BILL ANALYSIS                                                                                                                                                                                                    



                                                                      



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          |SENATE RULES COMMITTEE            |                   SB 2X1|
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                                 THIRD READING


          Bill No:  SB 2X1
          Author:   Simitian (D)
          Amended:  As introduced
          Vote:     21

           
           SENATE ENERGY, UTIL. & COMMUN. COMMITTEE  :  8-2, 2/15/11
          AYES:  Padilla, Corbett, de Leon, DeSaulnier, Pavley, 
            Rubio, Simitian, Strickland
          NOES:  Berryhill, Wright
          NO VOTE RECORDED:  Fuller

           SENATE APPROPRIATIONS COMMITTEE  :  5-1, 2/23/11
          AYES:  Kehoe, Alquist, Pavley, Price Steinberg
          NOES:  Walters
          NOTE VOTE RECORDED:  Emmerson, de Leon, Wyland


           SUBJECT  :    Energy:  renewable energy resources

           SOURCE  :     Author


           DIGEST  :    This bill requires investor owned utilities 
          (IOUs), local publicly owned utilities (POUs) and energy 
          service providers to increase purchases of renewable energy 
          such that at least 33 percent of retail sales are procured 
          from renewable energy resource by December 31, 2020.  In 
          the interim each entity is required to procure an average 
          of 20 percent of renewable energy for the period of January 
          1, 2011 through December 31, 2016, and 33 percent by 2020.  
          It revises certain terms used in the Renewable Energy 
          Resource Program (RPs) and revises certain eligibility 
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          criteria for a renewable electrical generation facility.  
          Requires the Public Utilities Commission (PUC) by January 
          1, 2012 to establish the quantity of electricity products 
          from eligible renewable energy resources to be procured by 
          each retail seller for specified compliance periods, 
          sufficient to ensure that procurement of electricity 
          products from eligible renewable energy resources achieves 
          25 percent of retail sales by December 31, 2016, and 33 
          percent of retail sales by December 31, 2020, and that 
          retails sellers procure not less than 33 percent of retail 
          sales in all subsequent years, as specified.  Requires the 
          PUC to design and implement an accounting system to verify 
          compliance with the ERPs requirements by retail sellers and 
          local publicly owned electric utilities and to adopt 
          regulations by July 1, 2011 specifying procedures for 
          enforcement of RPO's requirements that include a public 
          process, as specified.  Requires the PUC to submit a report 
          to various legislation committees, as specified items 
          concerning costs and activities conducted by electrical 
          corporations or gas corporations by February 1 of each 
          year.  Requires the PUC by July 1, 2011 to determine the 
          effective local carrying capacity of wind and solar energy 
          resources on the electrical grid.  Requires the Department 
          of Fish and Game to establish an internal division with the 
          primary purpose of performing comprehensive planning and 
          environmental compliance services with priority given to 
          projects involving the building of eligible renewable 
          energy resources.  Requires the Independent System Operator 
          and other California balancing authorities to work together 
          to integrate and interconnect eligible renewable resources 
          to the transmission grid, as specified.   Appropriates 
          $322,000 from the PUC reimbursement account to the PUC for 
          additional staffing to identify, review, and approve 
          transmission lines reasonably necessary or appropriate to 
          facilitate achievement of the renewable portfolio standard. 
           

           ANALYSIS  :    Current law requires investor-owned utilities 
          (IOUs) and energy service providers (ESPs) to increase 
          existing purchases of renewable energy by one percent of 
          sales per year such that 20 percent of retail sales, as 
          measured by usage, are procured from eligible renewable 
          resources by December 31, 2010.  This is known as the 
          Renewables Portfolio Standard (RPS).  

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          Current law exempts local publicly owned utilities (POUs) 
          from the state RPS program and instead directs 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.

          Governor's Executive Orders establish a target of 33 
          percent of retail sales from renewable energy by 2020 and 
          direct the Air Resources Board (ARB) to adopt a regulation 
          by July 2010 requiring the state's load-serving entities to 
          reach that target.

