BILL ANALYSIS 1
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SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE
CHRISTINE KEHOE, CHAIRWOMAN
SB 411 - Simitian Hearing Date:
April 24, 2007 S
As Amended: April 18, 2007 Non-FISCAL
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DESCRIPTION
Current law requires investor-owned utilities and other retail
sellers of electricity to increase their existing purchases of
renewable energy by 1% of sales per year such that 20% of their
retail sales, as measured by usage, are procured from eligible
renewable resources by 2010. This is known as the Renewable
Portfolio Standard (RPS). If the cost of renewable electricity
exceeds specified thresholds then the purchase mandate is
waived.
Current law exempts municipal utilities from the state RPS
program and instead requires these utilities to implement and
enforce their own renewable energy purchase programs that
recognize the intent of the Legislature to encourage increasing
use of renewable energy sources.
This bill requires investor-owned utilities and energy service
providers to increase their purchases of renewable energy such
that at least 33% of retail sales are procured from renewable
energy resources by December 31, 2020.
BACKGROUND
In 2002 legislation was enacted to require investor-owned
utilities (e.g. PG&E, Southern California Edison, San Diego Gas
and Electric Company) and the private companies that compete
with the utilities to increase their annual purchases of
electricity from renewable resources by at least 1% so that 20%
of their sales would come from renewable sources by 2017. Last
year legislation was enacted to accelerate the 20% requirement
to the end of 2010 (SB 107: Simitian). The legislation did not
require renewable energy purchases irrespective of cost. If the
cost of renewable energy exceeded the cost of non-renewable
energy by more than $70 million in any one year, then the
requirement for additional renewable energy purchases was
waived. To date virtually all renewable energy purchases have
been at prices comparable to non-renewable energy.
Earlier this year the Committee heard from experts and industry
participants about California's progress at meeting the 20%
requirement. The investor-owned utilities were at very
different percentages: PG&E --12.4%, Southern California Edison
- 16.7%, SDG&E - 6.3%. All expressed confidence that they would
achieve the 20% on or about 2010 though some concern was
expressed by the California Energy Commission.
There is widespread dissatisfaction with the mechanisms used to
achieve the 20% RPS standard. The biggest concern is whether
the mechanism for subsidizing the purchase of renewable energy,
known as the Supplement Energy Payment (SEP), is working.
Legislation to fix the SEP, SB 1036 (Perata) is pending before
this Committee.
In 2005 the Governor adopted greenhouse gas emissions goals for
California. One of those goals was to increase the state's
procurement of renewable resources from 20% by 2010 to 33% by
2020. A study prepared for the California Public Utilities
Commission (CPUC) in 2005 found that it was economically and
technologically feasible to achieve the 33% RPS standard, noting
that there was a small negative ratepayer impact from 2011-2020
which was more than offset by ratepayer benefits from 2021-2030.
However, that analysis was subject to high variability because
of uncertain forecasts of volatile natural gas and renewable
energy prices.
In 2005 legislation was enacted (AB 1585: Blakeslee) which
requires the California Energy Commission (CEC) to review the
feasibility of meeting a 33% RPS standard by 2020. That bill
was contingently enacted upon approval of another bill (AB 107:
Simitian). As that bill was not approved in time the report
described in AB 1585 is no longer statutorily required. In his
signing message the Governor directed the CEC to perform the
report.
COMMENTS
1. It's Real -- There's little question that climate change
is an enormous threat to how we live our lives. Two
recently issued reports by the Intergovernmental Panel on
Climate Change, a United Nations-established organization,
make the case. The first report summarizes the scientific
basis for climate change and concludes that the "warming of
the climate system is unequivocal", and that "(m)ost of the
observed increase in globally averaged temperatures since
the mid-20th century is very likely due to the observed
increase in (human-produced) greenhouse gas
concentrations".<1> The second report, which considered
the effect of climate change, concluded that there will be
many dire effects on mankind, including increases in
disease and malnutrition, increases in flooding due to
increased rainfall and sea levels, and increased
droughts.<2> If temperature increases are modest, however,
crop productivity in mid- to high-latitudes may slightly
increase. Most recently, a report authored by a number of
retired military commanders, including a former Chief of
Staff to the United States Army, found that "projected
climate change poses a serious threat to America's national
security" and that "climate change acts as a threat
multiplier for instability in some of the most volatile
regions of the world".<3>
2. Leading the Way -- California has enacted several
groundbreaking measures all intended to reduce the
environmental impact of Californians' energy use. In
addition to a 20% RPS standard by 2010 California has also
imposed a greenhouse gas emission standard on most electric
generating facilities producing electricity for California
consumption, created a $3 billion program for subsidizing
the installation of photovoltaic systems, and established a
program for reducing greenhouse gas emissions across the
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<1> "Climate Change 2007: The Physical Science Basis; Summary
for Policymakers", Intergovernmental Panel on Climate Change,
February 2007.
