 First of all, my name's Heather Richmond. I'm an associate over at SNR Denton, which is a law firm. I'm actually a public policy specialist. More on that, never. But I am very pleased to introduce and have with us Nancy McFadden. You were sitting because she has a broken foot. I first met her cycling, so I assumed it was from cycling. But she did just spend his budget negotiations. So you never know what really went down. But I just wanted to quickly introduce Nancy. And before I do that, thank her for her years of public service, both to the state of California and to our great nation at the federal level. Nancy is the executive secretary for legislation, appointments, and policy in the office of Governor Brown. She was senior vice president at PG&E from 2005 to 2010. Previously, Nancy served as senior advisor to Governor Gray Davis from 01 to 03, deputy chief of staff for the office of Vice President Gore in the early 2000s, and general counsel for the US Department of Transportation before that. She's a very, very native with the JD from UVA and a bachelor's from San Jose State University. So if you'd join me in welcoming Nancy, she's going to give us a few words ahead of time on kind of the budget and a view from her position. And then I'll be asking her a couple questions to get the ball rolling. But please be one to open it up for as much time as possible to have you ask your questions. So please join me in welcoming Nancy McFadden. Thank you. Thanks. Great. Thank you, Heather. And can you all hear me OK? Great. And I do apologize for the kind of informal setting here, but it's a lot easier with this big, big cast and boot on my foot. And I'm looking at Secretary Schultz, and I must tell him and the rest of the audience that I'm honored to be here and feel a little humbled to be speaking in a group in which you, sir, are sitting in the audience, though I know we're going to hear from you later. But I'll relieve one of the questions and tell you that I broke my foot in service in the governor's office, crossing a courtyard in which our previous governor, Governor Schwarzenegger, had a smoking tent, which I know Secretary Schultz was in many times advising our former governor. But when the smoking tent was taken down, the steel spikes that fastened the smoking tent to the ground were not. And they were sort of hidden in the astroturf that's there now. And that's how I broke my foot. Governor Brown wants to take the astroturf out and put a Zen sand garden in the courtyard. In any case, I really do appreciate being here. Heather, thank you for the very nice introduction. And to Jim Sweeney and all the organizers of this, I congratulate you. It's always a very impressive conference when you look at the lineup and you have two remarkable former cabinet secretaries, a US senator and so many of you in the audience who are experts in your own field. You know that this is an impressive lineup and an impressive audience. And I can honestly say that all of you know more about the topics at hand than me. So I'm going to start to, I'm just going to give a brief overview from the vantage point of serving in Governor Brown's administration. And by doing that, I must start not with energy, but with the budget because we have been laser focused and the governor certainly has on trying to write the fiscal ship of our great state. And I can say that I'm very glad I'm here because that means that we have assigned budget ahead of the start of the fiscal year, which is July 1st. It is a budget that continues the work that we started when Governor Brown took office two years ago. We now have two straight budgets in which we have been reducing the deficit that we started with, which was about $26 billion. The budget that the governor signed Wednesday night resolves the budget deficit and sets us on a course for balanced budgets for the ongoing years. And it's really the first time in a decade that we have a plan and a budget that keeps our spending within our revenues. Now, our budget has tough cuts in it. And you may have heard about a lot of them. We're cutting lots of programs in the state. In 2007 and 2008, our general fund was $103 billion. The budget that the governor signed has a general fund of $91 billion. So folks who tell you that we're not cutting state spending aren't looking at the facts of what's happening in terms of cuts to welfare, to childcare, unfortunately, to our universities and our schools, and all state programs across the board. The state budget does depend upon a tax initiative that will be on the November ballot. And if that fails, we'll have to cut more. And those cuts will unfortunately fall largely on education because that's the biggest part of our budget. It's been tough work. And the governor has really been focused on this. And some might say, uncharacteristic Jerry Brown style, laser focused, and really has devoted much of the time of his first two years in office to trying to battle this deficit problem that has plagued the state for a long, long time. And when I look at this audience, I think how much better it would be for all of us if we could write this fiscal ship and unleash the creativity and the skill that the governor has on all of the other issues that confront the state. Because if he can do what he has done with the budget, with other areas, we are going to continue to have the great state that we know we have, though it's certainly seeing challenges. So that's sort of a capstone, just a real quick summation of where we are on the budget. And it's work that never ends. We've got to continue to make