I am pleased to be a participant in this Colloquium Series on California's history, problems, and prospects.
First, a few words about the Public Utilities Commission. The birth of the California Public Utilities Commission dates to 1911 when Hiram Johnson, widely regarded as one of California's most effective Governors, teamed with Max Thelen (a young, energetic attorney), to pass a constitutional initiative that promised that the growing transportation and storage monopoly of the Southern Pacific Railroad Company would be regulated to serve the needs of California's businesses and citizens on a just and reasonable basis, balancing public interest with private gain. Of course, the technology of the steam locomotive was of tremendous consequence not only to the development of California's transportation system, but also to our first communication system to link communities, states, and nations. Soon to follow was the development of statewide electrical transmission and gas pipelines, connecting California with energy resources in Canada, the northwest and southwestern states.
The next watershed period occurred during the term of another of our great Governors, Edmund G. "Pat" Brown, who served from 1959 to 1967. California's appetite for energy and water continued to be voracious, necessitating the construction of significant new electrical generating capacity, fueled mostly by oil, and the construction of a comprehensive north to south water transportation system known as the State Water Project. It was also during this period that the telecommunications industry began its metamorphosis out of the copper wire era. In the world renowned Bell Labs, the transistor was being born. Closer to home, two engineers by the name of Hewlett and Packard were beginning to redefine California's economy in the direction of computer-driven information systems. Many regard this period as a particularly golden one, with a good deal of harmony between the State's planners and builders. In 1960 California's population was approximately 15 million people.
As I stand before you this evening, the state's population is 36 million. The PUC regulates about $48 billion (about 4%) of California's gross state product of $1.2 trillion. Our investor-owned electric utilities serve 10.5 million customers with over 200 generating units, 33,000 miles of transmission lines, and 240,000 miles of distribution lines. The natural gas utilities serve a similar customer base with about 10,000 miles of transmission lines and 92,000 miles of distribution lines. In the telecommunications arena, where regulatory policies favor competition, we oversee 1,325 certificated carriers with over 40 million access lines.
As a regulator, I would like to report we are in another golden period. But we are not. We have endured, and are emerging from, an energy crisis. The balance between supply, demand, environmental values, and affordability are all critical issues in our energy future. Similarly, in telecommunications, the need to capture the robust advances in technology while assuring universal service and providing a reliable network present immediate and future challenges. Let me speak to those two areas, and conclude with a few remarks about water, where our role is more limited.
In terms of energy policy, this state is and has been in need of a coherent vision. I believe there are two very different paths that the state can go down when it comes to our energy future. The first involves continuing to invest in conventional energy infrastructure to support a growing population. The second involves the choices I prefer --- to invest in clean energy infrastructure that will help improve the quality of life for existing and new Californians in the next quarter century.
I am looking at our energy choices through an environmental lens. Better energy and environmental choices will lead to a better quality of life, better air quality, less pollution, and even more importantly, less global climate change. At the PUC, we can have a significant impact on these issues.
It is for this reason, when I saw a lack of coherent energy policy in California after the energy crisis, that I got together with my colleagues at the California Energy Commission and the California Power Authority, and we wrote the state's Energy Action Plan in 2003.
This innovative new idea has become conventional wisdom in the span of about 1 1/2 years. This document was created in order to develop an overall energy strategy where none existed in the state. We had emerged from the crisis of 2000, but were without direction on many energy policy issues. We knew what not to do, but were not acting strategically about what we should do to improve California's energy future.
The most important aspect of the Energy Action Plan was the concept of a "loading order" for energy resource procurement. In that loading order, we defined energy efficiency as our first priority. Implicit in that priority was also demand response or price-responsive demand. After efficiency, the next priority is renewable energy. After the kilo-watt-hour that is never used, the one produced with renewable energy is our second-highest priority. Finally, our intent was that only after we had exhausted all cost-effective energy efficiency, demand response, and renewable energy, would we look to conventional generation and transmission infrastructure investment to meet our remaining needs.
To my surprise, this "loading order" concept was not at all contentious among the agencies; it has also now become conventional wisdom in California, endorsed by our new Governor and most of business. Not so in other parts of the country. My point is that investment in development of technologies fits in with a more comprehensive framework we have here in California for prioritizing clean energy technologies first.
Another recent action that the PUC has taken in this context is to set bold new "stretch" goals for energy efficiency, both gas and electric. Instead of basing our goals on the amount of funding available to our programs, as we have done traditionally, the PUC just last month adopted a decision to set goals based on the available efficiency in the marketplace. In other words, we set our goals to take advantage of as much cost-effective efficiency investment as is possible. If that means we need to raise additional ratepayer funding in order to pay for our programs, we are committed to doing that.
