BILL ANALYSIS Ó AB 1937 Page A Date of Hearing: April 13, 2016 ASSEMBLY COMMITTEE ON UTILITIES AND COMMERCE Mike Gatto, Chair AB 1937 (Gomez) - As Amended April 4, 2016 SUBJECT: Electricity: procurement SUMMARY: Modifies the procurement requirements applicable to those electrical corporations regulated by the California Public Utilities Commission (CPUC) to include consideration of disadvantaged communities when contracting for electricity supplies. Specifically, this bill: 1)Requires electrical corporations' proposed procurement plans to include a showing that the electrical corporations: a) in soliciting bids for gas-fired generation resources, actively seek bids that are not located in or adjacent to disadvantaged communities; and b) in considering bids for, or negotiating bilateral contracts for, gas-fired generation resources, give priority to generation resources that are not located in or adjacent to disadvantaged communities. 2)Specifies that the above requirements apply to all procurement of eligible renewable energy resources for California-based projects whether the procurement occurs through all-source requests for offers, eligible renewable energy resources only requests for offers, or other procurement mechanisms. EXISTING LAW: AB 1937 Page B 1)Establishes requirements for electric service providers to procure 50% of their electricity supplies from renewable energy by 2030, otherwise known as the Renewable Portfolio Standard (RPS). (Public Utilities Code Section 399.12) 2)Requires, in soliciting and procuring eligible renewable energy resources for California-based projects, each electrical corporation to give preference to renewable energy projects that provide environmental and economic benefits to communities afflicted with poverty or high unemployment, or that suffer from high emission levels of toxic air contaminants, criteria air pollutants, and greenhouse gases. (Public Utilities Code Section 399.13) 3)Requires the CPUC to specify the allocation of electricity, including quantity, characteristics, and duration of electricity delivery, that the Department of Water Resources shall provide under its power purchase agreements to the customers of each electrical corporation, which shall be reflected in the electrical corporation's proposed procurement plan. Each electrical corporation shall file a proposed procurement plan with the commission not later than 60 days after the commission specifies the allocation of electricity. The proposed procurement plan shall specify the date that the electrical corporation intends to resume procurement of electricity for its retail customers, consistent with its obligation to serve. After the commission's adoption of a procurement plan, the CPUC shall allow not less than 60 days before the electrical corporation resumes procurement pursuant to this section. (Public Utilities Code Section 454.5) 4)Requires a competitive procurement process under which the electrical corporation may request bids for procurement-related services, including the format and AB 1937 Page C criteria of that procurement process. (Public Utilities Code Section 454.5) 5)Establishes short-term and long-term goals and electricity procurement guidelines for electrical corporations, which are filed with the CPUC for approval. (Public Utilities Code Section 454.5) FISCAL EFFECT: Unknown. COMMENTS: 1)Background: The CPUC issued D.13-02-015,<1> on February 13, 2013, and ordered Southern California Edison (SCE) to procure, via a Request for Offers (RFO), a minimum of 215 megawatts (MW) and a maximum of 290 MW of electrical capacity in the Moorpark sub-area of the Big Creek/Ventura local reliability area (Moorpark sub-area) to meet identified long-term local capacity requirements (LCR) by 2021. The CPUC found this LCR need existed, in large part, due to the expected retirement of the Ormond Beach and Mandalay once-through-cooling generation facilities, which are both located in Oxnard, California. These facilities currently have approximately 2000 MW of capacity. On November 26, 2014, SCE filed an Application for approval of the results of its 2013 LCR RFO for the Moorpark sub-area seeking approval of 11 contracts. One of the contracts is a 20-year contract for gas-fired generation (totaling 262 MW of capacity). This contract is a resource adequacy (RA) purchase agreement with NRG Energy Center Oxnard, LLC (NRG) for a new simple cycle peaking facility known as the Puente Power -------------------------- <1> http://docs.cpuc.ca.gov/PublishedDocs/Efile/G000/M158/K355/158355 879.PDF AB 1937 Page D Project (NRG Puente Project). Environmental justice matters were raised in the proceeding in connection with the NRG Puente Project. One argument focuses on NRG's proposed use of a brownfield site for the NRG Puente Project. A second environmental justice argument raised in the proceeding focuses on the community surrounding the site. Some groups contend that the City of Oxnard is not a disadvantaged community and that projects will be built in affluent communities. According to the author, the top 30% environmentally-burdened communities in Oxnard include: a) 85% Latino; b) 29.03% linguistic isolation (percent of households in which no one age 14 and over speaks English "very well" or speaks English