BILL ANALYSIS                                                                                                                                                                                                    



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          Date of Hearing:   April 19, 2010

                    ASSEMBLY COMMITTEE ON UTILITIES AND COMMERCE
                               Steven Bradford, Chair
                   AB 2514 (Skinner) - As Amended:  April 14, 2010
           
          SUBJECT  :   Energy storage systems.

           SUMMARY  :   Requires the California Public Utilities Commission  
          (CPUC) to open a proceeding to establish procurement targets for  
          each investor-owned utility (IOU), and requires the governing  
          board of each publicly owned utility (POU) to adopt energy  
          storage system procurement targets and report their progress to  
          the California Energy Commission (CEC).   Specifically,  this  
          bill  :

          1)Requires the California Energy Commission (CEC) to include in  
            its Integrated Energy Policy Report (IEPR), an evaluation of  
            the best energy storage systems in the state, and identify and  
            recommend locations for energy storage facilities.

          2)Declares, among other things, that energy storage systems are  
            necessary and that there is inadequate evaluation of the use  
            of energy storage and inadequate statutory and regulatory  
            support.

          3)Prescribes the characteristics of an energy storage system,  
            including: the technical characteristics it could use to store  
            energy, and a system that would be commercially available and  
            becomes operational after January 1, 2010.

          4)On or before April 1, 2011, requires the CPUC to open a  
            proceeding to establish procurement targets for each IOU for  
            viable and cost-effective energy storage systems.

          5)On or before January 1, 2013, requires the CPUC to adopt  
            energy storage system procurement targets to be achieved by  
            each IOU by January 1, 2015, and a second target to be  
            achieved by January 1, 2020.

          6)On or before April 1, 2011, requires the governing board of  
            each POU to initiate a process to establish procurement  
            targets for the utility for viable and cost-effective energy  
            storage systems.









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          7)On or before January 1, 2013, requires the governing board to  
            adopt energy storage system procurement targets to be achieved  
            by January 1, 2015, and a second target to be achieved by  
            January 1, 2020.

          8)Requires a POU to report to the CEC regarding the energy  
            storage system procurement targets and report any  
            modifications made to those targets.

          9)Requires the CPUC to consider existing results of testing and  
            trial pilot projects from existing energy storage facilities,  
            consider available information from the California Independent  
            System Operator (CAISO), and consider the integration of  
            energy storage technologies with other programs including  
            energy efficiency or other means of reducing electrical demand  
            that will result in the most efficient use of generation  
            resources and cost-effective energy efficient grid integration  
            and management.

          10)Requires the CPUC to ensure that the energy storage system  
            procurement targets that are established are technologically  
            viable and cost-effective. 

          11)On or before July 1, 2011, requires the CEC to adopt  
            regulations specifying procedures for enforcement of the  
            energy storage portfolio standard.

          12)Requires the CEC to include a summary of the information  
            reported in its IEPR.

           EXISTING LAW  :  

             1)   Requires both IOUs and POUs to first acquire all  
               available energy efficiency and demand reduction resources  
               that are cost-effective, reliable, and feasible.

             2)   Requires each IOU to purchase energy according to a  
               procurement plan which is subject to approval by the CPUC.

             3)   Requires all utilities to increase procurement from  
               eligible renewable energy resources until they reach 20% by  
               2010.

             4)   Requires the adoption of a statewide greenhouse gas  
               (GHG) emissions limit equivalent to 1990 levels by 2020,  








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               pursuant of AB 32 (Nu?ez), by creating regulations to  
               achieve maximum technologically feasible and cost-effective  
               GHG emission reductions.

             5)   Requires the CEC to conduct assessments and forecasts of  
               all aspects of the energy industry, and compile the IEPR  
               that shall present policy recommendations based on an  
               in-depth and integrated analysis of the most current and  
               pressing energy issues facing the state.   

           FISCAL EFFECT  :   None.

           COMMENTS  :  According to the author, the purpose of this bill is  
          to increase the use of energy storage to decrease emissions from  
          peaker plants.  The author quotes a Pew Center study that states  
          that energy storage accounts for 2.5% of the total energy  
          generated in the United States, while storage in Japan and  
          Europe accounts for 15% and 10% of generated energy  
          respectively.     

