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 : SB 581 Page 2 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, SB 581 Page 3 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 SB 581 Page 4 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 SB 581 Page 5 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 SB 581 Page 6 Pacific Gas & Electric Company (PG&E) Analysis Prepared by : Gina Adams / U. & C. / (916) 319-2083