BILL ANALYSIS Ó
SENATE COMMITTEE ON ENERGY, UTILITIES AND COMMUNICATIONS
Senator Ben Hueso, Chair
2015 - 2016 Regular
Bill No: AB 2868 Hearing Date: 8/24/2016
-----------------------------------------------------------------
|Author: |Gatto |
|-----------+-----------------------------------------------------|
|Version: |8/19/2016 As amended |
-----------------------------------------------------------------
------------------------------------------------------------------
|Urgency: |No |Fiscal: |Yes |
------------------------------------------------------------------
-----------------------------------------------------------------
|Consultant:|Jay Dickenson |
| | |
-----------------------------------------------------------------
SUBJECT: Energy storage
DIGEST: This bill requires investor-owned utilities (IOUs) to
file applications with the California Public Utilities
Commission (CPUC) for programs and investments to accelerate
widespread deployment of distributed energy storage systems.
ANALYSIS:
Existing law:
1)Requires the CPUC to determine appropriate targets, if any,
for load-serving entities (LSEs) to procure energy storage
systems. Requires LSEs to meet any targets adopted by the
CPUC by 2015 and 2020. Requires publicly owned utilities
(POUs) to set their own targets for the procurement of energy
storage and then meet those targets by 2016 and 2021. (Public
Utilities Code §2835 et seq.)
2)Directs the California Energy Commission (CEC) and the CPUC,
where feasible, to authorize procurement of resources to
provide grid reliability services that minimize reliance on
system power and fossil fuel resources and, where feasible,
cost effective, and consistent with other state policy
objectives, increase the use of large- and small-scale energy
storage. (Public Utilities Code §400)
AB 2868 (Gatto) Page 2 of ?
3)Authorizes, beginning January 1, 2018, the CPUC to require or
authorize an IOU to employ default time-of-use (TOU) pricing
for residential customers. (Public Utilities Code §745)
This bill:
1)Declares it the policy of the state and intent of the
Legislature to encourage energy storage as a means to achieve
ratepayer benefits, ambient air quality standards, and the
state's climate change goals.
2)Requires the CPUC, in consultation with the California Air
Resources Board (ARB) and the CEC, to direct the IOUs to file
applications for programs and investments to accelerate
widespread deployment of distributed energy storage systems.
3)Limits an IOU's storage programs and investments to five
percent of the IOU's annual peak load, up to 250 megawatts
(MW), and dedicates at least 20 percent of the storage
capacity in an IOU's approved storage programs and investments
to the benefit of public schools and military installations.
4)Authorizes the CPUC, within 12 months, to approve, or modify
and approve, an IOU's storage programs and investments with,
among other things, reasonable mechanisms for cost recovery,
on a nonbypasable basis, from all distribution customers for
distribution-level energy storage systems and from
transmission customers for transmission-level distribution
storage systems.
5)States that the CPUC shall approve and IOU's application for
storage programs and investments if it is consistent with the
requirements of this bill and does not unreasonably limit or
impair the ability of nonutility enterprises to market and
deploy energy storage systems to other customers, and is in
the interest of ratepayers.
6)Directs the CPUC to first approve storage programs and
investments that provide distributed energy storage systems to
industrial, commercial, school, military, and low-income
customers, and, as of January 1, 2019, authorizes the CPUC to
approve IOU programs and investments offered to residential
customers enrolled in time-variant pricing.
AB 2868 (Gatto) Page 3 of ?
7)Directs the CPUC to ensure costs for IOU storage programs and
investments are recovered through transmission, distribution
and generation rate components in proportion to the benefits
received.
8)Prohibits the CPUC from establishing a separate fund for this
program.
Background
State encourages procurement of energy storage. As the state
becomes increasingly reliant on intermittent renewable energy
resources, it will need options to allow it to flexibly manage
electric supply and demand. Energy storage is one technology
that allows for such flexible management.
Existing state programs seek to foster development and
deployment of energy storage systems. Statute requires the CPUC
to determine appropriate targets, if any, for LSEs to procure
energy storage systems by 2015 and 2020, and directed POUs to
set their own comparable energy storage system procurement
targets. [AB 2514, Skinner, Chapter 469, Statutes of 2010).]
The CPUC, in implementing AB 2514, established energy storage
system procurement targets applicable to the state's three
largest electric IOUs totaling 1,325 MW. [See CPUC Decision
13-10-040.]
The CPUC reports the IOUs have each progressed in meeting their
energy storage procurement goals. However, none has yet met its
final procurement goal in any category, other than Southern
California Edison (SCE), which has already exceeded the
procurement goal for customer-side storage several times over.
The state has also provided financial incentives to energy
storage systems. Over the last several years, the CPUC reports
that the Self-Generation Incentive Program (SGIP), which the
CPUC administers, has awarded $42 million to nearly 1,200 energy
storage projects.
