BILL ANALYSIS Ó SENATE COMMITTEE ON ENERGY, UTILITIES AND COMMUNICATIONS Senator Ben Hueso, Chair 2015 - 2016 Regular Bill No: AB 645 Hearing Date: 7/7/2015 ----------------------------------------------------------------- |Author: |Williams | |-----------+-----------------------------------------------------| |Version: |2/24/2015 As Introduced | ----------------------------------------------------------------- ------------------------------------------------------------------ |Urgency: |No |Fiscal: |Yes | ------------------------------------------------------------------ ----------------------------------------------------------------- |Consultant:|Jay Dickenson | | | | ----------------------------------------------------------------- SUBJECT: Electricity: California Renewables Portfolio Standard DIGEST: This bill increases the Renewable Portfolio Standard target to require that 50 percent of electricity come from renewable energy resources by 2030. ANALYSIS: Existing law requires retail sellers of electricity - investor-owned utilities (IOUs), community choice aggregators, and energy service providers - and publicly-owned utilities (POUs) to increase purchases of renewable energy such that at least 33 percent of retail sales are procured from renewable energy resources by December 31, 2020. This is known as the Renewable Portfolio Standard (RPS). The California Public Utilities Commission (CPUC) establishes the RPS for retail sellers and ensures they progress in achieving it, and levies penalties for failure. The governing board of each POU establishes its own RPS. The California Energy Commission (CEC) may issue a notice of violation against a POU for failure to adequately progress in meeting RPS targets and refer the POU to the California Air Resource Board (ARB), which may assess penalties against it. The RPS provides numerous cost containment provisions and exceptions to compliance obligations. (Public Utilities Code §399.11 et seq.) This bill modifies the RPS by (1) establishing a new RPS target of 50 percent by December 31, 2030; and (2) establishes a new, interim compliance schedule of 38 percent by December 31, 2023, 44 percent by December 31, 2026, and 50 percent by December 31, 2030. AB 645 (Williams) PageB of? Background State efforts to address environmental effects of energy use. In California, the energy sector, broadly defined, accounts for more than 85 percent of greenhouse gas (GHG) emissions. The two largest sources of California's GHGs are transportation, at 39 percent, and electricity production, at 21 percent.<1> Accordingly, the state's existing clean energy and climate change programs focus on the energy sector in general and the transportation and electricity sectors specifically. Principal among those programs are the California Global Warming Solutions Act of 2006 (more commonly known as "AB 32"), which requires a reduction of the state's GHG emissions to 1990 levels by 2020, and the RPS, which requires the 33 percent of the state's electricity come from renewable resources by 2020. AB 32 tasks the ARB with developing a plan of measures that reduce GHG emission levels, to be updated every five years. To that end, ARB, in 2008, adopted a scoping plan that includes regulatory and market-based measures applicable to the state's major economic sectors. Among the regulatory measures included in the initial scoping plan was a 33-percent RPS. The Legislature approved the statutory RPS program in 2011 with the passage of SBx1- 2 (Simitian, Chapter 1). Statute directs the CPUC to establish the RPS for retail sellers and ensure they progress in achieving it, levying penalties for failure. The governing board of each POU establishes its own RPS. The CEC may issue a notice of violation against a POU for failure to adequately progress in meeting RPS targets and refer the POU to the ARB, which may assess penalties against it. The state's electric utilities report they are on track to meet, or exceed, the RPS goals. The following table shows the progress to date of the state's largest electric utilities: ------------------------------------------------------------------- |Progress of Major Electric Utilities Towards Meetings RPS Goals | | | ------------------------------------------------------------------- |--------------------+------------------------+---------------------| ---------------------------- <1> 2013 Integrated Energy Policy Report (http://www.energy.ca.gov/2013publications/CEC-100-2013-001/CEC-100 -2013-001-CMF.pdf) AB 645 (Williams) PageC of? | | | Percentage of RPS | | | RPS Procurement | Procurement | | | Percentages for the | Currently Under | | | 2011-13 Procurement | Contract for 2020 | | | Period | | | | | | |--------------------+------------------------+---------------------| | | 23.8% | 31.3% | | Pacific Gas and | | | | Electric| | | | | | | |--------------------+------------------------+---------------------| | | 21.6% | 23.5% | |Southern California | | | | Edison| | | | | | | |--------------------+------------------------+---------------------| | | 23.6% | 38.8% | | San Diego Gas and | | | | Electric| | | | | | | |--------------------+------------------------+---------------------| | | 20.1% | not available | | Sacramento | | | |Municipal Utilities | | | | District| | | | | | | |--------------------+------------------------+---------------------| | | 20.0% | not available | | Los Angeles | | | |Department of Water | | | | and Power| | | | | | | ------------------------------------------------------------------- ------------------------------------------------------------------- | | |*IOU RPS procurement is as reported by the CPUC. See | |http://www.cpuc.ca.gov/PUC/energy/Renewables/index.htm. | |*The POUs report their own progress on the RPS to the CEC. See | |http://www.energy.ca.gov/portfolio/pou_rulemaking/2013-RPS-01/POU_R| |eported_2011-2013_RPS_Percentage_Table.pdf. | ------------------------------------------------------------------- New target; no new details. This bill establishes a new RPS target - 50 percent renewable energy by 2050 - and a new schedule of compliance - 38 percent by December 31, 2023; 44 percent by AB 645 (Williams) PageD of? December 31, 2026; and 50 percent by December 31, 2030. This bill makes no other changes to the RPS statute. The author contends the danger of continued anthropogenic climate change renders the higher RPS goal imperative. The author contends that the RPS program has been a success, both in terms of procurement of increasing amounts of renewable energy resources and in terms of cost to California ratepayers. This contention is accurate: as shown above, the state's major electric utilities expect to meet or exceed the 2020 RPS target, and the cost of doing so is well within costs contemplated by the Legislature when it considered the RPS statute.<2> However, this committee has considered and approved another bill, SB 350 (De León), that, among other things, also establishes a goal of generating 50 percent of total retail sales of electricity from renewable resources by 2030. SB 350 also calls for several changes to the RPS program, in addition to establishing the 2030 renewable energy goal. For example, SB 350 makes the following changes to the RPS statute: Directs the CPUC to require all retail sellers of electricity to annually prepare renewable energy procurement plans and, for each IOU procurement plan, require the IOU to include a strategy for procuring a diverse portfolio of resources that provide a reliable electricity supply, including renewable energy integration needs, using zero carbon-emitting resources to the maximum extent reasonable, the net capacity costs of which shall be allocated on a nonbypassable basis. Requires retail sellers and POUs to ensure that, for each compliance period after 2020, at least 75 percent of the incremental renewable energy procurement is from generation either (1) directly connected to a California Balancing Authority (CBA), or, (2) connected to another balancing authority and providing power to a CBA via dynamic transfers or by scheduling power from the facility into a CBA on an hourly basis. --------------------------- <2> The CPUC's Energy Division estimates that the RPS has increased electricity rates by four to five percent, a range well within that contemplated by the Legislature during its deliberation of SB 2 X1. See, for example, the Assembly Appropriations Committee analysis of SB 2 X1, which referenced a CPUC estimate that the 33 percent RPS might raise rates as much as 7.7 percent. AB 645 (Williams) PageE of? Limits to 10 percent, for each compliance period after 2020, the incremental renewable power a retail seller or a POU may receive from unbundled RECs from generators not directly connected to a CBA. Directs the CPUC to establish limitations for each IOU on procurement expenditures for RPS compliance at a level that prevents disproportionate rate impacts and deletes provisions of existing law requiring the CPUC to report to the Legislature, by January 1, 2016, on the ability of each IOU to meet and maintain the 33 percent 2020 target within existing cost limitations. Authorizes the CPUC