BILL ANALYSIS
SB 14
Page 1
SENATE THIRD READING
SB 14 (Simitian)
As Amended September 10, 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)Requires retail sellers of electricity to procure at least 20% of
electricity delivered to retail customers from renewable sources
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by 2013, 25% by 2016, and 33% by 2020.
2)Modifies the definition of eligible renewable resources under RPS
as follows:
a) Requires renewable generators to deliver electrical output
into California by either directly interconnecting with
transmission lines controlled by a California transmission grid
operator or showing that the metered output of a facility that
is not directly connected to a California controlled
transmission grid matches hourly import schedules to a
California transmission grid operator; and,
b) The renewable facility must commence initial operation after
January 1, 2010, or the electricity from the facility that
commenced operation prior to January 1, 2010, was sold to a
retail seller prior to May 31, 2009.
3)Eliminates current rules that allow retail sellers to postpone
compliance with annual RPS targets for up to three years in the
future. Replaces those rules with provisions that allow the
California Public Utilities Commission (PUC) to grant a retail
seller the ability to delay compliance for up to two years if PUC
makes specific findings that there is insufficient transmission to
meet RPS or there were unforeseen delays in permitting or
interconnecting projects. The findings must consider whether the
retail seller made all reasonable efforts to construct new
transmission and made prudent decisions in procuring resources.
The retail seller must also show that it has made all reasonable
efforts to procure distributed generation resources and to procure
Renewable Energy Credits (RECs).
4)Creates a cap on the potential overall cost of the RPS by:
a) Requiring PUC to set a Market Price Referent (MPR) to be
used to determine above-market costs of renewable electricity.
MPR shall be set based on the value of different generation
products within a utility's portfolio and the value of current
and anticipated environmental compliance costs; and,
b) Providing that an Investor Owned Utility (IOU) does not have
to procure additional renewable resources if the total
above-market cost of all renewable electricity procured under
RPS program or bilateral contracts exceeds 6% of IOUs' total
bundled electricity sales.
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5)Requires PUC to adopt mechanisms to limit the influence MPR has on
how sellers price their renewable proposals and buyers select
their contracts.
6)Creates a mechanism to allow PUC to approve an IOU application to
own its own renewable generation and then recover in rates the
cost of that generation plus a reasonable rate of return, if PUC
finds the renewable generating facility has a reasonable cost and
provides a comparable value to ratepayers as compared to other
solicitations for eligible renewable resource.
7)Allows retail sellers and POUs to use RECs from resources that do
not deliver electricity into California (undelivered RECs) toward
their RPS obligations, but caps the total amount of undelivered
RECs at 25% of the retail seller's or POU's renewable procurement
targets. Provides that if an IOU or POU builds additional utility
owned generation, they can increase the allowance of undelivered
RECs to up to 30%.
8)Provides that retail sellers and POUs can count all undelivered
RECs from contracts executed by the retail seller or POU prior to
September 18, 2009, even if the total amount of RECs exceeds the
limits in 7) above. However, if they exceed the limits above, the
retail sellers and POUs could not count additional undelivered
RECs toward their RPS obligations.
9)Requires PUC to prepare, on a bi-annual basis, reports to the
Legislature containing information on the status of meeting RPS,
possibilities of retail sellers exceeding caps on above-market
costs, overall cost of RPS compliance, and the status of
permitting and siting renewable facilities.
10)Requires POUs to comply with the same RPS mandates as retail
sellers and to meet specified public notice and reporting
requirements. Provides that POUs shall retain discretion over
specific renewable procurements decisions necessary to meet RPS
mandates.
11)Requires CEC in consultation with California Air Resource Board
(ARB) to adopt regulations for the enforcement of RPS on POUs.
Provides that ARB shall have the authority to impose penalties on
POUs for failure to comply with RPS.
12)Creates special procurement rules for several POUs due to their
unique circumstances.
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13)Provides that SB 14 shall not become effective unless AB 64
(Krekorian) is also enacted prior to January 1, 2010.
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.
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 :
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1)CEC : CEC 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 : PUC 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:
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 : SB 14 is double-jointed to AB 64 (Krekorian) such that
for either bill to become effective they both must be approved by
the Legislature and approved by the Governor. The two bills taken
together create California's new RPS. AB 64:
1)Requires PUC to set minimum levels of renewable procurement all
retail sellers must achieve beyond the specified targets to
account for the risk that some planned resources will not being
developed. The minimum level could be set at zero.
2)Requires renewable procurement plans prepared by IOUs and approved
by PUC to include a process to consider the viability of proposed
projects when ranking project bids.
