BILL ANALYSIS                                                                                                                                                                                                    

                                                                  AB 1106
                                                                  Page  1

          AB 1106 (Fuentes and Ruskin)
          As Amended  May 6, 2009
          Majority vote 

           UTILITIES AND COMMERCE          10-4                NATURAL  
          RESOURCES            6-3                            
          |Ayes:|Fuentes, De La Torre,     |Ayes:|Skinner, Brownley,        |
          |     |Carter, Fong, Furutani,   |     |Chesbro,                  |
          |     |Huffman, Krekorian,       |     |De Leon, Hill, Huffman    |
          |     |Skinner, Swanson, Torrico |     |                          |
          |     |                          |     |                          |
          |Nays:|Duvall, Tom Berryhill,    |Nays:|Gilmore, Knight, Logue    |
          |     |Fuller, Smyth             |     |                          |
          |     |                          |     |                          |
           APPROPRIATIONS      12-5                                        
          |Ayes:|De Leon, Ammiano, Charles  |   |                          |
          |     |Calderon, Davis, Fuentes,  |   |                          |
          |     |Hall, John A. Perez,       |   |                          |
          |     |Price, Skinner, Solorio,   |   |                          |
          |     |Torlakson, Krekorian       |   |                          |
          |     |                           |   |                          |
          |Nays:|Nielsen, Duvall, Harkey,   |   |                          |
          |     |Miller                     |   |                          |
          |     | Audra Strickland          |   |                          |
          |     |                           |   |                          |
           SUMMARY  :   Requires the California Public Utilities Commission  
          (PUC) to develop a feed-in tariff for eligible renewable electric  
          generation that is less than 20 megawatt (MWs) in size.   
          Specifically,  this bill:

           1)Provides that all investor owned utilities (IOUs) must purchase  
            all electricity produced by eligible renewable generation that  
            is less than 20 MWs 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 PUC.  


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

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

           EXISTING LAW  :   

          1)Requires 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 MWs at a rate determined by PUC.  The rate is  
            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 RPS where at least 20%  
            of their electricity production comes from renewable resources  
            by 2010. 

           FISCAL EFFECT  :  According to the Assembly Appropriations  
          Committee, 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  

           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  
          RPS.  The author believes that California is missing opportunities  


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          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 CSI incentive  
          program or RPS solicitation program." 

          In 2006, AB 1969 (Yee), Chapter 731, Statutes of 2006, mandated  
          that IOUs purchase all electricity generated from renewable  
          facilities that are owned by water and waste water agencies that  
          are smaller than 1 MWs in size at specified rates set by PUC.  The  
          AB 1969 program was expanded by 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.  

          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 RPS.  

          The RPS is designed to be technology neutral and to let market  
          forces determine the price.  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 process. 


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          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 FIT program.  CEC has proposed that  
          the maximum size should be set at 20 MWs.  This cap is based on  
          the fact that any generation unit larger than 20 MWs is subject to  
          interconnection rules set by the Federal Energy Regulatory  
          Commission and not PUC's interconnection rules.  PUC has recently  
          released a proposal to cap the size of FIT at 10 MWs.  PUC's  
          proposal states that developers building units larger than 10 MWs  
          have the expertise and resources to compete in RPS. 

          A review of all renewable contracts signed by IOUs under RPS show  
          that 47% of the signed contracts are for projects that are less  
          than 20 MWs in size, 35% of the contracts are for projects less  
          than 10 MWs in capacity, 18 % of the contracts are for contracts  
          less than five MWs in size. 

          The current feed-in tariff program caps the price paid to  
          renewable developers to MPR, which is the price used within RPS  
          program to measure above market costs of renewable generation.   
          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 MPR today. Because 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  
          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  

          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 MPR, but in some  
          cases, they still may be less than the cost of production of some  
          renewable technologies.  


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          AB 1106 adopts CEC's proposal and allows for FITs for eligible  
          renewable resources up to 20 MWs in capacity.  The bill also  
          provides that the rate for FITs will be at MPR. 

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

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