BILL ANALYSIS 1
1
SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE
CHRISTINE KEHOE, CHAIRWOMAN
SB 1036 - Perata Hearing Date:
April 24, 2007 S
As Introduced: February 23, 2007 FISCAL B
1
0
3
6
DESCRIPTION
Current law requires investor-owned utilities and other retail
sellers of electricity to increase their 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).
Current law authorizes the California Energy Commission (CEC) to
award Supplemental Energy Payments (SEP) to renewable energy
producers if their price for renewable energy exceeds the market
price for electricity, as determined by the California Public
Utilities Commission (CPUC). Once SEP funding is exhausted the
investor-owned utilities are no longer required to purchase
additional renewable energy at above market prices. Funding for
the SEP comes from an existing surcharge on electric bills which is
designated for developing new in-state renewable electricity
generation facilities.
This bill deletes the authority for the CEC to award SEPs and
refunds to customer's unspent SEP funds. This bill instead
authorizes the CPUC to allow the investor-owned utilities to
recover costs for renewable energy that are in excess of market
prices, as determined by the CPUC, with a cap on such costs equal
to the maximum SEP that would have been allowed for each
investor-owned utility.
BACKGROUND
Meeting California's 20% RPS standard has been a challenge for
California's investor-owned utilities. The utilities have attained
differing levels of RPS achievement: PG&E 12.4%, Southern
California Edison - 16.7%, SDG&E - 6.3%. But in a recent hearing
of this Committee, representatives of those utilities and the CPUC
expressed considerable optimism that they would be in compliance
with that standard on or about 2010.
In approving a 20% RPS standard there was considerable concern that
the costs could be unreasonably high because it greatly increased
the demand for renewable energy in a short period of time.
Thankfully, those concerns have not been manifested yet: So far
almost all renewable purchases have been at or below the market
price for non-renewable energy. But renewable energy prices are
expected to rise as region-wide demand grows and the most
attractive renewable energy sources get tapped. The SEP program
was the mechanism for ensuring that California's desire for
renewable energy did not cause large rate increases. Limiting the
SEP to the funds collected by the existing public goods surcharge
for new renewable energy sources meant that an additional $70
million annually would be available to subsidize renewable energy
purchases.
COMMENTS
1. Same Purpose, Same Cost Cap, Simpler Mechanism -- While
most renewable energy purchases did not require SEP funding, a
few projects did. And it is that experience which establishes
the basis for this bill. Each utility solicits bids to supply
renewable energy which are predicated on the particular energy
needs of the utility. A selected bid requiring SEP payments
is forwarded to the CEC. The CEC then independently reviews
the bid and authorizes payment if appropriate. This CEC
process has led to two concerns, according to the author. The
first is that the CEC process is seen by some as duplicative
of the work already done by the CPUC's bid review process,
though the CEC asserts that it is simply performing its
fiduciary duty to the utility customers, who have provided the
funds. The second, and more problematic, concern is that the
SEP awards are subject to annual appropriation in the budget.
This creates enough uncertainty that bankers and investors do
not consider the SEP awards to be available when they consider
whether to fund a given renewable energy project. The SEP
mechanism, then, seems not to be achieving its purpose.
The proposed solution is to take the CEC out of the process
and to build the SEP cost into electric rates. The author
believes that this removes the redundant review process and
makes the SEP funds financeable because electric rates are not
subject to annual appropriation.
The bill keeps the existing cost caps in place, entrusting the
CPUC to assure that the SEP payments don't exceed what would
have been collected in the public goods charge for new
renewable energy projects.
2. Jackpot -- The refund provided for in this bill will be
substantial. Current projections for the SEP balance are
about $300 million as of July 2007, though this amount could
decline if the CEC makes SEP awards before this bill is
enacted.
POSITIONS
Sponsor:
Author
Support:
Pacific Gas and Electric Company
Sempera Energy
Southern California Edison (with amendments)
The Utility Reform Network
Union of Concerned Scientists
Oppose:
Independent Energy Producers
Randy Chinn
SB 1036 Analysis
Hearing Date: April 24, 2007