3)Requires PUC to approve an application to build new transmission
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lines that are reasonably necessary to develop renewable resources
within 18 months of the filing of a completed application, if the
new transmission line does not threaten substantial harm to the
environment that necessitates a longer time for review under the
California Environmental Quality Act (CEQA).
4)Clarifies that an IOU shall be allowed to recover in rates the
costs of constructing transmission lines that will primarily
deliver electricity generated renewable electricity and are
located in existing transmission rights-of-way or in CEC
designated transmission corridor zones.
5)Requires the Department of Fish and Game (DFG) to establish an
internal division for the purpose of performing planning and
streamlined environmental compliance services with a priority
given to the building of eligible renewable energy resources.
6)Provides that the California Independent System Operator (CAISO),
Sacramento Municipal Utilities District (SMUD) and the Los Angeles
Department of Water and Power (LADWP) shall work cooperatively to
integrate and interconnect eligible renewable resources to the
transmission grid by the most efficient means possible to minimize
the impact of and need for additional transmission lines.
Background : 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
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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
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 : SB 14 provides that IOUs will not be required to procure
renewable resources that are above the market price of all
electricity (MPR) if the total above market cost of all renewable
procurement the IOU executed 6% of the IOUs total revenue
requirement for the ten year period leading to 2020. This cost cap
allows the Legislature to determine how much impact renewable
electricity should have on a retail sellers' overall cost structure
and then set the cost cap at that level by basing it on a percentage
of overall revenue. According to numbers provided by PUC, the new
cost cap should allow for close to $17 billion allowable above
market costs for PG&E, SCE, and SCE combined. This is a roughly 20
times the amount set aside for above-market costs under current law,
depending on the accounting method.
The language in the bill gives PUC some flexibility to determine how
to calculate the cost of individual contracts that expire after 20%.
The contracts could be calculated against the cost cap on a
pro-rata basis such that only the cost of the contract associated
with the years prior to 2020 would count against the cap.
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 deliver its
electricity to California. A resource can "deliver" to California
if it is either directly interconnected to a California control area
or is scheduled into California within the same hour it is produced
and from the same location at which it is produced. These
definitions ensure that all electricity that is counted toward RPS
is actually used to offset the need for non-renewable generation
within California.
This definition could make it difficult to apply electricity from a
solar or wind facility that is located out-of-state to RPS, since
many of these resources cannot be scheduled into California at the
same time it produced by the resource. Some of these resources do
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not schedule their actual output into California and instead use
resources from non-renewable facilities to "match" the output. Even
with this inability for some resources located outside of California
to meet the delivery requirements there are approximately 22,000 MWs
worth of proposed projects today that are located outside of
California that will be able to meet the definition of delivery.
SB 14 also allows a retail seller or POU to procure RECs to meet a
portion of their RPS obligation. The bill caps the total amount of
these RECs at 25% of the total RPS obligation and allows utilities
to meet up to 30% if the utilities invest in more utility owned
generation.
A REC represents the renewable attributes of renewable generation.
A REC can remain bundled with the associated energy. In that case,
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 separate 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.
Some retail sellers and some renewable generators have advocated for
broader use of RECs. They believe 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 : SB 14 provides that PUC may grant a
retail seller that cannot meet its RPS targets an additional two
years to meet compliance targets if PUC finds 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.
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Publicly Owned Utilities : Current law does not require POUs to meet
the same RPS that other electricity providers are required to meet.
Rather, current law directs each POU to put in place and enforce its
own RPS and allows each publicly owned utility to define the
electricity sources that it counts as renewable. No state agency
enforces POU compliance or places penalties on a publicly owned
utility that fails to meet the renewable energy goals it has set for
itself.
SB 14 requires most POUs to meet the 33% RPS by 2020 requirement.
The bill requires each POU to meet the same RPS procurement targets
as other retail sellers. The bill allows POUs to comply with the
same provisions allowing for up to 30% undelivered RECs to meet
their RPS compliance. While the bill allows PUC to adopt rules for
REC purchases for retail sellers, POUs should be able to comply with
the statutory restrictions on REC purchases without PUC involvement.
Most of POUs do not object to creating a specific POU RPS mandate.
However, while the largest POU in the state, the Los Angeles
Department of Water and Power, supports this bill, most other POU
oppose the bill due in large part to their concern that the bill's
delivery requirements makes it difficult to procure some resources
that had hope to use for RPS compliance.
Analysis Prepared by : Edward Randolph / U. & C. / (916) 319-2083
FN: 0003227