BILL ANALYSIS                                                                                                                                                                                                    

                                                                  AB 1106
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          Date of Hearing:   April 20, 2009

                                Felipe Fuentes, Chair
                AB 1106 (Fuentes) - As Introduced:  February 27, 2009
          SUBJECT  :   Renewable electric generation facilities:  

           SUMMARY  :   Requires the California Public Utilities Commission  
          (PUC) to develop a feed-in tariff for eligible renewable  
          electric generation that is less than 20 MW in size. 

           EXISTING LAW  :   

          1)Requires investor owned utilities (IOUs) to offer customers  
            with solar electricity or wind generation a net-metered tariff  
            where the customer can sell back electricity produced from the  
            solar or wind facility that exceeds that customer's demand at  
            that moment in time as a bill credit against electricity that  
            the customer receives from the utility when their renewable  
            facility produces less than the customer is consuming. 

          2)Provides that an electricity utility must purchase all  
            electricity from an eligible renewable resource that is no  
            larger than 1.5 megawatt (MW) at a rate determined by the PUC.  
            The rate is the Market Price Referent (MPR), which represents  
            the average cost of natural gas fired generation plus the  
            added costs of carbon emissions from a natural gas generator. 

          3)Requires electric corporations to meet a Renewable Portfolio  
            Standard (RPS) where at least 20% of their electricity  
            production comes from renewable resources by 2010. 

           THIS BILL  :  

          1)Provides that all IOUs must purchase all electricity produced  
            by eligible renewable generation that is less than 20 MW in  
            size and is located on property that is owned or under the  
            control of the customer and pay the customer a price  
            determined by the PUC.  

          2)Provides that rate paid for the generation is the MPR, which  
            represents the average cost natural gas fired generation plus  
            the added costs of carbon emissions from a natural gas  


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          3)Provides that each kWh generated from the electric generation  
            facility shall count toward the IOUs RPS obligations including  
            generation used to offset the customer's own usage. 

          4)Requires the PUC, in consultation with the CEC, to develop  
            feed-in tariffs for eligible renewable energy resources of  
            more than 20 megawatts that value a diverse mix of sources of  
            renewable energy based upon the most successful feed-in  
            tariffs utilized in Europe.

           FISCAL EFFECT  :   Unknown. 

           COMMENTS  :   According to the author, the purpose of this bill is  
          to ensure that renewables are properly valued for their  
          locations' benefits, time-of-delivery attributes, and further  
          the goals of the RPS. The author believes that California is  
          missing opportunities to expand the use of solar energy because  
          "excellent sites with space and interest in installing solar  
          energy equipment cannot use solar because they cannot  
          participate in either the CSI incentive program or the RPS  
          solicitation program." 

          1)  Background  :  In 2006, AB 1969 (Yee), Chapter 731, Statutes of  
          2006, mandated that the IOUs purchase all electricity generated  
          from renewable facilities that are owned by water and waste  
          water agencies that are smaller than 1 MW in size at specified  
          rates set by the PUC.  The AB 1969 program was expanded by the  
          PUC to allow ANY customer of an IOU to take part of the program  
          and to allow for renewable generators up to 1.5 MWs in size.  
          Programs like this, which require an electric utility to  
          purchase all the electricity produced by a specified type of  
          generator at a fixed price are known as feed-in tariffs (FITs).   
          These programs are really a standard contract offered by each  
          electric utility where the utility is required to purchase all  
          of the output of the generators that want to sign the standard  
          offer contracts. 

          Supporters of FITs believe they can be an effective way to  
          promote the development of new renewable resources by  
          guaranteeing the developer a set price for their generation at  
          standard contract terms and eliminate the need for the  
          generators to negotiate with the utility.  FITs in Europe have  
          been credited for the rapid deployment of wind and solar energy  


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          in German and Spain. The European feed-in tariffs have set the  
          rate paid to the generator based on the cost of each renewable  
          technology plus a reasonable profit for the generator. The rate  
          meant there was little risk to developing new renewable  
          generation. The prices paid to renewable generation in Germany  
          and Spain have generally exceeded the price terms of renewable  
          contracts in California.

          2)  The size of things  : While there is general acceptance of FITs  
          in principle, there are two parts of FIT proposals where there  
          is little agreement: size and price. 

          While the European FIT programs applies to both utility scale  
          generation projects and small projects, most advocates of FITs  
          in California suggest that FITs should be used to help promote  
          the development of smaller distributed generation sized units  
          that cannot afford the high transaction costs of the competitive  
          solicitation process required under the RPS.  

