BILL ANALYSIS Ó
SB 2 X1
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Date of Hearing: March 14, 2011
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Felipe Fuentes, Chair
SB 2 X1 (Simitian) - As Introduced: February 1, 2011
Policy Committee: Utilities and
Commerce Vote: 10-3
Natural Resources 6-3
Urgency: No State Mandated Local Program:
No Reimbursable: No
SUMMARY
This bill modifies the state's Renwable Portfolio Standard (RPS)
Program to require the state's providers of electricity service
to procure electricity from renewable energy sources so that
renewable energy resources represent at least 33% of each
provider's electricity sales by the end of 2020.
(Current law requires only retail sellers of electricity to
procure electricity from renewable energy resources so that it
represents at least 20% of each retail seller's electricity
sales by 2010. Current law encourages, but does not require,
publicly owned utilities to procure electricity from renewable
energy resources.)
FISCAL EFFECT
1)California Public Utilities Commission (CPUC)
a) Ongoing annual special fund costs of approximately
$650,000, equivalent to five positions, to implement the
RPS provisions for retail sellers, including developing new
interim goals, developing cost limitations on renewable
electricity procurement, communicating with retail sellers
regarding new requirements, developing requirements for
approval of IOU-owned electricity generating facilities,
and reporting to the Legislature. (PUC Utilities
Reimbursement Account (PURA))
b) Ongoing annual special fund costs of approximately
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$650,000, equivalent to five positions, for transmission
planning and expedited review of applications to construct
new transmission lines. (PURA)
c) Ongoing annual special fund costs of approximately $1
million for contracts for program evaluation and technical
assistance, such as analysis of program implementation
options. (PURA)
d) Appropriation of $322,000 from the PURA for additional
staff for transmission line applications that facilitate
RPS compliance.
e) Potential revenue from fines levied against retail
sellers that fail to meet RPS targets. (GF)
2)California Energy Commission
Ongoing annual special fund costs in the range of $1 million
to $1.5 million, equivalent to no more than nine positions, to
the Energy Commission to adopt regulations, assess and modify
tracking systems and programs, and monitor RPS compliance
among POUs. (Energy Resources Program Account (ERPA))
3)Department of Fish and Game
Ongoing annual costs of $350,000 to $600,000 to DFG to
establish an internal division to conduct planning and
environmental compliance services. (GF or Fish and Game
Preservation Fund)
4)Air Resources Board
a) Ongoing annual special fund costs of approximately
$290,000, equivalent to 2 positions, to enforce renewable
energy resources procurement requirements on POUs. (Air
Pollution Control Fund (APCF))
b) Potential revenue from fines levied against retail
sellers that fail to meet RPS targets. (APCF)
5)Other Costs
According to a 2009 CPUC report, achievement of a 33% RPS by
2020 will have the following effect on capital costs and
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electricity rates when compared to a baseline scenario in which
the state receives 20% of its electricity from renewable energy
resources:
a) Tens of billions of dollars in one-time costs over the
period 2011-2020 to construct capital projects, such as
transmission lines and electricity generation facilities.
Presumably, those costs will be paid by the ratepayers and
customers of the state's IOUs, POUs and other providers of
electricity service.
b) A 7.1% increase in statewide electricity expenditures.
The CPUC notes it has revised downward its projected energy
demand for 2020. Accordingly, this downward projection should
revise the cost CPUC associates with a 33% RPS. While CPUC has
yet to conduct an analysis that would allow it to revise its
project costs of a 33% RPS, it contends the estimates from its
2009 report are "a useful reference" nonetheless.
SUMMARY (continued)
Specifically, this bill:
I.Renewable Energy Procurement Requirements for Retail Sellers
of Electricity
1) Requires the California Public Utilities Commission
(CPUC) to establish the RPS Program for retail sellers of
electricity-investor-owned utilities (IOUs) such as
Southern California Edison and Pacific Gas and Electric,
electricity service providers (ESPs) and community choice
aggregators (CCAs).
2) Directs the CPUC to establish in rulemaking the
following goals for the RPS Program, so that each retail
seller's procurement of electricity from eligible renewable
energy resources represents a certain percent of retail
sales and reasonable progress to RPS program goals:
a) 20% on average for the compliance period January 1,
2011, to December 31, 2013.
b) 25% by December 31, 2016.
c) 33% by December 31, 2020 and each year thereafter.
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1) Directs the CPUC to establish rules for the RPS program
that establish the following:
a) A balanced portfolio of procurement based on the
following three categories of renewable energy products:
i) Renewable energy interconnected to the grid
within, scheduled for direct delivery into, or
dynamically transferred to, a California balancing
authority (i.e., real renewable energy supplied to the
California grid, located within or directly proximate
to the state). Of the total renewable energy
contracts executed after June 1, 2010, the following
percentages must fall into this category:
At least 50% for the 2011-2013 compliance
period.