sure that we implement the cuts that we've enacted in this budget. And we're going to work to see that we get responsible revenues hopefully when we hit the fall. Turning to energy, I thought that I would read something that was a transcript of a question and answer that the governor engaged in to just set the stage for his thinking on energy policy. And this is a transcript of a question and answer. It wasn't a prepared speech, although as most of you who know Jerry Brown knows, he doesn't actually give prepared speeches, but he is one of the better extemporaneous speakers in our country today. This was his answer about energy policy. The better part of wisdom today is to invest in alternative technologies and conservation and provide the kind of diversified energy base that we need. In the short term, conservation is the only option that will yield significant dividends. Along with conservation, we must have investment. And I'll give you a couple of examples. Our solar program is woefully underfunded. Geothermal, another area to develop energy from hot rocks, putting water down on hot rocks, creating a recycling geothermal system. That's something that we need to. The liquid fuels that will be needed, the photovoltaic cells, the electric car, rapid transit, insulation of homes. We're talking about huge capital investment. In order to do that, the tremendous squeezing of existing programs will take place at all levels of government, because we need to mobilize capital both public and private. That's very high on the agenda. An energy program, energy conservation, new supply, major leadership role for our state and for the federal government. Excuse me. I am saying it's going to have to be alternative energy programs that don't put all of our eggs in one basket. That's what the governor said about energy policy in June of 1979. So along with our former governor, Governor Schwarzenegger, who really put a premium on focusing on energy policy and particularly renewable energy, we now have a governor that continues that work at a very high premium. And I think, Heather, I know you want to get to questions and answers. I thought maybe I would just highlight a few things in terms of where we are in the state. Again, all of you are the experts. You know the details. You know these things better than me. But I thought I'd just quickly give an overview. The budget we just signed, by the way, did have some energy policy in it. And one of the things that it had in it is that it had some provisions that allow the new solar homes partnership program to continue. That was in the budget. That's a program of rebates for PV on energy-efficient homes. We've through, I think, 2011, we've had about 4,500 new systems funded with the budget signed Wednesday night. That program will continue. You know that this state has an ambitious renewable energy goal of 33%. And we are clearly on pace to meet that, if not exceed it. And I know we've got utility representatives and so many people here that know about the hard work that's gone into meeting that goal and exceeding it. Since 2010, state government has permitted over 16,000 megawatts of renewable energy in California. And we're continuing to focus on permitting and doing the kinds of things that will actually make sure that the programs that so many of you envision in your minds become a reality on the ground or in the air. We're also, of course, focused on not just large-scale renewables, but the governor has set a goal of 12,000 megawatts of small localized renewable energy distributed generation, as you know it, to be called. In addition, we continue the work that the governor started actually when he was governor first time, when energy efficiency standards were first adopted. And I see our chairman of the Energy Commission here, who has done such incredible work on continuing the great work that the state of California has done to lead not just the nation, but the world in energy efficiency. Recently, the Energy Commission adopted a new round of building energy standards, which are 25% more efficient than the previous standards, which were the best standards in the world. And of course, Commissioner Byron, who did such great work on the Energy Commission, I must acknowledge you as well. Because it's not just the folks that are there now, but this has been a continuing march in California to be a leader on renewable energy and a leader on energy efficiency. And we all know how important energy efficiency is. We're trying to practice what we preach. We've got really ambitious goals for state government, for our state buildings and energy efficiency and renewable energy. We're trying to lead on electric vehicles. I know you had a breakout session on that. The governor's committed to that. I think you're aware of the executive order that he put out with respect to that. And I know with Secretary Perry here and other speakers that you know that our military is really focused on renewable energy and energy efficiency. And we've made it a priority of the Brown Administration to work with our military bases in California and other military facilities to make sure that we do everything we can to enable them to be leaders on energy efficiency and renewable energy. It's a lot of work, but at this kind of conference, I think, speaks just in the attendees to what it takes to get the work done. It's not just the federal government and the state government, it's local government. It's not just large and old utilities, but new startups. It's venture capital. It's all of you working together. And so we and the