BILL ANALYSIS SB 1036 Page 1 Date of Hearing: July 9, 2007 ASSEMBLY COMMITTEE ON NATURAL RESOURCES Loni Hancock, Chair SB 1036 (Perata) - As Introduced: February 23, 2007 SENATE VOTE : 39-0 SUBJECT : Renewable energy resources. SUMMARY : Eliminates California Energy Commission (CEC) administration of funds available for award to new renewable energy facilities in the form of supplemental energy payments (SEPs) pursuant to the Renewables Portfolio Standard (RPS). Provides for refund of accumulated CEC funds to ratepayers. Authorizes the Public Utilities Commission (PUC) to allow recovery of future above-market costs pursuant to its ratemaking authority. EXISTING LAW : 1)The RPS requires investor-owned utilities (IOUs) and certain other retail sellers to achieve a 20 percent renewable portfolio by 2010 and establishes a detailed process and standards for renewable procurement. The PUC may only authorize recovery of procurement costs at or below a specified market price, but the CEC is authorized to award SEPs to cover above-market costs if the price for renewable energy exceeds the PUC-set market price. 2)Provides over $135 million per year of ratepayer funds to the CEC to administer the Renewable Energy Program (REP). Fifty-one and one-half percent of these funds are available for award to new renewable energy facilities in the form of SEPs pursuant to the RPS. Collection of ratepayer funds for these and other purposes is authorized until 2012. To date, no SEPs have been awarded and the funds collected for this purpose since the RPS was enacted in 2003 have accumulated to the amount of approximately $370 million. THIS BILL : 1)States legislative intent to streamline the approval of above-market RPS contracts, ensure that approved contracts can be relied upon to finance new renewable facilities, and SB 1036 Page 2 continue meaningful ratepayer protections by limiting total RPS costs. 2)Repeals the new renewable energy element of the CEC's REP, reduces annual collection for the REP from $135 million to $65 million, and reallocates remaining funds between the other two elements of the REP - existing and emerging renewable energy. 3)Requires the CEC to terminate any pending new renewable awards and, by March 1, 2008, transfer to IOUs the remaining unencumbered funds in the New Renewable Resources Account, to be allocated on the basis of sales and refunded to customers within 180 days. 4)Repeals the CEC's authority to award SEPs pursuant to the RPS and repeals related SEP provisions in the RPS. 5)Requires the PUC to establish comparable above-market cost limits so that total RPS costs do not exceed what has been authorized under existing law. FISCAL EFFECT : Unknown COMMENTS : 1)Background. The SEP program was created as part of the RPS' detailed process and standards for renewable procurement so that IOUs' purchase of renewable energy at above-market prices could occur in a transparent and limited manner. The SEP program created a budget for the attainment of the 20 percent RPS goal. Under the RPS, if and when the funds set aside for SEPs are exhausted, IOUs are no longer required to buy renewable energy. In the first few years of the RPS, IOUs succeeded in buying renewable energy at or below market prices set by the PUC to reflect the prevailing cost of conventional energy. Only recently have IOUs and renewable developers signed contracts at above-market prices and applied to the CEC for SEP awards. While at least two applications are pending, the CEC has yet to approve any SEP awards. In addition to the complicated process, where two agencies must approve different aspects of the same contract, a substantive problem with the existing structure has been identified. A renewable developer relying on the full contract price to secure financing may be unable to finance that portion of the price being paid by SEPs because SEPs would be paid over the course of many years out SB 1036 Page 3 of state funds which are subject to annual appropriation in the Budget Act. As a result, lenders may not consider the source of funds adequately secure. On the other hand, lenders apparently attribute greater security to the portion of price being paid through IOU rates set by the PUC, which can be changed by the PUC, but aren't subject to appropriation. This bill attempts to address the financing problem and ease the complication of the RPS process, while refunding to ratepayers the unused funds collected during the last several years to support new renewable resources. The bill creates a "one stop shop" for above-market RPS contracts at the PUC, takes the CEC out of the equation, and leaves cost containment in the hands of the PUC. 2)Amendments recommended by Utilities and Commerce Committee. When this bill was approved by the Utilities and Commerce Committee July 2, the author and committee agreed to amendments, with adoption deferred to this committee. The amendments require the PUC to ensure each IOU allocates its share of the refund "in a manner that maximizes the economic benefit to all customer classes that funded the New Renewable Resource Account" (plus related technical amendments). These amendments replace provisions that specifically require refunds to customers within 180 days. Presumably, this would allow the funds to be used to offset new costs or otherwise compensate customers, if the PUC determines that issuing individual customer refunds is too costly. 3)Conflicts. This bill contains technical conflicts with the following bills, amending the same sections in inconsistent ways so that if both bills are signed, the later chaptered bill will negate the changes made by the earlier: SB 410 (Simitian and Perata), pending in this committee. Both bills amend Sections 25740.5 and 25742 of the Public Resources Code. SB 411 (Simitian), pending in this committee. Both bills amend Section 399.15 of the Public Utilities Code. AB 94 (Levine), pending in this committee (two-year bill). Both bills amend Section 399.15 of the Public Utilities Code. AB 809 (Blakeslee), pending in the Senate Natural Resources and Water Committee. Both bills amend Sections 399.13 and SB 1036 Page 4 399.16 of the Public Utilities Code. The author and the committee may wish to consider some combination of amendments to this bill and the others to resolve these conflicts. REGISTERED SUPPORT / OPPOSITION : Support None on file Opposition None on file Analysis Prepared by : Lawrence Lingbloom / NAT. RES. / (916) 319-2092