BILL ANALYSIS                                                                                                                                                                                                    Ó



          SENATE COMMITTEE ON ENERGY, UTILITIES AND COMMUNICATIONS
                              Senator Ben Hueso, Chair
                                2015 - 2016  Regular 

          Bill No:          AB 2454           Hearing Date:    6/27/2016
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          |Author:    |Williams                                             |
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          |Version:   |5/31/2016    As Amended                              |
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          |Urgency:   |No                     |Fiscal:      |Yes             |
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          |Consultant:|Jay Dickenson                                        |
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          SUBJECT: Energy:  procurement plans

            DIGEST:    This bill requires an investor-owned utility (IOU) to  
          demonstrably undertake all feasible efforts to meet any  
          identified resource need through available renewable energy,  
          energy storage, energy efficiency, and demand reduction  
          resources that are cost effective, reliable and feasible prior  
          to contracting for any new or repowered gas-fired generation  
          resources.

          ANALYSIS:
          
          Existing law:
          
          1)Requires electric utilities to procure 50 percent of their  
            retail sales of electricity from renewable energy by 2030.   
            This is known as the Renewable Portfolio Standard (RPS).   
            (Public Utilities Code §399.11 et seq.) 

          2)Requires each IOU to file with the California Public Utilities  
            Commission (CPUC), and requires the CPUC to review and accept,  
            modify or reject each IOU's proposed electricity procurement  
            plan. 

          3)Among other elements, the procurement plan must include a  
            showing that it will achieve the IOU first meeting its unmet  
            resource needs through all available energy efficiency and  
            demand reduction resources that are cost effective, reliable,  
            and feasible. 

            (Public Utilities Code §454.5)








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          4)Requires the CPUC to adopt a process for each IOU to file an  
            integrated resource plan (IRP) to ensure IOUs meet the  
            greenhouse gas (GHG) emissions reduction targets for the  
            electricity sector; procure at least 50 percent eligible  
            renewable energy resources by December 31, 2030; enable each  
            IOU to fulfill its obligation to serve its customers at just  
            and reasonable rates; minimize impacts on ratepayers' bills;  
            ensure system and local reliability; strengthen the diversity,  
            sustainability, and resilience of the bulk transmission and  
            distribution systems, and local communities; enhance  
            distribution systems and demand-side energy management; and  
            minimize localized air pollutants and other GHG emissions,  
            with early priority on disadvantaged communities.  (Public  
            Resources Code §454.52) 

          This bill:

          1)Requires an IOU's procurement plan to make a showing, in  
            addition to the showings required by existing law, that the  
            IOU will undertake all feasible efforts to meet any identified  
            resource need through available renewable energy, energy  
            storage, energy efficiency, and demand reduction resources  
            that are cost effective, reliable, and feasible.

          2)Requires the CPUC, prior to approving a contract for any new  
            or repowered gas-fired generation resource, to require the IOU  
            demonstrate compliance with the preceding requirement.  

          3)Requires the CPUC, in determining the availability of energy  
            demand reduction resources that are cost effective, reliable,  
            and feasible for purposes of reviewing an IOU's procurement  
            plan, to consider the findings regarding technically and  
            economically achievable demand reduction in specified studies  
            and to the extent that any demand reduction is consistent with  
            commission policy.

          Background

          Procurement plans tell how an IOU will procure electricity to  
          meet the needs of its customers.  The CPUC describes its  
          long-term procurement plan (LTPP) proceedings as intended to  
          ensure a safe, reliable and cost-effective electricity supply in  
          California through integration and refinement of a comprehensive  








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          set of procurement policies, practices and procedures.   LTPP  
          proceedings take a 10-year-ahead look at system, local, and  
          flexible needs.  Proceeding assumptions are revised every two  
          years to incorporate changes in the resource mix and revisions  
          to state policies. 

          An IOU's procurement plan - part of an LTPP proceeding - details  
          what and how an IOU is going to procure.  These plans must  
          adhere to state policies, including the loading order, which  
          mandates that utilities seek to meet need first though  
          cost-effective energy efficiency and demand response, followed  
          by procurement of renewable energy and, lastly, procurement of  
          fossil-fuel-generated electricity.  If an IOU's procurement plan  
          does not comply with state policies or adequately balance  
          safety, reliability, cost, and environmental goals, the CPUC  
          orders the IOU to modify the plan.

