BILL ANALYSIS Ó 1
SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE
ALEX PADILLA, CHAIR
AB 1990 - Fong Hearing Date:
July 3, 2012 A
As Amended: June 26, 2012 FISCAL B
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DESCRIPTION
Current federal law grants exclusive authority to the Federal
Energy Regulatory Commission (FERC) over wholesale electric
rates in interstate commerce except where an investor-owned
utility (IOU) purchases electricity from a qualifying facility
at the incremental costs to an electric utility of electric
energy or capacity or both which, but for the purchase from the
qualifying facility such utility would generate itself or
purchase from another source. This is commonly referred as the
"avoided cost" and it does not apply to local publicly-owned
utilities (POUs).
Current law requires all IOUs and POUs, that serve more than
75,000 retail customers, to develop a standard contract or
tariff (aka feed-in-tariff or FiT) available for renewable
energy facilities up to three megawatts (MWs). Statewide
participation is capped at 750 MWs.
Current law requires the FiT contract price for IOUs to include
all current and anticipated environmental compliance costs,
including but not limited to, mitigation of emissions of
greenhouse gases and air pollution offsets associated with the
operation of new generating facilities in the local air
pollution control or air quality management district where the
electric generation facility is located.
This bill requires IOUs and POUs to offer a FiT for facilities
sized up to 500 kilowatts (kWs) that are located in, and that
encourage the hiring of employees from, the state's most
impacted and disadvantaged communities at tariff rates that are
sufficient to stimulate market demand for the FiT and to achieve
the targets and benefits of the program while maintaining
ratepayer indifference. The program cost would be capped at
0.375% of the total cost of each utility's forecast retail sales
in 2020.
This bill establishes a procurement goal of 375 MWs for IOUs and
375 MWs for POUs over six years to be allocated in proportion to
each utility's percentage share of the state's total peak demand
and for contracts of 20 years duration.
This bill would permit utilities to deny a FiT contract if grid
interconnection is inadequate, the facility is not up to
required standards, or the additional load of the facility would
adversely impact utility operation and local distribution
restoration. The utility would be required to assist any
contractor in avoiding contract denial by recommending specific
and reasonable actions or project design modifications that
would lead to approval of the contract. The developer for any
contract denied by an IOU could appeal the denial to the CPUC
and, for a POU, the developer could appeal the denial to the
utility's governing board.
This bill defines "most impacted and disadvantaged community"
(aka E.J. communities) as those census tracts in the top 20
percent of the results of a specified screening methodology
developed for the South Coast Air basin subject to modification
by the California Public Utilities Commission (CPUC), in
consultation with the California Air Resources Board (CARB).
BACKGROUND
What is a Feed-in-Tariff? - A FiT is a simple, comprehensible,
transparent contracting mechanism for small renewable generators
to sell power to a utility at predefined terms and conditions,
without contract negotiations. For the IOUs, the FiT operates as
a "must-take" contract in its portfolio. If the participant
generates the power, the IOU must take it and pay for it
according to the pre-defined terms of the FiT.
Small renewable generator FiTs are available in the territories
of the three largest IOUs and provide a 10, 15, or 20-year
fixed-price, non-negotiable contract for systems sized up to 1.5
MW. The CPUC has just concluded a rulemaking to implement the
terms of SB 32 (Negrete McLeod, 2009) and expand the IOU FiT to
3 MWs. The total program allocation between the three IOUs is
approximately 500 MWs. ÝSee Re-MAT below.]
Federal FiT Restriction - The Federal Power Act grants exclusive
jurisdiction to the FERC over wholesale electric sales and
pricing in interstate commerce, including sales made entirely
intrastate and sales delivered locally to a distribution system.
An exception allows the CPUC to set rates as long as the rates
are based on the avoided cost for a utility's wholesale
purchases from qualifying facilities which are generally small
renewable facilities of 80 MWs or less. This statute therefore
limits the ability of the CPUC to set fixed prices in FiTs for
renewable energy. If a fixed price is set, that price must be
based on the avoided costs in terms of costs that the electric
utility avoids by virtue of purchasing from the renewable
facility.
