BILL ANALYSIS
SB 1078
Page A
Date of Hearing: August 19, 2002
ASSEMBLY COMMITTEE ON UTILITIES AND COMMERCE
Roderick D. Wright, Chair
SB 1078 (Sher) - As Amended: August 15, 2002
AS PROPOSED TO BE AMENDED
SENATE VOTE : Vote not relevant.
SUBJECT : Renewable energy: California Renewables Portfolio
Standard Program.
SUMMARY : Requires utilities to increase procurement of
electricity from renewable energy sources by at least one
percent per year. Specifically, this bill :
1)Requires a retail seller of electricity to increase its total
amount of eligible renewable resources by at least one percent
per year, until 20 percent of its retail sales are procured
from renewables, provided sufficient public goods charge
(PGC)<1> funds are available to cover any above-market costs
of renewables. This constitutes the California Renewables
Portfolio Standard, or RPS.
2)Defines a retail seller to include community choice
aggregators, investor-owned utilities (IOUs), and, once
specified conditions<2> are met, electric service providers
(ESPs).
3)Specifies that if an IOU fails to procure enough renewables in
---------------------------
<1> Existing law requires electric utilities to identify and
collect a separate rate component to fund energy efficiency,
public interest renewable energy research, and related "public
goods" programs.
<2> An ESP is considered a retail seller, and subject to RPS for
sales to any customer acquiring service after January 1, 2003,
and for sales to all its customers beginning on January 1, 2005.
Before an ESP is considered a retail seller, PUC must institute
a rulemaking to determine the manner in which ESPs will
participate in RPS program. In addition, this bill expressly
declares that contracts entered into between an ESP and a retail
customer prior to the suspension of direct access by PUC shall
not be impaired.
SB 1078
Page B
a given year, it would be required make up the shortfall in
subsequent years.
4)Directs the California Public Utilities Commission (PUC) to
order IOUs to enter into contracts for renewable energy
resource generators with at least 10 years, unless PUC
approves shorter terms.
5)Requires PUC to establish a process for determining the market
price of electricity from renewable generators; for rank
ordering and selection of renewables to fulfill program
obligations; and for standard terms and conditions to be used
by IOUs in contracting with renewables contractors.
6)Requires PUC to review the results of a renewable energy
resources solicitation submitted for approval by an IOU. If
PUC determines that bid prices are elevated due to a lack of
effective competition among bidders, PUC shall require that
the contracts be renegotiated.
7)Considers renewable energy purchases by IOUs made pursuant to
a RPS procurement plan reasonable per se, and therefore
recoverable in rates charged to retail customers.
8)Requires each governing body, of a local publicly owned
electric utility, to implement and enforce an RPS that takes
into consideration the impact on rates, reliability, the goal
of environmental improvement, and the impact on financial
resources. The governing board would annually report to its
customers concerning , RPS program.
9)Among other things, directs the California Energy Commission
(CEC) to certify the renewable energy resources that are
eligible to participate in , RPS, to develop an accounting
system to verify RPS compliance, and to award supplemental
energy payments to eligible renewable energy resources to
cover above-market costs of renewable energy.
10)Provides that failure by an IOU to comply with a PUC order
adopting a renewable procurement plan is punishable as
contempt, and that PUC shall exercise this authority to
require compliance.
11)Specifies that an application by an IOU to allow construction
of new transmission facilities that are necessary in
SB 1078
Page C
connection with renewables shall be deemed necessary by PUC in
determining whether to issue a certificate of public
convenience and necessity.
12)Specifies that an eligible renewable energy resource that
receives PGC funds shall comply with prevailing wage laws.
EXISTING LAW directs PUC to require utilities to reserve or set
aside a specific portion of future generating capacity for
renewable resources.
FISCAL EFFECT : Unknown.
COMMENTS :
Renewables Portfolio Standard
The RPS in this bill is consistent with that contained in
Assembly Bill 57 (Wright).<3> It directs retail sellers, in
order to fulfill unmet resource needs, to increase renewables
purchases by at least an additional one (1) percent annually,
until a 20 percent renewable resources portfolio is achieved,
provided sufficient PGC funds are available to cover
above-market costs. PUC has already incorporated this RPS into
its procurement rulemaking now underway. [R.01-10-024]
Who participates
The RPS is imposed primarily on IOUs.
This bill specifies that PUC shall, through rulemaking,
determine how RPS should apply to ESP's. Apparently implying
that ESP's, who cannot enter into new contracts with retail
---------------------------
<3> AB 57, an urgency bill, passed the Legislature July 3, 2002.
It appropriates money, and could remain in Engrossing &
Enrollment until the budget bill has been enacted. [see Cal.
Const. Art. 4, 12 (c)]
SB 1078
Page D
customers, until direct access resumes,<4> will not be required
to participate in RPS program until PUC allows direct access and
completes an RPS compliance rulemaking. Because it is unclear
when PUC will allow direct access to resume,<5> the author or
the Committee may wish to clarify in this bill that the
obligation of ESPs to participate in RPS is contingent not only
on completion of RPS rulemaking for ESPs, but also upon
resumption of direct access.
This bill requires local publicly owned electric utilities<6> to
implement and enforce a renewables portfolio standard that
"recognizes the intent of the Legislature to encourage renewable
resources, while taking into consideration the impact on rates,
reliability, the goal of environmental improvement, and the
impact on financial resources." Additionally, the local utility
must annually report to its customers concerning expenditures of
PGC funds for renewable energy resource development, and the
resource mix used to serve its customers by fuel type.