          Demand response.  Demand response refers to a variety of  
          mechanisms by which an electricity customer may vary its demand  
          for electricity in response to signals, such as a change in  
          price or the availability of incentives.  For example,  
          time-of-use rates use price signals to encourage customers to  
          reduce their use of electricity when the relative availability  
          of electricity is low or, in some cases, to increase their  
          electricity use when relative supply is abundant.

          The CPUC is currently considering establishing binding demand  
          response goals applicable to the state's regulated electric  
          utilities.  As part of that consideration, the CPUC authorized a  
          study to determine the potential of demand response as a  
          resource to meet California's energy needs.  In April of this  
          year, a team at Lawrence Berkeley National Laboratories issued  
          phase one of the study.<1>  The team will issue subsequent  
          phases of the study.  This bill seeks to ensure that the CPUC  
          considers the study's findings regarding technically and  
          economically achievable demand reduction when it review the  
          IOU's procurement plans.

          Putting it into law: energy storage, demand response and the  
          loading order.  California utilities have procured increasing  
          ---------------------------
          <1>  
           file:///C:/Users/dickenjm/Downloads/CPUC%20CA%20DR%20Potential%20 
          Study_Phase1%20(1).pdf  .








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          amounts of electricity from renewable resources, in response to  
          the state's RPS mandates.  Much of this electricity has come  
          from solar and wind energy resources.  Such resources can be  
          described as intermittent, meaning that they are not available  
          at all times of the day and can experience difficult-to-predict  
          upward or downward swings in electricity production.  This  
          intermittency creates challenges for management of the electric  
          grid, one of which is the need to quickly respond to changes in  
          demand for energy. 

          The California Independent System Operator (CAISO) reports that,  
          to reliably manage the electricity grid with increasing amounts  
          of intermittent generation resources, it needs flexible  
          resources with certain characteristics. One flexible resource  
          that provides many of the characteristics CAISO says will be  
          needed to reliably manage the electricity grid is energy  
          storage, which allows energy generated at one time to be used  
          later. 

          Current law requires an IOU's procurement plan to show that the  
          IOU will first meet its unmet resource needs through all  
          available energy efficiency and demand reduction resources that  
          are cost effective, reliable, and feasible.  This bill adds an  
          additional requirement that is at once very similar from  
          existing law yet somewhat difference.  Whereas current law  
          addresses and IOU's "unmet resource needs,"  this bill addresses  
          "identified resource need," by requiring an IOU's procurement  
          plan to show how the IOU will take all feasible efforts to meet  
          any "identified resource need" through available renewable  
          energy, energy storage, energy efficiency, and demand reduction  
          resources that are cost effective, reliable, and feasible.  In  
          addition, this bill adds new teeth to the requirement, stating  
          that the CPUC shall require the IOU to demonstrate compliance  
          with the preceding requirement before approving a contract for  
          any new or repowered gas-fired generation resource.

          It is unclear how "unmet resource needs," as used in existing  
          law, differs from "identified resource need" as used in this  
          bill.  The author's office indicated that it viewed the terms  
          the same.  In that case, the author may wish to amend this bill  
          to combine the requirements, as follows:
                      
          Public Resources Code §454.5(b)(9)
                   








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               (C)  (i)  The electrical corporation shall first meet its  
               unmet resource needs through all available  renewable  
               energy, energy storage,  energy efficiency and demand  
               reduction resources that are cost effective, reliable, and  
               feasible. 

                (ii)  In determining the availability of cost-effective,  
               reliable, and feasible demand reduction resources, the  
               commission shall consider the findings regarding  
               technically and economically achievable demand reduction in  
               the Demand Response Potential Study required pursuant to  
               Commission Order D.14-12-024, to the extent those findings  
               are not superseded by other demand reduction studies  
               conducted by academic institutions or government agencies,  
               and to the extent that any demand reduction is consistent  
               with commission policy. 

                (D) (i) The electrical corporation shall undertake all  
               feasible efforts to meet any identified resource need  
               through available renewable energy, energy storage, energy  
               efficiency, and demand reduction resources that are cost  
               effective, reliable, and feasible.

               (ii)   (iii)   Prior to approving a contract for any new or  
               repowered gas-fired generation resource, the commission  
               shall require the electrical corporation to demonstrate  
               compliance with clause (i).

          This changes to Public Resources Code §454.5(b)(9)(C)(i) will  
          align the law with state policy and the CPUC's practice.  

