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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