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. | | | ------------------------------------------------------------------------------------