BILL ANALYSIS                                                                                                                                                                                                    Ó          1





                SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE
                                 ALEX PADILLA, CHAIR
          

          SB 971 -  Cannella                                Hearing Date:  
          April 17, 2012             S
          As Introduced: January 18, 2012         FISCAL           B
                                                                        
                                                                        9
                                                                        7
                                                                        1

                                      DESCRIPTION
           
           Current law  requires investor-owned utilities (IOUs), publicly 
          owned utilities (POUs), community choice aggregators (CCAs), and 
          energy service providers (ESPs) to increase purchases of 
          renewable energy such that at least 33% of total 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% of renewable energy for the period of January 1, 2011 
          through December 31, 2013 and 25% by December 31, 2016. This is 
          known as the Renewables Portfolio Standard (RPS).
           
          Current law  defines as RPS eligible, electric generation 
          resources from biomass, solar thermal, photovoltaic, wind, 
          geothermal, fuel cells using renewable fuels, small hydroelectric 
          generation of 30 megawatts (MWs) or less, digester gas, landfill 
          gas, ocean wave, ocean thermal, tidal current, and municipal 
          solid waste conversion that uses a noncombustion thermal process 
          to convert solid waste to a clean-burning fuel.  Hydroelectric 
          generation units sized below 40 MW, if operated as part of a 
          water supply or conveyance system and operative prior to 2005, 
          are also eligible.
           
          Current law  defines as RPS eligible any incremental generation 
          gained from efficiency improvements in hydroelectric facilities 
          of any size under specified conditions. 
           
          This bill  excludes generation from hydroelectric facilities that 
          are not eligible renewable resources, from the calculation of 
          total retail sales which would result in a "net retail sales" 
          factor to serve as the denominator in calculating compliance with 
          the RPS.











                                       BACKGROUND
           
          RPS Purpose & Program - In 2002 the California State Legislature 
          adopted groundbreaking legislation (SB 1078, Sher) to require the 
          state's investor-owned utilities (e.g. Pacific Gas & Electric, 
          Southern California Edison, San Diego Gas and Electric Company, 
          collectively referred to as IOUs) and the private companies that 
          compete with the utilities (ESPs) to increase their annual 
          purchases of electricity from renewable resources by at least 1% 
          per year so that 20% of their sales would come from renewable 
          sources by 2017.  In 2006 legislation accelerated the deadline 
          for utilities to reach 20% to the end of 2010 (SB 107, Simitian). 
           Flexible compliance provisions of the program could have 
          extended the deadline to 2013.  Publicly owned utilities (POUs) 
          were called upon in those bills to implement and enforce an RPS 
          program that "recognizes the intent of the Legislature to 
          encourage renewable resources, while taking into consideration 
          the effect of the standard on rates, reliability, and financial 
          resources and the goal of environmental improvement."  In 2011 
          the Legislature expanded the RPS program to 33% by 2020 and more 
          clearly delineated the RPS requirements for the POUs.
          IOU Progress - Since the RPS statute took effect in 2003, 
          renewable capacity has steadily increased each year with a total 
          of 2,541 MW of new renewable capacity coming online through 2011. 
           California's three largest IOUs collectively served 17% of 2010 
          retail electricity sales with renewable power.  Earlier this year 
          these same IOUs, which provide service to about two-thirds of 
          California utility customers, reported the following individual 
          RPS percentages through 2011:

                     Pacific Gas and Electric (PG&E) 19.4%;
                     Southern California Edison (SCE) 21%; and
                     San Diego Gas & Electric (SDG&E) 20.8%.

          POU Progress - California has 46 local publicly-owned-utilities 
          (POUs) which include municipal utilities, irrigation districts, 
          co-ops, and joint powers authorities.  They collectively serve 
          approximately 23% of California's retail electrical load.  

          The POUs are required to annually report to the California Energy 
          Commission (CEC) the progress made in establishing and meeting 
          RPS goals and the resource mix used to serve customers.  
          Compliance data through 2010, and reported by the CEC in the fall 
          of 2011, show that the POU's RPS deliveries range from zero to 
          67%.   A list of each POU and the data reported through 2010 for 









          compliance with the RPS is attached as "Appendix A."

          Hydroelectric Power - For purposes of the RPS hydroelectric 
          facilities are broken down into two categories.  Those facilities 
          that are larger than 30 MWs are called "large hydro" and are not 
          eligible renewable resources under the RPS program.  
          Hydroelectric facilities smaller than 30 MWs are considered 
          "small hydro" and can be RPS eligible.  This standard has been in 
          the RPS program since its adoption in 2002.  

          Beginning in 2006 the Legislature passed a series of bills that 
          allow utilities to implement efficiency improvements at 
          hydroelectric facilities of any size and count the gain in power 
          toward the utility's RPS requirements. A typical improvement 
          would be the installation of new turbines that would increase 
          output but not impact the timing or volume of streamflow.  In 
          2011 an additional category of eligibility was added for small 
          hydroelectric generation units sized below 40 MWs that are part 
          of a watersupply or conveyance system.

