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
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          |Author:    |Eduardo Garcia                                       |
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          |Version:   |4/29/2015    As Amended                              |
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          |Urgency:   |No                     |Fiscal:      |Yes             |
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          |Consultant:|Jay Dickenson                                        |
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          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. 
          


          

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