          This bill also provides the CPUC with a mechanism to ensure  
          compliance with "unmet resource needs" requirement.  However, it  
          is not clear the CPUC needs such enforcement authority.  In  
          2015, the Legislature passed SB 350 (De León, Chapter 547,  
          Statutes of 2015).  In addition to significantly increasing the  
          state's commitment to renewable energy and energy efficiency,  
          the statute requires the IOUs (as well as the publicly owned  
          utilities) to develop and regularly update IRPs.  The plans,  
          which the CPUC must review and approve, are to detail how each  
          IOU is to meet the state's clean energy and environmental  
          objectives.  The CPUC, in approving an IOU's proposed  
          procurement, is to ensure the proposal is consistent with the  
          IOU's IRP.  If the IRP process works as intended, then it is  








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          unclear there is a need for this bill. 

          The IRP process is in its early stages of development.  It is as  
          yet unknown how effectively the process will function.

          Prior/Related Legislation
          
          SB 350 (De León, Chapter 547, Statutes of 2015) created, among  
          other things, the obligation that IOUs develop and regularly  
          update IRPs, which the CPUC must review and approve, and are to  
          detail how each IOU is to meet the state's clean energy and  
          environmental objectives.  

          AB 1937 (Gomez, 2016) requires an electric IOU bids for new  
          gas-fired generation resources to consider, and give preference  
          to, bids for resources that are not gas-fired generation  
          resources located in communities that suffer from cumulative  
          pollution burdens.  The bill was passed by this committee by a  
          vote of 7-3 and is pending consideration by the Senate Committee  
          on Environmental Quality.

          FISCAL EFFECT:                 Appropriation:  No    Fiscal  
          Com.:             Yes          Local:          Yes


            SUPPORT:  

          Clean Power Campaign (Source)
          Advanced Energy Management Alliance
          EnerNOC
          Environmental Defense Fund
          Silicon Valley Leadership Group
          TechNet
          OPPOSITION:

          None received

          ARGUMENTS IN SUPPORT:    According to the author:

               The LTPP proceeding develops assumptions and forecasts of  
               resource availability and determines if the existing  
               planned mix of resources is sufficient to meet future  
               needs.  An IOU's proposed procurement plan must include  
               certain elements, including a requirement that it will  








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               first meet its unmet needs through all available energy  
               efficiency and demand reduction resources that are cost  
               effective, reliable, and feasible. 

               Demand response is defined as changes in electricity use by  
               customers from their normal consumption pattern in response  
               to fluctuations in the price of electricity, financial  
               incentives to reduce consumption, changes in wholesale  
               market prices, or changes in grid conditions.  In other  
               words, demand response reduces energy demand when power is  
               needed most, rather than increasing supply from  
               carbon-emitting fuels.  As of 2014, the CPUC bifurcated  
               demand response programs take two forms: 

                    1)          Load modifying resources (LMR) modify load  
                      through customers' behavioral change; for example,  
                      time-of-use rates, and are administered by the IOUs  
                      or third-party providers. 



                    2)          Supply-side resources reduce or increase  
                      demand at a particular time and location and by a  
                      specific amount and can be scheduled and dispatched  
                      into the CAISO energy markets when and where needed,  
                      for example; the Base Interruptible Program. 


                In December 2014, the CPUC authorized the undertaking of a  
               demand response Potential Study to determine the amount of  
               demand response that is potentially available in the State.

               The Potential Study is currently being completed by the  
               Lawrence Berkeley National Lab and will answer some of the  
               most fundamental questions about the potential of demand  
               response and will consider all forms of demand response  
               that may be available to IOUs or the CAISO, as well as the  
               potential for integrating demand response with other  
               distributed energy resources, such as electric vehicles and  
               solar, to meet a broader range of system needs.  The  
               Potential Study will be a transparent framework that  
               associates numbers in gigawatts with every demand response  
               end use, how many hours of avoided generation are  
               available, and a forecast of costs. These models will  








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               extend to 2025 to provide a comprehensive overview of the  
               role that demand response can provide to meet California's  
               GHG reduction goals. 

               However, before the study's completion, the CPUC adopted a  
               decision (R13-09-011) in November 2015 that significantly  
               devalued certain LMR programs and prohibited IOUs from  
               attributing any capacity value to these programs.  This  
               preemptive decision significantly impacts the ability for  
               IOUs to incorporate demand response into the LTTP process.

               AB 2454 highlights the significant challenge that demand  
               reduction has faced as an under-utilized resource in danger  
               of being prematurely undervalued by the CPUC.  This bill  
               solidifies the role demand reduction has in the LTPP  
               proceeding by clarifying that the CPUC shall take the  
               results of the study into account when IOUs include demand  
               reduction in their required portfolio of short and long  
               term strategies.
          

          

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