          1)  Background  : California law requires all retail sellers of  
          electricity to meet at least 20% of the retail sales using  
          electricity from renewable resources by 2010; a Renewable  
          Portfolio Standard (RPS).  ARB has identified an advancement of  
          the RPS to 33% by 2020 as one of the key actions needed to be  
          taken in order to meet the GHG reduction goals of AB 32 (Nunez),  
          Chapter 488, Statutes of 2006.  Two bills were introduced last  
          year (AB 64 and SB 14), and one has been amended this  
          legislative session to create the 33% RPS goal, SB 722  
          (Simitian). 

          While several studies have determined that a 33% RPS is  
          achievable, it can only be met with a heavy reliance on wind and  
          solar energy, which are intermittent.  In order to ensure  
          reliability, these generation resources need to be "firmed" to  
          ensure electricity is dispatched when it is scheduled to serve  
          load.   

          One way to resolve this reliability problem is to build more  
          peaker plants, which can be ramped up and down quickly to  
          complement the solar and wind.  Most peaker plants run on  
          natural gas and are less efficient that some of the baseload  
          plants.  Thus, the peaker plants may cause more air emissions  
          per each kWh of electricity generated.  The ARB has recommended  
          finding ways to store the electrical output of renewable  








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          facilities to use at a later time or date to decrease reliance  
          on the peaker plants.  

          2)  What is energy storage  :  The most common form of energy  
          storage device in use today is batteries.  However, there are no  
          commercially available batteries that could cost-effectively  
          store the large amounts of electricity that can be produced by  
          large-scale wind farms or solar facilities. Another form of  
          electricity storage that is already in use in California is pump  
          storage, where water is pumped into a reservoir at night and  
          then released through turbines during the day to produce  
          electricity.  Additional research is taking place to develop  
          other storage devices using compressed air, flywheels, fuel  
          cells, and other innovative technologies.

          According to the CAISO, peak demand in its service territory was  
          50,270 MW in July 2006.  This equates into about 67,000 MW  
          statewide.  (The load would have higher had demand-response  
          customers not been called upon.)  This bill would require both  
          IOUs and POUs to attain a 2.25% energy storage standard by 2014,  
          which would equal a capacity of 1,500 MW to be held in the form  
          of storage, and 3,400 MW or more thereafter depending on  
          increases in peak demand.  The CEC forecasts an increase in peak  
          demand, which would increase the required capacity the energy  
          storage beyond 3,400 MW. 

          3)  Hypothetical evaluations  :  An energy storage model created by  
          the National Renewable Energy Laboratory (NREL) recently  
          examined the use of wind-generated energy storage within the  
          current electrical grid.  NREL determined that incorporating 30  
          gigawatts (GW) of wind energy storage at the present time would  
          result in the utilization of 50 GW of additional wind power by  
          2050, equaling a 17% increase in wind-generated power utilizing  
          storage.  NREL estimated that this would result in a 56%  
          reduction GHG emissions per kWh due to eliminating the need for  
          fossil fuel-fired peaker plants.   

          4)  Actual Evaluations:    Since May 2008, the CAISO has been  
          coordinating a stakeholder process to identify the issues  
          associated with integrating different types of energy storage  
          technology on the electric power grid.  The CAISO launched  
          18-month pilot projects in July 2009, and is expected to be  
          complete by December 2010.  The three IOUs are running a study  
          to develop cost-effectiveness methods for storage (permanent  
          load shifting) and ways to deliver incentives to end-use  








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          customers to motivate customer investments in demand-side  
          storage.

          Some new technologies PG&E is piloting includes the following:

                   A 4 MW Sodium Sulphur (NaS) battery project, which is  
                intended to be placed on a distribution line to improve  
                reliability and power quality, reduce peak demand,  
                integrate intermittent renewable resources and provide  
                ancillary services to support the grid.  PG&E states that  
                the cost is "extremely expensive" at about $4 million per  
                MW.

