A New Market for Energy Regulation: Advancing the Clean Energy Revolution

A New Market for Energy Regulation: Advancing the Clean Energy Revolution NCSL Task Force on Energy Supply December 5, 2012 David W. Cash Commissioner Massachusetts Department of Public Utilities 1

The Energy Landscape in Massachusetts, or The Case for an Aggressive Clean Energy Agenda 2

Mass. is at the End of the Energy Pipeline 3

Energy Dollars Flow Out of MA We spend $22B per year on energy; 80% leaves MA -- $18B Oil & Natural Gas - Canada MA Energy Imports $B 2008 Fuel Oil (heating, diesel) $5.0 Gasoline $9.2 Jet Fuel $1.4 Other Petroleum $0.9 Natural Gas $5.2 Coal $0.3 Total $22 B Per Household Average ~ $4,600 Natural Gas - PA,NY Natural Gas - U.S. Gulf Coast Oil & Natural Gas - Middle East Natural Gas - Caribbean Coal Colombia Oil - Venezuela 4

5 Energy Costs: Low now; Will inevitably increase and remain volatile in the future

Concerns about Fuel Diversity ISO-NE 6

Mass. Has One of the Most Aggressive Climate Policies Required Emissions Reductions 7

Seizing the Window of Opportunity 8

A Clean Energy Policy Revolution Since 2007 An integrated approach in legislation, regulation and investment to: Lower energy costs Mitigate volatility Grow clean energy sector Become more energy independent Improve the environment 9

A Clean Energy Policy Revolution Since 2007 New Tools: All cost-effective Energy Efficiency must be procured by distribution utilities De-coupling to align incentives for utilities Renewable Portfolio Standard to send the right market signals 10

A Clean Energy Policy Revolution Since 2007 New Tools: Requirement of long-term contracts to provide certainty for the development community Incentivize and remove regulatory barriers to net-metering to expand distributed generation Remove regulatory barriers to expedited interconnection 11

A Clean Energy Policy Revolution Since 2007 New Tools: Create a level playing field for demand resources and renewable energy in Regional Markets Open proceeding to explore the right regulatory path for grid modernization and dynamic pricing. Create innovation center and state funding to help fund clean energy development and job growth 12

Clean Energy Still Needs Government Incentives Without the current capital provisions in place, we would not have been able to fail over and over again, which is what it took to advance the technology needed 13

Clean Energy Still Needs Government Incentives "The development of horizontal drilling took trial and error. Without the current capital provisions in place, we would not have been able to fail over and over again, which is what it took to advance the technology needed to produce the Bakken and numerous other resource plays across America. Harold Hamm, the CEO of Continental Resources at the June 12 Senate Finance Committee hearing on the relationship between the tax code and energy policy 14

The Results 15

Cumulative Capacity (MW) Solar PV in MA (through Sept, 2012) 200 Non-RET Funded 180 160 140 120 100 80 60 40 20 - Commonwealth Solar II Commonwealth Solar Stimulus Small Renewables Initiative GAHI Solar to Market Initiative Utility Scale Renewable Grants Utility Congestion Relief 16

Capacity (MW) Land-Based Wind Yearly and Cumulative Wind Capacity (Installed and Pipeline) 120 100 80 60 40 20 0 Total Yearly Capacity Pipeline Yearly Capacity Cumulative Capacity kw Year 17

Adding Renewables to the Mix Can Lower Prices 18

DG Growth from netmetering/interconnection 19

C&I MWhs Saved (annual) 20

New Resources, including NTAs, in the Capacity Market Since 2010 * Renewables include wood waste solids, municipal solid waste, wind, landfill gas, tirerelated, biomass, and solar. 21

A market for load shedding 22

The Massachusetts Clean Energy Revolution 2006 o Solar o Wind o Other Renewables

The Massachusetts Clean Energy Revolution 2007 o Solar o Wind o Other Renewables

The Massachusetts Clean Energy Revolution 2008 o Solar o Wind o Other Renewables

The Massachusetts Clean Energy Revolution 2009 o Solar o Wind o Other Renewables

The Massachusetts Clean Energy Revolution 2010 o Solar o Wind o Other Renewables

The Massachusetts Clean Energy Revolution 2011 o Solar o Wind o Other Renewables

Clean Energy Sector Growth 2012 Massachusetts Clean Energy Industry Report http://www.masscec.com/index.cfm/page/2012-massachusetts-clean-energy- Industry-Report/cdid/13909/pid/11170 29

PROGRAM INVESTMENTS & NET BENEFITS OF ENERGY EFFICIENCY AND RENEWABLE ENERGY 30

Challenges/Opportunities Siting Maintaining grid reliability and stability Cost allocation New Pricing Regimes Grid modernization/smart Grid 31

Thank you David Cash Commissioner Massachusetts Department of Public Utilities david.cash@state.ma.us 32

CONCLUSION Conventional fossil-based market: The more it changes, the more it stays the same Regional to global demand will increase prices Gas prices will stay volatile NE is congested Lack of fuel diversity is a challenge Subsidies still needed Clean energy sector creates economic opportunities Need to address air emissions/climate Window of opportunity is now Lowest energy prices in years Investments in clean energy are relatively small and result in significant savings for customers and greater reliability 5 years experience of ramping up the most aggressive EE and RE programs in the country