What costs is the electric utility is avoiding? Under FERC's
regulations, a state may determine that capacity is being
avoided, and may rely on the cost of such avoided capacity to
determine the avoided cost rate. Further, in determining the
avoided cost rate, just as a state may take into account the
cost of the next marginal unit of generation, the state may also
take into account obligations imposed by the state that, for
example, utilities purchase energy from particular sources of
energy or for a long duration. Therefore, the CPUC may take
into account actual procurement requirements, and resulting
costs, imposed on utilities in California.
The CPUC has litigated the issue of FiT pricing at the FERC and
based on that proceeding has determined that it can
differentiate renewable pricing based on the generation
characteristics of particular sources of energy (e.g.
based-load, peaking) but cannot, under federal law, establish
technology-specific pricing.
Competitive Procurement v. Fixed Price - Since the restructuring
of the electricity industry in California in the 1990s, the CPUC
has relied on a "competitive market first" approach for the
procurement of electricity. The IOUs develop an annual
procurement plan which includes plans under which the IOUs
solicit bids for electricity deliveries. The underlying premise
of wholesale competitive procurement is that ratepayers benefit
as a result of lower cost electricity deliveries. Competitive
procurement also underlies the Renewable Portfolio Standard
(RPS) program which requires IOUs to establish a competitive
process to select renewable contracts based on least cost and
best fit. Competitive markets are generally thought to benefit
ratepayers by using competitive pressures to lower total costs.
In contrast, a textbook FiT uses administrative processes to set
a fixed price for the purchase of electricity by the IOU, the
price of which does not benefit from competition. Although a
FiT may result in lower transaction costs to renewable
developers, it is not clear that it will result in the best
price for renewable electricity deliveries for ratepayers. It
is difficult if not impossible to administratively set the right
price for a FiT. If the FiT price is too high, the FiT results
in a gold rush for renewable developers at the expense of
ratepayers who will overpay; if the FiT price is too low the FiT
will not attract new investment. What is the chance that a
regulatory agency can set just the right price which will
protect ratepayers and bring new projects online?
Additionally, under a traditional FiT structure the utility
generally has no control over where power is built, whether it's
needed, or whether it is consistent with its renewable
procurement plan. This is particularly critical for renewable
resources, some of which (e.g. solar and wind) do not provide
base load power but are intermittent and must be firmed and
shaped by the IOU or ISO.
Renewable Market Adjusting Tariff aka REMAT - The Legislature
has adopted a FiT to encourage electrical generation from small
distributed generation that qualifies as "eligible renewable
energy resources" under the RPS Program with an effective
capacity of three MW or less and, among other things,
strategically located on the distribution grid. The program was
initially enacted in 2006 and applied only to public water and
wastewater customers on a first-come, first-served basis until
the electrical corporation met its proportionate share of a 250
MW statewide procurement limit. Since 2007, the Legislature has
adopted several amendments to this program to cover a broad
range of issues, including increasing the maximum project size
to 3 MW from 1.5 MW and including some POUs in the FiT
mandate.<1> The IOUs and POUs share a procurement goal of 750
MWs.
In May the CPUC revised the FiT for IOUs and expanded the
program and developed a new pricing mechanism referred to as the
"Renewable Market Adjusting Tariff" or "Re-MAT" which includes
two principle components. First, a starting price based on the
weighted average contract price of the three largest electric
utility's highest priced executed contract resulting from the
commission's Renewable Auction Mechanism auction held in
November 2011. This starting price will apply to three FiT
product types: baseload, peaking as-available, and non-peaking
as-available. The price can be adjusted every two-months and
increase or decrease for each product type based on the market
response. Each accepted project will be paid a time-of-delivery
adjustment based on the generator's actual energy delivery
profile and the individual utility's time-of-delivery factors.