                   A 300 MW compressed air energy storage (CAES) Kern  
                Demonstration Project that uses a porous rock reservoir in  
                Kern County near where 4,500 MW of new wind is projected  
                to connect to the grid.  PG&E was awarded a $25 million  
                grant from the federal Department of Energy and matching  
                funds from California sources in 2009 to pilot this  
                project.  The total cost of the facility is estimated to  
                be $356 million.

                   A renewable integration pilot project using numerous  
                commercial and industrial facilities, jointly with the  
                Lawrence Berkeley National Laboratory. 

          In addition, PG&E is working with the Lawrence Berkeley National  
          Laboratory to implement renewable energy integration using  
          commercial and industrial facilities.  It is also partnering  
          with the Electric Power Research Institute to control the charge  
          rate of plug-in hybrid vehicles and electric vehicles as a means  
          to potentially integrate renewable energy.

          SCE is engaged in three energy storage pilots.  They are  
          scheduled to be complete in 2012, 2014, and 2015.  SCE believes  
          that after some studies are completed and others are 1 to 2  
          years along there should be adequate information to make some  
          solid recommendations. However, at this time it is premature to  
          mandate an energy storage portfolio.

          According to the CEC, research and development is ongoing for  
          all areas of energy storage. There are advanced sodium/sulfur,  
          zinc/bromine, and lithium/air batteries nearing commercial  
          readiness and offer promise for future utility application.   
          Flywheels continue to be developed and improved.   








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          Superconducting magnetic energy storage systems and  
          supercapacitors are under development, however, PG&E experts  
          assert that these are far from being available in commercial  
          packages.  The CEC notes that while there are a vast array of  
          products and applications which utilize energy storage of up to  
          a duration of 60 minutes, there are relatively few applications  
          employed for peak shaving and load leveling.

          5)   Cash for cache  :  Both rebates and grants are available for  
          energy storage facilities.  Recently, the CPUC has authorized  
          the use of the Self Generation Incentive Program subsidies to  
          provide up to $2 a watt when energy storage facilities are  
          coupled with an eligible (fuel cell or wind) technology.  
           
           The CEC provides grants.  Southern California Edison (SCE) notes  
          that several energy storage projects have qualified for CEC  
          grants from the American Reinvestment and Recovery Act funds,  
          including a grant for the Tehachapi project.  

          Energy storage facilities are also eligible for CEC Renewables  
          grants (when coupled with an eligible renewable technology) and  
          Public Interest Energy Research grants.  In May 2009, the CEC  
          funded a project by San Diego Gas & Electric (SDG&E) to add  
          energy storage and controls to coordinate the high-proportion of  
          roof-top solar systems in Borrego Springs, California, an area  
          with an average of nine blackouts per year.  SDG&E will evaluate  
          the microgrid performance to apply lessons learned to the  
          implementation of the smart grid using energy storage as an  
          element.

          The CEC provided more than $1.5 million to the Sacramento  
          Municipal Utility District (SMUD) to demonstrate and validate  
          the technologies developed under CEC-funded microgrid pilot  
          project that uses energy storage as well as renewable  
          technologies.  The CEC also provided $1 million to UC San Diego  
          to demonstrate a semi-autonomous smart grid controller that  
          manages a community-scale smart grid and integrates energy  
          storage technologies. 

          6)   Cost-effective is in the eye of the beholder  :  The  
          cost-effectiveness of energy storage varies depending on  
          numerous factors, including: the technology used, the expected  
          life of the system, the expected cost and frequency of ongoing  
          maintenance, the dispatchability of the technology, the location  
          of the system, and how much can be incorporated into the  








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          electrical grid.  A previous version of this bill prescribes the  
          factors required to be used to determine cost-effectiveness and  
          requires the CPUC or governing body of a POU to "value all  
          lifetime avoided costs of the energy storage system, including  
          avoided environmental costs."  The bill also required the CPUC  
          and POUs to "consider and value all of the purposes served by a  
          system."  