          This bill requires IOUs, POUs, and ESPs to increase 
          purchases of renewable energy such that at least 33 percent 
          of retail sales are procured from renewable energy 
          resources by December 31, 2020.  In the interim each entity 
          would be required to procure an average of 20 percent of 
          renewable energy for the period of January 1, 2011 through 
          December 31, 2013; 25 percent by December 31, 2016, and 33 
          percent by 2020.  

          Current law requires renewable resources to be generated 
          in, or delivered to, the California grid.

          This bill grandfathers all contracts consummated by an IOU, 
          ESP, or POU prior to June 1, 2010.  Going forward all 
          contracts for an electricity product would be required to 
          meet the requirements of a "loading order" that mandates 
          minimum and maximum quantities of three product categories 
          (or "buckets") which includes renewable resources directly 
          connected to a California balancing authority or provided 
          in real time without substitution from another energy 
          source, energy not connected or delivered in real time yet 
          still delivering electricity, and unbundled renewable 
          energy credits.

          Current law requires the PUC to develop, by rulemaking, a 
          procurement process for renewable resources by IOUs which 
          includes the determination of a benchmark for the market 
          price (market price referent or MPR) for energy against 
          which renewable contracts are evaluated for reasonableness 
          in price.  If the cumulative costs of those contracts 

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          exceeds specified thresholds then the IOU's RPS purchase 
          mandate is waived (aka cost cap).

          This bill  requires the PUC to adopt a process for the rank 
          order and selection of RPS projects for the least-cost and 
          best-fit which takes into account the indirect costs of 
          transmission and the firming and shaping of intermittent 
          resources, the cost of resources, and the viability of 
          projects for the IOUs.  The PUC is also required to adopt a 
          limitation on the costs for procurement expenditures to 
          prevent disproportionate rate impacts based on certain 
          factors.  If an IOU hits the cost limitation, the IOU can 
          suspend procurement unless procurement can proceed without 
          exceeding a de minimus increase in rates.

          This bill allows IOUs and ESPs to apply excess generation 
          from any compliance period to a subsequent compliance 
          period if the generation source is from contracts of more 
          than 10 year's duration, not including unbundled RECs.  
          This is commonly referred to as banking.

          This bill permits IOUs to apply to the PUC to construct, 
          own, and operate generation up to 8.25 percent of the IOU's 
          retail sales projected for 2020.

          This bill directs the CPUC to impose penalties on IOUs and 
          ESPs for failure to meet the targets and to waive those 
          penalties in specified instances where the IOUs or ESPs 
          demonstrate specified factors have affected development of 
          renewable generation including transmission and project 
          delays beyond its control.

          This bill authorizes the California Energy Commission (CEC) 
          to issue a notice for failure to comply with the RPS by a 
          POU and, if not corrected, refer the failure to comply to 
          ARB which would be authorized to assess fines.  Fines will 
          remain with ARB and, upon appropriation by the Legislature, 
          be used for reducing emissions of air pollution or 
          greenhouse gases in the territory of the POU from which the 
          fine was collected.

          This bill requires the Department of Fish & Game to 
          establish an internal division with the primary purpose of 
          performing comprehensive planning and environment 

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          compliance services for renewable generation projects.

          This bill requires the PUC to issue a decision on 
          applications for transmission projects within 18 months of 
          the date of filing a completed application.

          This bill directs the CEC to study run of river, 
          out-of-country, hydroelectric generating facilities in 
          British Columbia relative to the definition of eligible 
          renewable electrical generation facilities.

           Comments
           
          According to the Senate Energy Utilities, and 
          Communications Committee, although many now view the RPS 
          program as one designed to reduce greenhouse gas (GHG) 
          emissions, in fact the program was developed on the heels 
          of state's electricity crisis which was in part due to the 
          volatility of natural gas markets.  

          The statute does not reference GHG.  However 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 GHG emissions to 1990 levels by 2020 (AB 32 Nunez and 
          Pavley] of 2006).

           Background
           
          Legislation to increase the RPS goals to 33 percent has 
          been attempted in each of the last two sessions.  There has 
          been little or no debate about the goal, but there has been 
          great controversy over how to get there and from where the 
          generation should be secured.  

