BILL ANALYSIS
SB 14
Page A
SENATE THIRD READING
SB 14 (Simitian)
As Amended August 18, 2009
Majority vote
SENATE VOTE :21-16
UTILITIES & COMMERCE 10-5 NATURAL
RESOURCES 5-3
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|Ayes:|Fuentes, Buchanan, |Ayes:|Skinner, Chesbro, De |
| |Carter, Fong, Furutani, | |Leon, Hill Huffman |
| |Huffman, Krekorian, | | |
| |Skinner, Swanson, Torrico | | |
| | | | |
|-----+--------------------------+-----+--------------------------|
|Nays:|Duvall, Tom Berryhill, |Nays:|Gilmore, Knight, Logue |
| |Fuller, Smyth, Villines | | |
| | | | |
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APPROPRIATIONS 12-5
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|Ayes:|De Leon, Ammiano, | | |
| |Charles Calderon, Coto, | | |
| |Davis, Fuentes, Hall, | | |
| |John A. Perez, Skinner, | | |
| |Solorio, Torlakson, Hill | | |
| | | | |
|-----+--------------------------+-----+--------------------------|
|Nays:|Conway, Harkey, Miller, | | |
| |Nielsen, Audra Strickland | | |
| | | | |
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SUMMARY : Increases California's Renewables Portfolio Standard
(RPS) to require all retail sellers of electricity and all publicly
owned utilities (POUs) to procure at least 33% of electricity
delivered to their retail customers from renewable resources by
2020. Makes changes to current renewable procurement rules and
procedures for siting renewable generation and transmission.
Specifically, this bill:
1)Replaces the 20% by 2010 RPS target with biennial targets of 20%
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by 2012, 23% by 2014, 26% by 2016, 30% by 2018 and 33% by 2020.
These targets are applicable to "retail sellers," which include
IOUs, energy service providers and community choice aggregators,
and also to publicly-owned utilities (POUs).
2)Revises the definition of "delivery," for purposes of renewable
energy generated to meet RPS goal, to eliminate eligibility of
energy from an out-of-state resource that is not scheduled for
"simultaneous consumption," as defined, by customers in
California.
3)Allows retail sellers and POUs to count the renewable output from
renewable facilities that do not comply with the definitions of
eligible renewable resources toward RPS if the retail seller or
POU had executed a contract to procure resources from a facility
prior to May 31, 2009.
4)Revises existing provisions requiring POUs to implement their own
RPS programs by specifically requiring each POU to meet the
targets in 1) above and to report annually to the California
Energy Commission (CEC) on its progress toward meeting the
targets.
5)Requires CEC to adopt regulations for enforcement of 4) above, and
upon a determination by CEC that a POU has failed to comply with
RPS requirements, requires CEC to refer the matter to the Air
Resources Board (ARB), which may impose penalties on POU.
6)Requires PUC to adopt a minimum margin of procurement above the
level necessary to comply with RPS to mitigate the risk that
renewable projects will be delayed or cancelled.
7)Sets aside up to one-quarter of the 33% renewable portfolio for
IOU-owned generation, by requiring the PUC to approve an IOU's
application to construct, own and operate a renewable energy
facility until IOU-owned renewable facilities equal 8.25% of IOU's
anticipated 2020 retail sales.
8)Replaces existing RPS flexible compliance provisions with PUC
authority to allow retail sellers to delay compliance with the
2012, 2014, 2016 and 2018 renewable targets per 1) above for a
maximum of two years if the retail seller demonstrates inadequate
transmission capacity or unanticipated permitting and
interconnection delays.
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9)Revises the criteria for the Market Price Referent (MPR) used to
gauge the reasonableness of renewable energy contracts, by
requiring the price methodology to reflect all current and
anticipated environmental compliance costs.
10)Establishes a new and significantly higher annual above-market
cap-6% of an IOU's total electric revenues for the prior
year-beyond which IOUs would not have to procure additional
renewable resources under RPS at above-market costs in a
particular year.
11)Allows retail sellers and POUs to use renewable energy credits
(RECs) from out-of-state renewable resources that do not deliver
electricity into California (undelivered RECs) toward their RPS
obligations, but caps the total amount of undelivered RECs at 20%
of the retail seller's or POU's renewable procurement targets.
12)Requires PUC to approve an application to construct a
transmission line within 18 months if the commission finds the
project necessary to meet RPS goals.
