BILL ANALYSIS AB 1106 Page 1 ASSEMBLY THIRD READING 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. AB 1106 Page 2 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 $50,000. 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 AB 1106 Page 3 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. AB 1106 Page 4 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 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 MPR, but in some cases, they still may be less than the cost of production of some renewable technologies. AB 1106 Page 5 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) 319-2083 FN: 0001131