BILL ANALYSIS
AB 1954
Page 1
Date of Hearing: April 5, 2010
ASSEMBLY COMMITTEE ON UTILITIES AND COMMERCE
Steven Bradford, Chair
AB 1954 (Skinner) - As Introduced: February 17, 2010
SUBJECT : Electrical transmission: renewable energy resources.
SUMMARY : Requires the California Public Utilities Commission
(CPUC) to make a finding that new transmission lines from
designated renewable energy zones are reasonably necessary or
appropriate, and allows the CPUC to provide assurance to the
utility that it can recover the costs of building transmission
prior to a determination of rate recovery by the Federal Energy
Regulatory Commission (FERC). Specifically, this bill :
1)Requires the CPUC, when acting upon an application by an
electrical corporation for a certificate of public convenience
and necessity (CPCN), to deem new transmission facilities
reasonably necessary or appropriate to provide electric
service if the CPUC finds that the transmission facilities
facilitate the achievement of the renewables portfolio
standard (RPS).
2)Requires the CPUC to provide assurance to the transmission
owner of the eligibility for recovery of costs in retail
rates, prior to a determination of rate recovery by the FERC
for costs that are subject to FERC jurisdiction, and
conditioned upon the CPUC's subsequent determination that FERC
did not approve the costs and the CPUC determines that the
costs were prudently incurred and complies with public notice
requirements of rate changes.
3)Requires the CPUC to approve an advice letter seeking
assurance of cost recovery if either:
a) The new transmission line will primarily deliver
electricity generated within a designated renewable energy
zone.
b) The new transmission line is needed to deliver
electricity where the interconnection requests include at
least 50% from renewable energy generators, and all of the
interconnection requests are for generation facilities that
are designed to comply with the greenhouse gasses emission
performance standard for baseload electric generation
facilities.
AB 1954
Page 2
4)Provides that the approval of an advice letter is not binding
upon the CPUC in making its determination whether nor not to
approve an application for a CPCN.
5)Defines renewable energy credit as a certificate of proof
associated with the generation of electricity from an eligible
renewable energy resource.
6)Precludes renewable energy sources from the creation of a REC
if the amount of nonrenewable fuel used exceeds a de minimis
quantity for each renewable energy technology , as determined
by the California Energy Commission (CEC).
EXISTING LAW
1)Precludes a gas corporation, an electrical corporation, and
other public utilities from beginning the construction of a
line, plant, or system without having first obtained from the
CPUC a CPCN.
2)Allows the CPUC to recover in retail rates any increase in
transmission costs resulting from the construction of the
transmission facilities that are not approved for recovery in
transmission rates by the FERC after the CPUC determines that
the costs were prudently incurred.
3)Precludes electricity generated from a renewable energy source
from the creation of a renewable energy credit (REC) if the
amount of nonrenewable fuel used exceeds a de minimis quantity
as determined by the CEC.
4)States legislative intent to increase the amount of
electricity generated from eligible renewable energy resources
per year, so that it equals at least 20 percent of total
retail sales of electricity by December 31, 2010.
FISCAL EFFECT : Unknown.
COMMENTS : According to the author, the purpose of this bill is
to smooth a couple of small issues that could have big impacts
on the renewable development community and on the achievement of
our long-term goals. "As we move toward California's current
renewable energy goals and pursue a higher standard, it has
become clear that there are limitations to the statutory
authority to accommodate new and improved technologies, and the
current tight credit market, which, in turn, affects financing
of these projects.
AB 1954
Page 3
"This bill addresses a relatively technical issue that
inadvertently presents impediments to financing of renewable
energy - and another issue which may unintentionally serve to
limit the efficient production of renewable energy."
1) Background: Current law creates a RPS that requires
utilities to procure at least 20% of their electricity
generation from renewable energy generators. Two bills were
introduced last year (AB 64, Krekorian, and SB 14, Simitian) and
one bill this year (SB 422, Simitian) to increase the RPS to 33%
by 2020.
Thirty-three percent of the combined utilities' portfolios
equates to about 28,000 megawatts (MW). This goal can't be
attained by roof-top solar alone, which requires about 13-20
homes to generate just 1 MW. (Most rooftop solar is close to
50-75 kW, where 1,000 kW equals 1 MW.) As such, the utilities
are reaching to remote areas of the state that possess ample
wind, solar, and geothermal potential to contribute to the
majority of its portfolio of renewable generation.
To determine which areas of the state would render the greatest
potential to generate renewable energy, the CEC at the staff
level initiated the Renewable Energy Transmission Initiative
(RETI) to identify optimal renewable energy designation zones
and the transmission corridors necessary to access the renewable
generation facilities. The CEC contracted with an entity that
represents renewable developers to conduct the stakeholder
process to identify the zones and related transmission
corridors. According to the CEC, RETI will assess all
competitive renewable energy zones in California and possibly
also in neighboring states that can provide significant
electricity to California consumers by the year 2020.
