Forecast of Future Electricity Costs in California Prepared by: Strategic Resource Advisers, LLC November 12, 2014
Presentation Outline Historical Framework Rate Pressure Future Expectations Conclusions
Historical Framework California energy prices (commodity prices) are higher than in neighboring States. The price of California energy and electricity across all sectors combined (residential, commercial, industrial, and transportation) is notably higher than comparable prices in the neighboring states of Arizona, Nevada, Oregon, and Washington. Page 3
Historical Framework 16 2011 Average Retail Electricity Price Cents/kWh 14 12 10 8 6 4 2 14.78 11.08 11.61 9.54 8.28 11.72 13.05 9.5 9.05 8.15 7.49 10.23 10.11 6.55 6.65 5.47 4.09 6.82 13.05 9.71 8.97 8.04 6.78 9.9 California Arizona Nevada Oregon Washington U.S. Average Page 4 0 Residential Commercial Industrial All Sectors Source: Energy Information Administration
Rate Pressure - Changes in Load Growth Since 1990 Residential and commercial load growth have increased by an average 32 and 36 percent respectively. Industrial load growth has decreased by over 17 percent. Other, mainly Ag has remained relatively flat. Cumulative California Load Growth Percentage Change by Sector; 1993-2011 Source: California Energy Commission. Energy Consumption Date Management System, Electricity Consumption by Entity. http://www.ecdms.energy.ca.gov/elecbyutil.aspx Page 5
Rate Pressure - Legislative and Regulatory Actions In the past 5 to 7 years, California has passed over 30 new regulations or mandates related to energy These new mandates cover a broad range of primarily environmental related goals There is little coordination or an assessment of the cumulative impact of the regulations/mandates
Rate Pressure- Renewable Portfolio Standard Renewable energy requirements are driving up costs due to: Altered resource portfolios New transmission requirements Integration requirements For the 5 largest utilities, renewable generation is projected to increase by between 70 and 99 percent to meet the 2020 33 Percent RPS. Higher cost resources going forward are therefore being added to these utilities portfolios at increasing levels. Much of the costs associated with meeting the RPS have not yet or have just begun to 0.11 0.10 0.09 0.08 0.07 0.06 be reflected in rates. 0.05 Average Cost ($ / kwh) Average Cost of RPS Sources and Total IOU Energy Portfolio 2003 2004 Renewable Energy (RPS and Qualifying Facilties) Total Energy Portfolio 2005 2006 2007 2008 2009 2010 2011 2012 Page 7 Source: California Public Utilities Commission. Electric and Gas Utility Cost Report. Public Utilities Code Section 747 Report to the Governor and Legislature. 2012.0
Rate Pressure - GHG Cap and Trade The impact of carbon on electricity prices depends on: The market price of carbon Aggregate emissions from covered entities The CAISO indicates current carbon prices ($13-$16 per ton range) are increasing whole bids of natural gas facilities between $6-$10/MWh. Future carbon prices are uncertain. Additional demand for carbon allowances could put upward pressure on carbon prices.
Future Expectations - Electricity Prices are Projected to Increase Faster than CPI Electricity price increases have historically trended lower or near CPI. CEC forecasts electricity prices to increase at percentage rates exceeding the consumer price index through 2020. CEC Draft Forecasted System Average Rate Increases Compared to CPI Source: Source: CPI, Survey of Professional Forecasters, Federal Reserve Bank of Philadelphia, March 10,2013 and California Energy Demand 2014-2024 Preliminary Forecast Volume 1: Statewide Electricity Demand, End-User Natural Gas Demand, and Energy Efficiency, p.34, California Energy Commission, May, 2013 Page 9
16.00 PG&E Agricultural Rates - 2004-2013 15.00 14.00 13.00 12.00 11.00 10.00 9.00 8.00 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Ag Rate Avg (Actual) System Average (Actual)
16.00 SCE - Agricultural Electricity Rates 2004-2013 15.00 14.00 13.00 12.00 11.00 10.00 9.00 8.00 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Ag Rate Avg (Actual) System Average (Actual)
Conclusions Increases in California energy costs will be absorbed by all Californians and will likely continue to widen the disparity in energy costs between California and neighboring states. The California energy marketplace is very dynamic and utilities and energy suppliers are addressing a significant and growing number of requirements that are sure to have consequences on energy consumers moving forward. California consumers need to be armed with credible information regarding future energy costs and requirements to make informed decisions regarding options and alternatives Page 12