          The amount of hydroelectricity delivered to California users from 
          in-state and out-of-state sources vary each year and is largely 
          dependent on rainfall and snowpack. California has nearly 400 
          hydroelectric plants, which are mostly located in the eastern 
          mountain ranges and have a total dependable capacity of about 
          14,000 MW.  The state also imports hydro-generated electricity 
          from the Pacific Northwest and Southwest. According to the CEC 
          small hydro generation from in-state sources as a percentage of 
          California's resource mix was 2.2% in 2010 and 14.6% for large 
          hydro.  Out-of-state generation data was not available.

          Two types of conventional hydroelectric facilities are dams and 
          run-of-river. Dams raise the water level of a stream or river to 
          an elevation necessary to create a sufficient elevation 
          difference (water pressure or head). Dams can be constructed of 
          earth, concrete, steel or a combination of such materials. 
          Run-of-river, or water diversion, facilities typically divert 
          water from its natural channel to run it through a turbine, and 
          then usually return the water to the channel downstream of the 
          turbine. Although hydroelectric generation is emissions-free, it 
          was excluded from RPS eligibility because of other adverse 
          environmental impacts associated with conventional hydroelectric 
          power generation and typical on-stream pumped hydroelectric 
          storage facilities: 
                 Water resources impacts such as a change in stream flows, 









               reservoir surface area, the amount of groundwater recharge, 
               and water temperature, turbidity (the amount of sediment in 
               the water) and oxygen content; 
                 Biological impacts such as the possible displacement of 
               terrestrial habitat with a new lake environment, alteration 
               of fish migration patterns, and other impacts on aquatic 
               life due to changes in water quality and quantity; 
                 Possible damage to, or inundation of, archaeological, 
               cultural or historic sites (primarily if a reservoir is 
               created); 
                 Changes in visual quality; 
                 Possible loss of scenic or wilderness resources; and 
                 Increase in potential for land-slides and erosion. 

          Hydroelectric Generation Numbers - Generally Northern California 
          IOUs and POUs have long-term contracts for or own large 
          hydroelectric generation sources.  The three largest IOUs report 
          the following generation from large hydro:

               Pacific Gas & Electric16.6%
               San Diego Gas & Electric     0%
               Southern California Edison  6.0%

          Data filings with the CEC on hydroelectric generation for POUs 
          were spotty with only about a third of those utilities complying 
          with the Power Content Label Disclosure.  The following data was 
          available for 2010:

               Alameda   22%
               Anaheim     4%
               Banning     1%
               Burbank     2%
               Corona         17%
               Glendale         5%
               LADWP       3%
               Plumas         33%
               Redding     0%
               Riverside        2%
               Roseville      15%
               SMUD           28%

                                        COMMENTS
           
              1.   Author's Purpose  .  According to the author:










               SB 971 removes the penalty the RPS program inherently levies 
               on hydro-heavy utilities by recognizing the renewable 
               properties of hydroelectric generation. This bill will 
               reduce the anticipated rate hikes associated with the new 
               33% RPS program.  In Merced County that can be a savings of 
               up to $500 a year per customer?Hydroelectric power is 
               inherently a renewable resource, no matter the size of the 
               facility from which it is derived. There are no carbon 
               emissions released as a byproduct and the process is very 
               efficient. The amount of hydroelectricity generated can also 
               be controlled and adjusted depending on demand, unlike wind 
               and solar generation?By only including small hydroelectric 
               facilities, the RPS program penalizes utilities who count on 
               large hydroelectric facilities for electricity. Many times 
               these are small publicly-owned utilities (POUs) that only 
               need one large hydroelectric facility to serve their small 
               customer base. Changing how RPS is calculated will help 
               utilities keep rates low for their ratepayers and eliminate 
               the bias towards hydroelectric generation inherent in the 
               program."

              2.   New Denominator  .  Generally, RPS requirements are 
               calculated by taking the total retail electric sales for a 
               utility on a megawatt hour basis (the denominator), and 
               multiplying that number by 33% (the numerator).  This bill 
               would affect that calculation by subtracting generation 
               produced by large hydroelectric facilities from the total 
               retail electric sales before the total is multiplied by 33%. 
                In this way large hydro would not be "RPS eligible" but it 
               would directly reduce the amount of renewable electricity 
               required to be procured by the utility.  

               Excluding large hydro from the denominator would redefine 
               success (RPS compliance) for some utilities but not others.  
               As indicated in the preceding comments, the hydroelectric 
               generation of California electric utilities ranges from zero 
               to 33% based on the data available to the committee.  (There 
               are anecdotal reports that some POUs rely on hydro for 100% 
               of their electricity portfolio.)  Consequently, this bill 
               would have a disproportionate impact on utilities throughout 
               the state immediately defining RPS compliance for some and 
               leaving others behind. 