The California Independent System Operator (CAISO) identified 6
transmission projects that included 7 new or upgraded
transmission lines, at a total cost of about $6.5 billion
(preliminary estimate), for the IOUs within the CAISO balancing
authority area to meet 33% RPS target in 2020. A 2008 RPS
report from the CPUC concludes that the state needs 7 new major
transmission lines (15,900 MW) at a cost of $6.4 billion to
attain a 33% RPS by 2020.
According to the CEC, in September 2009, RETI revised the
renewable energy zones, including cost and environmental
information. In addition, the RETI stakeholders are currently
creating development scenarios to be provided to the California
Transmission Planning Group (CTPG, coordinated by the California
AB 1954
Page 4
Independent System Operator, or CAISO) for use as sensitivities
for their proposed statewide transmission planning effort.
On September 15, 2009, the CAISO launched its "Getting to 33%
RPS" initiative outlining a new framework for comprehensively
planning the transmission upgrades that will be needed to reach
the RPS targets. Over the past year the CAISO has been
collaborating with the other transmission planners and operators
in California, including the municipal utilities, to assess
transmission needs for the state as whole and developing a
cost-effective, statewide transmission plan for 33% RPS building
upon the RETI findings. After completing the public stakeholder
process the CAISO expects the final statewide plan to be
developed by December 2010. The plan will include a set of "no
regrets" transmission upgrades that will be needed with high
confidence based on committed new renewable generation, as well
as "conditional" lines whose needs will be re-evaluated based on
the future course of renewable generation development. The
conditional category helps mitigate the risks to project
developers of incurring unrecoverable costs, by allowing cost
recovery for pre-construction activities undertaken for
conditional projects that do not ultimately receive final
approval.
2) Transmission siting : The investor-owned utilities are
responsible for building and owning transmission lines. They
submit their plans to the CAISO, which then develops the
statewide transmission plan. Prior to building any needed
transmission, the CPUC must issue a CPCN (which can take 3 to 4
years), and the transmission owner must request cost-recovery
for the transmission line from the Federal Energy Regulatory
Commission (FERC).
Although current law allows the CPUC to allow recovery of
construction costs in retail rates, the transmission owner must
first seek recovery from the FERC, and the FERC must have denied
the request for cost recovery. Until either the CPUC issues the
CPCN, or the FERC determines that the costs are recoverable in
federal transmission rates, renewable energy developers are
presumed responsible for financing the substantial cost of new
or upgraded transmission.
Renewable developers need to secure project financing well
before the CPUC and FERC determine whether to allow transmission
owners cost recovery. Without preliminary CPUC or FERC
assurance, financers must assume that developers will incur all
costs of the new or upgraded transmission needed to tie the
generation facility to the grid, which significantly increases
AB 1954
Page 5
the developer's project costs. Greater project costs (or
unknown project costs) narrow the gap between costs and
projected revenue, which increases risk to potential investors.
As a result, either investors balk, or provide capital at higher
cost in the form of up-front costs or a higher interest rate to
compensate for their risk. Higher costs of capital are likely
built into the generator's bid to supply electricity to the
utility, which gets passed on to ratepayers.
3) Why an Advice Letter : This bill would allow the CPUC to
assure cost recovery through an advice letter process prior to
construction of the transmission line if the line is needed to
access renewable energy generated in a RETI-designated zone. An
advice letter is a filing to implement a previously decided
policy question at the CPUC. Advice letters can also be used to
implement a policy decision of the Legislature. Other
non-advice letter applications would seek authority to do
something that the CPUC has not already authorized.
4) Renewable Energy Credits : A REC represents the renewable
attributes of renewable generation. A REC can remain bundled
with the associated energy. If bundled, the utility buys the
renewable electricity and uses the RECs to meet its RPS
obligation and uses the associated electricity to meet its own
load. RECs can also be traded as a separate asset from the
underlying electricity (tradable RECs or tRECs). In this case,
one retail seller purchases the tREC and applies it toward its
RPS obligation and another retail seller purchases the
associated electricity to meet its own load. The second retail
seller cannot count that electricity toward its own RPS
obligations.
Existing law provides the CEC with authority to determine a de
minimis quantity of fossil fuel that renewable energy generation
can utilize and still qualify their output as renewable energy.
Small quantities of fossil fuel are used by different
technologies to improve reliability and operations, as well as
to increase the efficiency of their conversion of renewable
fuels into electrical energy. The CEC has determined the de
minimis quantity needed to stabilize a biomass plant and uses
that quantity as its baseline for all renewable technologies.
This quantity may not be applicable to the quantity needed to
stabilize other renewable technologies such as solar, wind, or
geothermal. This bill would require the CEC to make its de
minimis determination on a technology-specific basis, and
require the CEC to make its determination at the amounts needed
to enhance reliability and renewable energy output in order to
have the electricity include a REC component.
AB 1954
Page 6
REGISTERED SUPPORT / OPPOSITION :
Support
Abengoa Solar
Amonix
Ausra
BrightSource Energy
First Solar
FRV
Infinia
Large-Scale Solar Association
NextLight
Solel
SunPower
Suntech
Tessera Solar/Stirling Energy
Opposition
None on file.
Analysis Prepared by : Gina Adams / U. & C. / (916) 319-2083