BILL ANALYSIS ------------------------------------------------------------ |SENATE RULES COMMITTEE | AB 1954| |Office of Senate Floor Analyses | | |1020 N Street, Suite 524 | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ------------------------------------------------------------ THIRD READING Bill No: AB 1954 Author: Skinner (D) and V. Manuel Perez (D) Amended: 8/4/10 in Senate Vote: 21 SENATE ENERGY, U.&C. COMMITTEE : 9-0, 6/29/10 AYES: Padilla, Dutton, Corbett, Florez, Kehoe, Lowenthal, DeSaulnier, Simitian, Strickland NO VOTE RECORDED: Cox, Wright SENATE APPROPRIATIONS COMMITTEE : 9-0, 08/02/10 AYES: Kehoe, Alquist, Ashburn, Corbett, Emmerson, Price, Wolk, Wyland, Yee ASSEMBLY FLOOR : 76-0, 5/13/10 (Consent) - See last page for vote SUBJECT : Electrical transmission: renewable energy resources SOURCE : BrightSource Energy Large Scale Solar Association DIGEST : This bill authorizes the Public Utilities Commission to approve in advance the recovery through electricity rates of the costs of a transmission proposed to meet the state's Renewable Portfolio Standard goals. The bill sets the "de minimus" amount of non-renewable energy that may be used by a renewable energy facility at two percent, and authorizes the Energy Commission to adjust CONTINUED AB 1954 Page 2 that level up to five percent on a case by case basis. This bill becomes operative if SB 722 (Simitian) is enacted. ANALYSIS : Under existing law, the Public Utilities Commission (CPUC) has regulatory authority over public utilities, including electrical corporations, as defined. Existing law, the Public Utilities Act, prohibits any electrical corporation from beginning the construction of, among other things, a line, plant, or system, or of any extension thereof, without having first obtained from the CPUC a certificate that the present or future public convenience and necessity require or will require that construction (certificate of public convenience and necessity). Existing law requires the CPUC, in acting upon an application by an electrical corporation for a certificate of public convenience and necessity, to deem new transmission facilities necessary to the provision of electric service if the CPUC finds that new transmission facilities are necessary to facilitate achievement of the renewable power goals established under the renewables portfolio standard. That law additionally requires the CPUC, upon finding that new transmission facilities are necessary to facilitate achievement of the renewable power goals established under the renewables portfolio standard, to take all feasible actions to ensure that the transmission rates established by the Federal Energy Regulatory Commission are fully reflected in any retail rates established by the commission. This bill authorizes the Public Utilities Commission to approve an advice letter from an investor owned utility seeking pre-approval of cost recovery through electricity rates for a transmission project that will facilitate achievement of the Renewable Portfolio Standard. The bill provides that ultimate rate recovery is still subject to review by the Public Utilities Commission to ensure that the utility incurred the costs reasonably and prudently. This bill directs the Energy Commission to set the "de minimus" amount of non-renewable energy that may be included with renewable energy at no more than two percent of total fuel use. The bill also authorizes the Energy Commission to allow up to five percent to come from AB 1954 Page 3 non-renewable fuels, on a case-by-case basis, if the Energy Commission finds that the additional use of non-renewable fuels will lead to an increase in overall renewable energy generation and reduce variability in generation. It also specifies that in order to qualify for more than two percent non-renewable fuel use, the non-renewable fuel must come from either natural gas or hydrogen derived by reformation of a fossil fuel. This bill will only become operative if SB 722 (Simitian) is enacted. SB 722 increases the state's Renewable Portfolio Standard to 33 percent by 2020 and makes several other changes to the program. SB 722 is in the Assembly Appropriations Committee. Background Renewable Facilities Using Multiple Fuels . The CEC is responsible for certifying all eligible renewable resources and tracking the procurement of such resources to ensure compliance with the RPS. In general, a facility is eligible if it uses an eligible renewable resource or fuel, satisfies resource-specific criteria, and is either located within the state, or satisfies applicable requirements for out-of-state facilities. The CEC can allow RPS-eligibility for renewable facilities that use fossil fuels to generate electricity if the annual fossil fuel use at the facility does not exceed a de minimus amount which the CEC has defined as two percent of all fuels used, and measured