to assess penalties against a retail seller, and the CEC to assess penalties against a POU, for noncompliance with an RPS interim goal and, in the case of an IOU, prohibits the IOU from collecting the cost of the penalties in rates. Directs penalties collected from a retail seller or a POU to be used for renewable energy programs and research, development, and demonstration programs. Directs the CPUC and the CEC to consider the benefits of distributed generation; allow for consideration of costs and benefits of grid integration in RPS proceedings; minimize system power and fossil fuel purchases; recommend how to better align state incentive programs with the state's clean energy and pollution reduction goals and provide benefits to disadvantaged communities; and give preference to the manufacture and deployment of clean energy and pollution reduction technologies that create jobs and investment in the state. This committee considered and approved the policy and program prescriptions in SB 350. The author and committee may wish to consider amending AB 645 to conform its provisions to the provisions of SB 350 as they relate to the RPS. Prior/Related Legislation AB 327 (Perea, Chapter 611, Statutes of 2013) authorized the CPUC to require procurement above the 33 percent RPS. AB 645 (Williams) PageF of? SB2 X1 (Simitian, Chapter 1, Statutes of 2011-12 First Extraordinary Session) codified the current 2020 RPS target. AB 197 (Garcia, 2015) modifies the RPS procurement process to require consideration of the statutory GHG limit and grid reliability. The bill is awaiting consideration in the Senate Committee on Appropriations. SB 350 (De León, 2015) enacts the Clean Energy and Pollution Reduction Act of 2015. The bill will be considered on July 6th in the Assembly Committee on Utilities and Commerce. FISCAL EFFECT: Appropriation: No Fiscal Com.: Yes Local: Yes ASSEMBLY VOTES: Assembly Floor (46-29) Assembly Appropriations Committee (12-5) Assembly Natural Resources Committee (6-3) Assembly Utilities and Commerce Committee (10-5) SUPPORT: Advanced Energy Economy American Lung Association in California Asian Pacific Environmental Network Azul California Biomass Energy Alliance California Energy Storage Alliance California Environmental Justice Alliance California Hydropower Reform Coalition California League of Conservation Voters California Municipal Utilities Association, if amended California State Association of Electrical Workers California State Pipe Trades Council California Wind Energy Association Center for Biological Diversity City of Santa Monica Clean Power Campaign Clean Water Action AB 645 (Williams) PageG of? Climate Action Campaign Coalition of California Utility Employees Coastal Environmental Rights Foundation Elevator Constructors Union EnergySource LLC Environment California Environmental Action Committee West Marin Environmental Defense Fund Independent Energy Producers Association Large-Scale Solar Association Natural Resources Defense Council NextGen Climate Office of Ratepayer Advocates Sacramento Municipal Utility District, if amended San Diego County Water Authority, if amended Sierra Club California Solar Energy Industries Association State Building and Construction Trades Council The Utility Reform Network, if amended US Green Building Council, California Union of Concerned Scientists Vote Solar Western States Council of Sheet Metal Workers OPPOSITION: California Chamber of Commerce California Manufacturers & Technology Association Southern California Edison, unless amended Southwest California Legislative Council ARGUMENTS IN SUPPORT: California is well on its way to meeting its near-term climate change goals as the state currently uses renewable resources for about 25 percent of its electricity use and is on a trajectory to use 33 percent by 2020. However, in order to meet long term climate change goals, we must derive 50 percent of the state's electricity from renewable resources by 2030. Currently, most energy utilities have bought or have built enough energy resources to meet the 33 percent RPS before the target year. Without revising the state's existing RPS requirement, there isn't a driving force for utilities to procure beyond 33 percent. This bill provides that driving force. ARGUMENTS IN OPPOSITION: Some opponents contend this bill fails to modify the RPS program in light of the lessons learned since AB 645 (Williams) PageH of? the program's implementation. Other opponents worry the bill's higher RPS target might lead to higher electricity rates and destabilize electrical supply. -- END --