BILL ANALYSIS Ó SENATE COMMITTEE ON ENERGY, UTILITIES AND COMMUNICATIONS Senator Ben Hueso, Chair 2015 - 2016 Regular Bill No: AB 197 Hearing Date: 6/30/2015 ----------------------------------------------------------------- |Author: |Eduardo Garcia | |-----------+-----------------------------------------------------| |Version: |4/29/2015 As Amended | ----------------------------------------------------------------- ------------------------------------------------------------------ |Urgency: |No |Fiscal: |Yes | ------------------------------------------------------------------ ----------------------------------------------------------------- |Consultant:|Jay Dickenson | | | | ----------------------------------------------------------------- SUBJECT: Public utilities: renewable resources DIGEST: This bill modifies the Renewable Portfolio Standard procurement process to require consideration of the statutory greenhouse gas emissions limit and grid reliability. ANALYSIS: Existing law: 1)Requires retail sellers of electricity - investor-owned utilities (IOU), community choice aggregators, and energy service providers - and publicly-owned utilities (POU) to increase purchases of renewable energy such that at least 33percent of retail sales are procured from renewable energy resources by December 31, 2020. This is known as the Renewable Portfolio Standard (RPS). (Public Utilities Code §399.11 et seq.) 2)Authorizes the California Public Utilities Commission (CPUC) to require the procurement of eligible renewable energy resources in excess of the quantities specified in the RPS. 3)Directs the CPUC to establish a limit for each electrical corporation on the procurement expenditures for renewable energy resources used to comply with the RPS and excuses an electrical corporation from needing to enter into new contracts or constructing facilities beyond that which can be procured within the cost limit. (Public Utilities Code §399.15 et seq.) AB 197 (Eduardo Garcia) PageB of? 4)Requires each electrical corporation to file a proposed procurement plan with the CPUC that includes specified information, including a showing that the corporation shall procure resources to meet the requirements of the RPS. (Public Utilities Code §454.5) 5)Requires the CPUC to adopt a process that provides criteria for the rank ordering and selection of least-cost and best-fit eligible energy resources to comply with the RPS on a total cost basis. The process is to take into account issues related to costs and expenses, project viability, and workforce development and employment. (Public Resources Code §399.13) This bill: 1)Requires the procurement plan adopted by an electric utility - whether IOU or POU - to give consideration to both (a) any statewide greenhouse gas (GHG) emissions limit established pursuant to the Global Warming Solutions Act, and (b) capacity and essential reliability services to ensure grid reliability. 2)Adds "best-fit" to the basis by which the CPUC's process provides criteria for the rank ordering and selection of least-cost and best-fit eligible renewable energy resources. 3)Requires the process described in the preceding paragraph to take into account consideration of (a) any statewide GHG emissions limit established pursuant to the Global Warming Solutions Act, and (b) capacity and essential reliability services of the eligible renewable energy resource to ensure grid reliability. 4)Requires an electrical corporation to enter into new contracts or construct facilities beyond that which can be procured within the RPS cost limit to the extent that the procurement of renewable energy resources is authorized by a CPUC requirement, pursuant to existing law, that electrical corporations procure such resources in excess of RPS requirements. 5)Conditions the operation of the entirety of this bill upon enactment of AB 645 (Williams, 2015), which increases RPS requirements to 50 percent by 2031. AB 197 (Eduardo Garcia) PageC of? Background Electricity procurement to meet the Renewables Portfolio Standard. The RPS requires that retail sellers of electricity to procure at least 33 percent of their retail sales from renewal energy resources by 2020. The IOUs, which are regulated by the CPUC, individually submit plans to the CPUC that detail how the IOUs intend to procure renewable energy resources in the coming compliance period in keeping with RPS compliance schedules. Statute and CPUC decision direct the IOUs to rank and select offers to supply electricity from renewable resources according to "least-cost, best-fit" on a "total-cost" basis. In addition to these principal criteria, statute and CPUC decision require each IOU procurement plan to "take into account" a number of other factors, as summarized below: Estimates of indirect costs associated with needed transmission investments. The cost of procurement. The project's viability. Workforce development- and employment growth-related issues. The CPUC reviews each IOU's procurement plan according to these primary and additional criteria and approves, modifies or rejects the plan. The CPUC describes the IOUs process of selecting-and-ranking as a cost-benefit analysis by which the IOUs use quantitative and qualitative criteria to determine the value of a proposed renewable energy contract to the IOU's ratepayers. According the CPUC, the IOUs judge the "least-cost" of a proposed contract primarily according to quantitative criteria: the costs of the contract itself, as well as related transmission, congestion, and integration costs; the value of the energy (that is, the cost to procure that same energy from other sources), and the energy resource's capacity (meaning its maximum electric output under specific conditions). In contrast, the CPUC describes the IOUs' process for determining the "best fit" of a proposed contract as a largely qualitative one, based on such factors as project viability, benefits to low income or minority communities, environmental stewardship, resource diversity, and AB 197 (Eduardo Garcia) PageD of? supplier diversity. Overemphasis of "least cost" to the detriment of "best fit." Critics of the CPUC-directed renewable energy resources procurement process contend the process overemphasizes least cost, to the detriment of best fit. In effect, according to these critics, the cost-driven process has led to the selection of renewable energy projects that entail fewer up-front costs but that do not result in an energy portfolio that provides as much overall value, given the state energy and environmental goals. As evidence, critics point to California's renewable energy portfolio mix today and in the near future, in which large-scale solar and wind projects dominate. (See figure below for a depiction of the IOUs' actual and forecast renewable energy resources procurement.