          Factors such as avoided costs, environmental costs, and all  
          purposes, are subjective and can vary greatly depending on the  
          evaluator.  In addition, all lifetime avoided costs may or may  
          not be applicable for this specific application.  One of the  
          most variable and subjective factors used when evaluating  
          cost-effectiveness is the present value of potential future  
          benefits, or the net-present value.  If the evaluator chooses to  
          use a low discount rate, it would imply that the expected  
          benefits in out years are sure to materialize and would result  
          in a high net-present value (or high benefits).  A high discount  
          rate, on the other hand, would imply the evaluator is skeptical  
          of the potential benefits in out years and the resulting  
          net-present value of the asset would be low.  Although these  
          evaluations might be helpful and relevant for larger policy  
          discussions, mandating that lifetime benefits be quantified or  
          considered could be arbitrary and unreliable for a financial  
          determination.

          According to the CEC, properly configured energy storage  
          benefits include improved power quality and reliability  
          ("premium" power), "Green Power" dispatch/purchase options,  
          energy/demand cost savings from load leveling, and decreased  
          transmission and distribution infrastructure investment.  The  
          CEC states that the weaknesses of energy storage include the  
          high cost for a long duration storage system, parasitic power  
          losses required to keep the unit charged, and high maintenance  
          (e.g. frequent testing, charge assessment for batteries).  The  
          CEC does not quantify these benefits or costs.

          Current law requires IOUs to first meet its unmet resource needs  
          through available energy efficiency and demand reduction  
          resources that are cost-effective, reliable, and reasonable.   
          Current law is silent on the factors the CPUC must consider to  
          be deemed "cost-effective."  To determine cost-effectiveness,  
          the CPUC uses a long-standing cost-effectiveness analysis  
          methodology, enshrined in the "Standard Practice Manual" more  
          than 20 years ago. This includes various cost-effectiveness  








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          tests from the perspectives of the participant and the utility  
          program administrator.  The CPUC also applies a Total Resource  
          Cost test that evaluates the combined costs of ratepayers and  
          participating customers, and a Societal Test that has the  
          ability to apply a different social discount rate, and count  
          certain externalities like greenhouse-gas reduction values.  The  
          input values are periodically updated, such as avoided energy  
          costs, the reference marginal resource type (currently a  
          combined cycle gas turbine), retail prices, assumptions on the  
          value per ton of carbon saved, and other quantifiable values.   
          This version of the bill appropriately leaves silent the factors  
          that should be considered, which defaults to the CPUC evaluation  
          of cost-effectiveness.
           
          7)   Opposition  :  SCE, in a filing to the CAISO, stated that  
          there is a significant need to understand the impacts of energy  
          storage technology and how it integrates at the distribution  
          level.  This is still "at a nascent stage."  To help address  
          SCE's need for understanding on how energy storage technology  
          resources integrate on the system, SCE has a Renewable  
          Integration and Advancement (RIA) application pending before the  
          CPUC that would allow for the development of research and  
          development projects at the distribution level for this type of  
          technology.  SCE states, "A mandate to purchase before we have  
          determined best uses of the technologies and appropriate grid  
          integration is a costly and risky proposal.  We continue to  
          advocate for a bill requiring guided study and trialing and  
          regulatory recommendations based on those results as the best  
          legislative approach."  

          The California Coalition of Utility Employees (CCUE) is opposed  
          and states, "We are not aware of any analysis that points to a  
          specific level of storage that is ideal to better operate and  
          balance the system.  In addition, we are very concerned that is  
          mandate is being proposed in a vacuum without any thoughtful  
          analysis of the cost implications of such a mandate."

          The California Large Energy Consumers Association (CLECA) is  
          concerned about the costs.  It states that although the bill  
          references attributes that should be considered and valued when  
          determining if a system is cost-effective, there is no  
          requirement that it be cost-effective.  In addition, CLECA is  
          opposed to the provision that grants utilities a higher rate of  
          return for storage projects.  When this higher return is added  
          to costs of operation and maintenance, it results in a higher  








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          cost of generation than that of generation by existing  
          facilities. 