Brown Administration under Jerry Brown's leadership, starting with his words back in 1979, pledged that we will continue the work. We're there to continue to make California leader and make a difference on all the aspects of energy that we're so committed to. So with that, I'll stop, and I'm happy to answer questions. Well, I'm just going to kick off very, very quickly just to set, just kind of step back for a second. And Nancy, you served in Governor Davis's administration back in the early 2000s. And just looking at your experience at that point and then looking at the way the state of California looks at energy now versus the way it looked at energy in 2001, what are some surprises that you found or what are your observations? Well, I was with the Davis administration for a short but troubled period. And we had what was then the energy crisis. And then it was all about crisis. And today, I think it's all about opportunity. And I think that's really, I think the Davis administration and so many people in the state and many of probably people in this audience, I know there's folks from our utilities here, turned what was a crisis into opportunity, laying groundwork for things like our Flex Your Power program and a lot of energy conservation, rapid permitting of projects that we needed to bring online quickly. But I think now we've got a wide open space for opportunity and much more knowledge. I think back then, I don't think people in their everyday language talked about megawatts and talked about solar energy. And now it's something that's not just the experts that are here, but it's almost common language now to talk about that. So I think we've come a very long way in the energy space since then. Terrific. I've got one more to start thinking of your questions. Moving to AB 32, which is obviously when you think of state of California and energy policy, obviously that's top of mind. The first auction revenue is scheduled to come in soon. And there's a lot of talk about how that's going to be spent. What are your thoughts? What is the administration's plan? It's clearly something that we're starting to spend a lot of time talking about. And of course, with the leadership of Mary Nichols, the chair of our Air Resources Board, she's really leading our effort on that. We think that it needs to be something that's carefully thought out. It is true that in our budget, in the state budget, we are identifying that some of the auction revenue can be used for programs that the state is currently doing that are aimed at reducing greenhouse gases. And so we want to be able to fund some of those programs with the auction revenue. I think the PUC has a proceeding going on about how auction revenues that the utilities get, how that should be used. And I think we share the utilities view that most of that really needs to go back to customers. In terms of the broad spectrum of where auction revenue, when the cap and trade program really gets up and moving, I think that's still a work in progress. Perfect. Questions from the audience? Do we have microphones floating around? Go ahead. I'm Mitzi Werthe. I'm with the Naval Postgraduate School. And this audience is going to be bored by my question, because I ask it of all the speakers. If you've done such a good job of educating the voter in California about energy and all of the elements of that, is it a story you can share with the other governors so that they can do it? Have you figured out how to communicate to 11-year-olds so they understand the complexity of these issues? It reminds me of when we got in to process improvement. And the Secretary of Commerce took on this program to improve it, sort of saying it was really important. And they would give awards to places that did it. But with the award, they had to go share what they'd learned with others, which they discovered was an expensive thing to do. So my question is, are you putting any money into your budget to help educate a broader public about all of these issues? The question, I actually do think we have some kinds of education programs. And Bob and others would probably be able to speak more to the details. But I think in a broader, let me just step back, because I think it's a good question. California doesn't have a lot of money to put into a lot of things except for core services. But Governor Brown, I actually was back in Washington, DC with him. He hasn't traveled out of the state very much. He went back to one governor's association meeting. And he actually did talk to the other governors about these issues. He was probably the only governor that uttered the words climate change. And a lot of them actually turned their head. They didn't even want to be in the same room with somebody saying those words. So I think he has sort of taken it upon himself to want to work with other governors. Because California being in the lead is important and impressive. But you're absolutely right if we're not leading our other states. It's to good advantage, but it's not the whole thing. In terms of educating the greater public, that's, of course, not only a governor's responsibility, but I think it's a responsibility of everybody here. And I'm always open to good ideas that you have. I can hear it, and I'll repeat it if you want. All right. Question on a really, I think, a broad policy issue where I think there's a gap. So the question's about a broad policy issue where I think there's a gap between AB 32's goals for many things, including zero net energy in our future facilities. And the tariff structure we currently have is administered