<1>) Solar and wind projects, which generate electricity intermittently, must be supported by other energy sources that can provide electricity when these intermittent power sources cannot. To date, much of this support has been provided by natural-gas fired powerplants. (See figure below.<2>) Critics of CPUC's least-cost, best-fit procurement process note that natural-gas electricity generation emits GHGs, whereas use of renewable energy resources, instead of natural gas, would not (or would emit fewer GHGs). Therefore, they call for a more balanced energy portfolio that relies less on natural gas and more on renewable energy resources. A low bar. Bill proponents advocate modifying the criteria governing the CPUC-directed procurement process to require the IOUs to explicitly consider two additional factors: --------------------------- <1> http://cpuc.ca.gov/NR/rdonlyres/8EB096A9-8000-4A1D-9623-DB3EB9F1B FB5/0/2015Q1RPSReport.pdf. <2> http://energyalmanac.ca.gov/electricity/electric_generation_capac ity.html . (Note: these data include all electricity generated in the state, rather than just the electricity generated for IOU procurement.) AB 197 (Eduardo Garcia) PageE of? The statewide GHG emissions limit. Capacity and essential reliability services of the eligible renewable energy resource to ensure grid reliability. Similarly, the bill requires that a procurement plan adopted by a POU or an IOU consider these two criteria. Bill proponents contend that addition of these criteria will lead to a least-cost, best-fit procurement process that better values the GHG emissions and grid reliability attributes of various energy resources. The result will be a more balanced energy portfolio that better fits with California's overall environmental and energy needs. The bill merely requires the electric utility procurement planning processes to "take into account" the additional criteria listed above. In this sense, the bill sets a low bar that the electric utilities, in developing their procurement plans, and the CPUC in reviewing the IOUs' plans, should easily clear. And it is wholly appropriate that procurement plans take into account the state GHG emission reduction goals and grid reliability. In fact, the CPUC reports that the procurement process already considers these factors. It, therefore, remains to be seen what practical effect adding these considerations to statute will have on electric utilities' procurement processes. The Legislature will need to continue to monitor RPS compliance to ensure electric utility procurement results in a portfolio that furthers the state's interrelated environmental and energy goals. Contingent enactment. This bill takes effect only if AB 645(Williams, Rendon) becomes law. AB 645 increases the RPS so that 50 percent of retail electricity sales in California are generated from renewable energy resources by December 31, 2030. Bill proponents contend that any such increase in RPS goals furthers the need to ensure a more-balanced energy portfolio that helps achieve the state's GHG emissions reduction goals and ensure grid reliability. Prior/Related Legislation AB 645 (Williams/Rendon, 2015) increases the RPS to 50 percent AB 197 (Eduardo Garcia) PageF of? by 2031. The bill is scheduled to be heard in this committee on July 7th. SB 32 (Pavley, 2015) establishes 2050 GHG standards. The bill is in the Assembly Committee on Natural Resources waiting to be set for a hearing. SB 350 (De León, 2015) increases the RPS to 50 percent. The bill is scheduled to be heard in the Assembly Committee on Utilities and Commerce on July 6th. FISCAL EFFECT: Appropriation: No Fiscal Com.: Yes Local: Yes ASSEMBLY VOTES: Assembly Floor (55-21) Assembly Appropriations Committee (12-4) Assembly Natural Resources Committee(6-2) Assembly Utilities and Commerce Committee (10-3) SUPPORT: California Biomass Energy Alliance Clean Power Campaign EnergySource LLC Environmental Defense Fund Greenleaf Power IHI Power Services Corp. Imperial Irrigation District Rio Bravo Fresno Rio Bravo Rocklin The Utility Reform Network OPPOSITION: None received ARGUMENTS IN SUPPORT: Currently, state law only requires total cost basis for ranking and selecting least-cost and best-fit eligible renewable energy resources. As California moves towards a cleaner, low-carbon electrical grid, procurement planning process should also take into consideration best fit in AB 197 (Eduardo Garcia) PageG of? addition to total cost to ensure that any available renewable energy resources with attributes that provide grid reliability, and reduce greenhouse gas emissions, are taken into account. In short, many experts have indicated that in the long term there is high cost to procuring renewable energy sources namely due to their low-price. Adhering solely to the total cost basis for ranking and selecting renewable energy could mean that California continues to rely on natural gas in the long run, which can run counter to the state's GHG goals, or procuring resources that exacerbate the current grid reliability issues due to factors such as over-generation. -- END --