdom in California, and I have done my best to spread the word at national regulatory commissioner meetings around the country. Also this past December, the PUC adopted a "carbon risk adder" as an evaluation tool for utilities to use when they consider bids to purchase electricity. Electricity utilities would add to each bid a dollar value (ranging from $8 to $25) per ton reflecting the amount of CO2 that would be emitted by a generating unit. The adder represents an estimate of the likely future cost of purchasing CO2 offsets to comply with future mitigation regulations. By internalizing this risk into the evaluation of fossil bids, the analysis will favor renewable and demand-side options and thereby reduce the output of CO2 associated with meeting California's electricity needs. California also has a long-standing history of investment in clean and demand-side energy supply. We fund almost $500 million per year in energy efficiency programs for both electricity and natural gas. Per capita energy use in California has remained flat over the past 20 years, while U.S. national per capita energy consumption as a whole has increased by 50%. California is comparable to Japan and Germany in per capita electricity use, though with our milder climate overall, we realize we still have progress to make. These accomplishments have had a positive impact on economic growth and living standards.
In August 2004, we required the utilities to estimate the associated GHG emissions reductions from energy savings; they will track those emissions reductions in future years.
California also has a renewable portfolio standard law, requiring the utilities to have 20% of their power come from renewable sources by 2017. The Energy Action Plan accelerated that goal to 20% by 2010. We are considering accelerating it even further to 33% by 2020.
Since 2003 the CPUC has approved many new renewable projects. We also fund a self-generation incentive program at $125 million a year to encourage distributed renewables and other clean distributed technologies such as combined heat and power. The CPUC's long-term resource planning proceeding held workshops March 7-9 to discuss a staff proposal known as the "SkyTrust model" which would establish annual limits on the emissions of greenhouse gases, and create an auction process for the distribution of rights to emit GHGs up to those limits. The summary report from those workshops is out for comment by parties now and we will decide after receiving comments where we want to take this initiative. This initiative could form the beginning of a "cap and trade" scheme. Under the initial proposal, revenue generated by the auction would be "recycled" into funds supporting preferred resources such as energy efficiency and renewable generation. The Commission hopes to endorse and implement a framework by the end of 2006. The CPUC is also working, in cooperation with the CEC, toward reasonable cost-based marginal retail pricing that captures the true costs of providing power at on-peak times. Our goal is that these policies will help spur investment in technologies that reduce demand or increase supply when power is most expensive and we need it the most. My final example of PUC actions on climate change is related to PG&E's bankruptcy. When they emerged from bankruptcy last year, one of many conditions of our support for their reorganization plan was that they create a $30 million Clean Energy Fund, devoted to investing in California businesses developing and producing clean technologies. Since that time, the investment capital available to the fund has grown to over $50 million and the Fund is evaluating potential investment opportunities. The idea behind this fund is to invest in companies that are already past the research and development stage, already have a product, but simply need assistance to bring the product to market and begin earning returns. The fund will take equity positions in these companies and return earnings to the fund once a venture is successful in bringing their clean technology to fruition. I've now given you a summary of my vision for California leadership on climate change issues and specifically the CPUC's actions in this area. I would like to close with a final comment. An Associated Press news story four days ago said, in part: "Washington – Mandatory limits on all U.S. emissions of carbon dioxide and other "green-house" gases would not significantly affect average economic growth rates across the country through 2025, the government says. That finding by the Energy Information Administration, an independent arm of the Energy Department, runs counter to President Bush's repeated pronouncements that limits on carbon dioxide and other gases that warm the atmosphere like a greenhouse would seriously harm the U.S. economy." Some may say, "Will wonders ever cease?" I would say, good for the EIA. Its time to end the argument about the realities and economic impacts of global warming. The jury is in. Its time to recognize we can deal effectively with this global threat and have a healthy, vigorous economy. Its time to get moving, to up the pace and tempo. Its time for all of us, Republican and Democrat, liberal and conservative, to endorse and adopt a true environmental agenda for our state and nation. Its time for us to get on with it. Thank you.