-------------------------------------------------------------------
| SGIP Awards to Energy Storage Systems |
-------------------------------------------------------------------
|---------+------+------------+----------+------------+-------------|
| Years |Projec| Installed |Incentive | Reserved | Incentives |
AB 2868 (Gatto) Page 4 of ?
|2009-2015| ts | Capacity | Paid | Capacity | Reserved |
| | | (kW) | | (kW) | |
|---------+------+------------+----------+------------+-------------|
| Totals| 1175| |$41,547,42| | |
| | | | 6 | |$149,215,781 |
| | | | | | |
| | | 23 | | 92 | |
-------------------------------------------------------------------
Recently, the CPUC modified SGIP to dedicate 75 percent of
funding to energy storage systems, and the Legislature is
considering doubling the program budget, to a total annual
budget of $163 million. A primary rationale for this
storage-focus is the CPUC staff's belief that the energy storage
industry is ripe for market transformation, so that system
subsidies have the potential or even the likelihood to lead to
decreases in energy storage system costs.
Time-of-use rates (TOU). Time-variant rates, such as TOU rates,
are a mechanism to shape demand for energy. TOU rates rely on
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.
Currently, the CPUC requires all commercial and industrial
customers of the IOUs to participate in TOU rates. Statute
authorizes the CPUC to allow or require IOUs to offer TOU rates
to residential customers beginning in 2018. The CPUC has
recently required the IOUs to offer mandatory TOU rates to
residential customers beginning in 2019, with the option for the
customer to opt out of such rates at his or her request.
The use of energy storage systems has the potential to
complement time-variant rates, such as TOU rates. This is
because the operator of an energy storage system of a customer
on TOU rates could charge the storage system when electricity
rates are low (signaling abundance) and discharge the storage
system when electricity rates are high (signaling scarcity).
Focus on customer-side energy storage meant to ensure storage
systems benefit customers directly. This bill limits the energy
storage programs and investments the IOUs are to propose to only
systems located on the customer side of the electricity meter.
The limitation prevents the IOUs from proposing programs and
investments in energy storage systems to be installed on
AB 2868 (Gatto) Page 5 of ?
electricity transmission or distribution systems. This is by
design. The author reports that he intends the IOUs' programs
and investments to benefit IOU customers as a whole and
individual customers specifically; the author concludes that the
best way to ensure individual customers benefit from the IOU
programs and investments is to limit them to the customer side
of the meter.
Arguably, individual customers can benefit from energy storage
systems located at the transmission level, the distribution
level and behind the customer meter.
Several changes, seeking several more. When the committee first
heard this bill on June 27 of this year, this bill required IOUs
to file applications with the CPUC for programs and investments
to accelerate widespread deployment of distributed energy
storage systems. It still does. Nonetheless, the author has
amended this bill substantially since this committee heard this
bill. Those amendments resulted from negotiations among diverse
stakeholders. Despite those amendments, it appears a number of
additional amendments are needed to resolve the concerns of
those stakeholders. Each of those proposed amendments is
summarized below.
Ensure competition in energy storage marketplace. This
bill defines this term as "an energy storage system with a
useful life of at least 10 years that is located on the
customer side of the meter." This definition is consistent
with the author's intent that the IOU's programs and
investments to benefit IOU customers as a whole and
individual customers specifically.
However, the representatives of the nonutility storage industry
express concern that the IOU's storage programs and investments
will not allow the industry to fairly compete in the storage
market. This committee amended the version of this bill it
heard in June to help ensure such competition. It did so by
directing the CPUC to approve an IOU's storage programs and
investments provided they do not compete unfairly with
nonutility enterprises, defining "compete unfairly with
nonutility enterprises" to mean to eliminate the ability of
nonutility enterprises to install distributed energy storage
systems for the benefit of utility customers.
Subsequent amendments to this bill deleted the language added by
the committee to ensure competition. The subsequent amendments
AB 2868 (Gatto) Page 6 of ?
tried to ensure competition by instead directing the CPUC to
approve an IOU's application for storage programs and
investments so long as it does not unreasonably limit or impair
the ability of nonutility enterprises to market and deploy
energy storage systems to other customers. However, this
language is too vague to adequately ensure competition. For
example, it is unclear what is meant by "other customers." The
author's staff suggested that "other customers" means those
customers who do not have existing energy storage systems. But
the text does not support that interpretation.
The author has proposed further amendments that eliminate this
bill's current language regarding competition. Instead, the
author proposes to introduce four amendments to this bill meant
to ensure competition by nonutility enterprises.
The first proposed amendment to address competition provides an
alternative definition of "distributed energy storage system."