At least 65% for the 2014-2016 compliance
period.
At least 75% thereafter.
i) Renewable energy where substitute
non-renewable energy is used to provide a reliable
delivery schedule into a California balancing
authority.
ii) Renewable energy products not meeting either
condition above, including unbundled RECs. The
original source of renewable energy must be located
within the western grid, but otherwise need not have a
physical connection to California). Of the total
renewable energy contracts executed after June 1,
2010, the following percentages may fall into this
category:
Not more than 25% for the 2011-2013
compliance period.
Not more than 15% for the 2014-2016
compliance period.
Not more than 10% thereafter.
a) A process that provides criteria, as directed, to
guide the ordering and selection of eligible renewable
energy resources. Criteria include the costs of
transmission investments and energy procurement,
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viability of proposed eligible renewable energy projects,
and workforce growth and availability.
b) Rules for banking-meaning excess RPS
Program-eligible energy procurement in one compliance
period applied to a later compliance period-including
rules that prohibit use of banking for electricity
procurement associated with contracts of less than 10
years in duration.
c) Standard terms and conditions for use by IOUs in
contracting for eligible renewable energy resources.
d) Minimum procurement margins above minimum
procurement levels that mitigate risk of failure to meet
RPS Program compliance obligations.
e) The use of RECs, eligible for use within 36 months
of the generation of the electricity represented by the
REC, as proof of RPS Program compliance.
f) IOU permits to build, own and operate an eligible
renewable energy resources equal to 8.25% of the IOU's
anticipated 2020 retail sales, subject to CPUC approval.
1) Directs the CPUC to monitor RPS Program activities of
retail sellers and enforce compliance with RPS Program
goals; specifically:
a) Require each IOU to prepare and submit an annual
renewable energy procurement plan to meet RPS Program
requirements, to be reviewed and accepted, modified or
rejected by the CPUC.
b) Require the CPUC to review and approve an IOU's
proposed contract for the generation of eligible
renewable energy resources.
c) Authorize the CPUC to impose penalties on a retail
seller of electricity for failure to comply with RPS
Program requirements.
2) Includes cost-containment provisions:
a) Directs the CPUC to ensure that rates charged to IOU
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customers for renewable electricity are just and
reasonable and not significantly affected by the RPS
procurement requirements.
b) Directs the CPUC to establish a cost limit on each
IOU for the procurement of eligible renewable energy
resources to meet RPS Program requirements.
c) Authorizes IOUs to stop procuring renewable energy
beyond the CPUC-established cost limit.
3) Excuses a retailer seller from obligation to meet RPS
Program targets if the retail seller demonstrates to the
CPUC any of the following conditions is beyond its control
and prevents compliance:
a) Inadequate transmission capacity for delivery of
sufficient renewable energy.
b) Permitting, interconnection or other delays for
renewable energy projects, or an insufficient supply of
available renewable energy.
c) Unanticipated curtailment of renewable energy
necessary to address the needs of a balancing authority
(such as the Independent System Operator).
4) Requires the CPUC to report to the Legislature, by
January 1, 2016, assessing whether each IOU can meet its
RPS Program obligation by 2020 within established cost
limits.
5) Requires CPUC to report regularly to the Legislature on
retail seller RPS Program progress, IOU revenue
requirements, and savings and costs resulting from the RPS
program requirements.
I.Renewable Energy Procurement Requirements for Publicly Owned
Utilities
1) Requires the governing body of each of the state's
publicly owned utilities (POUs), such as the Los Angeles
Department of Water and Power (LADWP) and the Sacramento
Municipal Utilities District (SMUD), to establish a
renewable energy resources procurement plan consistent with
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the RPS Program targets applicable to retail sellers of
electricity, to take effect January 1, 2012.
2) Requires the California Energy Commission (CEC) to
adopt, by July 1, 2011, regulations specifying enforcement
of the renewable energy procurement requirements on POUs.
3) Directs CEC to monitor POU planning for, and compliance
with, renewable energy procurement requirements and to
refer POU violations to ARB for penalty assessment.
4) States that the CEC has no authority to enforce any RPS
requirement on a POU.
5) Requires any penalties collected by ARB from a POU to be
used, upon appropriation, to reduce air pollution or
greenhouse gas emissions within the same geographic area as
that served by the POU.
6) States that ARB shall not impose an additional penalty
for failure to comply with a renewable energy procurement
plan and for any renewable procurement requirement imposed
pursuant to the state's greenhouse gas reduction goals (AB
32).
I. Planning, Permitting and Other Issues
1) Requires the CPUC to issue a decision, within 18 months
of filing, on an application for a permit for transmission
line construction or upgrade needed to facilitate use of
renewable energy resources.