In the two-plus years since the FiT was mandated for the nine
POUs, only four have attempted to comply with the program
requirement. There is no penalty under current law if the POU
fails to adopt the program. With the exception of the RPS
statutes, POUs have not been subject to penalties for failure to
comply with energy mandates including energy efficiency and the
California Solar Initiative. As a consequence, many utilities
have ignored the mandates or interpreted them in ways unintended
by the Legislature.
COMMENTS
1. Author's Purpose . According to the author, California's
most vulnerable communities - those that have suffered
first and worst from pollution - have not benefited much
from renewable energy policy. SB 32 (Negrete McLeod, 2009)
established a FiT to spur the development of distributed
renewable electric generation in California. SB 32 amended
a prior feed-in tariff established by AB 1969 (Yee, 2006),
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<1> Current law requires that only the largest POUs adopt a FiT
and specifies that those serving a population of 75,000
customers or more make a FiT available to renewable developers
in those territories. The affected POUs are: Anaheim, Glendale,
Imperial, Los Angeles, Modesto, Riverside, Turlock, and
Sacramento. The total program allocation between the nine POUs
is approximately 250 MWs.
and raised the project size cap from 1.5 megawatts to 3
megawatts. These project sizes are too large to be
installed in the urban core and poor rural communities, and
SB 32 has no requirements to address the specific needs of
these communities.
The California Solar Initiative (CSI) is a program
authorized by SB 1 (Murray, 2006) and the CPUC with a goal
to install 1940 megawatts of new solar capacity in the
service territories of California's IOUs. Two low income
rebate programs for small-scale solar electric power
generation exist within CSI: 1) the Single-family
Affordable Homes (SASH) program for low-income residents
that own their own single-family home and 2) the
Multi-family Affordable Solar Housing (MASH) program for
multi-family affordable housing. MASH and SASH are very
small programs-with a combined total of about 45 megawatts-
that by law will be expiring at the end of 2016. The high
volume of applications for the MASH program has led to the
establishment of wait lists; and the programs are so full
that the wait lists are being closed to new applicants.
While there is still about 7 megawatts left in the SASH
program, participants usually need to have a minimum
utility bill of $150, a threshold that is often not met by
most low-income community members, who try to limit their
energy use. SASH is dependent on a volunteer-run solar
installation program, and while it provides training
opportunities, it does not create paid jobs in low-income
communities.
2. FERC Restrictions . The procurement mandates of this
bill seek to further an important policy goal for E.J.
communities, but it is very likely that they are prohibited
under federal law. The bill references FERC decisions
affirming that "where a state requires a utility to procure
energy from generators with certain characteristics,
generators with those characteristics appropriately
constitute the sources that are relevant to the
determination of the utility's avoided cost for that
procurement requirement." However those characteristics
are not characteristics based on social policy proposed by
this bill. The permissible characteristics are the
generation characteristics which affect the value of the
power to the grid such as baseload vs. intermittent
resources or geographical proximity to transmission.
FERC regulations specifically state that the utility can
"differentiate among qualifying facilities using various
technologies on the basis of the supply characteristics of
the different technologies." There is no indication that
societal characteristics are included. As an example of
the application of this regulation, FERC specifically found
that a tariff price could be increased "to reflect the
avoided costs of the construction of distribution and
transmission upgrades that would otherwise be needed"
compared to other generation.
3. Costs of Small Scale Renewables . The bill does require
that ratepayers be held indifferent to the costs of the FiT
mandated by this bill but its provisions are internally
inconsistent. Although the bill defines ratepayer
indifference as meaning that ratepayers should not be
subject to increased rates or reduced service as a result
of the bill and the tariff complies with the avoided-cost
requirement of FERC, other provisions contradict this
standard.
First, the program would require the tariff payment be
"sufficient to stimulate the market demand?to achieve the
targets" of the program which are to locate the facilities
in EJ communities and hire employees from those
communities. These conditions have nothing to do with the
price of electricity and are difficult to quantify and
implement. The author does provide a cost-cap for the
program but that too is not consistent with the ratepayer
indifference standard referenced.