          In 2009, Governor Schwarzenegger vetoed SB 14 (Simitian) 
          which also established an RPS goal of 33 percent.  The 
          basis of the veto concerned the delivery of renewable 
          generation from out-of-state sources which has been 
          addressed in the current measure (and SB 722 in 2010) by 
          instead using a loading order for renewable generation 
          along with other conforming and program changes to ensure a 
          smooth transition to 33 percent in a cost-effective manner.


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          The author's office has attempted to address the concerns 
          of all parties to ensure a cost-effective and successful 
          program and opines that this bill provides a clear 
          statutory directive and pathway for private and public 
          utilities to reach 33percent renewable energy use, 
          facilitate the acquisition of that energy, and provides the 
          flexibility necessary to acquire that energy in the coming 
          decade.  Additionally, it provides a clear signal to 
          financial markets of the importance and need for renewable 
          projects in the state.

           Renewable Loading Order  .  In 2009, SB 14 (Simitian) was 
          vetoed principally over perceptions that the bill imposed 
          excessively strict limits on in-state renewable energy 
          versus out-of-state energy that could be counted towards 
          the RPS.  In 2010 both proponents and opponents of SB 14 
          worked together to revise the core provisions of the bill 
          to address the delivery issues.  This bill (and SB 722) 
          reflects that work.  In place of delivery requirements this 
          bill establishes a renewable procurement "loading order" 
          that mandates minimum and maximum quantities of certain 
          products (electricity) that can be used in future contracts 
          to meet the RPS requirements.  There is no specific 
          requirement that procurement be from generation in 
          California.  Instead, it establishes procurement 
          requirements for three product categories.

          The author's office states that expanding the use of 
          renewable energy in California would:

            -Bring green investment, expertise and jobs to California 

            -Improve air quality. 
            -Address climate change.  
            -Protect customers from rate manipulation by diversifying 
             our sources of energy. 
            -Allow for an American foreign policy based on American 
             values and American interests, rather than energy needs. 


          Reports in 2010 from the California Public Utilities 
          Commission document the dramatic effect of setting a 
          renewable energy portfolio standard. In the first quarter 
          of 2010, the PUC reported that utilities "are contracting 

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          with renewable projects at an unprecedented rate." The PUC 
          expects utilities to provide 18 percent of their 
          electricity from renewables in 2010, and 21percent in 2011. 


          "With a new governor in office and additional time to carry 
          on the discussions from the last session, I'm optimistic we 
          can establish the 33% standard this year," Simitian said. 
          "It needs to get done.  And until it does, I'm on it."

          In conclusion, the author's office states a strong 
          renewable energy mandate will ensure that California is 
          served by an array of energy sources, renewable and 
          non-renewable, making California less vulnerable to price 
          spikes in any one source, such as natural gas.  The 33 
          percent standard also will put California in the forefront 
          of the transition to green energy and the jobs in those 
          emerging clean-tech businesses.

           FISCAL EFFECT  :    Appropriation:  Yes   Fiscal Com.:  Yes   
          Local:  Yes

          According to the Senate Appropriations Committee:

                          Fiscal Impact (in thousands)

           Major Provisions                2011-12     2012-13    
           2013-14  Fund  

          PUC                 $1,500    $2,500$2,500Special *
             oversight

          Energy Commission        $1,450$1,350$1,350General **
             oversight

          Air Resources Board                Up to $300 per 
          yearSpecial ***
             enforcement

          Department of Fish and                       Between $300 
          and $650 per year   General /
             Game planning and                                        
          Special****
             permitting

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          State agency energyBetween $23,000 and $42,000 by 2020      
          Various
             costs

          Public Utility implementation                Unknown, not 
          reimbursable                                 Local
             costs

          * Public Utilities Commission Utilities Reimbursement 
          Account.
          ** Energy Resources Program Account.
          *** Air Pollution Control Fund.
          **** Fish and Game Preservation Fund.

