BILL ANALYSIS SB 107 Page A Date of Hearing: July 6, 2005 ASSEMBLY COMMITTEE ON NATURAL RESOURCES Loni Hancock, Chair SB 107 (Simitian) - As Amended: June 21, 2005 SENATE VOTE : 25-14 SUBJECT : Renewable energy. SUMMARY : Accelerates California Renewables Portfolio Standard (RPS) to require retail sellers of electricity to procure at least 20% of their retail sales from renewable power by 2010 instead of 2017. Clarifies existing rules to allow renewable power to count toward a retail seller's RPS even if the associated electricity is not delivered to the retail seller. EXISTING LAW : 1)Requires retail sellers of electricity, except munis, to increase their existing level of renewable resources by 1% of sales per year such that 20% of their retail sales are procured from eligible renewable resources by 2017. 2)Defines eligible renewable resources to include all generation from a renewable electricity generation facility that uses biomass, solar thermal, photovoltaic, wind, geothermal, fuel cells using renewable fuels, small hydroelectric generation of 30 megawatts or less, digester gas, municipal solid waste conversion, landfill gas, ocean wave, ocean thermal, or tidal current, and any additions or enhancements to the facility using that technology. Requires the renewable resource to be located in California or be directly connected with the California transmission system. 3)Exempts munis from the statutory requirements of RPS and instead requires munis to implement and enforce their own RPS program that recognizes the intent of the Legislature to encourage renewable resources. 4)Allows the California Energy Commission (CEC) to award Supplemental Energy Payments (SEPs) to generators of eligible SB 107 Page B renewable resources to cover above market costs of renewable energy, but SEPs may not be paid to one project for more than 10 years. THIS BILL : 1)Requires that all retail sellers of electricity, excluding local publicly owned electric utilities (munis), to procure at least 20% of the total electricity sold from eligible renewable resources by 2010. 2)Requires the CEC to review the feasibility of increasing the 20% renewable resources target to 33% by 2020 and to make recommendations on how to induce municipal utilities to comply with the RPS requirements. 3)Changes the definition of eligible renewable resource to allow renewable power that is produced outside of California to count toward a retail seller's RPS if the associated electricity is delivered to an in-state location, and it complies with California environmental quality standards. 4)Allows eligible renewable generation facilities located outside of California to receive SEPs. 5)Allows renewable energy projects to receive SEPs for the above market cost of the renewable electricity for the value of the life of the contract instead of just for the first 10 years of the contract. 6)Allows an Investor Owned Utility (IOU) to receive supplemental energy payments for renewable generation facilities which it owns. 7)Requires munis to annually prepare a report to the CEC on the mix of eligible renewable resources used in their portfolio and on their progress toward meeting the muni's RPS. SB 107 Page C 8)Defines Renewable Energy Credit (REC) to mean a certificate that one unit of electricity was generated by an eligible renewable energy resource and includes all renewable and environmental attributes associated with the production of electricity, except for emission reduction credits. 9)Provides that RECs that are unbundled from the electricity cannot be used to satisfy the RPS requirements. 10)Requires the CEC to develop a system to certify, track and verify RECs produced by renewable energy resources. 11)Specifies that a renewable energy project selected by an Energy Service Provider (ESP) may only receive SEPs only if the ESP selects the project through a "least-costs best-fit process" and the SEPs are reasonable in comparison to other projects. 12)Provides that renewable power generated under terms of a contract executed before January 1, 2002, shall count toward a retail seller's RPS obligations. 13)Provides renewable power generated under terms of contracts awarded to Qualifying Facilities (QFs) under the Public Utility Regulatory Policies Act (PURPA) of 1978, shall count toward a retail seller's RPS obligations. 14)Provides that the goal to increase California's renewable energy production so that 20 % of all retail sales of electricity come from renewable resources by 2010, is subject to rules of flexible compliance that would allow a retail seller to shift their procurement requirements forward three years. 15)Allows electric corporations with fewer than 60,000 customers in California that also services customers in other states, to meet the RPS under different rules than other retail sellers. SB 107 Page D 16)Provides that the cost of a new transmission facility that is built to deliver electricity from areas with high concentrations of renewable power shall be paid for by all electricity customers in California. 