As an example, applying the cost cap in this bill to PG&E,
the FiT cost would be capped at a minimum of $0.34 kWh.<2>
The CPUC reports that this number is far higher than other
renewable generation available on the market:
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<2> This number was derived by applying the formula in this bill
to PG&E's 2013 forecast revenues of $4.4 billion, PG&E's
estimated 44.6% of MWs under the program which would require the
purchase of 167 MW of generation over six years at 27.9 MW per
year, and a capacity factor of 20%. Note that the bill sets the
cap based on 2020 retail sales so that the actual cost cap would
be higher than $0.34 kWh.
Under the CPUC's Large-Scale RPS Solicitation, the
primary program to procure renewable generation to
meet Renewables Portfolio Standard mandates, contracts
average less than $0.10/kWh; under the CPUC's
Renewable Auction Mechanism, the bi-annual auction for
distributed renewable generation, contracts average
less than $0.08/kWh. By contrast, under AB 1990,
contracts would begin at approximately $0.26/kWh and
rise from there.
The author responds that "because of the interaction with
other programs, customers will see a de minimis impact on
their utility bill from AB 1990. The AB 1990 program is
contained in the RPS program, which is constrained by an
overall cost cap, thus procurement through AB 1990 could be
partially or fully offset by lower cost procurement from
other renewable energy projects."
4. E.J. Metrics . Developing a metric to identify what are
commonly referred to as environmental justice communities
has been challenging and controversial. This bill requires
the use of one specific model developed for the South Coast
Air Quality District. The identified screening methodology
is to be used in determining the most impacted and
disadvantaged communities appears to be just the first step
in identifying a community and may not be determinative.
In fact the authors of this model state "this is screening
not assessment, so neighborhood monitoring and ground truth
verification is needed."
Some opine that this model is too narrow and is too
"air-centric" focusing on communities with air and economic
impacts but does not screen for other environmental
concerns and a more comprehensive tool should be used that
incorporates all impacts of pollution. Nowhere else in
statute is one model singled out and some are concerned
about the precedent of memorializing this particular model.
Two other models are in development by the CARB and the
Environmental Protection Agency (EPA).
Although this bill does permit the CPUC to consult with the
CARB and to modify the screening metrics used in
determining the most impacted and disadvantaged
communities, the necessity of mandating one metric is not
clear and may in the long-run limit the commission in its
ability to choose a screening tool that is the most current
and reliable. To ensure that the commission has the
latitude needed to utilize the best screening tools
available, the committee may want to consider striking the
screening tool mandated in this bill and instead have the
CPUC consult with the EPA and CARB in identifying the
communities eligible for this tariff.
5. Fundamental Issue & Alternative . At the heart of the
debate over this bill is whether the commission should
establish administratively-determined prices for contracts
for specific renewable electric generation resources
located in the state's most impacted and disadvantaged
communities and also pay a premium for the electricity to
not only ensure the siting of plants in those areas but to
require the hiring of employees from those communities.
Current FiT statutes and policies of the CPUC very clearly
require the commission to use a competitive, market-based
approach but the sponsors of this bill argue that this
mechanism does not account for the societal benefits to
ratepayers and the environment from encouraging the
development of generation in these communities.
There is no opposition to placing renewables in these
communities nor is there any question of the challenges
that they face with regard to unemployment and poverty.
However, the costs associated with this program and the
administrative challenges of actually overlaying the
geographic and employment mandates on the renewable
procurement process would be administratively complex. The
result of the tariff under this program would be
renewable's costs several times more than what can be
obtained using the competitive pricing models in place
through the Re-Mat and other programs. Consequently, to
ensure that there are opportunities for EJ communities to
participate in the market and not get crowded out by other
more sophisticated developers, but still try to secure the
best price for those renewables for ratepayers, the
committee may wish to consider amendments that would
require the IOUs to set-aside capacity for those
communities, in essence, a separate bucket.
