BILL ANALYSIS                                                                                                                                                                                                    



                                                                  SB 581
                                                                  Page  1

          Date of Hearing:   June 22, 2009

                    ASSEMBLY COMMITTEE ON UTILITIES AND COMMERCE
                                Felipe Fuentes, Chair
                      SB 581 (Leno) - As Amended:  June 17, 2009

           SENATE VOTE  :   25-14
           
          SUBJECT  :   Hetch Hetchy Water and Power: renewable generation.
           
          SUMMARY  :  Allows the San Francisco Public Utilities Commission  
          (SFPUC) to designate all renewable electric generation  
          facilities to be eligible for a unique arrangement where Pacific  
          Gas and Electric Company (PG&E) is required to take electricity  
          from the generator and offset the City of San Francisco's  
          (City's) municipal load.  
           
          EXISTING LAW  :   

          1)Requires PG&E to credit the City and County of San Francisco  
            (City) for any excess electricity exported to the PG&E grid  
            from City-owned solar generation facilities that serve its  
            municipal facilities.  

          2)Restricts the size of eligible solar generating facilities to  
            15 megawatts (MW).

          3)Requires the SFPUC-owned municipal facility to be located  
            within the City and County of San Francisco, or for sites  
            outside of the City, within 20 miles of the City or within 20  
            miles of a City-owned remote solar generation facility.  

          4)Requires the SFPUC to pay the reasonable costs of any  
            improvements required to facilitate interconnection between  
            the solar facility and PG&E.

          5)Allows a city, county, city and county, special district,  
            school district, political subdivision, or other local public  
            agency to designate accounts controlled by the governmental  
            entity to receive bill credits for the electricity generated  
            by a renewable generating facility located within the  
            boundaries of the governmental entity and is on land owned or  
            controlled by the governmental entity.
           
          THIS BILL  :   








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          1)Expands the type of generation the SFPUC can use to offset the  
            City's municipal load; from only solar to all forms of  
            renewable energy.

          2)Deletes the restriction that the designated generation  
            facility be HHWP-generated and owned by the City, and allows  
            the facility to be owned or under lease or contract to the  
            City for at least a five-year term and for the full output of  
            electricity from the facility.

          3)Deletes the restriction that the load served must be within 20  
            miles of the City or within 20 miles of a Hetch Hetchy Water  
            and Power (HHWP) owned remote solar generation facility and  
            expands eligibility to PG&E's electric service territory.


          4)Provides that the City shall own the environmental attributes  
            associated with the electricity delivered to the electric grid  
            by City-owned renewable generation facilities.

           FISCAL EFFECT  :   Unknown.

           COMMENTS  :   According to the author, the purpose of this bill is  
          to allow SFPUC to expand its renewable program to add a variety  
          of renewable energy projects including in-line hydro, ocean wave  
          power, and small wind which are not included in current law.

          1)   Background  : The City owns HHWP, which provides water from  
          the Tuolumne River to the City and its residents.  The federal  
          Raker Act (1913) permitted the City to dam the Tuolumne River  
          and flood the breathtaking Hetch Hetchy Valley, build a 167-mile  
          aqueduct, and construct powerhouses and transmission lines below  
          Hetch Hetchy Reservoir for the generation, sale, and  
          distribution of electric energy.  The Act also established  
          priorities for the use of Hetch Hetchy hydropower: first to  
          drive the system's waterworks, next to supply the City's  
          municipal government agencies, and then to farmers and municipal  
          governments within the Modesto and Turlock irrigation districts.  
          Any remaining hydropower could be sold to the City's residential  
          and business users but never to a corporation, such as PG&E.

          At that time, PG&E was the sole provider of gas and electricity  
          in the City. Although the City built a transmission line from  
          the Hetch Hetchy hydroelectric plant to Newark (across the bay,  








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          south of Oakland), it was unable to obtain funding for the last  
          stretch into the City.  

          The City has a unique arrangement.  PG&E continues to procure  
          generation, and provide transmission and distribution services  
          to all bundled-service ratepayers such as residential,  
          commercial, and industrial customers within the City's  
          boundaries.  However, the City owns the Hetch Hetchy power which  
          requires the City to use it for its municipal load first. As  
          such, PG&E does not procure electricity for the City's municipal  
          load.  The City needs PG&E to provide the transmission across  
          the bay and into the City, and it needs PG&E for the local  
          distribution of the power to the municipal facilities.  Over the  
          years, the City and PG&E negotiated a federally approved  
          Interconnection Agreement that identifies the terms and  
          conditions under which PG&E will transport and distribute the  
          City's Hetch Hetchy power to the City's municipal locations. 

          2)   One size does not necessarily fit all  :  Over the past few  
          years, many bills have addressed a municipality's desire to  
          generate its own electricity to serve its load.  AB 1969 (Yee),  
          Chapter 731, Statutes of 2006, requires an electrical  
          corporation to purchase electricity from renewable electricity  
          generation facilities that are owned and operated by public  
          wastewater agencies.  AB 1969 provides that the electricity  
          purchased by the utility shall count toward the utility's  
          Renewable Portfolio Standard (RPS).