by the CPUC. Let me give you a couple examples. And with the deadlines coming up, not too far off in the future, for us to be working towards zero net energy, I think we need to work now to work on these. First is the net metering limitation. A one megawatt limitation, if we're going to be serious about on-site renewable energy, is very restrictive, especially for tech companies. One megawatt is not a very large load. And so it really makes a practical limitation for us to realistically deploy renewable energy on-site. Secondly, just in the broader sense, if we're going to be zero net energy on-site, our tariff structure doesn't really contemplate any provision for how that works. If we, in fact, are going to take our meter usage to zero, we still need to be grid tied. We still need to use the grid for storage for legitimate purposes. There are costs to be borne about the grid's role in that. But if our bill would be zero, that really doesn't give the utility company any way to participate. So if we have zero net energy, what tariff structure would support that? I think it's an important area. Thirdly, aside from on-site renewable energy, that the ability to participate in grid purchase renewable. For Apple, we were able to get into the direct access program, but it was a torturous process to get in there by exception. Why can't that be something across the board for companies who want to, for the portion they purchase through the grid, go directly to their own generation source and purchase renewable energy? It would be a great thing across the board to encourage the development of renewable energy in the state if users who wanted to do it could do it without going through big regulatory hurdles. Obviously, some of the Enron things that you experienced years back caused some of the restrictions that make that a difficulty. But I think we're probably in a position to relook at those kind of things. Also, as renewable energy becomes a bigger piece, either for on-site or grid purchase, intermittency in storage becomes important. I think the policymaking, the ideas are there, but there's really no policymaking there for that as well. And then one last piece. Those are really more on the CPUC side. But on the legislative side, we want to encourage use of biogas yet. Our legislative structure prohibits the injection of landfill gas in California for use in our pipelines. And I believe AB 1900 provides a solution for that. But we'd be interested to see what your perspective is on that particular piece. Thank you. Oh, I forgot I was ready to get the microphone. I forgot I was mic'd up. I was so engrossed in your question, Mike. I forgot about the mic. You had a lot of things there. And as I said, many more experts. I think Commissioner Sandoval from the PUC. I know she was speaking earlier. I think, yes, she's here. I'm sure she listened intently and knows that I think the PUC is thinking about what kinds of other kinds of tools do we need to now adjust or change, including tariff structure. I know the PUC recently took action on net metering. But that was as an interim solution. I think we know that we need to look at these kinds of things. I don't think it's really, I'm probably not the right person to comment on all your specifics. But you raise important issues, I think, between the PUC, the Energy Commission, and our energy advisors in the governor's office. I think those are precisely the kinds of things we're looking at for the next stage of how we can enable things. On the biogas and the legislation, I'm really careful never to get ahead of the governor on that. But it is, we've had a biogas working group in the administration. We're really focused on it. And again, what additional things we need to do. So you raise them. I noted them all down. And they won't be forgotten. You'll see things on those in the upcoming months. The green here in front. Hi. Good to see you, Deborah. Good to see you. As you know, the oil companies are launching what is likely to be the largest effort yet to try to roll back or undermine AB 32. Could you speak a little bit about what you see as the challenges and opportunities for California to maintain its leadership role in addressing global warming? Yeah, very good question. And I was sort of joking when I was talking about the governor talking about climate change. But I really do think that it's an important point. And again, Governor Schwarzenegger and Governor Schultz, or it's Governor Schultz, I just made you a governor. You've been a secretary. I know. Have been really important. And of course, Secretary Schultz played such a key role in making sure that the effort to turn back AB 32 on the ballot in Prop 23 didn't happen. And we need to continue to make sure that we maintain our stake in leadership. I think the challenge for us right now is now one, not of advocacy and broad policymaking, but it's the tough work of implementation. And it is really tough work. And now is the time when we've got to make sure that we don't step into the landmines of unintended consequences, that we don't let the design of our AB 32 implementation programs lead to unintended out-of-control costs. And so we are very, very focused. And Mary and others are leading an effort. And the governor is particularly and personally focused on making sure that we are now implementing smartly. And I think, so the first, I think, answer to your question of how do we maintain our edge here is to be smart about implementation. And that's gonna take a lot of people across government and industry and many people here. The other thing