2) Requires DFG to establish a division to conduct
comprehensive planning and permitting services, with
priority given to renewable energy projects, and to ensure
timely completion of Natural Community Conservation
Planning Act plans.
3) Requires the CEC to complete, by June 30, 2011, a report
to the Legislature on the environmental effects of
run-of-river hydroelectric generating facilities in British
Columbia and their potential inclusion as eligible sources
of renewable energy under the RPS Program.
COMMENTS
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1)Rationale . The author notes ARB has identified a 33% RPS goal
as key among its measures to achieve the state's greenhouse
gas (GHG) emission reduction goals. The author proposes to
codify the 33% RPS goal to increase the amount of electricity
procured from renewable generation sources to achieve various
goals: improved air quality, reduced greenhouse gas
emissions, diversification of energy sources, energy
independence, and encouraging innovation and investment in
green energy technologies.
The author contends there are at least two barriers preventing
the state's electricity providers from dramatically increasing
their supply of energy from renewable resources. The first is
that, currently, electricity produced from renewable resources
costs more than electricity produced from natural gas,
California's dominant source of electricity. Second,
investors lack certainty about California's long-term appetite
for renewable energy and therefore reluctant to undertake
major renewable energy projects.
The author contends the requirements of this bill will provide
certainty to investors seeking to fund renewable energy
projects, which will lead to an increase in renewable energy
resources available to the state's electricity users. The
author further contends this increase in renewable energy
supply will likely reduce the cost of renewable energy
relative to conventionally produce energy, as well as provide
the other economic and social benefits mentioned above.
2)Background-Provision of Electricity Service . Californians
generally receive their electricity service from one of two
types of providers: retail sellers of electricity and POUs.
a) Retail sellers of electricity are legally divided
into three subgroups: investor-owned utilities, electric
service providers, and community choice aggregators.
b) IOUs collectively are the largest provider of
electricity service in the California. The state's three
largest electricity IOUs-Pacific Gas and Electric,
Southern California Edison, and San Diego Gas and
Electric-each have a unique, defined geographic service
area and are legally required to serve customers within
their respective service areas. The CPUC regulates IOUs'
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rates and provision of electricity service to the
customer. As a group, IOUs account for about two-thirds
of electricity sales in California.
c) Electric service providers (ESPs) provide retail
electricity service to customers who have chosen not to
receive service from the utility that serves their area,
but instead have entered into direct access contracts
with ESPs that deliver electricity through the local
utility's transmission and distribution system.
There are currently about 20 registered ESPs operating in
the state, generally serving large industrial and
commercial businesses that make up about 8% of the state's
electricity sales. Under current law, the ESPs are required
to register with the CPUC for licensing purposes, but their
rates and terms of service are not regulated by the CPUC.
As a consequence of the electricity crisis, the state
statutorily suspended direct access, preventing additional
IOU customers from leaving IOU service and entering into
contracts with ESPs. Under existing law, the suspension of
direct access will continue until long-term electricity
contracts signed on behalf of IOUs by the Department of
Water Resources expire. The last of the contracts will
expire in 2013.
d) Community choice aggregators (CCAs) result when a
city or county aggregates all the electrical demand of
the residents, businesses and municipal users under its
jurisdiction and elects to meet this demand from an
electricity provider other than the electric utility
currently serving that local area. CCAs currently
provide very little of the state's electricity.
i) A POU is a local governmental entity that provides
electricity service to residents and businesses in its
local area. POUs set their own terms of service and are not
regulated by PUC. Major POUs include the LADWP and the
Sacramento Municipal Utility District (SMUD). Collectively,
the state's POUs provide electricity service to about 24%
of the state population.
3)California's Existing Renewables Portfolio Standard-20% by
2010. An RPS is a requirement that an electricity provider
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generate or receive an increased amount of its electricity
from renewable energy resources, such as the sun, wind, or
geothermal sources. California has had an RPS statute for
almost a decade. SB 1078 (Sher, Chapter 516, Statutes of
2002) set a goal of 20% of electricity from renewable
resources by 2017. SB 107 (Simitian, Chapter 464, Statutes of
2006) accelerated the deadline for 20% to 2010.
Current law requires a retail seller of electricity, such as
an IOU, that fails to meet its RPS target in a given year to
compensate for that shortfall by procuring additional
renewable energy in the following year. Should a retail
seller fail to meet its RPS target, the PUC may impose
penalties. According to the PUC, as of 2010, the IOUs have
achieved the following progress towards the statutory goal:
PG&E - 17.7%; SCE -19.4%; SDG&E - 11.9%.
Current law does not require POUs to meet the same RPS that
retail sellers are required to meet. Rather, statute directs
each POU to implement and enforce its own renewable portfolio
standard. However, no state agency enforces POU compliance or
imposes penalties on a POU for failing to meet its renewable
portfolio standard objectives.
