BILL ANALYSIS
SB 1036
Page 1
SENATE THIRD READING
SB 1036 (Perata)
As Amended July 12, 2007
2/3 vote
SENATE VOTE :22-13
UTILITIES & COMMERCE 7-3 NATURAL
RESOURCES 6-3
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|Ayes:|Levine, Bass, Davis, |Ayes:|Hancock, Brownley, Fuentes, |
| |Dymally, Huffman, Jones, | |Laird, Saldana, Wolk |
| |Krekorian | | |
| | | | |
|-----+--------------------------+-----+-----------------------------------------------|
|Nays:|Keene, Smyth, Tran |Nays:|Fuller, Aghazarian, Keene |
| | | | |
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APPROPRIATIONS 12-5
--------------------------------
|Ayes:|Leno, Caballero, Davis, |
| |DeSaulnier, Huffman, |
| |Karnette, Krekorian, Lieu |
| |Ma, Nava, Solorio, De |
| |Leon |
| | |
|-----+--------------------------|
|Nays:|Walters, Emmerson, La |
| |Malfa, Nakanishi, Sharon |
| |Runner |
| | |
--------------------------------
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 California Public Utilities Commission (PUC) to
allow the investor-owned utilities (IOUs) to pay renewable
developers for above-market costs as approved by 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. Specifically, this
bill :
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1)Deletes provisions allowing the CEC to award 51.1% ($64.5
million) 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 CEC to transfer all funds currently in the New
Renewable Resources Account that could have been allocated as
SEPs back to the ratepayers of the investor owned utilities.
3)Eliminates the authority of PUC to collect $64.5 million
annually from IOU ratepayers to fund renewable resource
projects. This is the amount of funds that were allocated to
fund SEPs.
4)Provides that 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, 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.
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
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using that technology.
3)Allows 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.
FISCAL EFFECT : PUC would incur minor ongoing special fund costs
for one-half position to implement the above market cost
recovery. The CEC would incur one-time minor absorbable
administrative costs. The CEC indicates that about $400 million
estimated to be in the New Renewable Resources Account as of
March 2008 will transferred to the IOUs for the benefit of
ratepayers.
COMMENTS : Under California's renewal portfolio standard (RPS),
all retail sellers of electricity 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. To ensure that IOU ratepayers are not
saddled with unlimited above-market costs, RPS requires PUC to
determine the market price for electricity (known as the Market
Price Referent or MPR) and then provides that IOU are only
required to pay the renewable generators the contract costs that
do not exceed MPR. RPS also allows new renewable energy
providers to apply to CEC for SEPs to cover any costs above MPR.
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, 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 IOUs signing a number of contracts for renewable
power. To date all most all approved contracts have 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
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next.
Since there have been no requests for SEPs prior to last year
date 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 PUC, then if the developer wants to apply for SEPs
CEC can review the reasonableness of the contact a second time,
and may deny SEPs even if 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
time, financial institutions do not view that funding source as
reliable enough to issue low-cost loans against. Thus projects
that could exceed MPR may not be able to get the financing they
need.
This bill attempts to resolve these problems by eliminating SEP
provisions entirely. The bill then provides that IOU will pay
the entire costs of renewable contracts that are deemed
reasonable, including the above market costs. 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 IOU's
needs.
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. 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 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.
Additionally, this bill provides that the money that has already
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been collected and held by CEC to fund SEPs shall be returned to
the benefit of the ratepayers since that money will no longer be
need to cover any above market costs associated with RPS.
Analysis Prepared by : Edward Randolph / U. & C. / (916)
319-2083
FN: 0002932