          AB 2466 (Laird) Chapter 540, Statutes of 2008, allows a local  
          government to receive a bill credit against electricity it has  
          consumed at one or more sites for electricity it has generated  
          and supplied to the grid at one or more renewable generating  
          facilities. The offset price is the wholesale cost of the  
          generation, which is less than the retail rate that the  
          municipality pays the utility for the electricity it consumes.   
          The SFPUC cannot participate in this program because it is not a  
          customer of the utility and therefore, does not receive a  
          utility bill to apply the bill credit.

          3)   When the lights go down in the City  :  The City, as its own  
          municipal utility, is different than a typical municipality and  
          does not have to buy its electricity from an IOU.  Five years  
          ago, the Legislature passed AB 594 (Leno) Chapter 790, Statutes  
          of 2004, which enabled the City to install on-site photovoltaic  
          solar generation at its municipal sites and get credit for  








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          excess electricity.  Two years later, AB 2573 (Leno), Chapter  
          786, Statutes of 2006, allowed the City to offset its power  
          generated by HHWP at one location, with power consumed by the  
          City municipal meters at a different location.  This bill  
          expands the AB 2573 arrangement by applying to all renewable  
          generation and removes the statutory requirement that the  
          qualifying remote load be within 20 miles of the City or not to  
          exceed 20 miles distance between remote generation and  
          qualifying remote load.

          4)   No freewheeling  :  The California Public Utilities Commission  
          (PUC) regulates PG&E and requires that PG&E be compensated for  
          any system impact costs.  To allow an entity to generate  
          electricity at one location to be consumed at another, PG&E may  
          incur costs to "wheel" that power.  AB 2573 appropriately  
          ensured that there are no cost shifts and that HHWP pays all  
          nonbypassable charges that are assessed to PG&E's other electric  
          customers. 

          In response to AB 2573, PG&E renegotiated the Interconnection  
          Agreement between the utility and SFPUC.  Because the bill  
          restricted the distance between the generator and the load  
          center to 20 miles and restricted the qualifying remote  
          generator to be within 20 miles of the City, PG&E provided a  
          $0.008/kWh discount on the "wheeled" electricity.  After all  
          provisions of the Interconnection Agreement were renegotiated to  
          accommodate AB 2573, the Federal Energy Regulatory Commission  
          (FERC) approved it.

          This bill eliminates the 20-mile restriction.  The author states  
          that, "If CCSF (the City) is paying for T&D (transmission and  
          distribution), the distance between generation and load should  
          not matter."  According to PG&E, the distance matters a lot.  
          PG&E states that the Interconnection Agreement is a balance of  
          benefits and burdens for both parties and these changes would be  
          detrimental to PG&E's electric customers.  

          AB 2573 appropriately requires the City to pay applicable  
          distribution rates and/or transmission rates at rate levels  
          determined by the Interconnection Agreement, for all energy  
          delivered to qualifying remote load that comes from a HHWP solar  
          generation facility.  In addition, AB 2573 requires the  
          appropriate regulatory agency to ensure that this arrangement of  
          HHWP generation providing electricity to qualifying remote sites  
          does not result in a shifting of costs to bundled service  








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          customers.  By removing the 20-mile restriction, this bill may  
          result in a shifting of costs to bundled-service customers for  
          the time between the enactment of this bill and the date FERC  
          approves a subsequent Interconnection Agreement.  

          The SFPUC states that it is not their intent to interfere with  
          or try to have state law supersede the federally-approved  
          Interconnection Agreement.  As such,  this committee may wish to  
          include clarifying language that the current 20-mile restriction  
          applies during the term of the Interconnection Agreement and  
          identify the Agreement and date of expiration.  The bill should  
          remain silent after the expiration of the agreement to allow the  
          City and PG&E explore and renegotiate all alternative options  
          available at that time.  

           5)   Renewable Energy Credits : A REC represents the environmental  
          and renewable attributes of renewable electricity as a separate  
          commodity from the energy itself. A REC can be sold either  
          "bundled" with the underlying energy or "unbundled" into a  
          separate REC trading market. 

          RECs can be traded in voluntary markets or compliance markets.  
          In the voluntary market, any company (e.g. a grocery store  
          chain) that wishes to claim that it is powered by clean energy  
          may buy non-renewable power from its local energy provider and  
          also buy an equivalent amount of RECs that have been "unbundled"  
          from renewable energy produced elsewhere.  The PUC is also  
          considering allowing electric utilities to use unbundled RECs to  
          comply with their renewable portfolio requirements.

          Current law requires the PUC to determine whether the City or  
          PG&E owns the RECs associated with HHWP generation.  This bill  
          would designate that the City owns the RECs associated with  
          electricity delivered to the grid by HHWP electric generation  
          plants.


           REGISTERED SUPPORT / OPPOSITION  :

           Support 
           
          San Francisco Public Utilities Commission (sponsor)
           
            Opposition 
           








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          Pacific Gas & Electric Company (PG&E)

           Analysis Prepared by  :    Gina Adams / U. & C. / (916) 319-2083