<2> "Climate Change 2007: Climate Change Impacts, Adaption and
Vulnerability", Intergovernmental Panel on Climate Change, April
2007.
<3> "National Security and the Threat of Climate Change", The
CNA Corporation, April 2007 (www.securityand climate.cna.org)
state's entire economy. Each of these represent landmark
programs which have been or will be adopted in similar
fashion by other states and, perhaps, countries.
3. Unexpected Effects -- The 20% RPS standard may be having
unexpected effects on cost and our environment. Most of
California's renewable energy will come from wind
generation plants. Wind is a notoriously unpredictable
resource which is often unavailable during times of peak
demand. This unpredictability has two impacts. First,
because the electricity supply must always be sufficient to
meet the energy demand, the wind-produced electricity must
be backed up with more reliable generation sources, often
inefficient natural gas-fired turbines. This is both
expensive for customers and an unwelcome additional source
of greenhouse gas emissions. Secondly, if the wind-powered
generators are producing electricity when it is not needed,
other power sources must be turned down to prevent excess
electricity from surging through the electrical grid.
Again, this raises costs because the other generators must
be paid to curtail production. There are also reports that
in some cases other generators cannot curtail their
production, resulting in California ratepayers paying
customers in other states to take our renewable energy.
Another consequence is that most renewable power sources
are available only in remote locations. To connect those
resources to the electrical grid requires hundreds of miles
of transmission lines, which of themselves have an
environmental and economic impact. And while the original
RPS statute encouraged the construction of new in-state
renewable resources, some utilities have been searching out
of state and in other countries just to meet the 20%
standard.
Finally, an RPS standard requires more renewable energy
production. But in some ways the debate about climate
change has broadened the discussion from promoting
renewable energy to reducing greenhouse gas production.
Using more renewable energy can reduce greenhouse gasses,
but so too can more energy efficiency or demand management.
A greenhouse gas standard allows for competition between
renewable energy and energy efficiency for the least
expensive means of meeting our environmental goals.
Obviously an RPS standard does not.
4. Not so Fast -- The unintended effects of a 20% RPS
standard have been managed. But raising the standard to at
least 33% will magnify those effects. It also potentially
raises conflicts with our greenhouse gas reduction programs
and prioritizes renewable energy purchases above other,
potentially less expensive and more environmentally
friendly actions, such as energy efficiency and demand
management. The cost of meeting the 33% standard is
unknown. While current renewable procurements have been at
prices comparable to non-renewable energy that is likely to
change soon. And as demand for renewable energy climbs and
other states enact their own RPS programs; there will be
continued upward pressure on prices. It is not clear that
a 33% standard is possible within the existing cost
constraints. Moreover, there is little need to enact a 33%
requirement now. The 20% standard, which was accelerated
only, last year, won't be achieved for at least 3 years.
Rather than increase California's 20% by 2010 RPS standard
to 33% by 2020, the author and committee may wish to
instead consider examining the costs and benefits of
raising the RPS standard in light of California's
greenhouse gas emission standard. AB 1585 from last year
is a good place to start, but it should be revised to
include an explicit consideration of the AB 32
requirements. Dealing with global warming is going to be
expensive for everyone. Dealing with global warming in the
most cost-effective way possible would seem to be necessary
in order to retain the broad public support for
California's ambitious environmental programs.
5. Don't Forget Cars -- While California policy has
steadily focused on reducing greenhouse gas emissions
generated from the production of electricity, a much
greater percentage of California's greenhouse gas emissions
come from transportation activities.
6. Similar Legislation -- A similar bill, AB 94 (Levine),
was approved by the Assembly Utilities and Commerce
Committee and is pending action in the Assembly Natural
Resources Committee.
7. Double Referral -- This bill has been double referred to
the Environmental Quality Committee.
POSITIONS
Sponsor:
Author
Support:
Southern California Edison (if amended)
Union of Concerned Scientists
Oppose:
California Chamber of Commerce
Pacific Gas and Electric Company
Sempra Energy
Randy Chinn
SB 411 Analysis
Hearing Date: April 24, 2007