BILL ANALYSIS Ó Senate Appropriations Committee Fiscal Summary Senator Christine Kehoe, Chair SB 1122 (Rubio) - Energy: renewable biomass and biogas projects. Amended: April 16, 2012 Policy Vote: EU&C 12-0 Urgency: No Mandate: No Hearing Date: May 24, 2012 Consultant: Marie Liu SUSPENSE FILE. Bill Summary: SB 1122 would direct the California Public Utilities Commission (PUC) to require the state's three largest investor-owned utilities (IOUs) to collectively procure at least 250 megawatts of renewable generating capacity from small renewable biomass or biogas projects unless and until the PUC develops a methodology to account for environmental and rate payer benefits of using biogas and biomass for electrical generation. Fiscal Impact: One-time costs of $270,000 from the Public Utilities Commission Utilities Reimbursement Account (special fund) in 2013 for the development of a methodology calculating benefits from generating electricity from biogas and biomass. Background: The three largest investor-owned utilities (IOUs) are statutorily required to offer small renewable generators sized up to 1.5 megawatts (MW) a fixed-price, non-negotiable contract known as a Feed-in-Tariff (FiT). The PUC currently has a rulemaking open to implement a statutory requirement that the IOU FiT be expanded to generators up to 3 MWs for a total allocation of 500 MW. As issue in this rulemaking, as with past discussions about the FiT program, is whether the pricing for a FiT reflects all the potential benefits and characteristics of renewables such as time-of-delivery, location/interconnectedness, reduced grid transmission costs, reduced emissions, and promotion of new technologies. Proposed Law: This bill would require the PUC to develop a methodology to account for the benefits to the ratepayers and the environment from reducing air pollution and greenhouse gas emissions by generating electricity from landfills and organic SB 1122 (Rubio) Page 1 waste diversion, waste water treatment plants, food and agricultural pricing, animal waste facilities, and farms (i.e. biogas and biomass). While such a methodology is being developed, the PUC would be required to direct large electrical corporations to collectively procure at least 250 MW of electrical generating capacity from small renewable biomass or biogas projects by June 1, 2013. Each electrical corporation would be required to procure this electricity with a standard unilateral offer and must choose the least-cost, best-fit resource. Staff Comments: This bill would require the creation a purchase program for biomass and biogas. Such a requirement could be satisfied with a program similar to the FiT in the PUC's PD. The PD divides the FiT contracts into groups according to generation characteristics of the power- baseload (e.g. bioenergy and geothermal), leaking (e.g. solar), and as-available energy (e.g. wind and hydro). These categories were created in recognition of the fact that renewables have different generation characteristics and benefits. This PD could be the basis for a purchase program required by the bill, with several adjustments (which would need to be made in a new proceeding), to create a technology-specific program for biogas and biomass. The PUC has rejected technology-specific programs in the past because rates must be in the public interest, be "just and reasonable," and not exceed the purchaser's incremental avoided costs. Technology-specific programs conflict with the PUC's past reliance on a competitive market approach for the procurement of electricity. Also, such a purchase program would have to be crafted to stay within the boundaries of federal law that allows the PUC to differentiate renewable pricing, but prohibits establishing technology-specific pricing. The PUC estimates that creating such a purchase program would require a new proceeding and ongoing contract review and approval for an annual cost of $134,000. This bill would also require the PUC to adopt a methodology that accounts for ratepayer and environmental benefits of electricity generated from biomass and biogas, for example, a pricing mechanism that would discount the bid-price of electricity generated from biomass and biogas for the purposes of comparing bids to other renewables. Arguably, the methodology required in this bill would in essence make a "societal benefit" (i.e. the reduction of methane emissions) also a "ratepayer benefit." Such SB 1122 (Rubio) Page 2 a methodology would require a new proceeding that would likely take much longer than the June 1, 2013 deadline in the bill. The PUC estimates that such a proceeding would require 2.5 PYs for legal counsel, an administrative law judge, and resource analysts at a cost of $270,000. Recommended Amendments: The bill is somewhat unclear on whether the author's intent is for the PUC to ultimately create both a biogas methodology and a biogas purchase requirement or just one or the other. As written, this bill may ultimately require the PUC to create both a methodology and a purchase requirement. However, if the author's intent is for only one of these actions to be required, staff recommends that this intent be clarified. Committee Amendments: Delete the requirement for a biogas procurement program and allow and additional year to develop required methodology.