BILL ANALYSIS                                                                                                                                                                                                    



                                                                  AB 44
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          Date of Hearing:   March 23, 2009

                    ASSEMBLY COMMITTEE ON UTILITIES AND COMMERCE
                                Felipe Fuentes, Chair
                   AB 44 (Blakeslee) - As Amended:  March 18, 2009
           
          SUBJECT  :   Energy storage facilities.

           SUMMARY  :   Creates incentives for investor owned utilities  
          (IOUs) and non-utility companies to build energy storage devices  
          that store energy produced from renewable facilities.

           EXISTING LAW  :   

          1)Authorizes the California Public Utilities Commission (PUC) to  
            approve an increase of between one-half of one percent and one  
            percent in the rate-of-return otherwise allowed an IOU for  
            investment by the IOU in renewable generation facilities. 

          2)Requires IOUs to procure at least 20% of their electricity  
            sales from renewable resources by 2010. 

           THIS BILL  :  

          1)Authorizes the PUC to approve an increase of between one-half  
            of one percent and one percent in the rate-of-return otherwise  
            allowed an IOU for investment by the IOU in energy storage  
            devices that store energy from eligible renewable resources  
            during off-peak periods and dispatch that energy during  
            on-peak periods. 

          2)Authorizes the PUC to establish additional incentives for  
            eligible storage facilities including but not limited to  
            tariffs for customers, increases in the rate-of-return that  
            exceed the one percent authorized above, and/or rebates for  
            storage facilities. 

          3)Requires the PUC to develop a time-variant tariff that creates  
            appropriate incentives for an eligible storage facility. 

           FISCAL EFFECT  :   Unknown. 

           COMMENTS  :   According to the author, the purpose of this bill is  
          to create incentives and remove barriers for both utility-owned  
          and merchant-owned energy storage facilities. The author  
          believes these energy storage facilities will be necessary for  







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          California to meet its renewable energy goals since they can  
          store energy produced by wind and solar facilities at times that  
          electricity is not needed to be used at peak periods when  
          electricity is in high demand. 

          1)  Why do we need energy storage facilities  : California law  
          requires all retail sellers of electricity to meet at least 20%  
          of the retail sales using electricity from renewable resources  
          by 2010 - a Renewable Portfolio Standard (RPS). The California  
          Air Resources Board (CARB) has identified an advancement of the  
          RPS to 33% by 2020 as one of the key actions needed to be taken  
          in order to meet the greenhouse gas (GHG) reduction goals of AB  
          32 (Nunez), Chapter 488, Statutes of 2006.  Two bills have been  
          introduced this legislative session to create the 33% RPS goals  
          (AB 64 (Krekorian) and SB 14 (Simitian)). 

          While several studies have determined that a 33% RPS is  
          achievable, it can only be met with a heavy reliance on wind and  
          solar energy.  The problem is that both resources are  
          intermittent. They only produce electricity when the wind is  
          blowing or the sun is out.  This intermittency could create  
          reliability problems for the electricity grid since the grid  
          managers cannot count on the solar and wind energy being  
          available at the same time there is demand for electricity.  

          One way to resolve this reliability problem is to build more  
          electricity generation facilities that are capable of turning on  
          and off quickly and can be available when the renewable energy  
          facilities are not operating.  These facilities are referred to  
          as "peaker plants." They generally run on natural gas.  They are  
          also relatively expensive to operate compared to other  
          generating facilities that operate around the clock. 

          Another approach would be to find ways to store the electrical  
          output of renewable facilities to use hours later. The storage  
          devices could help take the place of peaker plants. 

          2)  What is energy storage  :  Energy storage devices are devices  
          that can take electricity and covert the electricity into some  
          other form of energy so it can be stored and converted back to  
          electricity at some later point.  The most common form of energy  
          storage device in use today are batteries. However, there are no  
          commercially available batteries that could cost-effectively  
          store the large amounts of electricity that can be produced by  
          large scale wind farms or solar facilities. Another form of  
          electricity storage that is already in use in California is pump  







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          storage, where water is pumped into a reservoir at night and  
          then released through turbines during the daytime to produce  
          electricity.  Additionally, there is research taking place today  
          to develop other storage devices using compressed air,  
          flywheels, and fuel cells. 

