BILL ANALYSIS
SB 1036
Page A
Date of Hearing: July 2, 2007
ASSEMBLY COMMITTEE ON UTILITIES AND COMMERCE
Lloyd E. Levine, Chair
SB 1036 (Perata) - As Introduced: February 23, 2007
SENATE VOTE : 39-0
SUBJECT : Energy: renewable energy resource.
SUMMARY : Deletes the authority for the California Energy
Commission (CEC) to award Supplemental Energy Payments (SEPs)
for the above-market cost of renewable power and instead
authorizes the PUC to allow the investor-owned utilities (IOUs)
to pay renewable developers for above-market costs as approved
by the PUC with a cap on the total amount of above-market costs
an IOU must pay set at a level equal to the maximum SEP payments
that would have been allowed for each investor-owned utility.
EXISTING LAW :
1)Requires retail sellers of electricity, except municipal
utilities, 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
2010.
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.
3)Allows the CEC to award SEPs to generators of eligible
renewable resources to cover above-market costs of renewable
energy. Once SEP funding is exhausted, they are no longer
required to purchase additional renewable energy at
above-market prices. Funding for the SEPs comes from an
existing surcharge on electric bills which is designated for
developing new in-state renewable electricity generation
facilities.
SB 1036
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THIS BILL :
1)Deletes provisions allowing the CEC to award 51.1% (currently
$64,500,000 per year) of Public Goods Charge Funds (PGCs)
deposited in the New Renewable Resources Account to fund SEPs
for the above-market costs of renewable generators who bid
into a retail seller of electricity's RPS solicitations.
2)Requires the CEC to transfer all funds currently in the New
Renewable Resources Account that could have been allocated as
SEPs back to the retail sellers of electricity, and requires
the retail sellers to refund those funds to its ratepayers.
3)Eliminates the authority of the PUC to collect $64,500,000
annually from IOU ratepayers to fund renewable resource
projects. This is the amount of funds that were allocated to
fund SEPs.
4)Provides that the PUC shall establish a cap on the total
amount of money each IOU ratepayers could be required to pay
for above market-costs of renewable electricity. The cap will
be equal to the amount of funds each IOU would have
transferred to the CEC to fund SEPs out of the New Renewable
Resources Account. (Roughly $600 million through 2012)
5)Provides that the if above-market costs of an IOU's renewable
solicitations to meet its RPS obligations exceeds the cost
caps, the IOU shall be allowed to limit its renewable
procurement to the amount of renewable electricity that can
be purchased at or below the cost cap.
FISCAL EFFECT : Unknown.
COMMENTS :
1) Brief history : Under California's 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, 2010. The PUC is required to
adopt comparable requirements for direct access providers
(Electricity Service Providers or ESPs) and community choice
aggregators. Municipal utilities 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.
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To ensure that IOU ratepayers are not saddled with unlimited
above-market costs, the RPS requires the PUC to determine the
market price for electricity (known as the Market Price Referent
or MPR) and then provides that the IOU are only required to pay
the renewable generators the contract costs that do not exceed
the MPR. The RPS also allows new renewable energy providers to
apply to the CEC for SEPs to cover any costs above the MPR. The
RPS requires IOUs, and certain other retail energy providers, to
buy renewable electricity only to the extent 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.
Since 2004, the IOUs have issued three Requests for Proposals
(RFPs) for renewable energy contracts that would comply with the
RPS and potentially be eligible to receive SEPs. These RFPs
have resulted in the IOUs signing a number of contracts for
renewable power. To date all but one approved contract has been
for prices below the MPR and thus no SEPs have been issued.
However, reports from parties involved in the current renewable
procurement process indicate that a significant amount of SEPs
will be needed for contracts that will be approved this year and
next.
2) The problem with SEPs : In the first few years after the RPS
was implemented, the IOUs signed no contracts for renewable
electricity that exceeded the MPR. Consequently, no request for
SEPs were made and the system of awarding SEPs was not tested.
However, starting last year, renewable developers began to
express concerns that the mechanism for funding above market
costs was making it impossible for them to get project
financing.
The first part of the problem is the fact that the current SEP
system requires reasonableness reviews of all contracts by two
separate agencies. The contracts must first be approved as
reasonable by the PUC, then if the developer wants to apply for
SEPs the CEC can review the reasonableness of the contact a
second time, and may deny SEPs even if the PUC determined the
contract was reasonable.
The second problem is that since the funds for above-market
costs are held in a state account for which the Legislature has
the authority to change the expenditure requirements at any
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time, financial institutions do not view that funding source as
reliable enough to issue low-cost loans against. Thus projects
that could exceed the MPR may not be able to get the financing
they need.
This bill attempts to resolve these problems by eliminating the
SEP provisions entirely. The bill then provides that the IOU
will pay the entire costs of renewable contracts that are deemed
reasonable, including the above market costs. The PUC would use
current practices it has in place to review renewable contracts
for reasonableness, and to make sure the specific contracts are
written so they are the least costs and best fit for the IOU's
needs.
3) Keeping costs in check : This bill maintains another goal of
the RPS, which was to ensure that the RPS was not a renewable
energy at all costs program. The SEPs provision in current law
that provide that retail electivity sellers are not required to
procure renewable electricity above the MPR if there are no
funds available for SEPs acts as a de facto cost cap since there
is a limited amount of funding allocated to the SEPs accounts.
This bill leaves that same cost cap in place by imposing a
direct cost cap on renewable procurement that equals the amount
of funds the IOUs would have been obligated to collect for SEPs.
4) Refund to Ratepayers: 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. The refund provided for in this bill will be a
significant amount of money in terms of total dollars; however,
if the money were actually refunded directly to each IOU
customer, once the administrative costs of issuing a direct
refund are subtracted, each customer refund would be minor.
Alternative, the funds could be held in a balancing account with
each utility and be used to offset future IOU ratepayer costs.
The committee may wish to consider amending the bill to provide
that the PUC shall determine the appropriate mechanism that
ensures ratepayers receive the maximum direct economic benefit
of the $300 million.
RELATED LEGISLATION: AB 94 (Levine) and SB 411 (Simitian) both
advance the RPS to a 33% renewable electricity goal by 2020. AB
94 was approved by this committee on April 9, 2007, on a 9-3
vote but was held in Assembly Natural Resources after the author
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and the committee agreed that the committees should hold more
thorough discussions on the feasibility of a 33% RPS target
during the interim recess. SB 411 is pending in this committee.
REGISTERED SUPPORT / OPPOSITION :
Support
American Federation of State, County and Municipal Employees
(AFSCME)
Sempra Energy
Union of Concerned Scientist
Opposition
None on file.
Analysis Prepared by : Edward Randolph / U. & C. / (916)
319-2083