Policy Implications of the

Quadrennial Energy Review

Andrew Knox
APS305

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 Guiding questions on this podcast
1) Which attributes of good policy, in general,
come up in this podcast? (i.e. what do the
commentators offer in the course of the
discussion as the attributes of a good policy?)

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 Guiding questions on this podcast
2) What trends do we hear about in energy
policy and markets?

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 Guiding questions on this podcast
3) What do we learn about infrastructure in this
early part of the 21st century?

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 Guiding questions on this podcast
4) In what way are investments in utilities
different from other investments? How is this
difference facilitated by policy?

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 Trends driven by policy and markets
• New natural gas-fired electricity
• Aggressive decarbonization agenda
• On-site generation
• “Customers don’t want to go back to their
[pre-recession] levels of consumption. They
want to continue to conserve.”
• “Electricity prices…will have to go up.”
• Consumer control, decentralization
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 Trends driven by policy and markets
• Low-cost natural gas
• Low-cost renewables
• Low-cost nuclear

• Are these all myths?

– What protection does California have against
natural gas price spikes?

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 Animal Curves

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http://insideenergy.org/2014/10/02/ie-questions-why-is-california-trying-to-behead-the-duck/
Duck Curve

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Camel Curve

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Challenges to “the most critical of our
critical infrastructure”
• Energy infrastructure is the #1 target of cyber
attacks
• Aging infrastructure
– Over 50% of US pipelines were built in the 40s,
50s, and 60s
– “Managing the degradation” of infrastructure is
extremely costsly

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Challenges to “the most critical of our
critical infrastructure”
• Climate change has a huge impact on our
infrastructure
– E.g. less water for hydro power
• Fuel distribution infrastructure is congested
– Never thought we’d be focusing so much on rail,
road
• Competition with food distribution

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 Infrastructure
• Infrastructures set supply and demand curves
for decades
• Infrastructures are largely in the hands of the
private sector
• Planning infrastructure out to 2030
• Reliability and “resiliency” are aims for
infrastructure

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 Transnational Action
• Imports from Canada and Mexico
– Electricity “Stability regions” depend on imports
from Canada
• Critical materials
– 97% of these produced in China

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 Cheap Natural Gas = Fracking
• Flaring gas at the Bakken and Eagle Ford
– Emissions will be a focus of the quadrennial
review

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 Energy Policy Observations
• Energy Policy is a “derivative” policy
– It is derived from our environmental, economic,
and security goals
– Or is it the other way around?
• Unless people who know about this get on the
senate, this won’t happen

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 Core tensions
• Customer choice vs affordability
• Selling electricity and delivering conservation

• Challenges to the Utility business model

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 Infrastructure Momentum
• “Guaranteed rate of return”
• 40-year assets
• We’ve built the grid around coal (and nuclear)
plants
– Now we want them to stop
– “Stranded assets”

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 Markets and Rules
• “The markets we have are markets only
because they’re called that.”
• “The regulatory compact”
• Release the rules
– “Give the market plenty of time…”
– “The most important thing is certainty.”
• Market actors want certainty

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 Markets and Rules
• Market actors need rules flexibility.
– E.g. buying credits
• “We’re going here” and it’s up to you how you
get there
– “That’s an appropriate role” for a regulator
• New coal in US must have carbon capture and
storage

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 Markets and Rules
• Time
– Altering practices to comply with new rules takes time
• Certainty
– Any plans and actions towards compliance could be
wasted if rules change
– There needs to be certainty in the rules
• Flexibility
– Rules should set the targets
– “Markets” are good at finding the best way to get there
– Rules should allow market actors flexibility in how they
achieve targets

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 The Regulator’s Perspective
• Why is there a regulator?
• “Because it works.”
• “We’re gettin’ a hell of a deal on electricity.”
– We’re not paying what supply and demand would get
us
• “Regulatory compact has been…successful…safe,
reliable, and affordable.”

• Also, 40-year paybacks

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 Economic Growth
• “The growth of the economy is very arguable.”
• “Electric demand is flat if not down.”

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How do we pay for infrastructure?
• Net metering
– “not off-grid”
• Distributed generation
• These things present a challenge to
transmission financing

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Anything else?

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