on an annual total energy input basis. For example a solar thermal facility might use a natural gas turbine to maintain fluids at a higher temperature when the sun isn't shining to reduce the time to ramp-up the solar thermal facility when the sun is shining because less sun time would be required to heat the fluids that run the turbines. As long as the natural gas turbine does not comprise more than two percent of the electricity production at the facility, electricity produced by the gas turbine and the renewable resource would both be considered RPS eligible delivered electricity. Transmission Cost Recovery . The FERC generally sets and AB 1954 Page 4 approves rates for transmission and recovery by transmission developers. Traditionally generation developers fund the costs of transmission to sell their energy to the market as part of their development and construction costs. Once a generation project comes on line those costs are recouped in the form of rates and the generation/transmission developer is paid back over time. This historic process has created problems in financing transmission lines that are primarily needed for new renewable generation development. A number of factors make it difficult for the generation developer to provide the upfront financing for the transmission lines. Instead the electric utility in some instances will pay the upfront costs, but the utility does not want to be responsible for those costs, which require FERC approval for recovery, if the generation never comes on line. The Legislature addressed this issue by allowing backstop cost recovery to resolve the "chicken and egg" problem presented by renewable transmission projects by allowing the CPUC to guarantee that a utility that constructs a renewable transmission project can obtain recovery in retail rates where FERC does not permit wholesale rate recovery. FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes Local: No The Public Utilities Commission indicates that the costs to review advice letters under the bill can be absorbed within existing resources dedicated to transmission planning and rate design. Staff does not anticipate any significant costs to rate payers under the bill, as the Public Utilities Commission is only authorized to pre-approve costs recovery for projects designed to meet the existing Renewable Portfolio Standard requirements in law. The Energy Commission indicates that it will need one additional position to review existing renewable generation facilities to ensure that they comply with the new "de minimus" standard. (Some facilities may have been authorized a higher level of fossil fuel use.) The additional position will also be responsibly for establishing criteria to determine whether additional AB 1954 Page 5 non-renewable fuel use will lead to additional renewable energy and reduce variability. SUPPORT : (Verified 8/4/10) BrightSource Energy (co-source) Large Scale Solar Association (co-source) Union of Concerned Scientists ARGUMENTS IN SUPPORT : BrightSource Energy believes that this bill is an important bill, which will eliminate a major barrier to renewable energy development in California, reduce unnecessary and expensive burdens on renewable developers, such as BrightSource Energy, and save rate payers from unnecessary costs and by correcting the timing of regulatory decision on financing renewable energy transmission projects as proposed in the amended 399.2.5 Section of the Public Utilities Code. Additionally, with respect to natural gas usage, the California Energy Commission has determined the de minimus gas quantity based on a single technology, biomass combustion, using the amount of fossil fuel needed to stabilized flames in those plants. This quantity has no relationship to the quantity of fossil fuel that other technologies could use to increase their reliability and make renewable energy projects more efficient, thus furthering the aims of California's renewable portfolio standard. This bill resolves this problem. ASSEMBLY FLOOR : AYES: Adams, Ammiano, Anderson, Arambula, Bass, Beall, Bill Berryhill, Tom Berryhill, Blakeslee, Block, Blumenfield, Bradford, Brownley, Buchanan, Charles Calderon, Carter, Chesbro, Conway, Cook, Coto, Davis, De La Torre, De Leon, DeVore, Emmerson, Eng, Evans, Feuer, Fletcher, Fong, Fuentes, Fuller, Furutani, Gaines, Galgiani, Garrick, Gilmore, Hagman, Hall, Harkey, Hayashi, Hernandez, Hill, Huber, Huffman, Jeffries, Jones, Knight, Lieu, Logue, Bonnie Lowenthal, Ma, Mendoza, Miller, Monning, Nava, Nestande, Niello, Nielsen, V. Manuel Perez, Portantino, Ruskin, Salas, Saldana, Silva, Smyth, Solorio, Audra Strickland, Swanson, Torlakson, Torres, Torrico, Tran, AB 1954 Page 6 Villines, Yamada, John A. Perez NO VOTE RECORDED: Caballero, Norby, Skinner, Vacancy DLW:do 8/4/10 Senate Floor Analyses SUPPORT/OPPOSITION: SEE ABOVE **** END ****