BILL ANALYSIS Ó
SENATE COMMITTEE ON ENERGY, UTILITIES AND COMMUNICATIONS
Senator Ben Hueso, Chair
2015 - 2016 Regular
Bill No: AB 1144 Hearing Date: 7/7/2015
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|Author: |Rendon |
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|Version: |4/14/2015 As Amended |
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|Urgency: |No |Fiscal: |Yes |
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|Consultant:|Jay Dickenson |
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SUBJECT: California Renewables Portfolio Standard Program:
unbundled renewable energy credits
DIGEST: This bill alters the Renewable Portfolio Standard by
modifying the electricity product content categories so that
unbundled renewable energy credits count in category one if the
electricity is generated by an entity other than an electrical
corporation and used by a wastewater treatment facility that is
owned by a public entity and first put into service on or after
January 1, 2016.
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 33
percent 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)Requires all renewable electricity products to meet the
requirements of a "loading order" that mandates minimum and
maximum quantities of three product categories (or "buckets"),
which includes (a) renewable resources directly connected to a
California balancing authority or provided in real time
without substitution from another energy source, (b) energy
not connected or delivered in real time yet still delivering
AB 1144 (Rendon) Page 2 of ?
electricity, and (c) unbundled renewable energy credits
(RECs). (Public Utilities Code §399.16.)
This bill modifies the RPS definitions so that the following
counts as a "bucket one" electricity product category resource:
unbundled RECs earned by electricity that is generated by an
entity, other than an electrical corporation, and used at a
wastewater treatment facility that is owned by a public entity
and first put into service on or after January 1, 2016.
Background
RPS product categories: a different kind of bucket list. The
RPS requires providers of retail electricity service to procure
electricity products from renewable energy resources so that, by
2020, 33 percent of each seller's retail sales come from
renewable energy resources. The RPS distinguishes between three
energy product categories, commonly referred to as "buckets."
The three buckets are defined, in statute, as follows:
Bucket One - renewable energy delivered directly into
California.
Bucket Two - firmed and shaped energy scheduled in to
a California balancing authority.
Bucket Three - renewable energy products, including
unbundled renewable energy credits, that do not qualify
under bucket one or bucket two.
In establishing the RPS energy product categories, the
Legislature placed the most value on bucket-one products because
such products provide the most direct economic and environmental
benefits in California. Relatedly, the Legislature placed the
least value on bucket-three products. This valuation is
reflected in the schedule of compliance the Legislature adopted
as part of the RPS:
Bucket One - at least 50 percent for the 2011-2013
compliance period; at least 65 percent for the 2014-2016
compliance period; and at least 75 percent thereafter.
Bucket Three - not more than 25 percent for the
2011-2013 compliance period; not more than 15 percent for
the 2014-2016 compliance period; and not more than 10
percent thereafter.
In 2011, the California Public Utilities Commission (CPUC)
issued a decision (D.11-12-052) to implement the energy product
AB 1144 (Rendon) Page 3 of ?
categories for the RPS. In this decision, the CPUC notes the 33
percent RPS statute did not define "unbundled RECS." But the
CPUC decision further comments that prior statute, program
operation and industry practice have recognized the term to mean
"the renewable and environmental attributes associated with the
production of electricity from an eligible renewable energy
resource," that " does not include any energy, capacity,
reliability or other power attributes of the generation." In
keeping with this understanding, the CPUC reasoned that, once a
REC is separated from the underlying renewable generation, the
associated electricity is not RPS eligible. Therefore, the CPUC
decided, a retail seller claiming RPS credit for unbundled RECs
should receive credit for compliance with RPS bucket three.
Soon after the CPUC adopted this decision, the California Energy
Commission (CEC) adopted a parallel decision, applicable to
publicly owned municipal utilities, that similarly relegates
unbundled RECS to bucket three.
Wastewater treatment facilities produce unbundled RECs. Methane
is a potent greenhouse gas (GHG). Wastewater treatment
facilities, by their nature, produce methane gas. Generally,
the facilities "flare" the methane gas they release, thereby
destroying the methane through combustion and releasing
relatively less-harmful carbon dioxide.
A higher and better use of the methane might be energy
production, by which the wastewater treatment facility uses the
heat produced by burning methane to generate electricity. Such
electricity generation not only destroys the methane; it also
uses a renewable resource to displace demand for electricity
from the electric grid.
The California Association of Sanitation Agencies (CASA) report
that many wastewater treatment facilities would like to install
electricity generators to allow them to use the methane they
generate to produce electricity for use on site. CASA notes,
however, that such electricity generation infrastructure is
expensive to develop and most wastewater facilities have limited
ability to raise funds.
Under the regulatory agencies' RPS rules, electricity generated
at a wastewater treatment plant from biomethane produced by that
wastewater treatment plant may be eligible for RPS credit.
However, such electricity, if used onsite to meet the wastewater
treatment facility's electricity needs, would receive
AB 1144 (Rendon) Page 4 of ?
bucket-three RPS credit. This is because, as described above,
the rules of the CEC and CPUC declare that onsite use of the
electricity "unbundles" that electricity from its renewable and
environmental attributes.
RPS bucket-three status creates a problem for wastewater
treatment facilities - bucket-three energy products have
considerably less market value than do energy products that
qualify as bucket one. CASA contends that its members could
afford to construct and operate onsite, methane-fired renewable
electricity generation facilities, were the resulting unbundled
RECS able to receive bucket-one credit. The result, CASA
continues, would be additional GHG reductions and reduced RPS
compliance costs.