only), placing these residents in the top 10% of linguistically isolated households; c) 56.44% of the population living below two times the federal poverty level, placing these residents in the top 20% of poverty stricken households; and d) 46.5% of the population over 25 years of age with less than a high school education, placing these residents in the top 10-20% of California residents. The CPUC concluded in its alternate decision that the California Energy Commission (CEC) has jurisdiction to review environmental issues, including environmental justice. In its discussion on the decision the CPUC pointed out that, "The CEC has clear jurisdiction to review the environmental impact of the NRG Puente Project." The CEC Web site (Energy Facilities AB 1937 Page E Licensing Process) at http://www.energy.ca.gov/siting/guide_license_process.html states: "The [CEC's] thorough site certification process provides a timely review and analysis of all aspects of a proposed project, including need, public health and environmental impacts, safety, efficiency, and reliability." 2)Considering Preferred Resources: The CPUC has a long-standing policy to promote "the loading order," which means that energy procurement focuses first on energy efficiency and clean energy resources prior to procuring from fossil-fuel resources. As the Center for Energy Efficiency and Renewable Technology (CEERT) points out in a March 2, 2016 letter to the CPUC Commissioners: [?.] none of these proposed decisions examine why this RFO failed for preferred resources and what could be changed to achieve different, more environmentally beneficial results. While CEERT is not a party to this application, it is clearly concerned with all of the SCE and [San Diego Gas and Electric] RFO outcomes, alone and especially in combination with each other, which are putting this State on track away from, not toward, a low carbon energy future. The results of that RFO for California's clean energy future are the most troubling - where the so called "reliability need" has always been in question, and the RFO resulted in less than 5% of the procurement being from preferred resources (with no demand response), and the remaining 95% represented by gas fired generation. 3)Clarification needed: Current statute requires consideration of communities afflicted with poverty or high unemployment, or that suffer from high emission levels of toxic air AB 1937 Page F contaminants, criteria air pollutants, and greenhouse gases in the utility solicitations for renewable energy projects . A similar statute does not exist for fossil-fueled energy projects. This bill requires consideration of those locations that are listed in "CalEnviroScreen" tool used to inform the investment of state cap-and-trade funds specifically targeted for disadvantaged communities. The author may wish to modify the language in the bill to reflect the same language used for renewable energy projects instead of referencing a tool that was specifically developed for cap-and-trade fund investments. In addition, the author may wish to clarify that the provisions apply to new or repowered gas facilities. 4)Suggested amendment: 454.5 (b)(9)(D). The electrical corporation, in soliciting bids for gas-fired generation resources from new or repowered facilities , shall actively seek bids for generation resources that are not located in or adjacent todisadvantaged communities identified pursuant to Section 39711 of the Health and Safety Code.communities afflicted with poverty or high unemployment, or that suffer from high emission levels of toxic air contaminants, criteria air pollutants, and greenhouse gases . In considering bids for, or negotiating contracts for, new or repowered gas-fired generation resources, the electrical corporation shall provide greater priority to gas-fired generation resources that are not located in or adjacent todisadvantaged communities identified pursuant to Section 39711 of the Health and Safety Code.communities afflicted with poverty or high unemployment, or that suffer from high emission levels of toxic air contaminants, criteria air pollutants, and greenhouse gases . AB 1937 Page G 5)Arguments in Support: Supporters argue that this bill will close a loophole by requiring the CPUC to consider disadvantaged communities in its energy procurement process. They point out that California's disadvantaged communities already bear disproportionate burdens of pollution and poverty. 6)Arguments in Opposition: Opponents are concerned that there is a casual use of the term "environmental justice" being used as a tool to thwart projects that are needed for electric reliability purposes and they state that clean natural gas plants are important for system and local reliability requirements. These resources are also needed to complement California's move to a 50% RPS, when the sun is not shining and the wind is not blowing. REGISTERED SUPPORT / OPPOSITION: Support Audubon California Azul California Environmental Justice Alliance California League of Conservation Voters Clean Power Campaign Coalition for Clean Air Environment California Environmental Defense Fund Opposition Independent Energy Producers AB 1937 Page H Sacramento Municipal Utility District Analysis Prepared by:Sue Kateley / U. & C. / (916) 319-2083