England Capacity Market has stimulated DR growth Demand Resource Participation in Region Enrollment in ISO programs before the start of FCM FCM Passiv e (EE) Activ e Real- Time EG Active Real- Time DR 2010/11 2014/16: Total DR cleared in FCAs #1 #6; real-time emergency generation capped at 600 MW 3

We have a perfect window right now to make clean energy investments. - Governor Deval Patrick, May 30, 2012

HI CT NY AK NH NJ MA RI CA DC VT ME MD DE FL PA MI US NV WI AZ TX CO OH IL AL GA VA NC TN MS SC NM MN KS MO MT LA SD IN IA OR OK NE WV AR ND UT KY WA ID WY 36 Mass. Has High Electricity Prices 26 24 22 20 18 16 14 12 10 8 6 4 2 2010 Average Retail Electricity Price c/kwh Mass. is 7 th U.S Source: EIA Form 826

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 $/kw-year Transmission Costs in New England $120.00 $100.00 $80.00 Actual $60.00 Forecast $40.00 Source: ISO- NE $20.00 $- 3

Demand Resources Growing in New England Capacity Market has stimulated DR growth Demand Resource Participation in Region Enrollment in ISO programs before the start of FCM FCM Passive (EE) Active Real- Time EG Active Real- Time DR 2010/11 2014/16: Total DR cleared in FCAs #1 #6; real-time emergency generation capped at 600 MW 38

Changes in rates over time

Percent Change since 2005 From and Industry Group: D&T Costs Are Increasing Rapidly 250% 200% 150% 100% 50% 0% -50% Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 % Change in commodity unit cost vs. Dec '05 % Change in D & T unit cost vs. Dec. '05 40

Percent of Total Bill Previous data, partially corrected 41

Costs and Benefits

Incremental impact of GCA on rates

Components of total rate, NSTAR residential

Components of total rate, NSTAR Commercial 45

Context: Current Low Rates; Current Clean Energy Investments Dollars ($2012)

Clean Energy Subsidies

Clean Energy Still Needs Government Incentives Without the current capital provisions in place, we would not have been able to fail over and over again, which is what it took to advance the technology needed 48

Clean Energy Still Needs Government Incentives "The development of horizontal drilling took trial and error. Without the current capital provisions in place, we would not have been able to fail over and over again, which is what it took to advance the technology needed to produce the Bakken and numerous other resource plays across America. Harold Hamm, the CEO of Continental Resources at the June 12 Senate Finance Committee hearing on the relationship between the tax code and energy policy 49

Billions (2010$) Clean Energy Still Needs Government Incentives 50 Cumulative Expenditures for Fossil Fuels and Renewables (2010 Dollars, Billions) 45 40 35 30 25 20 Fossil Fuels Renewables 15 10 5 0 1981 1985 1989 1993 1997 2001 2005 2007 2009 2010 Source: Congressional Research Service 2011. Some figures may include expenditures related to transportation fuels. To more accurately reflect the value of tax incentives supporting renewable electricity, the renewables category does not include expenditures related to alcohol fuels and biodiesel. 50

Clean Energy Still Needs Government Incentives Market barriers; Imperfect market (externalities); Investments that companies cannot make b/c too risky http://www.forexpros.com/analysis/why-us-natural-gas-prices-are-so-low---are-changes-needed%20-118082

Climate Change is Still Real and We are Still Required to Act Required Emissions Reductions 52

Adding Renewables to the Mix Can Lower Prices 53

Dollars ($2012) Context: Current Low Rates; Current Clean Energy Investments 54

Wind Resources in N.E. 55

Regional Procurement Opportunities Mass. Governor Spearheads the 'Costco' of Wind Energy Development A first-of-its-kind program will allow New England states to buy wind projects in bulk, slashing costs and speeding up development. http://insideclimatenews.org New England Governors Plan Massive Renewable Energy Procurement for End of 2013 At the New England Governors Conference (NEGC) on July 30th, 2012 all six governors signed a resolution stating their intent to launch a coordinated regional procurement by the end of 2013. http://www.solsystemscompany.com/blog/2012/08/20/new-england-governors-plan-massiverenewable-energy-procurement-for-end-of-2013/ 56

Components of total rate, NGRID Commercial 57

DPU s Next Hot Topic Grid Modernization Enhancing reliability Lowering system costs Aligning costs and price Giving customers greater control of energy use Preparing for a future of innovation 58

Comparison of Sandy v. October

NE Load Curve: Last 10% Drives Capacity Need and Price 60

Peak Reduction Is Price Responsiveness Real The Arc of Price Responsiveness, Price-Only (n=43), Enabling Technology (n=33), Super Enabling Technology (n=8) 60% Super Tech 50% 40% 30% 20% Tech Price-Only 10% 0% 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 Peak to Off-Peak Price Ratio The Brattle Group

Grid Modernization Process Kick off meeting 11/14/2012 Working Group through June 2013 Report and Recommendations to DPU June, 2013 2013-2014 DPU Actions 6

Energy Costs: Increasing and Volatile 63 6