BILL ANALYSIS                                                                                                                                                                                                    



                                                                       



           ------------------------------------------------------------ 
          |SENATE RULES COMMITTEE            |                   SB 107|
          |Office of Senate Floor Analyses   |                         |
          |1020 N Street, Suite 524          |                         |
          |(916) 445-6614         Fax: (916) |                         |
          |327-4478                          |                         |
           ------------------------------------------------------------ 
           
                                         
                              UNFINISHED BUSINESS


          Bill No:  SB 107
          Author:   Simitian (D) & Perata (D), et al
          Amended:  8/29/06
          Vote:     21

           
           SEN. ENERGY, UTIL. & COMMUNICATIONS  COMM.  :  7-3, 4/26/05
          AYES:  Escutia, Alarcon, Bowen, Dunn, Kehoe, Murray,  
            Simitian
          NOES:  Morrow, Battin, Cox
          NO VOTE RECORDED:  Campbell

           SENATE APPROPRIATIONS COMMITTEE  :  8-5, 5/26/05
          AYES:  Migden, Alarcon, Alquist, Escutia, Florez, Murray,  
            Ortiz, Romero
          NOES:  Aanestad, Ashburn, Battin, Dutton, Poochigian

           SENATE FLOOR  :  25-14, 5/31/05
          AYES:  Alarcon, Alquist, Ashburn, Bowen, Cedillo, Chesbro,  
            Ducheny, Dunn, Escutia, Figueroa, Florez, Kehoe, Kuehl,  
            Lowenthal, Migden, Murray, Ortiz, Perata, Romero, Scott,  
            Simitian, Soto, Speier, Torlakson, Vincent
          NOES:  Aanestad, Ackerman, Battin, Campbell, Cox, Denham,  
            Dutton, Hollingsworth, Maldonado, Margett, McClintock,  
            Morrow, Poochigian, Runner
          NO VOTE RECORDED:  Machado

           ASSEMBLY FLOOR  :  51-28, 8/31/06 - See last page for vote


           SUBJECT  :    Renewable energy

           SOURCE  :     Author
                                                           CONTINUED





                                                                SB 107
                                                                Page  
          2



           DIGEST  :    This bill accelerates the Renewables Portfolio  
          Standard (RPS) requirement from 2017 to 2010.  The RPS is a  
          program that requires investor-owned utilities to, among  
          other things, achieve a 20 percent renewable electricity  
          portfolio.  The bill also makes other several other  
          changes.

           Assembly Amendments  make further changes to the RPS program  
          and add provisions relating to the Public Interest Energy  
          Research, Demonstration and Development Program.

           ANALYSIS  :    

          Existing law: 

          1. Requires retail sellers of electricity, except local  
             publicly owned electric utilities (munis), to increase  
             their existing level of renewable resources by one  
             percent of sales per year such that 20 percent of their  
             retail sales are procured from eligible renewable  
             resources by 2017.  

          2. 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. 

          3. Allows the California Energy Commission (CEC) to award  
             SEPs to generators of eligible renewable resources to  
             cover above market costs of renewable energy, but  
             Supplemental Energy Payments (SEPs) may not be paid to  
             one project for more than 10 years. 

          This bill accelerates RPS to require retail sellers of  
          electricity to procure at least 20 percent 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.   
          Specifically, this bill: 

           1.Requires all retail sellers of electricity except local  







                                                                SB 107
                                                                Page  
          3

             publicly owned electric utilities (munis) to procure at  
             least 20 percent of their sold electricity from eligible  
             renewable resources by 2010 instead of 2017.

           2.Requires the PUC's flexible rules for compliance with  
             the RPS to:

             A.    Apply to all years before and after a retail  
                seller procures at least 20 percent of total retail  
                sales of electricity from eligible renewable  
                resources.

             B.    Address situations where, as a result of  
                insufficient transmission, a retail seller is unable  
                to procure eligible renewable energy resources  
                sufficient to satisfy their RPS obligations. In this  
                regard, the PUC is required to make a finding that  
                the retail seller made all reasonable efforts to  
                ensure sufficient transmission, including, for an  
                investor-owned utility (IOU), constructing  
                transmission facilities.

           3.Declares that the PUC's flexible rules for compliance  
             with the RPS do not revise existing statutory  
             requirements that the PUC's approval of an IOU's  
             procurement plan eliminate the need for after-the-fact  
             reasonableness review of an IOU's actions in compliance  
             with the procurement plan.

           4.Changes the definition of "eligible renewable resource"  
             to allow renewable power that is produced outside of  
             California from a facility that commences operation  
             after January 1, 2005, 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.

           5.Requires each municipal utility to annually prepare a  
             report to the California Energy Commission (CEC) on the  
             mix of eligible renewable resources used in their  
             portfolio and on progress toward meeting their RPS.

           6.Defines Renewable Energy Credit (REC) to mean a  
             certificate that one unit of electricity was generated  







                                                                SB 107
                                                                Page  
          4

             by an eligible renewable energy resource and includes  
             all renewable and environmental attributes associated  
             with the production of electricity, except for emission  
             reduction credits.

           7.Requires the CEC to develop a system to certify, track  
             and verify RECs produced by renewable energy resources.

           8.Allows the PUC to authorize the use of RECs to meet the  
             RPS requirements.

           9.Allows the PUC to authorize a procurement entity to  
             enter into contracts for renewable energy on behalf of a  
             retail seller.

