BILL ANALYSIS 1
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SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE
ALEX PADILLA, CHAIR
SB 805 - Wright Hearing Date:
April 21, 2009 S
As Amended: April 14, 2009 FISCAL B
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DESCRIPTION
Current law requires retail sellers of electricity
(investor-owned utilities (IOUs) and energy service providers
(ESPs)) to increase existing purchases of renewable energy by 1%
of sales per year (annual procurement target or APT) such that
20% of retail sales, as measured by usage, are procured from
eligible renewable resources by December 31, 2010. This is known
as the Renewable Portfolio Standard (RPS).
This bill requires retail sellers to increase their purchases of
renewable energy so that 33% of retail sales are procured from
renewable energy resources by December 31, 2020 and eliminates
the one percent APT. The CPUC could also not find a retail
seller out of compliance with the RPS if they find that an
insufficient supply of resources is available or that there have
been a lack of competitive offers for resources. The CPUC could
also order an IOU to invest in utility-owned-generation and
would be required to report to the Legislature biennially on the
status of reaching the 33% goal and barriers to achieving that
goal.
Current law requires the CPUC to develop, by rulemaking, a
procurement process for renewable resources by IOUs which
includes the determination of a benchmark for the market price
of electricity (market price referent or MPR) against which
renewable contracts are evaluated for reasonableness in price.
Current law creates cap on the above-MPR costs of renewable
contracts (aka cost cap). If the cost cap is reached, IOUs are
not required to sign any renewable contract that exceeds the MPR
and the RPS mandate is waived. However, an IOU can voluntarily
choose to continue to contract for renewable energy at above-MPR
prices. These contracts are referred to as bilateral contracts.
This bill caps the direct and indirect costs for compliance with
the RPS at three percent of a utility's annual revenue for the
previous calendar year commencing January 1, 2012 and includes
bilateral contracts in the RPS cost cap.
Current law requires renewable resources to be generated in, or
delivered to, the California grid.
This bill supersedes the delivery requirement and permits
unlimited renewable resources to be procured from outside of
this state. This provision applies to IOUs, ESPs, the Truckee
Donner Public Utility District, and rural electrical
cooperatives (coops).
Current law allows the CPUC to authorize the use of Renewable
Energy Credits (RECs) from eligible renewable resources for
retail sellers to meet their RPS obligations and allows publicly
owned utilities (POUs) to sell RECs to retail sellers of
electricity if the POU has established a RPS that is comparable
to the RPS of the IOUs and is in compliance with that RPS.
This bill permits a retail seller or POU to meet up to 25
percent of its RPS goal with unbundled RECs from renewable
energy resources located anywhere outside of California but
within the territory of the Western Electric Coordinating
Council (WECC).
Current law exempts POUs from the state RPS program and instead
requires these utilities to implement and enforce their own
renewable energy purchase programs that recognize the intent of
the Legislature to encourage increasing use of renewable
resources.
This bill requires POUs to formally adopt a program so that 33
percent of their electricity is procured from renewable
resources consistent with the intent, definitions and accounting
systems of the RPS for IOUs and also allows the use of RECs to
achieve that goal consistent with the allowance for IOUs. Each
POU is also required to annual report its progress to the
California Energy Commission (CEC).
Current law defines an electrical cooperative as any private
corporation or association organized for the purposes of
transmitting or distributing electricity exclusively to its
stockholders or members at cost.
This bill requires rural electric cooperatives (coops) to comply
with the Renewable Portfolio Standard and requires the CPUC to
monitor and enforce compliance.
BACKGROUND
In 2002 legislation was enacted to require the IOUs (e.g.
Pacific Gas & Electric, Southern California Edison, San Diego
Gas and Electric Company) and the private companies that compete
with the utilities to increase their annual purchases of
electricity from renewable resources by at least 1% so that 20%
of their sales would come from renewable sources by 2017. In
2006 legislation was enacted to accelerate the 20% requirement
to the end of 2010 (SB 107, Simitian).