          Other opposition believes that energy storage is a complementary  
          product and would add significant value "on the natural" to  
          already premium renewable energy due to RPS mandates.  A  
          renewable generator that can deliver more power when it's  
          needed, instead of during off-peak times or intermittently by  
          using storage, will likely get a higher priced contract and be  
          considered a priority when bidding into the IOUs' RPS  
          solicitations.  Storage would increase the renewable generator's  
          value due to its dispatachability and ability to firm renewable  
          generation.

          8)   The cart doing deliveries before the horse is bridled  :  This  
          bill requires the CEC to identify and recommend locations where  
          the interconnection costs for energy storage systems located on  
          the transmission and distribution grid would be minimized in its  
          biennial IEPR.   The CEC completes a full IEPR every  
          odd-numbered year, and provides an update to the previous IEPR  
          on even-numbered years.  The next full IEPR is expected to be  
          complete in the November 1, 2011. 

          This bill requires the CPUC to develop targets, which could be  
          zero if storage systems are not technologically viable or  
          cost-effective, by January 1, 2013.  The next IEPR will be  
          produced in the November 1, 2011, then two years later by  
          November 1, 2013.  It is unclear how or why the CEC could  
          recommend optimal locations for energy storage systems, when the  
          CPUC has not yet determined whether storage systems would be  
          best for ratepayers in light of all other energy efficiency and  
          demand reduction efforts.  

          In addition, current law requires the CEC to conduct assessments  
          and forecasts of  all  aspects of the energy industry, and have  
          the IEPR present policy recommendations based on an in-depth and  
          integrated analysis of the most current and pressing energy  
          issues facing the state.  It is unclear whether energy storage  
          systems would make the top pressing issues that warrant  
          inclusion in the IEPR.  If they do, the CEC already has  
          authority to include them.

          This bill could be requiring a tremendous amount of limited CEC  
          resources to be expended for naught.   As such, this committee  
          may wish to delete the provision that the CEC include in its  








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          IEPR an evaluation of the best energy storage systems in the  
          state, and an identification and recommendation for energy  
          storage facilities.

           
           REGISTERED SUPPORT / OPPOSITION  :   

          Support 
           
          A123 Systems, Inc.
          Altairnano Inc.
          Breathe California
          California Attorney General (Sponsor)
          California Energy Storage Alliance 
          CALMAC Manufacturing Corporation
          Clean Power Campaign (if amended)
          Coalition to Advance Renewable Energy through Bulk Storage  
          (CAREBS)
          Debenham Energy, LLC
          Dow Kokam, LLC
          ElectronVault, Inc.
          Energy Company, Panasonic Corporation
          EnerSys
          EnerVault Corporation
          EVAPCO, Inc.
          FAFCO Inc.
          Fluidic Energy, Inc.
          Ice Energy, Inc.
          MegaWatt Storage Farms, Inc.
          Mohr Davidow Ventures
          Natgun Corporation
          Pearl Street Liquidity Advisors, LLC.
          Polaris Venture Partners
          PowerGenix Systems, Inc.
          Prudent Energy International, Inc.
          PVT Solar, Inc.
          Rockport Capital Partners
          SAIL Venture Partners
          Samsung SDIA, Inc.
          SANYO North America Corporation
          SEEO, Inc.
          SustainX, Inc.
          Union of Concerned Scientist (UCS)
          XtremePower









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           Opposition 
           
          California Manufacturers & Technology Association (CMTA)
          California Municipal Utilities Association (CMUA)
          California Association of Small and Multi-jurisdictional  
          Utilities (CASMU)
          California Coalition of Utility Employees (CCUE)
          California Large Energy Consumers Association (CLECA) (unless  
          amended)
          Division of Ratepayer Advocates (DRA) (unless amended)
          Northern California Power Agency (NCPA)
          Pacific Gas and Electric Company (PG&E) (unless amended)
          San Diego Gas & Electric (SDG&E) (unless amended)
          Southern California Edison (SCE) (unless amended)
          The Utility Reform Network (TURN)
           
          Analysis Prepared by  :    Gina Adams / U. & C. / (916) 319-2083