Critics contend that this bill contains a superficial RPS for
---------------------------
<4> Water Code 80110, enacted by AB X1 1 (Keeley) [Chapter 4,
Statutes of 2001] provides in part that, "[a]fter the passage of
such period of time . . . as shall be determined by the [PUC],
the right of retail end use customers . . . to acquire service
from [ESP's] shall be suspended until [DWR] no longer supplies
power. (DWR has the same rights to payment for power by retail
customers they sell as do providers of power to those
customers.)
<5> DWR's authority to purchase spot market power expires
December 31, 2002, but it has entered into several long-term
bilateral contracts for power, some of which continue for many
years. It has not been conclusively determined if (1) all of
these contracts are assignable by DWR to IOUs as they resume the
obligation to serve customers, or (2) if such assignment means
in each case that DWR no longer "supplies power" within the
meaning of AB X1 1 (Keeley) -- which is necessary prior to
resumption of direct access transactions between ESPs and retail
customers.
<6> Local publicly owned electric utilities include any of the
following entities that furnish electric services: a city
operating as a public utility, a municipal utility district, a
public utility district, an irrigation district, or a joint
powers authority that includes one or more of these agencies,
and that owns generation or transmission facilities, or
furnishes electric services over its own or its member's
electric distribution system.
SB 1078
Page E
local utilities, compared to that which would apply to IOUs and
community choice aggregators, thus creating an unfair incentive
for local government to form a municipal utility and thereby
avoid not only RPS, but also many other costs, fees and
obligations applicable to utilities generally.
Market price
In 1978, Congress passed PURPA<7> to encourage development of
cogeneration and small power production facilities. Under
PURPA, utilities "must buy" power from qualifying facilities<8>
(QFs) at a rate equal to the utility's full avoided cost, which
is the equivalent of the incremental cost of alternative
electric energy.<9>
The cost of renewable energy from QFs and other generators has
historically been higher than energy generated by traditional
power facilities. In some cases, the market price for renewable
energy is greater than twice the price of power from traditional
fuels. But research advances have helped reduce the cost of
wind energy -- the cost of wind energy dropped by more than 70%
during the last 20 years.
PUC is directed, in this bill, to establish a market price of
electricity for terms corresponding to the length of contracts
with renewable generators. If the actual contract price of
renewable energy with the utility exceeds the market price, PGC
payments would flow to the renewable energy generator to cover
the above-market costs.
---------------------------
<7> Public Utility Regulatory Policies Act of 1978, 16 U.S.C. et
seq .
<8> A qualifying facility can either be a cogeneration facility
or a small power production facility using renewable energy
technologies. To qualify as a QF, a facility must meet various
federal regulatory requirements and must be owned by an entity
not primarily engaged in the generation or sale of electric
power. 16 U.S.C. 796 (18)(B)
<9> Avoided costs are costs of electricity to the utility that
the utility would generate or purchase from another source if
not for having purchased it from a QF. [See 16 U.S.C.
824a-3(b); Cal. Pub. Util. Code 390]
SB 1078
Page F
This bill directs PUC, in determining the market price (of
non-renewable energy), to take into account the long-term market
price of electricity for fixed price contracts. This is
determined pursuant to the IOU's general procurement activities,
and the long-term ownership, operating, and fixed-price fuel
costs associated with fixed-price electricity from new
generating facilities.
SB 1078 requires that the renewable energy procurement plan to
be adopted by PUC be part of a general procurement plan process,
to the extent feasible. That process specifies that IOUs may
request bids for procurement-related services, yet this bill
nevertheless directs PUC to determine the market price (of
non-renewable energy) after the closing date of a competitive
solicitation conducted by an IOU for eligible renewable energy
resources. The reference in this bill to a competitive bid thus
implies that an IOU is required to separate the renewable
contract negotiations from its general procurement process,
which departs from the requirement of this bill to do all of
this in one process. The author or the Committee may wish to
clarify this by elimination of the reference to a competitive
solicitation in this bill.<10>
REGISTERED SUPPORT / OPPOSITION :
Support
Caithness Energy
California State Association of Counties (unless amended)
California Wind Energy Association
California Public Interest Research Group
Clean Power Campaign
Coalition for Clean Air
East Bay Municipal Utility District (if amended)
Geothermal Energy Association (unless amended)
Geothermal Resources Council (unless amended)
League of California Cities (unless amended)
Natural Resources Defense Council
Sierra Club California
---------------------------
<10> This would also obviate the need to retain language in this
bill that prohibits prohibiting IOUs from transmitting or
sharing the results of any competitive solicitation for eligible
renewable energy resources until PUC has established a market
price.
SB 1078
Page G
Solid Waste Association of North America, California Chapters
(unless amended)
Opposition
Brightstar Environmental
California Municipal Utilities Association
California State Pipe Trades Council
California State Association of Electrical Workers
California State Building & Construction Trades Council
Coalition of Utility Employees
Los Angeles County Solid Waste Management Committee
PG&E
Sempra Energy (unless amended)
Silicon Valley Power
Southern California Edison (unless amended)
Western States Council of Sheet Metal Workers
Analysis Prepared by : Paul Donahue / U. & C. / (916) 319-2083