              3.   Stranded Assets  ?  For the last ten years the RPS program 
               has excluded large hydro from eligibility.  Consequently 









               procurement efforts of diligent utilities have excluded that 
               source from their procurement plans and contracting.  The 
               CPUC estimates that this bill, for the IOUs, "could reduce 
               statewide demand for new RPS project development to achieve 
               33% by 4,500 MW of intermittent solar/wind capacity or 1,250 
               MW of baseload geothermal capacity."  Should this bill pass 
               an unknown number of current RPS projects currently under 
               development could also be in jeopardy since the bill. 

              4.   Unmet Need  .  Current law requires the utilities to 
               procure renewable resources "in order to fulfill unmet 
               long-term resource needs."  This provision is intended to 
               ensure that a utility is not obligated to procure renewable 
               resources beyond its retail electricity needs and generation 
               contracted for or owned by a utility.  In application this 
               would mean if a utility has no load growth or expiring 
               contracts in its portfolio, compliance with the RPS would 
               not be required or would be reduced.  For example, if a 
               utility has large hydro in its electric portfolio that it 
               owns and that hydro provides 100% of the electricity needed 
               for the utility, there would be no RPS procurement required. 
                

              5.   Contract Cost Impacts Suspect  .  Some utilities writing in 
               support of this bill argue that the RPS program requirements 
               will result in a cost burden to their ratepayers.  Several 
               recent reports do not support this view.  The three largest 
               IOUs recently reported that solicitations for small RPS 
               contracts in their Reverse Auction Mechanism (RAM) program 
               came in below that of natural gas generation.  Additionally, 
               the CPUC reported in their 2011 4th Quarter RPS report that 
               the "average bid price in the 2011 RPS Solicitation was 
               approximately 30% lower than the average bid price in the 
               2009 RPS Solicitation."


               A recent study, Renewable Energy Standards Deliver 
               Affordable, Clean Power, published by the Center for 
               American Progress, found that electric pricing data among 
               the states found no differences in prices as a result of 
               renewable energy mandates.  Specifically the study found 
               that RPS mandates had "no predictable impact on electricity 
               rates" in the 28 states with those laws.  Moreover, the 
               report specifically noted that in seven states, including 
               California, the RPS program helped arrest rising electricity 









               costs by forcing states to diversify their electricity 
               sources.

                                       POSITIONS
           
           Sponsor:
           
          Author

           Support:
           
          Association of California Water Agencies
          California Chamber of Commerce
          California League of Food Processors
          California Manufacturers and Technology Association
          Merced County Board of Supervisors
          Merced Irrigation District
          Modesto Irrigation District
          Northern California Power Agency
          Pacific Gas and Electric Company
          Power and Water Resources Pooling Authority

           Oppose:

           California Hydropower Reform Coalition
          California Public Utilities Commission
          Large-Scale Solar Association
          Natural Resources Defense Council 
          Sierra Club California
          Union of Concerned Scientists

          









          Kellie Smith 
          SB 971 Analysis
          Hearing Date:  April 17, 2012










                                      APPENDIX A
                                 2010 RPS DELIVERIES
                               PUBLICLY OWNED UTILITIES
          
           ----------------------------------------------------------------- 
          |                                                   |CEC-Eligible |
          |                   Utility Name                    |     RPS     |
          |                                                   | Deliveries  |
          |                                                   |(% of Retail |
          |                                                   |Sales- 2010) |
           ----------------------------------------------------------------- 
          |-----------------------------------------------------+------------|
          |Large POUs (retail sales greater than 10 million MWh |            |
          |per year)                                            |            |
          |-----------------------------------------------------+------------|
          |Los Angeles Department of Water & Power (LADWP)      |   17.6%    |
          |-----------------------------------------------------+------------|
          |Sacramento Municipal Utility District (SMUD)         |   20.9%    |
          |-----------------------------------------------------+------------|
          |Medium POUs (retail sales of 750,000 to 10 million   |            |
          |MWh per year)                                        |            |
          |-----------------------------------------------------+------------|
          |Anaheim, City of                                     |   10.8%    |
          |-----------------------------------------------------+------------|
          |Burbank, City of                                     |    7.0%    |
          |-----------------------------------------------------+------------|
          |Glendale, City of                                    |   15.6%    |
          |-----------------------------------------------------+------------|
          |Imperial Irrigation District                         |    8.3%    |
          |-----------------------------------------------------+------------|
          |Modesto Irrigation District                          |   13.3%    |
          |-----------------------------------------------------+------------|
          |Palo Alto, City of                                   |   20.6%    |
          |-----------------------------------------------------+------------|
          |Pasadena, City of                                    |   14.5%    |
          |-----------------------------------------------------+------------|
          |Redding Electric Utility                             |    2.0%    |
          |-----------------------------------------------------+------------|
          |Riverside, City of                                   |   18.4%    |
          |-----------------------------------------------------+------------|
          |Roseville Electric                                   |   17.9%    |
          |-----------------------------------------------------+------------|
          |San Francisco, City and County of                    |    0.9%    |
          |-----------------------------------------------------+------------|
          |Silicon Valley Power (SVP)                           |   25.2%    |