The Danger of double counting. The RPS applies to the wholesale
side of the ledger. To meet the requirements of the RPS, retail
sellers of electricity must procure specified quantities of
wholesale energy products so that a certain percentage of retail
electricity sales is supplied with renewable energy resources.
In contrast, onsite generation and consumption of electricity
affects the retail side of the ledger. The generator-customer
uses onsite electricity to offset electricity that he or she
would otherwise purchase from the retail seller of electricity.
This dynamic introduces the danger of double counting, should
unbundled energy products receive bucket-one credit. This is
because the electricity could be counted twice against a retail
seller's RPS obligations - once, as it reduces the
retail-sale-based RPS obligation by an amount equal to the
amount of electricity consumed onsite, and again as the REC
representing that electricity reduces the RPS obligation of the
retail seller that purchases the REC. The figure below
illustrates how double counting may occur under the bill's
proposal to allow bucket-one RPS credit for unbundled RECs.
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|Danger of Double Counting |
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| Under AB 1144, five megawatts (MW) of onsite electricity |
| generation results in a 10MW reduction in a retail |
| seller's RPS obligation. |
AB 1144 (Rendon) Page 5 of ?
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| | Scenario 1: | Scenario 2: |
| | Current Law | AB 1144 |
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|Retail seller's total retail | 1,000 | 1,000 |
| electricity sales 1)| | |
|-----------------------------+-------------------+----------------|
| Onsite generation| 5 | 5 |
|-----------------------------+-------------------+----------------|
|Unbundled REC sold to retail | -- | 5 |
| seller| | |
|-----------------------------+-------------------+----------------|
| RPS obligation| 995 | 990 |
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|1) All figures in megawatts. |
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Why not just bundle? A wastewater treatment facility that
generates electricity onsite using its own methane could receive
bucket-one RPS credit. To do so, the facility would need to
sell a bundled REC - that is, a REC representing both the
electricity and its underlying renewable and environmental
attributes - to a retail seller. Such a scenario would
encourage generation of renewable electricity at wastewater
treatment facilities and displace grid electricity, all without
disturbing the existing RPS program structure. However, such a
facility would be unable to use the electricity onsite to offset
electricity demand from the grid.
The bigger picture. The author has introduced AB 1144 into a
complex, evolving policy environment. This bill creates an
exception to the RPS program uniquely applicable to a very small
corner of the electricity sector - renewable energy generated by
newly developed publicly owned wastewater treatment facilities.
However, the question of how to credit onsite renewable
generation for RPS purposes is not unique to wastewater
treatment facilities. The question is being debated and
discussed in the context of proposals before the Legislature
that would expand the RPS beyond 33 percent. It is not clear
AB 1144 (Rendon) Page 6 of ?
why the Legislature needs to create a one-off rule to a
situation applicable to distributed electricity generation
generally. (Bill proponents cite GHG reductions as one
justification for this special treatment; however, flaring, too,
destroys methane, and any displacement of electricity from the
grid caused by onsite generation at new public wastewater
treatment facilities would likely be minimal.) In addition,
some parties caution against the technology-specific approach of
this bill, warning that disparate treatment of similar renewable
energy products exposes the entire RPS construct to legal
challenge.
Prior/Related Legislation
AB 645 (Williams/Rendon, 2015) increases the RPS to 50 percent
by 2031. The bill is currently under consideration by this
committee.
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.
SB 2 x1 (Simitian, Chapter 1, Statutes of 2011) requires retail
sellers of electricity and POUs to procure at least 33 percent
of their electricity from renewable resources by 2020.
FISCAL EFFECT: Appropriation: No Fiscal
Com.: Yes Local: No
ASSEMBLY VOTES:
Assembly Floor (73-0)
Assembly Appropriations Committee (17-0)
Assembly Natural Resources Committee (9-0)
Assembly Utilities and Commerce Committee (12-0)
SUPPORT:
California Association of Sanitation Agencies (source)
California Municipal Utilities Association, if amended
Central Marin Sanitation Agency
Delta Diablo
East Bay Municipal Utility District
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Goleta Sanitary District
Las Gallinas Valley Sanitary District
Las Virgenes - Triunfo Joint Powers Authority
Leucadia Wastewater District
Noble Americas Solutions LLC
Northern California Power Agency, if amended
Ross Valley Sanitary District No. 1
Sanitation Districts of Los Angeles County
Southern California Edison
Victor Valley Wastewater Reclamation Authority
West County Wastewater District
CONCERNS:
Pacific Gas and Electric Company
OPPOSITION:
California Wind Energy Association, unless amended
Independent Energy Producers Association
The Utility Reform Network
ARGUMENTS IN SUPPORT: Proponents contend AB 1144 would
recognize the true value of renewable energy generated at
wastewater facilities by appropriately valuing their credits as
bucket one as opposed to bucket three, which will incentivize
investment in bioenergy projects in California. The result,
proponents continue, will be reduced GHG emissions, a new,
valuable, procurement opportunity for energy providers to meet
their RPS requirements, and decreased RPS compliance costs.
ARGUMENTS IN OPPOSITION: Opponents object that AB 1144
fundamentally changes the RPS program, threatening it with
double counting by retail sellers of electricity and opening the
program structure to legal challenge. Opponents argue there is
no basis for treating electricity generated onsite by wastewater
treatment facilities differently than renewable electricity
generated onsite at other types of facilities and that any
programmatic changes to the treatment of such renewable
generation should apply comprehensively.
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