BILL ANALYSIS
Senate Appropriations Committee Fiscal Summary
Senator Christine Kehoe, Chair
805 (Wright)
Hearing Date: 5/28/2009 Amended: 5/4/2009
Consultant: Bob Franzoia Policy Vote: Energy 8-1
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BILL SUMMARY: B 805 would revise the California Renewables
Portfolio Standard (RPS) Program, as follows:
- Require investor owned utilities (IOUs) to increase total
procurement of electricity generated by eligible renewable
energy resources by at least an additional one percent of retail
sales annually so that 33 percent of its retail sales are
procured from eligible renewable energy resources no later than
December 31, 2020.
- Require that, beginning January 1, 2012, the cost limitation
established by the PUC be three percent of the previous year's
annual revenue requirement for all direct and indirect RPS
costs.
- Require the PUC to adopt flexible rules for compliance with
the existing and proposed RPS procurement thresholds.
- Require that if, despite good faith efforts to procure
renewable energy resources, the procurement options are
insufficient to meet thresholds due to insufficient supply or
uncompetitive prices, an IOU will not be deemed out of
compliance by the PUC.
- Require that the RPS program allow electricity from renewable
energy resources and unbundled renewable energy credits (RECs)
from out-of-state renewable energy resources, as defined,
provided that in-state renewable energy resources be preferred.
- Authorize IOU to meet no more than 25 percent of its RPS
requirements with unbundled RECs from renewable energy resources
located out-of-state but within the Western Electricity
Coordinating Council.
- Require publicly owned utilities (POUs) to meet similar RPS
requirements and require POUs to annually report to the
California Energy Commission (CEC) on progress toward meeting
the RPS requirements.
- Require that certified RECs must meet specified conditions set
forth in this bill.
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Fiscal Impact (in thousands)
Major Provisions 2009-10 2010-11 2011-12 Fund
PUC administration
RPS program $170 $335 $335
Special*
Proceeding Unknown, potentially up to $525
one time Special*
CEC administration Minor, absorbable costs ongoing
Special**
State energy costs Unknown cumulative
increase potentially General/
$279,000
annually statewide beginning Special***
2010 to 2013 to meet new RPS
threshold.
See Staff Comments
* PUC Utilities Reimbursement Account
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** Energy Resources Programs Account
*** Service Revolving Fund, other special funds (total estimated
on IOU usage)
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STAFF COMMENTS: SUSPENSE FILE.
Chapter 516/2002 (SB 1078, Sher) and Chapter 464/2006 (SB 107,
Simitian) established and revised the RPS program which requires
IOUs to increase procurement from eligible renewable energy
resources by at least one percent of retail sales annually,
until they reach 20 percent by 2010. The 20 percent threshold
in Chapter 516 was accelerated from 2017 to 2010 by Chapter 464.
Executive Order S-14-08 ordered that all retail sellers of
electricity shall serve 33 percent of their load with renewable
energy by 2020. The order directed state agencies
to take all appropriate actions to implement this target in all
regulatory proceedings, inlcuding siting, permitting, and
procurement for renewable energy power plants and transmission
lines.
WECC
The WECC was formed by the merger of the Western Systems
Coordinating Council (WSCC) the Southwest Regional Transmission
Association, and Western Regional Transmission Association. It
is responsible for coordinating and promoting electric system
reliability. (The WSCC was comprised of 40 electric power
systems representing the electric power systems engaged in bulk
power generation and/or transmission serving all or part of the
14 Western States and British Columbia.)
RECs
As noted in the Senate policy committee analysis, RECs 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.
PUC
The PUC's RPS program responsibilities include:
- Determining annual procurement targets and enforcing
compliance.
- Reviewing and approving IOU renewable energy procurement
plans.
- Reviewing IOU contracts for RPS-eligible energy.
- Establishing the standard terms and conditions used by IOUs in
their contracts for eligible renewable energy.
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SB 805 (Wright)
- Calculating market price referents for non-renewable energy
that serve as benchmarks for the price of renewable energy.
RPS Program
The PUC has identified the need for three regulatory analyst
positions ongoing. Since current RPS staff is still
implementing the 20 percent 2010 threshold, the new staff will
concurrently address expanded implementation issues. At this
time, it is unknown whether a proceeding to revise the 33
percent RPS requirement will be needed.
Preliminary generation and transmission cost information
A joint PUC/CEC greenhouse gas proceeding estimated statewide
RPS revenue requirements in 2020 depending on one of three
scenarios. These scenarios also provide an estimate of energy
costs on an average rate per kiloWatt hour (kWh). The
proceeding identified an average rate in 2008 of $0.13 per kWh.
The scenarios are:
- Natural Gas Only Case. This is essentially the Air Resources
Board's (ARB) business as usual case and envisions no further
investments in either energy efficiency or RPS energy.
- Reference Case. This case projects continuation of current
levels of energy efficiency programs and the 20 percent RPS
through 2020, or current law.
- Accelerated Policy Case. This case implements the policies
recommended in the joint decision and adopted in the ARB's
Proposed Scoping Plan-33 percent RPS threshold and significantly
expanded energy efficiency programs.
The average rate per kWh increase to reach the Reference Case
(reflects current law) is estimated at $0.15. The average rate
per KWh to reach the Accelerated Policy Case (changes to current
law proposed by this bill plus high goals energy efficiency
inputs) is estimated at $0.17.
(The energy efficiency inputs are:
- Energy efficiency: High goals energy efficiency scenario based
on PUC Goals Update Study and POU AB 2021 (Chapter 734/2006)
filings: 36,559 gigawatt hour (GWh).
- Rooftop solar photo voltaic (PV): 3,000 MW nameplate (100
percent efficiency) of rooftop PV installed.