The RPS program does not require renewable energy purchases
irrespective of cost. Each contract for the development and
purchase of renewable energy is submitted to the CPUC for
review. Any contract below the market price is deemed per se
reasonable. Any contract above the market price is submitted to
a procurement review group to consider the reasonableness of
costs. To address the overall costs of the RPS, an above-market
cost cap was determined for each IOU. If the IOUs costs reach
that cap in any given year, then the requirement for additional
renewable energy purchases at above-market costs is waived.
However, an IOU can still, voluntarily, propose to procure
renewable resources at above-market prices outside of the cost
cap (referred to as bi-lateral contracts) which calls into
question whether a cost cap really exists. The cost cap has not
been triggered and the IOUs continue to pursue renewable
contracts to meet the 2010 goal.
Since the initial adoption of the RPS program, the necessity of
bringing more renewable resources to the grid has been
heightened as a result of the mandate that the state reduce its
greenhouse gas (GHG) emissions to 1990 levels by 2020. In fact
the CARB scoping plan adopts a statewide 33% by 2020 renewable
energy mix in order to achieve the GHG goals.
Progress toward 2010 goal - The CPUC reports that, for 2007, the
IOUs have achieved varying levels of progress toward the 20%
goal: PG&E - 11.4%; SCE - 15.7%; SDG&E - 5.2%. The numbers
actually declined from 2006 due primarily to load growth. All
agencies and stakeholders agree that the IOUs will not meet the
2010 deadline. However, the CPUC reported in October, 2008 that
an evaluation of the IOUs progress, including generation
developed and contracted for, would result in compliance in or
around 2013.
How much do we need? - The CPUC also reported that 29,000 GWh
(gigawatt hours) of renewable energy is in existence today. An
additional 31,000 GWh is necessary to reach the 20% RPS goal for
a total of 60,000 GWh. To reach 33% an additional 41,000 GWh
would be needed for a total of 101,000 GWh. Is it available?
Yes. The Phase 1B Report of the Regional Energy Transmission
Initiative indicates that more than 208,000 GWh of
"cost-effective large scale" renewable resources are available
in concentrated areas (identified as Competitive Renewable
Energy Zones [CREZ]) within the State of California and
immediately adjacent areas in bordering states, thus identifying
resource areas to bring renewable resources far in excess of
California needs.
Siting New Generation - It is important to recognize that the
scale of renewable development being pursued by California is
unprecedented. It is more aggressive than any other state in the
union and perhaps the world. To put this into context, the
committee is aware of only two significantly sized, concentrated
solar thermal energy sources in the country - Southern
California Edison's 640 MW SEGS units which came on line in the
late 1980s and the Nevada Solar One unit near Boulder City,
Nevada at 64 MW which came on line in 2007. The CEC now has six
solar thermal projects in permitting totaling more than 2,500 MW
and impacting more than 21,000 acres of land. The CEC is in
uncharted territory. The staff demands, careful agency
coordination (e.g. State Department of Fish & Game, Federal
Bureau of Land Management, and Department of Defense), CEQA
implications and other planning challenges are only just now
coming to the fore.
The RETI - The Renewable Energy Transmission Initiative (RETI)
is a statewide initiative to help identify the transmission
projects needed to accommodate these renewable energy goals,
support future energy policy, and facilitate transmission
corridor designation and transmission and generation siting and
permitting. RETI will is intended to be an open and transparent
collaborative process in which all interested parties are
encouraged to participate.
RETI has assessed all competitive renewable energy zones in
California and some in neighboring states that can provide
significant electricity to California consumers by the year
2020. RETI has also identified those zones that can be developed
in the most cost effective and environmentally benign manner and
will prepare detailed transmission plans for those zones
identified for development.
The RETI effort is supervised by a coordinating committee
comprised of California entities responsible for ensuring the
implementation of the state's renewable energy policies and
development of electric infrastructure, namely:
California Public Utilities Commission
California Energy Commission
California Independent System Operator
Publicly-Owned Utilities (SCPPA, SMUD, and NCPA)
Three new transmission lines have been approved for California
or are nearing approval - Tehachapi, Sunrise, Devers-Palo Verde
2. The CPUC's October 2008 RPS status report indicates that two
new transmission lines are necessary to meet the 20% goal. An
additional five lines would be needed to achieve 33% by 2020.
The WECC - The Western Electric Coordinating Council (WECC)
works with regional transmission operators to ensure the
reliability and market efficiencies of the bulk power system in
14 western states, Alberta and British Columbia. It does not
schedule or control power on California's transmission lines.