17)Requires all long term procurement plans entered into by an electrical corporation or a muni to adopt a strategy to achieve efficiency in the use of fossil fuel and to address carbon emissions. FISCAL EFFECT : Unknown. COMMENTS : 1)Background According to the author's office, the purpose of this bill is to accelerate the state's existing RPS requirements so that 20% of retail sales of electricity in California come from renewable resources by the year 2010 and to address issues that may make compliance with the RPS difficult. In 2002, the Legislature approved SB 1078 (Sher), Chapter 516, Statutes of 2002, which created California's RPS. Under the RPS, the IOUs are required to increase their renewable procurement each year by at least 1% of total sales, so that 20% of their sales are from renewable energy sources by December 31, 2017. Once a 20% portfolio is achieved, no further increase is required. The PUC is required to adopt comparable requirements for direct access providers and community choice aggregators. Munis are not required to meet the same RPS as the IOUs, but instead must implement and enforce their own RPS program that recognizes the intent of the Legislature to encourage renewable resources. The RPS also allows new renewable energy providers to apply to the CEC for SEPs. SEPs will be awarded to renewable energy providers to cover the difference between the prices they bid in a competitive solicitation and a market price established by the PUC. The RPS requires IOUs, and certain other retail energy providers, to buy renewable electricity to the extent Public SB 107 Page E Goods Charges (PGC) funds<1> are available to pay for SEPs. If no PGC funds are available, the retail energy providers are not required to purchase additional renewable power. The RPS requires the PUC to adopt a rulemaking within six months of its enactment (January 2003), to implement the RPS and to determine market prices from which SEPs can be determined. On June 9, 2004, the PUC approved two decisions that established standard market terms for renewable contracts and a method for calculating market prices for renewable resources. Since then, the IOUs have issued Requests for Proposals for renewable energy contracts that would comply with the RPS and potentially be eligible to receive SEPs. The PUC has also approved a number of renewable contracts through an ad hoc process. These contracts have resulted in the IOUs agreeing to purchase renewable power that will count toward their RPS obligations but that will not be eligible to receive SEPs. 2)Accelerated RPS Compliance The "Energy Action Plan"(EAP) adopted by the PUC, the CEC and the Power Authority (PA) pledges that the agencies will accelerate RPS implementation to meet the 20% goal by 2010, instead of 2017. The Governor has also endorsed "20% by 2010" and proposed an additional goal of 33% by 2020. The PUC believes this accelerated goal can be mandated without additional legislation. Currently, two of the three major IOUs appear to be able to meet the 20% by 2010 goal. Pacific Gas & Electric's (PG&E) current baseline of renewable power is at 13%, while Southern California Edison (SCE) already has 18% of eligible renewable power in its portfolio. San Diego Gas & Electric (SDG&E) currently only receives 5.5% of its electricity from renewable resources. --------------------------- <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. SB 107 Page F 3)Making 20% an Achievable Goal Currently, provisions in the RPS statute may prevent some retail sellers from meeting any mandate to procure 20% of their electricity from renewable resources by 2010. Transmission constraints will limit SDG&E's ability to buy new renewable electricity and have that electricity delivered to its service territory. The current RPS statute requires that ESPs procure their renewable resources through contracts that are at least 10 years in length, but because of the long term uncertainty of direct access markets in California, ESPs may not be able to sign enforceable contracts of that length. This bill attempts to address the problems with transmission constraints by clarifying that electricity from eligible renewable resources does not have to be delivered to the service territory of the retail seller and instead only requires that the electricity be provided to the retail seller at a location within California. This provision would maintain the RPS's objective of reducing consumption of fossil fuels within California, but would allow for more flexibility in the delivery of electricity. If the renewable electricity were actually provided to the retail seller in another IOU's service territory, the retail seller and the IOU would merely arrange to swap other electricity. This type of swapping had been a common practice in the past. The PUC has recently issued a draft decision that would, if approved, allow for renewable power that is delivered anywhere in the state to count toward an IOU's RPS obligations. 4)Related Legislation AB 1362 (Levine), which was approved by this committee earlier this year, mandates the acceleration of the RPS to 20% by 2010. AB 1585 (Blakeslee), which passed this committee earlier this year, requires the CEC to study the feasibility of attaining a 33% RPS standard. Both these bills passed the Senate Energy, Utilities and Communications Committee on June 30, 2005. Both bills were amended in committee to make their enactment contingent on the enactment of SB 107. SB 107 Page G SB 1478 (Sher) from the 2003-2004 session contained the provision in this bill to accelerate the RPS targets to 20% by 2010, but also contained provisions allowing RECs to be eligible for RPS compliance. REGISTERED SUPPORT / OPPOSITION : Support California Public Utilities Commission (CPUC) (Support in concept) Clean Power Campaign East Bay Municipal Utility District (EBMUD) Independent Energy Produces (support if amended) Sierra Club California Union of Concerned Scientists Opposition Sempra Energy (Oppose unless amended) Southern California Edison (SCE) (Oppose unless amended) Calpine (Oppose unless amended) Pacific Gas and Electric (PG&E) (Oppose unless amended) Analysis Prepared by : Kyra Emanuels Ross / NAT. RES. / (916) 319-2092