BILL ANALYSIS                                                                                                                                                                                                    



                                                                  SB 581
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          SENATE THIRD READING
          SB 581 (Leno)
          As Amended  August 27, 2009
          Majority vote

           UTILITIES & COMMERCE             13-0               NATURAL  
          RESOURCES              9-0      
          
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          |Ayes:|Fuentes, Tom Berryhill,   |Ayes:|Skinner, Gilmore,         |
          |     |Carter, Fong, Fuller,     |     |Brownley, Chesbro, De     |
          |     |Furutani, Huffman,        |     |Leon, Hill, Huffman,      |
          |     |Krekorian, Skinner,       |     |Knight, Logue             |
          |     |Fletcher, Swanson,        |     |                          |
          |     |Torrico, Villines         |     |                          |
          |-----+--------------------------+-----+--------------------------|
          |     |                          |     |                          |
           ----------------------------------------------------------------- 
           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)  
          municipal load.  Specifically,  this bill  :

          1)Expands the type of generation 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 Hetch Hetchy Water and Power (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)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  :  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  
          construct powerhouses and transmission lines below Hetch Hetchy  








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          Reservoir for the generation, sale, and distribution of electric  
          energy.  The Act 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.

          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. 

          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 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.

          In addition, this bill allows the City to engage in contractual  
          relationships with energy providers through power purchase  
          agreements (PPAs).  PPAs can be used by public and private  
          entities to finance the construction of onsite renewable power  
          generation.  Under a typical PPA, a private third party finances  
          the up-front costs of building the renewable energy generation  
          facility through a loan provided by a bank.  The bank provides a  
          loan to cover the up-front financing for the project, and the  
          energy company will build, own, and operate the renewable  
          facility that provides electricity to the building owner.  The  
          building owner, in turn, promises to make specified payments for  
          that power for a certain number of years which pays off the  
          loan, as well as creates a profit stream for the energy company.  
           This bill ensures that the PPA is under lease or contract to  
          the City for at least a five-year term and for the full output  
          of electricity from the facility.


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








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