           SUPPORT  :   (Verified  2/23/11)

          American Federation of State, County and Municipal 
          Employees
          American Lung Association
          American Wind Energy Association
          Apollo Alliance
          Breathe California
          BrightSource Energy
          California Center for Sustainable Energy
          California Interfaith Power & Light
          California League of Conservation Voters
          California Wind Energy Association
          Catholic Charities, Diocese of Stockton
          City of Santa Clara
          Clean Power Campaign
          Coalition for Clean Air
          Division of Ratepayer Advocates
          Element Power
          Environmental Entrepreneurs
          enXco
          First Solar
          FuelCell Energy
          GE Energy
          Horizon Wind Energy
          Iberdrola Renewables
          Independent Energy Producers
          Large-scale Solar Association
          Natural Resources Defense Council

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          NextEra Energy Resources
          Northern California Power Agency
          Oak Creek Energy Systems Inc.
          Ormat Technologies
          Power Company of Wyoming LLC
          San Joaquin Valley Regional Green Jobs Coalition
          Schott Solar
          Solar Millennium
          SunPower
          Terra-Gen Power
          The Solar Alliance
          The Utility Reform Network
          The Vote Solar Initiative
          Union of Concerned Scientists
          Vestas-American Wind Technology, Inc.
          3 Degrees

          Support if amended:

          California Municipal Utilities Association
          Glendale Water & Power
          Southern California Public Power Authority

           OPPOSITION  :    (Verified  2/23/11)

          Alliance for Retail Energy Markets
          California Alliance for Choice in Energy Solutions
          California Business Properties Association
          California League of Food Processors
          California Manufacturers & Technology Association
          California Retailers Association
          Chemical Industry Council of California
          Direct Energy Services, LLC
          School Project for Utility Rate Reduction
          Western States Petroleum Association

          Oppose unless Amended:

          Pacific Gas & Electric Company

           ARGUMENTS IN SUPPORT  :    Proponents state that, the 33 
          percent RPS will make California "ground zero" for 
          renewables development and create the necessary pressure to 
          build-out the California renewable energy market place, 

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          thus creating new jobs.  Building the power plants and 
          green infrastructure required to meet a 33 percent RPS by 
          2020 could pump as much as $60 billion to the state's 
          stagnating economy.  Between 100,000 and 235,000 new 
          manufacturing, operations, and maintenance jobs could be 
          created under current business conditions to meet those 
          goals.  Sales and property taxes paid on 6000 megawatts 
          alone (about * of the megawatts required for a 33 percent 
          RPS) are anticipated to be more than $1.3 billion.

          The RPS is one of the most effective ways both to stimulate 
          the construction sector through large new energy projects 
          and create a long-term sustainable green energy sector for 
          California's ailing economy.

           ARGUMENTS IN OPPOSITION  :    The opposition states that, 
          "California has ambitious goals to increase renewable 
          energy supplies in the state.  It is vital that these goals 
          be achieved in a fair and economic manner.  Electricity 
          prices are already high for California employers compared 
          to national averages - the premium for industry is 53% and 
          for commercial customers is 25%.  The prospect of ever 
          higher electricity prices will threaten business 
          investment, hiring and economic recovery.  California's 
          unemployment rate of over 12% greatly exceeds the national 
          rate and getting Californians back to work should be our 
          highest priority.  

          "?.SB 1 X2 would impose unacceptable new costs on employers 
          through an ill-conceived plan to reach 33 percent renewable 
          energy purchases by 2020.  The most serious flaws of this 
          bill are:

                 The bill does not improve the processes that make 
               it too time-consuming and costly to site renewable 
               projects in California where they could provide jobs 
               and support reliable service through direct connection 
               to the local electric grid.
                 The bill would impose higher than necessary costs 
               by restricting the use of western state renewable 
               resources that could provide more supply, increase 
               competition and lower costs to consumers.
                 The bill does not provide a feasible compliance 
               pathway for direct access providers in the competitive 

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               retail energy market just reopened last year under SB 
               695 (Kehoe, Statutes of 2008).
                 The bill does not include adequate provisions to 
               monitor the costs of new renewable energy, to disclose 
               these costs to the public, and to adjust the goals of 
               the program if costs are too high."

          DLW:RJG:do  2/23/11   Senate Floor Analyses 

                         SUPPORT/OPPOSITION:  SEE ABOVE

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