          The RPS is designed to be technology neutral and to let market  
          forces determine the price.  The RPS requires all renewable  
          generators to bid into a competitive solution for renewable  
          power. The utility then signs contracts for the offers that are  
          the least costly and best fit to their needs. This bidding  
          process is difficult for individuals that want to build smaller  
          generation. Smaller generators lack the expertise and up front  
          economic resources to participate in the complex bidding  

          A FIT could allow smaller generators to produce renewable power  
          without having to participate in the bidding process. However,  
          there is little agreement on how big a generator can be and  
          still be considered small enough for the FIT program. The CEC  
          has proposed that the maximum size should be set at 20 MW.  This  
          cap is based on the fact that any generation unit larger than 20  
          MW is subject to interconnection rules set by the Federal Energy  
          Regulatory Commission and not the PUC's interconnection rules.  
          The PUC has recently released a proposal to cap the size of FIT  
          at 10 MWs. The PUC's proposal states that developers building  
          units larger than 10 MWs have the expertise and resources to  
          compete in the RPS. 

          A review of all renewable contracts signed by the IOUs under the  
          RPS show that 47% of the signed contracts are for projects that  
          are less than 20 MW in size, 35% of the contracts are for  


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          projects less than 10 MW in capacity, 18 % of the contracts are  
          for contracts less than 5 MW in size. 

          3)  You get what you pay for  :  The current feed-in tariff program  
          caps the price paid to renewable developers to the MPR, which is  
          price used within the RPS program to measure above market costs  
          of renewable generation. The MPR may be less than the actual  
          cost of production of most smaller scale renewable technologies.  
          In fact, even many large RPS contracts actually exceed the MPR  
          today. Because the MPR is less than the cost of the renewable  
          generation, the current FIT program may not create the needed  
          incentives to develop more renewable generation. 

          A number of environmental groups and solar industry  
          representatives have suggested that the California FIT program  
          should follow the European model and set the tariff rate based  
          on the actually cost of production of each specific technology  
          plus a reasonable profit for the generator.  They believe these  
          high prices would lead to a rapid expansion of small-scale  
          renewable generation. 

          The utilities and consumer groups oppose this cost based  
          approach and believe that the rate should be set to represent  
          the actual benefit ratepayers receive from the renewable  
          resources. If all the quantifiable benefits of small scale  
          renewable resources were added together it is likely they would  
          exceed the MPR, but in some cases, they still may be less than  
          the cost of production of some renewable technologies.  

          4)  Publicly Owned Utilities  : The current AB 1969 program does  
          not apply to publicly owned utilities (POUs) and this bill does  
          not expand the scope of FITs to apply to POUs. A FIT program  
          that is not applied equally statewide runs the risk of resulting  
          in major cost shifts from the utilities that do not offer FITs  
          to the utilities that do. Since a FIT requires the utility to  
          purchase all eligible generation if one utility offers the  
          program and another does not, marketers of eligible renewable  
          resources will simply focus all of their attention on the  
          service territories where FITS are offered and potentially over  
          burden those utilities. 

          5)  How this bill addresses the issues  : AB 1106 adopts the CEC's  
          proposal and allows for FITs for eligible renewable resources up  
          to 20 MW in capacity.  The bill also provides that the rate for  
          FITs will be at the MPR. 


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          6)  Going big  : This bill also requires the PUC to develop a  
          feed-in tariff for generation units larger than 20 MWs. The  
          recommendations from the CEC and PUC both focus on FITs for  
          generation under 20MW and not the larger units. The RPS already  
          focuses on large, utility scale generation and creating a FIT on  
          top of the RPS competitive solicitation process could create  
          unintended consequences.  Given this conflict with the RPS, the  
          committee and the author may wish to consider amending the bill  
          to delete the provisions relating to renewable generation larger  
          than 20MW.   

           Related Legislation  :

          AB 432 (Nestande), AB 1023 (Ruskin), SB 32 (Negrete McCloud),  
          and SB 523 (Pavley) all create FIT programs of varying sizes and  

          SB 14 (Simitian) and AB 64 expand the current RPS program to 33%  
          by 2020. 

          AB 560 (Skinner) increase the current cap on the solar and wind  
          net-metering programs

          AB 920 (Huffman) and SB 2 (Wiggins) create programs requiring  
          the IOUS to purchase surplus electricity from net-metered  


          Bloom Energy Corporation
          Sierra Club California (if amended)

          California Association of Small and Multi-jurisdictional  
          Utilities (CASMU) (unless amended)


                                                                  AB 1106
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          Analysis Prepared by  :    Edward Randolph / U. & C. / (916)