is, is that the governor is not going to stop trying to be a leader and talking about the issue. And he thinks that's very important. Some of us have had to hold him back from spending a lot of time talking about climate change when we need him to be talking about holding the line on state spending and pension reform and those kinds of things. Because I think people need to know that he's focused on them. But he is committed to maintaining California's leadership role that was set up in the last, actually starting with Governor Davis and proceeding through Governor Schwarzenegger. But it's going to be difficult and we are going to have some bumpy, bumpy bumps in the road ahead, I think. So we all need to be smart and careful about it and keep up forums like this. But also, as we're taking actions, we need to make sure that we're smart about it. And I'm looking at Bob and Kathy and you are our partners and both of them know that the governor has actually convened all of our agencies that have any role in this and said, you all need to be talking to each other, working together. And I forget exactly Bob what he called himself but kind of the leader of the pack here. So it's getting direct attention from him. But thank you for the question, Deborah. Hi, I'm Mary Anna Grossman, Sustainable Silicon Valley. And I wanted to congratulate you again on getting the budget passed. But I have kind of an ongoing concern about the accounting for state budget. Because if you count a cut to something like investment in LED lighting programs that has a big energy savings, the same as a cut to something like childcare, health, food programs that leads to kids maybe dropping out of school later down the road and having learning disabilities and maybe adding to the prison population. So a cut that adds a lot of cost versus a cut that could eventuate in savings. So how do you, is there any kind of full cost accounting? Or do we just say first cost, that's it? That's all we have to look at. No, it's much more complicated and much more challenging. And I think you illuminated some of the things that some of the questions that people have to ask is they're going through that kind of exercise. And of course it's complicated in state budgeting because some things are funded by fees and are special funds. Other things are general fund and funded by tax revenues. But I think as we went through the budget, we looked long and hard and asked ourselves questions about each and every spending cut. Unfortunately, the system that we have developed over years and probably decades in California has really put the state budget into this twisted up pretzel that makes it very difficult because there are a lot of dollars that actually we can't get at that if you were to just be doing a look at what's a priority and what's not, some of those dollars might not be as much of a priority but they're not actually gettable in the sense of us being able to cut or reduce or change because either court decisions or initiatives that our citizens have passed or any number of reasons that put restrictions on state funds. So when you come right down to it, in some ways there are really a very narrow set of state spending categories where there's total freedom to be able to make the kinds of decisions that you talked about. I know that's probably not a satisfactory answer but it's I think just trying, I'm just trying to illustrate the complexity and I guess just say that I think policymakers try very hard to make decisions based upon what is really important and what has not just short term but long term consequences but it's difficult in California. It's very, very difficult. Additional questions? I've got one. We're going here, sir. Hi, thank you so much for being here. My name is Yaoya and the mayor of Palo Alto. Oh. I had a question actually around the state's interest and role within technology and energy efficiency. One thing that we have tried here locally is a social app around energy efficiency. Just more in the face of understanding the challenge of behavior, adaptation, looking at all the alternatives from an individual's perspective. What has a state considered in its own long term strategy for what we feel is a pretty challenging request? It's basically look at what you're doing and consider alternatives to what you're doing and then ultimately adapt what you're currently doing because it's a meaty and juicy question that even if you get good policies in place, ultimately, if it means behavioral adaptation, there's a whole added layer to it. You know, I think Bob, maybe if you hand the microphone to Bob right there. Bob, I'll finish up, but why don't you take a crack at the mayor's question? Sure, no, it's a very good question because basically, as you say, energy touches all of our lives in the question of how do we use it and how we affect it? I mean, one of the things which certainly the legislature has done is basically land use decisions, right? I mean, that sets the pattern of our communities, which determine how their consumption is for the next 50 years. And so how do you start affecting our land use planning in a way that we're building things smart? And similarly, as we're going through our infrastructure, on locating renewable resources, we're really trying to put those in smart places, but at the same time, certainly the behavior of partner energy efficiency. Jim Sweeney has a major program here at Stanford helping us by doing research on how to affect people's behavior on the energy efficiency side. And that's a huge issue that certainly we're looking for