4)Legislature Can't Get to 33% RPS, But ARB Can. This is not
the first time the Legislature has tried to move legislation
requiring the state to achieve an RPS of 33% by 2020. In
2009, the governor vetoed companion bills passed by the
Legislature to establish a 33 % RPS-SB 14 (Simitian) and AB 64
(Krekorian). Following the vetoes, the Governor issued an
executive order directing ARB to implement a 33 % RPS as a
greenhouse gas reduction measure pursuant to its authority
under AB 32, which ARB adopted September 23, 2010.
Many in the Legislature have questioned the legal authority of
ARB to implement a 33% RPS based on an executive order.
Others question the policy and program choices included in the
ARB's RPS program rules. Last year, the Legislature again
tried to pass a 33% RPS bill. That bill, SB 722 (Simitian),
passed the Assembly in the final hour of the 2009-2010
session, but failed to pass the Senate as the session came to
a close at midnight.
5)Support is Broad, But Grousing Remains. This bill enjoys
broad support from a large number of interested groups, many
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of whom have complaints about the bill nonetheless. Notable
among those complaints are:
a) ESPs are concerned about the bill's intent to require
the utilities to engage in long-term contracts. Since
deregulation of the electricity market in 1996, a number of
businesses have procured electricity on the wholesale
market and delivered that power directly to wholesale
customers, such as Safeway. They generally operate on
short-term contracts (six to 12 months in duration) and
argue that they have limited access to renewable
development, which is largely tied-up in long-term
commitments.
b) Some POUs and their representatives remain concerned
about the bill's enforcement provisions, which allow the
ARB to fine noncompliant POUs. While the bill directs that
fine revenue be directed back to the geographic regions
served by the POUs, some are concerned nonetheless about
how that money will be directed back to the region and who
will dictate the types of projects on which the money may
be spent.
c) SMUD expressed concern in policy committee that it is
not receiving proper credit in the bill for its past
deliveries of electricity generated by eligible renewable
resources.
While these groups express concern with the bill as written,
they remain in support, largely because of agreements,
expressed publicly by the author and others, that there will
be subsequent legislation to address lingering technical
issues and nagging policy concerns.
6)The Trouble With ERPA. The Energy Resources Program Account
is primarily supported by a surcharge on electricity use in
the state. Energy use in the state has declined, reducing
revenues into the account. In the fall of 2010, the Energy
Commission raised the surcharge to near its statutory maximum.
Based on the increased surcharge, the account has a projected
fund balance of about $10 million at the end of the 2011-12
budget year. CEC indicates that the energy surcharge will
produce insufficient revenue in the budget year to cover the
costs that may result from the requirements of this bill, as
well as other bills, such as AB 13 X1 (V.M. Perez) and SB 1 X1
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(Steinberg), that also hope to use ERPA as a funding source.
7)Supporters , including numerous industry, utility,
environmental and consumer groups, contend the bill is
necessary to significantly increase California's use of
electricity from renewable resources. Many supporters concede
such an increase will require capital expenditures beyond what
would otherwise be needed and may result in higher electricity
costs, especially in the near term. These supporters contend,
however, that increasing use of renewable energy resources
will bring about numerous social, environmental, public health
and economic benefits which outweigh the possible increase in
costs.
Supporters additionally contend that a 33% RPS will lead to
near-term job creation through capital investment, better
insulate the state from shocks in the price of natural gas,
and likely lead, through increased supply, to a decrease in
the price of electricity produced from renewable resources.
8)Opponents , including some industry groups, contend the bill
will lead to higher electricity prices, thereby encouraging
employers to leave the state, discouraging employers from
coming to the state, and reducing consumers' disposable
income, all of which will diminish economic growth. Opponents
further contend that any job creation resulting from
imposition of a 33% RPS will be offset by reduced spending in
other areas of the state.
Other groups do not oppose a 33% RPS in concept but have
specific problems with the bill as written, some of which are
characterized earlier in this analysis.
9)Related Legislation .
a) SB 1078 (Sher, Chapter 516, Statutes of 2002) created
the RPS, which originally required IOUs and ESPs to
increase their renewable procurement each year by at least
1% of total sales, so that 20% of their sales would be from
renewable energy sources by December 31, 2017.
b) SB 107 (Simitian, Chapter 464, Statutes of 2006)
maintained the 20% RPS target but moved it up to 2010.
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c) SB 14 (Simitian, 2009) and AB 64 (Krekorian, 2009)
sought to establish RPS goals of 33% by 2020. Both bills
were vetoed by the governor, who subsequently issued an
executive order calling for a 33% RPS.
d) SB 722 (Simitian, 2010) would have established a 33% RPS
similar to this bill. The bill passed the Assembly in the
final hour of the legislative session but died on the
Senate floor.
Analysis Prepared by : Jay Dickenson / APPR. / (916) 319-2081