          |-----------------------------------------------------+------------|
          |Turlock Irrigation District                          |   21.3%    |
          |-----------------------------------------------------+------------|
          |Vernon, City of                                      |    0.0%    |
          |-----------------------------------------------------+------------|
          |Small POUs (retail sales less than 750,000 MWh per   |            |
          |year)                                                |            |
          |-----------------------------------------------------+------------|
          |Alameda Municipal Power                              |   67.0%    |
          |-----------------------------------------------------+------------|
          |Azusa Light & Power                                  |   17.6%    |
          |-----------------------------------------------------+------------|
          |Banning, City of                                     |   25.1%    |
          |-----------------------------------------------------+------------|
          |Biggs Municipal Utilities                            |   12.1%    |
          |-----------------------------------------------------+------------|
          |Cerritos, City of*                                   |    0.0%    |
          |-----------------------------------------------------+------------|
          |Colton Electric Utility*                             |    0.0%    |
          |-----------------------------------------------------+------------|
          |Corona, City of (direct access)                      |    0.0%    |
          |-----------------------------------------------------+------------|
          |Corona, City of (bundled)                            |    0.2%    |
          |-----------------------------------------------------+------------|
          |Eastside Power Authority                             |    1.4%    |
          |-----------------------------------------------------+------------|
          |Gridley Electric Utility                             |    8.7%    |
          |-----------------------------------------------------+------------|
          |Healdsburg, City of                                  |   40.2%    |
          |-----------------------------------------------------+------------|
          |Hercules Municipal Utility                           |    0.0%    |
          |-----------------------------------------------------+------------|
          |Industry, City of                                    |    0.0%    |
          |-----------------------------------------------------+------------|
          |Lassen Municipal Utility District*                   |    0.0%    |
          |-----------------------------------------------------+------------|
          |Lodi Electric Utility                                |   20.1%    |
          |-----------------------------------------------------+------------|
          |Lompoc, City of                                      |   23.8%    |
          |-----------------------------------------------------+------------|
          |Merced Irrigation District                           |    2.8%    |
          |-----------------------------------------------------+------------|
          |Moreno Valley Electrical Utility                     |    0.0%    |
          |-----------------------------------------------------+------------|
          |Needles, City of                                     |    0.0%    |









          |-----------------------------------------------------+------------|
          |Pittsburg, City of                                   |    1.0%    |
          |-----------------------------------------------------+------------|
          |Plumas-Sierra Rural Electric Cooperative             |    4.4%    |
          |-----------------------------------------------------+------------|
          |Port of Oakland                                      |    2.0%    |
          |-----------------------------------------------------+------------|
          |Port of Stockton                                     |    0.0%    |
          |-----------------------------------------------------+------------|
          |Power & Water Resources Pooling Authority (PWRPA)    |   14.2%    |
          |-----------------------------------------------------+------------|
          |Rancho Cucamonga Municipal Utility                   |    0.0%    |
          |-----------------------------------------------------+------------|
          |Shasta Lake, City of                                 |   10.7%    |
          |-----------------------------------------------------+------------|
          |Shelter Cove Resort Improvement District*            |    n/d     |
          |-----------------------------------------------------+------------|
          |Trinity Public Utilities District?                   |    n/a     |
          |-----------------------------------------------------+------------|
          |Truckee Donner Public Utilities District             |   22.3%    |
          |-----------------------------------------------------+------------|
          |Ukiah, City of                                       |   51.7%    |
          |-----------------------------------------------------+------------|
          |Victorville Municipal Utilities Services             |0.0%        |
           ------------------------------------------------------------------ 


           ------------------------------------------------------------------------------------- 
                                                                     |* Pending verification from    |        |        |        |        |        |        |
          |POU                            |        |        |        |        |        |        |
           ------------------------------------------------------------------------------------- 
           ------------------------------------------------------------------------------------ 
          |? Trinity PUD receives all of its electricity pursuant to a preference right        |
          |adopted and authorized by the United States                                         |
          |Congress pursuant to Section 4 of the Trinity River Division Act of August 12, 1955 |
          |(Public Law 84-386), and therefore                                                  |
          |is in compliance with California's renewable portfolio standard law without         |
          |additional renewable energy procurement.                                            |
          |                                                                                    |
           ------------------------------------------------------------------------------------