COMMENTS
1. RPS Program Expansion - The fundamental differences
between this bill and the current RPS program are: (1) an
increase of the RPS mandate to 33%; (2) unlimited
procurement of renewable resources from out of state
sources; (3) authority for a retail seller and POU to meet
its RPS goal with up to 25 percent of unbundled renewable
energy credits from out of state resources; and, (4)
implementation of a firm cost cap on the RPS program equal
to three percent of a retail seller's annual revenue
requirement for the previous calendar year.
2. Ratepayer Protections/Cost Caps - The goal of the RPS
procurement process is to ensure that program rules
maximize competitive market forces in order to promote
long-term reduction of renewable costs and to keep prices
paid to producers in line with their actual costs. How to
achieve that goal is the subject of great debate. One end
of the spectrum argues that the current use of the MPR to
establish a benchmark price for renewable resources,
coupled with an overall cost cap, provides cost certainty
and transparency. TURN opines that "mandating a hard target
for renewable energy purchases inherently creates the
ability for a seller to drive up prices if there is
insufficient renewable power supply to meet the
requirements of all buyers."
The other end argues that renewable resource procurement
should be no different than procurement for any other type
of electricity; any attempt to set any price whether as a
benchmark, a floor, a cap, or in between, will act to deter
price competition between renewable resource developers and
act as a price-driver. Consequently, the procurement
process should set no benchmark prices, cost cap, or any
other hard number and rely on the CPUC to reject proposed
contracts that it considers excessively expensive and not
viable which is similar to the procurement process for
fossil-fueled generation (e.g. natural gas fired plants).
This bill retains the MPR with no modifications, eliminates
the authority of a retail seller to enter into bilateral
contracts outside of the cost cap, and, effective January
1, 2012, caps RPS costs at three percent of annual revenue
for the utility's prior calendar year.
The CPUC and the Federal Energy Regulatory Commission
determine the amount of revenue a utility is authorized to
collect from its customers to recover the utility's
operating and capital costs. Revenues are primarily
determined based on the utility's forecast of future costs
for basic business and operational costs related to the
utility's electricity and natural gas distribution and
electricity generation operations. There are many variables
in the calculation of a utility's revenue. Consequently the
true impact of the three percent cost cap cannot be
calculated and is subject to definition by the CPUC which
would have the authority to determine what portions of a
utility's annual revenue would be applied to the
calculation. For example would the revenue that the IOUs
collect to cover the cost of contracts entered into by the
Department of Water Resources during the energy crisis be
considered revenue? Additionally, the CPUC would be
required to include all direct costs (RPS contracts) and
indirect costs in the cost cap but these are not defined.
The indirect costs would presumably include transmission
but the CPUC would have to the authority to define the
included costs in this calculation as well.
It is critical to note that no person or entity has been
able to accurately quantify the costs of complying with the
RPS mandate at 20%, 33% or any other level. Of course no
one can accurately predict the price of natural gas into
the future either. Natural gas is the main source for the
state's electricity at 45.2% of the total system power.
3. Out of State Resources - A long standing principle of
the RPS program is that the electrons from renewable
resources that are paid for by California ratepayers are
actually delivered to the California grid. However, an
attenuated interpretation of the definition of "delivered"
under current law by the CEC, has resulted in contracts for
renewable generation from as far away as Montana. This out
of state generation can never be physically delivered to
the California grid because of its remote location and the
fact that the ISO has no ability to monitor, control or
schedule the generation. The consequence is that the
renewable resource would be generated out of state at one
time and sold to a third party, not delivered to California
and might be referred to as a bait and switch. The third
party would later deliver "system power" to the California
grid when scheduled by the IOU and ISO. As TURN noted in
the debate on SB 14 "since a significant amount of firm
imports into California are from coal plants, it is now
likely that utilities and load serving entities will be
getting RPS credit for importing coal power." Coal
contracts of greater than five years duration are
prohibited under state law. System power contracts are not
prohibited.
