BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | SB 1122|
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THIRD READING
Bill No: SB 1122
Author: Rubio (D)
Amended: 5/29/12
Vote: 21
SENATE ENERGY, UTIL. & COMMUNIC. COMM. : 12-0, 04/24/12
AYES: Padilla, Fuller, Berryhill, Corbett, De León,
DeSaulnier, Emmerson, Kehoe, Pavley, Rubio, Strickland,
Wright
NO VOTE RECORDED: Simitian
SENATE APPROPRIATIONS COMMITTEE : 7-0, 5/24/12
AYES: Kehoe, Walters, Alquist, Dutton, Lieu, Price,
Steinberg
SUBJECT : Energy: renewable biomass and biogas projects
SOURCE : Clean Power Campaign
DIGEST : This bill requires that the Public Utilities
Commission (PUC) mandate, no later than June 1, 2013, that
each of the states three largest investor-owned utilities
(IOUs) collectively procure at least 250 megawatts (MWs) of
renewable generating capacity from small renewable biomass
or biogas projects at a price that accounts for the
benefits to ratepayers and the environment and at a price
that is consistent with the operational characteristics of
the projects.
ANALYSIS : Existing law requires all IOUs and
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publicly-owned utilities, that serve more than 75,000
retail customers, to develop a standard contract or tariff
(aka feed-in-tariff or FiT) available for renewable energy
facilities up to 3 MWs. Statewide participation is capped
at 750 MWs.
Existing law requires that the pricing mechanism for IOU
FiTs to be based on the market price for renewable
generation, include the value of different electricity
products including baseload, peaking and as-available
electricity.
This bill requires the PUC, by June 1, 2012, 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 waste diversion, waste water
treatment plants, food and agricultural pricing, animal
waste facilities, and farms (i.e. biogas and biomass).
Background
What is a Feed-in-Tariff ? A FiT is a simple,
comprehensible, transparent contracting mechanism for small
renewable generators to sell power to a utility at
predefined terms and conditions, without contract
negotiations. For the IOUs, the FiT operates as a
"must-take" contract in its portfolio. If the participant
generates the power, the IOU must take it and pay for it
according to the pre-defined terms of the FiT.
Small renewable generator FiTs are available in the
territories of the three largest IOUs and provide a 10, 15,
or 20-year fixed-price, non-negotiable contract for systems
sized up to 1.5 MW. The PUC has a rulemaking open to
implement the terms of SB 32 (Negrete McLeod), Chapter 328,
Statutes of 2009, and SB x1 2 (Simitian), Chapter 1,
Statutes of 2011, to expand the IOU FiT to 3 MWs and
modify the pricing mechanism. The total program allocation
between the three IOUs, would be approximately 500 MWs.
Competitive Procurement v. Fixed Price. Since the
restructuring of the electricity industry in California in
the 1990s, the PUC has relied on a "competitive market
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first" approach for the procurement of electricity. The
IOUs develop an annual procurement plan which includes
plans under which the IOUs solicit bids for electricity
deliveries. The underlying premise of wholesale
competitive procurement is that ratepayers benefit as a
result of lower cost electricity deliveries. Competitive
procurement also underlies the RPS program which requires
IOUs to establish a competitive process to select renewable
contracts based on least cost and best fit. Competitive
markets are generally thought to benefit ratepayers by
using competitive pressures to lower total costs.
In contrast, a textbook FIT uses administrative processes
to set a fixed price for the purchase of electricity by the
IOU, the price of which does not benefit from competition.
Although a FiT may result in lower transaction costs to
renewable developers, it is not clear that it will result
in the best price for renewable electricity deliveries for
ratepayers. It is difficult if not impossible to
administratively set the right price for a FiT. If the FiT
price is too high, the FiT results in a gold rush for
renewable developers at the expense of ratepayers who will
overpay; if the FiT price is too low the FiT will not
attract new investment.
Additionally, under a traditional FiT structure the utility
generally has no control over where power is built, whether
it's needed, or whether it is consistent with its renewable
procurement plan. This is particularly critical for
renewable resources, some of which (e.g. solar and wind) do
not provide base load power but are intermittent and must
be firmed and shaped by the IOU or ISO.
Federal FiT Restriction . The Federal Power Act grants the
Federal Energy Regulatory Commission jurisdiction over
wholesale electric sales in interstate commerce, including
sales made entirely intrastate and sales delivered locally
to a distribution system. The PUC can set rates but the
rate at which a utility must purchase power from a facility
must be:
"Just and reasonable" to consumers;
In the public interest;
Not discriminate against the facility; and
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Not exceed the purchaser's incremental avoided cost.
The commission has litigated the issue of FiT pricing at
the FERC and based on that proceeding has determined that
it can differentiate renewable pricing for particular
sources of energy (e.g. based-load, peaking) but cannot,
under federal law, establish technology-specific pricing.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: No
According to the Senate Appropriations Committee:
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.
Ongoing costs of $134,000 from the Public Utilities
Commission Utilities Reimbursement Account (special fund)
in 2013 for the implementation of a biogas and biomass
procurement program.
SUPPORT : (Verified 5/29/12)
Clean Power Campaign (source)
Agricultural Council of California
Agricultural Energy Consumers Association
California Cotton Ginners and Growers Associations
California Farm Bureau Federation
California Poultry Federation
Clean Coalition
E. & J. Gallo Winery
FlexEnergy Inc.
Milk Producers Council
Sustainable Conservation
Western Agricultural Processors Association
RM:nl 5/29/12 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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