          10.Requires the PUC, by June 30, 2007 and in consultation  
             with the CEC, to report on the impact of allowing  
             Supplemental Energy Payments (SEPs) to be applied to  
             renewable energy procurement contracts of less than 10  
             years.

          11.Limits SEPs paid to facilities outside California to 10  
             percent of funds available.

          12.Makes numerous other clarification and changes regarding  
             SEPs, RECs, and compliance with the RPS standard.

          13.Incorporates technical and clarifying changes to the  
             provisions of SB 1250 (Perata), which authorizes the  
             continued expenditure of monies collected pursuant to  
             current law for the Public Interest Energy Research  
             (PIER) program and the Renewable Research Development  
             and Demonstration (Renewable RD&D) program and provides  
             policy directions for these programs.

          14.Requires the PUC, by January 1, 2008, to report on the  
             feasibility of performance-based incentives for solar  
             energy systems of less than 30 kilowatts.

           Comments

           The purpose of this bill is to accelerate the state's  
          existing RPS requirements so that 20 percent of retail  
          sales of electricity in California come from renewable  







                                                               SB 107
                                                                Page  
          5

          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 creates California's RPS.   
          Under RPS, all retail sellers of electricity are required  
          to increase their renewable procurement each year by at  
          least one percent of total sales, so that 20 percent of  
          their sales are from renewable energy sources by December  
          31, 2017.  Once a 20 percent portfolio is achieved, no  
          further increase is required.  Munis are not required to  
          meet the same RPS, but instead must implement and enforce  
          their own RPS program that recognizes the intent of the  
          Legislature to encourage renewable resources. 

          RPS also allows new renewable energy providers to apply to  
          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.  RPS requires investor owned  
          utilities (IOUs), and certain other retail energy  
          providers, to buy renewable electricity to the extent  
          Public Goods Charges (PGC) funds 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 "Energy Action Plan" adopted by PUC, CEC and the Power  
          Authority  pledges that the agencies will accelerate RPS  
          implementation to meet the 20 percent goal by 2010, instead  
          of 2017.  The Governor has also endorsed "20% by 2010" and  
          proposed an additional goal of 33 percent by 2020.  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 percent by 2010 goal.  
           Pacific Gas & Electric's current baseline of renewable  
          power is at 13 percent, while Southern California Edison  
          already has 18 percent of eligible renewable power in its  
          portfolio.  San Diego Gas & Electric (SDG&E) currently only  
          receives 5.5 percent of its electricity from renewable  
          resources. 

          Complying with the new standard:  Currently, provisions in  
          the RPS statute may prevent some retail sellers from  







                                                                SB 107
                                                                Page  
          6

          meeting any mandate to procure 20 percent 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  
          SEPs 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, SEPs 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 maintains the RPS's objective of reducing  
          consumption of fossil fuels within California, but allows  
          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 will merely arrange to swap other  
          electricity.  This type of swapping had been a common  
          practice in the past. 

           FISCAL EFFECT  :    Appropriation:  No   Fiscal Com.:  Yes    
          Local:  Yes

          The PUC indicates an ongoing need for six positions at a  
          cost of $660,000 for increased compliance workload related  
          to the accelerated RPS, the procurement entity, the SEPs,  
          and to implement the REC program [Public Utilities  
          Reimbursement Account]. 

          The CEC believes it will incur additional one-time costs of  
          around $250,000 to modify its planned system for tracking  
          and verifying RECs to verify the delivery of electricity  
          and ongoing costs of around $150,000 to ensure that  
          out-of-state suppliers of renewable energy qualifying  
          toward the RPS comply with California environmental quality  
          standards. [Energy Resources Programs Account]

           SUPPORT  :   (Verified  5/26/05) (Unable to reverify)







                                                                SB 107
                                                                Page  
          7


          Clean Power Campaign
          East Bay Municipal Utility District
          Independent Energy Producers
          Sierra Club California
          The Utility Reform Network
          Union of Concerned Scientists

           OPPOSITION  :    (Verified  5/26/05) (Unable to reverify)

          California Council for Environmental and Economic Balance
          Calpine
          Constellation New Energy
          Pacific Gas and Electric Company
          Sempra Energy
          Southern California Edison


           ASSEMBLY FLOOR  : 
          AYES:  Arambula, Baca, Bass, Berg, Bermudez, Blakeslee,  
            Calderon, Canciamilla, Chan, Chavez, Chu, Cohn, Coto, De  
            La Torre, Dymally, Evans, Frommer, Goldberg, Hancock,  
            Jerome Horton, Shirley Horton, Jones, Karnette, Klehs,  
            Koretz, Laird, Leno, Levine, Lieber, Lieu, Liu, Matthews,  
            Montanez, Mullin, Nation, Nava, Negrete McLeod, Oropeza,  
            Parra, Pavley, Richman, Ridley-Thomas, Ruskin, Saldana,  
            Salinas, Torrico, Umberg, Vargas, Wolk, Yee, Nunez
          NOES:  Aghazarian, Benoit, Bogh, Cogdill, Daucher, DeVore,  
            Emmerson, Garcia, Haynes, Houston, Huff, Keene, La Malfa,  
            La Suer, Leslie, Maze, McCarthy, Mountjoy, Nakanishi,  
            Niello, Plescia, Sharon Runner, Spitzer, Strickland,  
            Tran, Villines, Walters, Wyland
          NO VOTE RECORDED: Vacancy


          NC:cm  9/8/06   Senate Floor Analyses 

                         SUPPORT/OPPOSITION:  SEE ABOVE

                                ****  END  ****