This bill does not modify or clarify the delivery
definition. It does however provide that one of the
preferred means of renewables procurement is for
"electricity and associated renewable energy credits from
eligible renewable resources located outside this state and
within the WECC." This section would supersede the current
delivery requirements and whatever interpretation the CEC
might make thus allowing unlimited procurement from
out-of-state resources. Based on the current language of
the bill, this provision would apply to retail sellers and
coops but not POUs.
Additionally, a related provision of the bill would exempt
a POU from the delivery requirements if it serves 15,000 or
fewer customers accounts and is not connected to the
California grid. This provision would appear to only
affect the Truckee Donner Public Utility District.
4. Renewable Energy Credits - A Renewable Energy Credit
(REC) generally represents the environmental and renewable
attributes of renewable electricity as a separate commodity
from the energy itself. In concept and under current law, a
REC can be sold either "bundled" with the underlying energy
or "unbundled" into a separate REC trading market. In
general, 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. In some RPS compliance markets, the
load serving entities can use unbundled RECs, rather than
actual renewable energy, to comply with their RPS goals. In
either case, once the RECs are unbundled from the energy,
the energy is considered non-renewable power.
In the Western region of the U.S., RECs (both voluntary and
compliance) are tracked using the Western Renewable Energy
Generation Information System (WREGIS) as called for under
current law. WREGIS was launched in mid-2007.
This bill would allow up to 25 percent of the RPS mandate
to be met with unbundled out-of-state RECs. The author
opines that this expansion in program eligibility will
"mitigate market power and provide competition to help
drive down costs."
In other venues, parties have questioned using California
ratepayer funds to develop renewable resources in other
states because those resources do not address the state's
goal of reducing GHG emissions or support the state's goals
of reducing in-state emissions from fossil-fueled plants
and the development of green jobs.
5. Local Publicly Owned Utilities - Under current law POUs
are obligated to adopt an RPS program that "recognizes the
intent of the Legislature to encourage renewable
resources." The results of this language are varied. Some
POU boards have formally adopted an RPS goal but the
percentages and compliance dates vary greatly. Some POUs
have not acted. Most, but not all, POUs have renewables in
their portfolio and range from 2 percent to more than 50
percent.
The CEC issued its first progress report on POUs and the
RPS in December. It was reported that the POUs have, in the
aggregate, brought a comparable amount of renewable
generation on-line as a percent of retail sales when
compared to the IOUs. However, a good portion of this
generation is from out-of-state and has also been secured
by a minority of the POUs. Many POUs remain at or near zero
in renewables. The report does not specify why those POUs
have not made progress. For some it could be that they have
no unmet need due to current long-term contracts. A report
to this committee also shows that all POUs have adopted a
20 percent goal but a good portion of the POUs have a
target year of 2017.
This bill would specifically require each POU, by January
30, 2011, to formally adopt a program to achieve the 33
percent renewable target by 2020. However, the state has
not specific authority to enforce the obligation. Arguably
once the California Air Resources Board adopts 33 percent
as an AB 32 requirement it would have authority to enforce
the obligation on POUs. In the meantime, some question
whether a mere reporting obligation is sufficient to ensure
compliance.
6. Rural Electric Cooperatives (coops) - There are four
coops in California. Those entities are not defined as a
POU or a retail seller for purposes of the RPS program,
and, consequently, are not subject to renewable procurement
requirements. This bill however would bring coops into the
program for the first time. It would also exempt a coop
which serves fewer than 25,000 customers and also serves
customers out of state from the delivery requirements of
current law. The exemption appears to only affect the
Plumas-Sierra Rural Electric Cooperative.
7. Similar Legislation - Two other measures have been
introduced this session to increase the RPS to 33%. AB 64
(Krekorian, Bass) was approved by the Assembly Utilities
and Commerce Committee on April 1st by a vote of 8 to 5. It
is pending hearing in the Assembly Natural Resources
Committee. SB 14 (Simitian et al) passed the Senate on
March 31st by a vote of 21- 16 and is pending referral to
policy committee in the Assembly.
POSITIONS
Sponsor:
Author
Support:
Direct Energy
Northern California Power Agency
Pacific Gas and Electric Company (if amended)
Sempra Energy
Large-scale Solar Association (concerns)
Oppose:
None on file
Kellie Smith
SB 805 Analysis
Hearing Date: April 21, 2009