those research to help guide what we're doing and also what the PSE is doing. So again, it's a very challenging issue. We're certainly making some advances there and we realize it's important, but it's gonna be a big challenge for years to figure out how that affects the whole fabric of our society. Right, Bob is the chair of our energy commission for those of you that don't know. Thanks, Bob, for stepping in. And I think, Mr. Mayor, one of the things, one of the answers to your question is the fact that you as a mayor asked it and are as knowledgeable about this kind of question as you are and the way you posed it. And I think that's part of how we're gonna get at this challenge of continuing to change behavior to adjust to the changing needs and the constraints that we need to put on ourselves and our institutions in the energy field. Of course, and we're not resting on our laurels in this area and as I'm sure everybody here knows and I know, I think I saw that some of my former colleagues from PG&E are here and I know it was imprinted in our brains how well California does on energy efficiency and the average Californian uses half the energy as the average American and that is pretty, pretty amazing and we're not stopping there. So we've got to step up to the challenge as you, I think, very well articulated it and I think it's great that as a mayor you ask that question. Any final questions from the audience? Or I'll ask a fun one, it's not an easy one. So, I'm gonna apologize in advance. These are not the easy, none of these are the easy questions. So as we look at the national level and the state level, but national level, as we look at the recession and the budget issues that our federal government has and then our state government, jobs is the word that keeps coming up, jobs, jobs, jobs. In California and this area in particular is a jobs machine as far as creating them. However, sometimes we get people here trying to poach our jobs and our companies and kind of as an administration, how is the administration looking at working to keep companies that start here? Well, I think a couple of things. One, this is one of those great challenges for state government and as Governor Brown says and our sort of inimitable style of being very honest, he says all the politicians that claim that they create jobs just aren't telling the truth because politicians and government leaders don't create jobs, companies create jobs and institutions create jobs. But we do have a role in the policy making and the advocacy and the removing of obstacles and the leading and I think in this sector and the whole clean energy and energy efficiency sector, we're very committed to trying to do everything we can to remove obstacles to support our companies. We want our companies to stay in California. The governor asked a man by the name of Mike Rossi to be our chief economic development jobs person. We don't use phrases like czars. We don't have any czars and we don't have chiefs of staff or czars. We have executive secretaries but Mike and again in keeping with the kind of the way that we operate, Mike is a very respected retired big company executive who is leading the charge for the governor for free and in fact I think it's costing him money but he's very thoughtful, very creative, very accessible and between Mike's work and the work of our energy policy leaders in our agencies and commissions but also in the governor's office. We probably have more advisors and thinkers on this field than probably any other area because it's so important to us. Not a lot of specifics but I'm not sure that kind of question really can lead to specifics other than to say you have to stay on it and every day, every way when problems come up or opportunities if we can open a door through a policy at an agency or through legislation we wanna jump through it and try to do that. Well thank you. One final, we're gonna go. Okay, got one last question. Oh, I thought I was. I'm sorry. At one time, California was failing to energy independent. It produced a lot of the oil used in state. It produced a lot of gas in state. That was like the 70s. Since then, it's been what's happened in California, mirrors what's happened in the United States. We're not dependent on a lot of oil from Saudi Arabia. Saudi Arabia is known as the largest sources of oil used in California. The second foreign country shedding us fuel is Texas, natural gas. It comes out for a big pipeline. What is being done in this state to encourage in-state sources of energy under the government's program? Well, I think that all of the work that we're doing on renewable energy is really focused almost exclusively on in-state energy whether it's solar down in the desert or wind generation or geothermal or the biogas projects that we're working on. It's really the focus is almost exclusively on California energy. And in fact, at the policy level, there's actually debates about whether or not there should be absolute limitations or caps on bringing in any out-of-state renewable energy. So I think that's what this whole effort is aimed at, is trying not only to promote renewable energy but to promote California renewable energy. And I reached for the talk that the governor gave because your question, the way you posed it was exactly, and I'm not gonna find the words right now, but exactly what he was talking about in terms of the need for energy independence. And again, back in 79, we're still having that discussion but I think we're making progress here in this century. Nancy, thank you so much for your time. Absolutely.