Additionally the total Re-mat is only 500 MWs yet this bill
calls for a 375 MW set-aside. The committee may wish to
consider amendments to set-aside an additional 25% in
capacity for this program brining the Re-MAT total to 625
MWs.
It is not clear whether this approach would pass muster
under federal law either since the set-aside would be based
on societal characteristics, not generation
characteristics, but the program would still have a
competitive pricing mechanism which could help.
6. POUs . Although it appears that the author may intend
that the POUs also direct their tariff to E.J. communities,
the bill could be interpreted as only requiring the POUs to
launch a FiT directed at small scale renewable facilities
sized less than 500 kW.
If intended for the E.J. communities, the foregoing
alternative of the Re-Mat would only be available for IOUs.
The POUs are also required to implement the terms of this
measure but the POUs are not subject to the same federal
pricing restrictions as the IOUs. Nevertheless, the model
mandated by this bill would be a cost-burden to POU
ratepayers and, for many POUs, especially those of small
size and be very difficult to implement since the smaller
POUs may not even have E.J. communities that fall under the
defined metric in their jurisdictions. The author did try
to accommodate this factor with an adjustment formula but
the math is confusing and the mandate still costly.
To address these concerns, at a minimum, the committee may
wish to consider amendments which would exclude POUs of
less than 75,000 customer connections from the mandate
which is consistent with the FiT program under SB 32 and
lower the 375 MW target to a 25% increase as suggested for
the IOUs in the preceding comment. Additionally, the
committee may wish to consider striking the mandates of
this bill and simply direct that the POUs modify and expand
their SB 32 FiTs to ensure a set-aside for bids from E.J.
communities. In the alternative, the bill should be
amended to clarify that the POUs are to use the same E.J.
metrics and program goals as the IOU program if that is the
author's intent.
ASSEMBLY VOTES
Assembly Floor (49-27)
Assembly Appropriations Committee (12-5)
Assembly Utilities and Commerce Committee
(9-4)
POSITIONS
Sponsor:
California Environmental Justice Alliance
Support:
Asian & Pacific Islander Obesity Prevention Alliance
Asian Pacific Policy & Planning Council
Asian Neighborhood Design
California Healthy Nail Salon Collaborative
California for Clean Energy and Jobs
California Interfaith Power & Light
Capretz & Associates
Center on Policy Initiatives
Climate Protection Campaign
Communities for Clean Ports
Ella Baker Center's Green collar Jobs Campaign
EndOil
Environment California
Environmental Justice Committee of the Asian Pacific Policy &
Planning Council
Fresno Center for New Americans
Support (continued):
Khmer Girls in Action
Korean Resource Center
Koreatown Immigrant Workers Alliance
Kyocera Solar, Inc.
Los Angeles Business Council
Little Tokyo Service Center Community Development Corporation
Local Clean Energy Alliance
Pacific Environment
P" (a Pacific Island sorority)
Peoples CORE
Search to Involve Pilipino Americans
Sierra Club California
Solar Energy Industries Association
Solaria
South Coast Air Quality Management District
Southeast Asian Assistance Center
Students for Economic and Environmental Justice at Berkeley Law
The Filipino American Coalition
The Vote Solar Initiative
To'utupu'o e 'Out Felenite Association
USGBC California
Several individuals
Oppose:
California Chamber of Commerce
California Council for Environmental and Economic Balance
California Farm Bureau Federation
California Independent Oil Marketers Association
California League of Food Processors
California Manufacturers & Technology Association
California Municipal Utilities Association
California Public Utilities Commission
Chemical Industry Council of California
Consumer Specialty Products Association
Division of Ratepayer Advocates
Pacific Gas and Electric Company
Sacramento Municipal Utility District
San Diego Gas and Electric
Southern California Edison
Western Growers Association
Western Plant Health Association
Western State Petroleum Association
Kellie Smith
AB 1990 Analysis
Hearing Date: July 3, 2012