- Demand response: five percent of demand response.
- Combined heat and power (CHP): 1,574 MegaWatt (MW) small CHP <
5 MW and 2,804 MW larger CHP > 5 MW.)
The PUC analysis estimates achieving a 33 percent RPS threshold
in 2020 will cost $8.9 billion in generation and transmission
costs but will save $6.3 billion in avoided costs (the cost of
building and operating conventional fossil fueled generation)
resulting in a net cost to ratepayers of $2.6 billion annually.
The key drivers in the analysis include natural gas prices, the
level of energy efficiency achieved, and renewable technology
development.
On a net cost basis, the difference between current rates to the
Accelerated Policy Case and the Reference Case is $2.6 billion
and $1.8 billion. Those annual costs to
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ratepayers (minus the high goals efficiency program, which is
not a provision of this bill) are noted in the following chart
in 2008 dollars.
-------------------------------------------------------------------
| |Existing to 20 |Existing to 33 |Difference |
| |percent RPS |percent RPS |between 20 |
| | | |percent and 33 |
| | | |percent RPS |
|----------------+----------------+----------------+----------------|
|Annual Cost in |$3,400,000,000 |$8,900,000,000 |$5,500,000,000 |
|2020 | | | |
|----------------+----------------+----------------+----------------|
|Annual Benefits |$2,600,000,000 |$6,300,000,000 |$3,700,000,000 |
|in 2020 | | | |
|----------------+----------------+----------------+----------------|
|Net Cost in | $800,000,000 |$2,600,000,000 |$1,800,000,000 |
|2020 | | | |
-------------------------------------------------------------------
Dividing $1.8 billion (the net cost difference between the
current 20 percent RPS threshold and the proposed 33 percent RPS
threshold) by estimated 2020 total system power of 330,000 GWh
results in a $0.00545 per kWh increase. That is, the cost to
the
ratepayer when the RPS threshold is increased from 20 percent to
33 percent is slightly more than one half cent per kWh.
Staff notes the PUC is finalizing a more thorough estimate of
total costs and net costs.
According to the PUC analysis, the 33 percent RPS threshold
combined with energy efficiency will increase costs by four
percent annually compared to the Natural Gas Only Case scenario.
The PUC's Division of Ratepayer Advocates (DRA) estimates a
$0.04 or 25 percent increase per kWh to achieve a 33 percent RPS
threshold. The DRA uses current rates ($0.13/kWh in 2008) as
the base to compare the 2020 Accelerated Policy Case rate. (The
current kWh rate increases to the 2020 Natural Gas Only Case
even if all other RPS costs are held constant as a result of
increased investment and fuel costs.)
State Energy Costs
The state is a retail energy customer appropriating General
Funds for entities like the University of California, the
California State University, and the California Department of
Corrections and Rehabilitation, and K-14 education in a less
direct manner. The Department of General Services allocates
Service Revolving Funds, a fund used for the purchase and sale
of materials, supplies and equipment and the rendering of
services, including energy used by special fund entities.
California is served by about 75 load-serving entities (LSEs).
There are:
IOUs - 6
POU - 48
Rural Electricity Cooperatives - 4
Native American Utilities - 3
Other Electricity Service Providers - 14
The five largest utilities and total electricity consumption
(2007) are:
1. Southern California Edison Company (SCE) - 88,208
million kWh
2. Pacific Gas and Electric Company (PG&E) - 85,057 million
kWh
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3. Los Angeles Department of Water and Power - 24,317
million kWh
4. San Diego Gas & Electric (SDG&E) - 20,300 million kWh
5. Sacramento Municipal Utility District - 10,917 million
kWh
In 2008, within the SCE and SDG&E service territories, state
entities consume 739,651,000 (state), 428,876,000 (colleges and
universitites) and 1,930,848,000 (K-12) and 62,650,000 (state),
244,836,000 (colleges and universities) and 375,976,000 (K-12)
kWh, respectively. Per kWH rates range from $0.096 for colleges
and universities to $0.16 for K-12 and from $0.07 for colleges
and universitites to nearly $0.17 for K-12, respectively.
Within the PG&E service terrritory, state entities consume
1,169,420 megaWatt hours (MWh) (16 percent of use by all
governmental activity (federal, state, county, city, district,
city/county, and foreign). (At this time, K-12 consumption
within the PG&E service territory is an estimate of 50 percent
of total "district" govermental activity or 1,362,520 MWh. This
varies total state PG&E consumption between 3 and 4.5 percent.)
Total state entity consumption within these IOU service
territories is estimated at approximately 6,315,000,000 kWh (10
to 11 percent of all consumption within these service
territoires). IOUs deliver approximately two thirds (64.3
percent in 2007) of state systemwide electricity. Adding POUs,
total state entity consumption is estimated at 15 to 16 percent
of all consumption in the state. If the cost in 2020 to achieve
a 33 percent RPS threshold is $1.8 billion to all ratepayers,
state costs would increase by an estimated $279 million annually
(15.5 percent of $1,800,000,000) based on 2007 and 2008
electricity consumption data.
Other non General Fund entities may be affected. For example,
though the provisions of the bill relate to retail rates, and
the State Water Project (SWP) is a wholesale purchaser, to the
extent that there are new costs associated with new transmission
lines, SWP costs may increase. Currently, SWP
transmission-related costs are several million dollars annually.
The Department of Water Resources, which has oversight of the
SWP, has a Budget Change Proposal requesting nine personnel
years and $1.7 million (California Water Fund) to support a new
effort to increase the use of renewables in the SWP power
portfolio.
Changes in energy usage, climate changes including changes in
rainfall, regulatory changes, efficiencies in renewable energy
production, and changes in the cost and availability of fossil
fuels will impact these costs.