13)Requires the Department of Fish and Game to establish an internal
division to perform comprehensive planning, streamlined
environmental compliance services, and ensure timely completion of
Natural Community Conservation Plans related to development of
renewable energy projects.
EXISTING LAW :
1)Requires IOUs and certain other retail sellers to achieve a 20%
RPS by 2010 and establishes a process and standards for renewable
procurement.
2)Provides that POUs are not subject to the same detailed
procurement process and standards as IOUs, but are required to
implement and enforce their own RPS programs.
3)Defines eligible renewable technologies to include biomass, solar
thermal, photovoltaic, wind, geothermal, renewable fuel cells,
small hydroelectric (30 MW or less), digester gas, municipal solid
waste conversion, landfill gas, ocean wave, ocean thermal, and
tidal current.
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4)Provides that eligible renewable resources that are located
outside of California may count toward the California RPS if the
generator commences operation after January 1, 2005, and the
facility is directly connected to California's transmission grid
or the associated electricity is delivered to California.
5)Creates a cap on above-market costs of renewable electricity each
IOU is required to spend under RPS. If the cost cap is reached,
IOUs are not required to sign any renewable contract that exceeds
the market cost of electricity.
6)Requires PUC to develop flexible rules for compliance for RPS that
allows a retail seller that cannot not meet its annual targets to
delay compliance for up to three years and avoid penalties under
certain conditions.
7)Requires the California Energy Commission (CEC) to certify
electric generation facilities for the construction and operation
of thermal powerplants of 50 MW and larger.
8)Precludes an electrical corporation from constructing a line,
plant, or system without having first obtained a permit from PUC
that the present or future public convenience and necessity
require or will require such construction, a certificate of public
convenience and necessity (CPCN).
FISCAL EFFECT :
1)CEC : The commission will require $650,000 annually for two
positions and contract funds to expedite the siting of renewable
energy generation and transmission. [Energy Resources Programs
Account]
CEC would also incur annual costs of $600,000 for three positions
and contract funds to enforce RPS requirements for POUs. [Energy
Resources Programs Account]
2)PUC : The commission states that meeting the 33% by 2020 goal
"will require an infrastructure build-out on a scale and timeline
perhaps unparalleled anywhere in the world." In addition to the
seven staff current assigned to RPS program, the commission would
incur ongoing special fund costs [Public Utilities Reimbursement
Account] of $1.7 million for 14 additional positions as follows:
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a) Five additional regulatory analyst positions to design and
implement the new RPS policies, manage the renewable energy
procurement process, coordinate procurement and transmission
planning, and calculate program costs for purposes of applying
the cost cap;
b) An administrative law judge and an attorney to evaluate
utilities' requests for flexible compliance with the increased
targets; and,
c) Seven additional positions, supplementing five existing
staff, associated with permitting an anticipated four to six
major new transmission projects and within an 18-month deadline
following application.
COMMENTS : In 2002, the Legislature approved SB 1078 (Sher),
Chapter 516, Statutes of 2002, which created RPS. Under RPS, IOUs
and competitive energy service providers (ESPs) of electricity were
required to increase their renewable procurement each year by at
least 1% of total sales, so that 20% of their sales are from
renewable energy sources by December 31, 2017. This goal was
accelerated to 20% renewable power by 2010 by SB 107 (Simitian),
Chapter 464, Statutes of 2006.
PUC reports that for 2007, IOUs have achieved varying levels of
progress toward the 20% goal: PG&E = 11.4%; SCE =15.7%; SDG&E =
5.2%. While each IOU added renewable resources in 2007, the
percentage of renewables compared to the rest of the portfolio
declined from 2006 due to total load growth. All agencies and
stakeholders agree that IOUs will not meet the 2010 deadline.
However, PUC reported in October 2008 that IOUs should be in
compliance in or around 2013.
In a recent report providing preliminary results on the feasibility
and costs of achieving a 33% RPS by 2020, PUC concluded that such a
goal "is highly ambitious, given the magnitude of the infrastructure
buildout required." Under PUC's analysis, the incremental cost of
moving from the current to a 33% RPS would result in a 7.1% increase
in utility costs. This increase included the costs associated with
more expensive generation resources, new transmission, and other
resources that will be needed to provide back up generation when
renewable electricity is not available. The estimate assumes the
utilities will continue the same balance of renewable technologies,
which includes a large reliance on wind and solar energy, and that
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the direct costs of building new renewable facilities remains
unchanged over time, and thus does not account for potential
technology-related decreases in costs over time.
