BILL ANALYSIS Ó
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THIRD READING
Bill No: AB 1990
Author: Fong (D)
Amended: 8/21/12 in Senate
Vote: 21
SENATE ENERGY, UTIL. & COMMUNIC. COMM. : 7-3, 7/3/12
AYES: Padilla, Corbett, De León, DeSaulnier, Kehoe,
Pavley, Rubio
NOES: Fuller, Strickland, Wright
NO VOTE RECORDED: Berryhill, Emmerson, Simitian
SENATE APPROPRIATIONS COMMITTEE : 5-2, 8/16/12
AYES: Kehoe, Alquist, Lieu, Price, Steinberg
NOES: Walters, Dutton
ASSEMBLY FLOOR : 49-27, 5/30/12 - See last page for vote
SUBJECT : Renewable energy resources: renewable feed-in
tariff set aside for most impacted and
disadvantaged communities
SOURCE : Asian Pacific Environmental Network
California Environmental Justice Alliance
Center for Community Action and Environmental
Justice
Center on Race, Poverty and the Environment
Communities for a Better Environment
Environmental Health Coalition
People Organizing to demand Environmental and
Economic Rights
CONTINUED
AB 1990
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DIGEST : This bill expands an existing program, which
requires utilities to purchase renewable energy using a
feed-in-tariff (FiT). This bill also expands the program
from 750 megawatts (MWs) of total capacity to 940 MWs and
requires electricity purchased under the expansion to be
generated in disadvantaged communities.
ANALYSIS : Existing 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).
Existing law requires all IOUs and POUs, that serve more
than 75,000 retail customers, to develop a standard
contract or tariff (aka FiT) available for renewable energy
facilities up to 3 MWs. Statewide participation is capped
at 750 MWs.
Existing 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.
Existing law requires an electrical corporation or local
publicly owned electric utility to make a renewable FiT
available to additional electric generation facilities
terminates once the generating capacity of the electric
generation facilities receiving service pursuant to the
utility's renewable FiT reaching its proportionate share of
a statewide cap of 750 MWs of cumulative rated generating
capacity served pursuant to renewable FiTs.
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This bill requires the Public Utilities Commission (PUC) to
expand the existing FiT program by 190 MWs (125 MWs in the
IOU territories and 65 MWs in POU territories.) Both IOUs
and POUs would be required to participate. (Although under
existing law, there is no penalty if publicly owned
utilities do not comply with this kind of mandate by the
state.)
This bill limits the maximum size of a renewable energy
project at 500 kilowatts (kW). In addition, this bill
specifies that eligible projects must be located in the
"most impacted and disadvantaged communities" and requires
the utilities to use a specified methodology to determine
which communities qualify.
This bill exempts POUs that serve less than 75,000
customers.
Background
FiT . 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 MWs. The PUC 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.
(See Renewable Market Adjusting Tariff 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 PUC to set
rates as long as the rates are based on the avoided cost
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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 PUC 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.
Costs 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 PUC may take into
account actual procurement requirements, and resulting
costs, imposed on utilities in California.
The PUC 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 PUC 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.
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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 (Re-MAT) . 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 3 MWs 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
MWs 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 MWs from 1.5 MWs and including
some POUs in the FiT mandate. The IOUs and POUs share a
procurement goal of 750 MWs.
In May the PUC 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"
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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 PUC'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 existing
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
According to the author's office, 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), Chapter
328, Statutes of 2009, established a FiT to spur the
development of distributed renewable electric generation in
California. SB 32 amended a prior FiT established by AB
1969 (Yee), Chapter 731, Statutes of 2006, and raised the
project size cap from 1.5 MWs to 3 MWs. 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.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: Yes
According to the Senate Appropriations Committee:
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Ongoing costs of about $270,000 per year (PUC Utilities
Reimbursement Account) for regulatory oversight by the
PUC.
By requiring utilities to purchase more renewable
energy (typically at higher cost than natural gas or
large scale renewable energy projects), the bill will
increase costs to ratepayers. Because projects
authorized under this bill would be relatively small
(less than 500 kW) the costs to these projects are
likely to be higher than other renewable energy
projects. State agencies are responsible for about 1.4%
of total electricity use in the state. Based on
projections by the PUC that rates under the program
could go over $200 per megawatt hour, the cost to state
agencies could be in the hundreds of thousands of
dollars per year (various funds).