          This bill defines storage systems to include any device that  
          stores energy generated from an eligible renewable resource  
          during off-peak periods and dispatched the energy during on-peak  
          periods. The device must also be capable of storing energy for  
          at least two hours and must be able to respond to orders from  
          the transmission grid managers to absorb or dispatch energy. 

          The author envisions the development of storage devises that are  
          owned and operated by the utilities and storage devices that are  
          owned by private parties that could buy renewable power from  
          renewable developers or the utility and then sell that power  
          back to the utility at a later time. 

          3)  Incentives to IOUs  : This bill allows IOUs to earn a higher  
          profit on investments they make in energy storage devices than  
          they do on investments in natural gas generation facilities. The  
          higher profit concept is based on Public Utilities Code section  
          454.3 which allows IOUs to earn higher profits on investments in  
          renewable facilities.  According to the PUC, no IOU has applied  
          for higher rate-of-return under 454.3 since it was approved in  
          1988. 

          Section 454.3 also contains language that provides that the IOU  
          can only earn the higher rate-of-return if the facility results  
          in ratepayer benefits by lowering the cost of electricity over  
          the life of the facility and if the facility is actually used.  
           To ensure that ratepayers receive similar benefits from storage  
          devices, the author and the committee may wish to amend the bill  
          to include a provision that in order to receive the higher  
          rate-of-return the energy storage devise must be less expensive  
          to operate than a comparable peaker plant taking into account  
          the economic costs of the carbon and other air emission from the  
          peaker plants and that the facility must actually be useful and  
          used  . 

          4)  Incentives to non-utilities  :  The bill requires the PUC to  
          develop a time-variant tariff that would create the appropriate  
          incentives for eligible storage facilities. Generally  
          time-variant pricing allows a utility to charge its customers  
          more for electricity at peak times of the day when electricity  







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          is more expensive to procure, but then charge less at off-peak  
          times when it is less expensive to procure. A time-variant  
          tariff could benefit storage facilities if the facility was able  
          to "buy" the electricity from the utility when it is at the  
          lower rate and then "sell" the electricity back to the utility  
          when it is more expensive. 

          The bill provides that the tariff should be set to provide the  
          appropriate incentives for the storage facility, but contains no  
          language to ensure that the tariff also benefits ratepayers.   
          This language gives the PUC wide latitude that could result in  
          tariffs that the Legislature may view as a give away to the  
          energy storage device owner without a commensurate benefit to  
          rate payers.  To ensure that this bill also protects ratepayers,  
          the author and the committee may want to consider amending the  
          bill to add language to provide that the time-variant tariff  
          should be set at an appropriate level that provides incentives  
          to invest in energy storage facilities if the PUC finds that the  
          tariff does not result in ratepayers paying an increased cost  
          for storage facilities beyond the economic benefits the  
          facilities provide through load shifting and voltage support  . 

          The bill requires that an eligible storage device must store  
          energy produced from an eligible renewable resource. However, a  
          time-variant tariff would apply to purchase of all electricity  
          delivered from the utility, irrespective of whether the  
          electricity is from renewable resources. There does not appear  
          to be an easy way to create a time-variant tariff just for  
          renewable power. 

          5)  Open ended incentives  : The bill also allows the PUC to create  
          additional incentives for eligible storage facilities that it  
          sees fit. These incentives could include rebate programs,  
          additional increases in the rate-of-return, standard-offer  
          contracts, or revolving loan programs. Over the past few years,  
          the PUC has created a number of similar programs for other  
          technologies without clear legal authority and at times in  
          contradiction to Legislative goals. In each case, the  
          Legislature has had to pass legislation to change the programs  
          so they are more consistent with Legislative goals. Examples of  
          this included the PUC's Self Generation Incentive Program, the  
          California Solar Initiative, and the California Climate  
          Institute.  Given the PUC's history of creating ratepayer-funded  
          programs that are inconsistent with Legislative goals, the  
          committee and the author may wish to consider the  
          appropriateness of giving the PUC broad latitude to create new  







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          incentive programs as it sees fit  . 


           REGISTERED SUPPORT / OPPOSITION  :   

           Support 
           
          None on file.

           Opposition 
           
          None on file.
           
          Analysis Prepared by  :    Edward Randolph / U. & C. / (916)  
          319-2083