We have also approved in the last year over 700 MW of new renewable energy generation. These are just some of the highlights of the PUC's work to make the state's Energy Action Plan a reality.
But today's topic is really technology. Technological innovation is one of the biggest and most important protections we have against environmental degradation. While large oil and gas companies have technology development budgets to make sure they can capture more and more product during drilling, we on the demand side need even better technological innovations to ensure that the products we use in our daily lives use less energy in the first place. We also need to continue development of technologies for cleaner and more renewable generation of electric power.
So my motivation and interest in this topic is based both on my professional background as an economist and on my concerns about protecting our environment and the threat global warming presents our state.
I feel some personal urgency about making a difference in this area. I don't want to wait another generation to see us make real progress because by then it may be too late. We've funded research and development efforts for years, and it is important to keep such investment going at the front end.
Today we're about an hour away from Silicon Valley, traditionally a hotbed of innovation and forward-thinking about information technology. In this state, we have often led the charge toward revolutionary thinking on technology, particularly so-called "high technology."
California has been and should continue to be a leader when it comes to innovative technology solutions. By 2050 there will be approximately 55 million people living in this state, up from 36 million today. That is about a 40% increase. And that means we'll need more of everything. Certainly we will have more energy needs. But to the extent that we can meet our needs by being more efficient, and can reduce energy use per capita, we are creating a win-win situation. And to the extent that we can generate the power we need more cleanly, we are also increasing the quality of life.
Also speaking as a Californian, I have to tell you a story about something I learned recently in my work as a Public Utilities Commissioner. I have been working on pushing the California utility industry toward advanced metering infrastructure. This kind of metering system should provide the backbone that facilitates a more efficient pricing scheme for valuing energy to customers at peak times. Customers would be able to receive a price signal indicating that energy has become more expensive, thus encouraging conservation during those times. Therefore, this facilitates both environmental and economic efficiency goals.
In that context, I have had a series of meetings with technology companies who make products designed to meet these goals. And, without naming particular companies or their products, I have found the most amazing phenomenon. Many of these companies are based in California, and they have technologies that have been developed and patented here. In some cases, our ratepayers, through their electric and gas utilities, have paid for the research and development that led to the creation of the product. However, when I ask these California companies to cite examples of where their technologies have been installed or used, they often point to projects in Europe or Asia. And, so it seems to me that in this state, and even this country, we have a huge disconnect between our priorities for research and development, and how we deploy our technologies.
I would like to see this change. And it is partly my frustration with this phenomenon that led me to suggest, during the negotiation of the PG&E bankruptcy settlement, that PG&E should create a new investment fund, now called the California Clean Energy Fund. In the past six months this fund has been created.
The fund is a $30 million initial investment pot, to be used for the development and deployment of clean energy technologies, primarily in Northern California. Relevant technologies could include renewable energy products, and need not be limited necessarily to the utility sector either.
My initial idea was that the fund should fill a niche where other investment funds do not typically lend money or, when venture firms do, the price is often prohibitive. This may also expand and change as the fund matures. Right now there are many companies that can get investment capital from research and development grants, such as the California Energy Commission's research program, funded by California ratepayers, or similar U.S. Department of Energy programs. And there are, as I mentioned, venture capital funds that are sometimes available to help startup companies develop their products.
At the other end of the spectrum, there are many subsidy programs available to help market fully commercialized technologies that help save energy or produce energy more cleanly. For example, in California we have the Renewable Portfolio Standard program where renewable energy companies can sell their product to utilities and receive a subsidy to offset their above-market prices. We also have long-standing energy efficiency programs that provide rebates to customers for buying or installing energy-efficient technologies in their homes or businesses.
But we are missing something in the middle; something to avoid the "Valley of Death." There are a lot of companies out there with a great technology or product, but without the financial wherewithal to bring that product to commercialization. Likewise, they may have great technology and engineering innovation skills, but be totally without marketing and sales talent. The California Clean Energy Fund will help fill that gap in the middle, by providing funding to help get fledgling companies over that hump, to bring their products to market, hopefully here in this country. The fund is not designed to fund research and development, but instead really fill the gap before commercialization.
