BILL ANALYSIS                                                                                                                                                                                                    



                                                                       



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          |SENATE RULES COMMITTEE            |                  AB 1954|
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                                 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





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          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  







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          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  







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          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  







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          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,  







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            Villines, Yamada, John A. Perez
          NO VOTE RECORDED: Caballero, Norby, Skinner, Vacancy


          DLW:do  8/4/10   Senate Floor Analyses 

                         SUPPORT/OPPOSITION:  SEE ABOVE

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