BILL ANALYSIS                                                                                                                                                                                                    

                                                                  AB 1106
                                                                  Page  1

          Date of Hearing:   May 20, 2009

                                Kevin De Leon, Chair

                    AB 1106 (Fuentes) - As Amended:  May 6, 2009 

          Policy Committee:                               
                        Natural Resources                       6-3

          Urgency:     No                   State Mandated Local Program:  
          Yes    Reimbursable:              No


          Revises and expands the feed-in tariff program for eligible  
          renewable electric generation to eliminate the current statewide  
          cap of 500 megawatts (MW) and make the tariff available to  
          facilities of up to 20 MW in size instead of 1.5 MW.

           FISCAL EFFECT  

          The Public Utilities Commission (PUC) would incur ongoing costs  
          of $335,000 for three positions to develop new rules for a  
          greatly expanded feed-in tariff program, including a commission  
          proceeding, and then to implement the program.  The proceeding  
          would also require one-half position for an administrative law  
          judge at a one-time cost of $50,000.  [Public Utilities  
          Reimbursement Account]


           1)Purpose  .  According to the author, this bill is intended to  
            ensure that renewables are properly valued for their  
            locations' benefits, time-of-delivery attributes, and for  
            furthering the goals of the state's renewable portfolio  
            standard (RPS). The author believes the state 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 California Solar Initiative  
            incentive program or the RPS solicitation program." 


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          2)Background  .  AB 1969 (Yee)/Chapter 731 of 2006, mandated that  
            the investor-owned utilities (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. This program was expanded  
            administratively by the PUC to allow  any  customer of an IOU to  
            take part of the program and to allow for renewable generators  
            of up to 1.5 MW.  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 output of those generators that  
            accept the standard offer contracts.  While there is general  
            acceptance of FITs in principle, there are generally two  
            points of contention: size and price.

            There is little agreement on how big a generator can be and  
            still be considered small enough for the FIT program. The  
            California Energy Commission (CEC) has proposed that the  
            maximum size should be set at 20 MW, 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  
            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  
            for renewable contracts in the renewable portfolio standards  
            program (RPS).

            The current FIT program caps the price paid to renewable  
            developers to the market price referent (MPR), which is the  
            price established by the PUC 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  

            A number of environmental groups and solar industry  
            representatives have suggested that the California FIT program  


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            should follow the European model and set the tariff rate based  
            on the actual 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. Conversely, 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

            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.

           Analysis Prepared by  :    Chuck Nicol / APPR. / (916) 319-2081