Right now, the California Clean Energy Fund is in its early development stages. Our hope is that the fund can become a revolving fund very quickly. In other words, the fund should become self-perpetuating, taking equity positions in companies in which it invests, and later selling such positions and reinvesting the money in new companies. If successful, the fund will be able to invest in even more technology companies ready to bring their products to market. In reality, although $30 million is not a lot of money to start with, I expect that all we would need is one success to make this fund a serious investor in this market.
The bottom line is the California Clean Energy Fund is a new and exciting tool that we can bring to bear on the development of a clean energy future.
I also believe that it's important to note how emerging technology investment and development are really just a first step in a whole comprehensive cycle. The emerging technologies of today, of course, will be overtaken in the years ahead by newer, better technologies.
On many issues, good and bad, California is a national and international leader. It is my hope that our efforts in energy efficiency and renewables will have tremendous benefits not only for the U.S. environment and economy, but also for the rest of the world, as countries like China and India begin to outstrip our growth both in population and in energy use. If this happens, and I believe it will, our efforts will truly have been in a noble cause.
In addition, our efforts will contribute toward a higher quality of life for the more than 50 million Californians that we are predicting in the next quarter century.
The state of telecommunications is impossible to predict when California is at 50 million; the change is just too rapid. However, there are some definite trends that are emerging today that will grow in the years to come. I will focus tonight on only one issue - Broadband. Broadband is technically defined as having transmission speeds of at least 200 kilobits per second. This is in contrast to dial up access, which is around 60 kbps.
You are already familiar with two popular forms of Broadband: DSL (Digital Subscriber Line), provided over telephone lines; and cable modems, provided over the cable TV network. Typical speeds of DSL and cable modems run from 384 kbps up to 3 Megabits per second (mbps). Earlier this month, the FERC and the FCC approved Broadband over power lines. BPL holds exciting promise because of the ubiquitous nature of the electrical grid. I expect that there will be fierce competition among these three forms of Broadband access. Prices will drop and speed will increase.
Not to be overlooked is the Wireless side. Cellular companies offer Internet access and the speed continues to grow. WI-FI and WI-MAX currently do not compete for the same customers but this can change in the future. Right now, WI-FI is primarily used in a home to allow several computers to utilize a broadband connection. WI-FI "hot spots" can also be found at coffee shops and airports for temporary access via a laptop. The range of the WI-FI hot spot is only a couple hundred feet. WI-MAX by contrast has a range of around 10 miles. WI-MAX is not yet available but is due out soon.
In sum, Broadband will be the dominant form of Internet access when California is at 50 million. But this is only part of the story. Broadband is just a big pipe. As a side note, fiber optics can create an almost unlimited sized pipe depending on the electronics that hang on the ends of the fiber expanding the speed over 100 mbps.
The services that take advantage of Broadband have started appearing, with VOIP getting the spotlight. VOIP stands for Voice Over Internet Protocol. VOIP offers many more options than today's telephone. For example, VOIP allows for customer-controlled incoming call routing. Also, because VOIP is Internet based, many calls are non-distance sensitive. Once you have a broadband connection, you can have VOIP. So, your "telephone service" may come from the cable TV company or an electric utility.
In the telecommunications arena, the future will bring many options, lower prices and ever increasing speed.
A few words about water. Population growth combined with increasingly stringent water quality requirements, polluted aquifers and just plain limited water supply may lead to future water wars in California-between north and south, between urban and agriculture. But if we apply similar innovations to this area as we do for energy and telecommunications, we can do much to meet future needs. Conservation and new technology are the keys.
- We employ reclaimed water for irrigation.
- We require low flow plumbing fixtures.
- De-salination plants are a viable option for coastal areas with limited water supplies.
- Our agriculture users are using drip irrigation systems that both their bottom line and the environment.
Water will remain a challenge, but through the use of innovative technology we can meet this challenge too.
In closing, I would urge all of you to be students of California history. In past years far-sighted efforts were exerted to harness California's vast resources to serve its economy and its citizens. As we look to California at 50 million, our focus is to continue serving California's energy, telecommunication, and water needs in a matter that minimizes harm to our fragile environment. In the spirit of John Muir, I want our children and grandchildren to enjoy the same wonderful experiences we had in our lifetimes, including clean air, clean water, and mountains and beaches that remain unspoiled. Thanks to technology, can be an extremely exciting future ahead. Then, as now, the consequences of initiatives begun in California often reverberate beyond our borders. I expect California to lead our nation in deployment of advanced technology across the utility sectors under the Commission's jurisdiction.
California at 50,000,000 will undoubtedly be more congested, but, hopefully, not more polluted. The PUC can help to shape California's future in a more environmentally benign way; I intend to do all I can to make it so.