SUPPORT : (Verified 8/21/12)
Asian Pacific Environmental Network (co-source)
California Environmental Justice Alliance (co-source)
Center for Community Action and Environmental Justice
(co-source)
Center on Race, Poverty and the Environment (co-source)
Communities for a Better Environment (co-source)
Environmental Health Coalition (co-source)
People Organizing to demand Environmental and Economic
Rights (co-source)
Asian and Pacific Islander Obesity Prevention Alliance
Asian and Pacific Islanders California Action Network
Asian Communities for Reproductive Justice
Asian Immigrant Women Advocates
Asian Law Caucus
Asian Neighborhood Design
Asian Pacific American Legal Center
Asian Pacific Policy and Planning Council
Asian Youth Promoting Advocacy and Leadership
Association of Irritated Residents
BlueGreen Alliance
Bus Riders Union
California Healthy Nail salon Collaborative
California League of Conservation Voters
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California Native Plant Society
California Rural Legal Assistance Foundation
California Solar Energy Industries Association
Californians for Clean Energy and Jobs
Californians for Renewable Energy, Inc.
Center for Biological Diversity
Center for Environmental Health
Center on Policy Initiatives
Chinese for Affirmative Action
Chinese Progressive Association
City Heights Community Development Corporation
City of Berkeley
Clean Coalition
CleanPower SF
Climate Protection Campaign in Sonoma County
Comite Rosas
Committee For a Better Arvin
Committee For a Better Shafter
Communities for Clean Ports
Community Health for Asian Americans
El Pueblo Para El Aire Y Agua Limpio
Ella Baker Center for Human Rights, GreenCollar Jobs
Campaign
EndOil
Environment California
Environmental Justice Task Force of A3PCON
Equal Action
Filipino Advocates for Justice
Filipino Community Center
Filipino/American Coalition for Environmental Solidarity
Fresno Center for New Americans
Fresno Metro Ministry
Global Alliance for Incinerator Alternatives
Global Green USA
Great Leap, Inc.
Helping Hand Tools
Interfaith Power and Light
Khmer Girls in Action
Korean Resource Center
Koreatown Immigrant Workers Alliance
Kyocera
La Raza Centro Legal
Lao Iu Mien Culture Association, Inc.
Lao Khmu Association, Inc.
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Little Tokyo Service Center
Local Clean Energy Alliance
Los Angeles Business Council
Maximizing Access to Advance Our Communities
Merced Lao Family Community, Inc.
Movement Generation: Justice and Ecology Project
Mujeres Unidas y Activas
National City
Natural Resources Defense Council
Pacific Asian Consortium in Employment
Pacific Environment
Pacific Isle Environment Reserve
Pacifika Voice
PELE Oceanian Sorority
People's Community Organization for Reform and Empowerment
Pilipino Workers' Center
Planning and Conservation League
RYSE Youth Center
San Diego Coastkeeper
San Francisco Baykeeper
San Francisco Board of Supervisors
Search To Involve Pilipino Americans
Sierra Club California
Silicon Valley Toxics Coalition
Solar City
Solar Energy Industries Association
Solaria
Southcoast Air Quality Management District
Southeast Asia Action Resource Center
Southeast Asian Assistance Center
Students for Economic and Environmental
Sungevity
SunRun
TOA Institute
To'utupu 'oe 'Otu Felenite
Union of Concerned Scientists
University of California, Berkeley School of Law, Justice
Vote Solar Initiative
Warehouse Workers United
ASSEMBLY FLOOR : 49-27, 5/30/12
AYES: Alejo, Allen, Ammiano, Atkins, Beall, Block,
Blumenfield, Bonilla, Bradford, Brownley, Buchanan,
AB 1990
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Butler, Charles Calderon, Campos, Cedillo, Chesbro,
Davis, Dickinson, Eng, Feuer, Fong, Fuentes, Furutani,
Galgiani, Gordon, Hall, Hayashi, Hill, Huber, Hueso,
Huffman, Lara, Bonnie Lowenthal, Ma, Mendoza, Mitchell,
Monning, Pan, Perea, V. Manuel Pérez, Portantino,
Skinner, Solorio, Swanson, Torres, Wieckowski, Williams,
Yamada, John A. Pérez
NOES: Achadjian, Bill Berryhill, Conway, Cook, Donnelly,
Beth Gaines, Garrick, Gatto, Gorell, Grove, Hagman,
Halderman, Harkey, Jeffries, Jones, Knight, Logue,
Mansoor, Miller, Morrell, Nestande, Nielsen, Norby,
Olsen, Silva, Smyth, Wagner
NO VOTE RECORDED: Carter, Fletcher, Roger Hernández,
Valadao
RM:k 8/21/12 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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