Cost cap. This bill establishes a new limitation for above-market
costs for IOU renewable procurement-6% of IOU's revenue requirement.
Based on PUC data, for the three largest IOUs, 6% of the 2008
revenue requirement equals approximately: PG&E - $650 million; SCE -
$700 million; SDG&E - $180 million. Thus, a rough estimate of the
total cost cap for all three IOUs is $1.5 billion at 2008 revenues,
roughly between five and 10 times the amount set aside for
above-market costs under current law, depending on the accounting
method.
Location, deliverability, and renewable energy credits: To count
toward a retail seller's RPS obligation, the renewable facility must
meet several requirements including that the facility be located in
California or deliver its electricity to California. The definition
of "deliver" in current law was written to allow an out-of-state
renewable generator that wants to serve California load to comply
with CAISO rules that require out-of-state electricity to be
scheduled into California at specific times and amounts. Since
renewable resources like wind and solar are intermittent, they
cannot be scheduled at specific times and amounts. The intent of
the language was for the renewable energy to come to California at
some point and then offset the need for fossil fuel generation
within California. However, CEC, which sets the eligibility rules,
interpreted the statutory language to allow for transactions where
the renewable electricity never comes to California to count toward
RPS as an eligible resource.
SB 14 changes the definition of delivery to limit the amount of
out-of-state generation that can count toward RPS by changing the
definition of "deliver." With the limited exception discussed under
the renewable energy credits section below, the new definition
requires that electricity from an out-of-state facility that is not
directly interconnected to a California control area must be
simultaneously scheduled into California. This means that the
renewable electricity must come into California at the same time it
is produced or it cannot count toward RPS. This new definition
prevents a utility from counting transactions toward RPS where it
purchases wind generation from an out-of-state generator but then
sells that electricity to another out-of-state entity and instead
imports electricity from a fossil fuel facility. The new definition
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also makes it almost impossible to purchase electricity from a solar
or wind facility that is located out-of-state, since these resources
cannot be simultaneously scheduled into California.
SB 14 allows utilities to use some generation resources that are
located outside of California to comply with the RPS requirements by
allowing utilities to purchase RECs from out-of-state resources that
cannot deliver electricity into California. A REC represents the
renewable attributes of renewable generation. RECs can also be
traded separate from the underlying electricity (tradable RECs or
tRECs). In this case, one retail seller purchases 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.
SB 14 allows California retail sellers to purchase tRECs from
out-of-state renewable resources, but caps the total amount of these
tRECs at 20% of the retail seller's RPS obligation.
Most retail sellers and some renewable generators have advocated for
broader use of RECs. The retail sellers and the Clean Power
Campaign state that RPS should not limit the use of RECs or put
restriction on the geographic location or deliverability of the
associated renewable resource. They believe this broad REC market
would give retail sellers more procurement options and could reduce
the cost of complying with RPS.
A number of environmental groups, the Coalition of Utilities
Employees, and California Wind Energy Association have all advocated
for a very limited allowance for out-of-state RECs. They fear that
a wide-open REC market will lead to "paper compliance with RPS" and
will not result in the construction of any renewable generation
within California.
Enforcement and off Ramps: Current law also requires PUC to develop
rules of flexible compliance that would allow retail sellers to
avoid penalties for non-compliance under certain conditions. The
flexible compliance rules allow retail sellers to miss RPS goals in
one year provided that it meets that goal within three years. This
means that a retail seller will not be penalized for failing to meet
the 20% by 2010 goal if it actually procures 20% of its power from
renewable resources by 2013. A second flexible compliance rule
allows PUC to waive penalties for a retail seller if PUC finds that
there was insufficient transmission to meet RPS goals.
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SB 14 provides that PUC may grant a retail seller an additional two
years to meet compliance targets if PUC finds, after an evidentiary
hearing, that there is inadequate transmission capacity to meet RPS
or there were unanticipated permitting delays for planned eligible
renewable electricity projects. The retail seller must also show
that it made reasonable efforts to procure cost effective distribute
generation resources and to procure RECs.
Analysis Prepared by : Edward Randolph / U. & C. / (916) 319-2083
FN: 0002684