Currently, this bill defines such a system as one located only
on the customer side of the meter. The amendment instead
expands the definition of such a system to also include one
connected to the electricity distribution system. The second
proposed amendment caps the total amount of IOU storage programs
and investments at 500 MW, divided equally among IOUs, while the
third amendment caps at 25 percent the amount of distributed
energy storage systems that can be dedicated to behind-the-meter
programs and investments. Finally, the author proposes an
amendment that explicitly directs the CPUC approve an IOU's
storage programs and investments only if they do not
unreasonably limit or impair the ability of nonutility
enterprises to market and deploy energy storage systems.
So, the proposed amendments described above explicitly ensure
storage market competition and cap IOU participation in that
marketplace. The proposed amendments are consistent with
amendments made to this bill by this committee and, in fact,
better ensure storage market competition. The committee should
support these amendments.
In addition to, not instead of. The author proposes
amendments to explicitly state that the MW authorized by
the CPUC as part of an IOU's programs and investments in
distributed energy storage systems are in addition to IOU
investments to achieve energy storage target authorized by
the CPUC in keeping with statute. The prior committee
analysis of this bill assumed the programs and investments
AB 2868 (Gatto) Page 7 of ?
to be additional to IOU investments to meet existing energy
storage targets. The committee should support these
amendments.
Sector targets out, public-sector prioritized,
industrial and commercial sector demoted. The author also
proposes amendments that would do away with the requirement
that at least 20 percent of the storage capacity of an
IOU's approved programs and investments go to the benefit
of public schools and military installations. The author
proposes amendments that, instead, direct the commission to
prioritize programs and investments to public-sector
customers, as well as low-income customers (as did prior
versions of the bill).
When this committee first heard this bill, this bill included no
set-aside for public schools or military installations.
Therefore, there is no concern, from this committee's
perspective, with removing the set-aside. However, this
committee approved this bill when it included a requirement that
the CPUC prioritize programs and investments that provide
distributed energy systems to industrial and commercial
customers, as well as low-income customers. This committee
should ask the author to explain why it is appropriate to
promote public sector customers and demote industrial and
commercial customers.
Prescribing cost recovery, yet confusion remains. The
author has proposed amendments that would add language
prescribing that the CPUC ensure that the costs for
programs and investments are recovered through
transmission, distribution and generation rate components
in proportion to the benefits received. This language was
requested by representatives of community choice
aggregators (CCAs), who express concern their customers
might face costs for programs and investments from which
they do not benefit.
The CCAs requested this bill be amended to include similar
language when this bill was first heard by this committee; this
committee chose not to request the author to amend this bill in
this way. Yet, the language appears in the latest version of
this bill.
The language is unnecessary: the CPUC can approve rates only to
the extent that they are just and reasonable. Therefore, in
AB 2868 (Gatto) Page 8 of ?
theory, the CPUC cannot allow recovery of costs that are
significantly unproportional to the benefit received. The CCAs
report they are nonetheless comforted by language that
explicitly prescribes the general rule the CPUC is to follow
when determining how costs are to be recovered.
In contrast, representatives of the IOUs characterize this
bill's cost recovery provisions as confusing. They note,
accurately, that this bill includes three separate provisions on
cost recovery - Section 2838.2(c)(1), Section 2832.2(e)(3) and
Section 2838.2(f). It is unwise to provide the CPUC such
unclear direction on how to determine cost recovery. Better to
allow the CPUC to determine cost allocation as part of its
public ratemaking process. This committee should ask the author
agree to amend this bill to direct the CPUC to ensure costs are
recovered from all ratepayers:
2838.2(e)(3) The commission shall ensure that costs
for the programs and investments are recovered on a
nonbypassable basis The commission shall ensure
that the costs for the programs and investments are
recovered through transmission, distribution, and
generation rate components in proportion to the
benefits received..
The other sections addressing cost recovery - 2838.2(c)(1),
2838.2(e)(1) and 2838.2(f) - should be amended to conform with
this change, as shown below.
Senate rules prevent this committee from amending this bill
further. Therefore, the author may wish to provide assurance to
this committee that he will make the amendments, summarized
above and shown in detail below, to this bill on the Senate
floor.
Suggested amendments (highlighted - additions underlined;
deletions struck out).
The people of the State of California do enact as follows:
SECTION 1. (a) The Legislature finds and declares all of
the following:
(1) The state, through the Public Utilities Commission, has
taken action to promote energy storage, including setting
AB 2868 (Gatto) Page 9 of ?
energy storage procurement targets applicable for certain
load-serving entities, totaling 1,325 megawatts, and for
all other load-serving entities, to be met by 2020, with
installations of the energy storage systems meeting the
procurement targets by no later than the end of 2024.
(2) Ratepayer funding is currently allowed to provide
incentives to customers who purchase energy storage for
permanent load shifting.
(3) The Legislature reauthorized the self-generation
incentive program to provide incentives to customers who
achieve reductions in the emissions of greenhouse gases
using technologies like energy storage.
(4) The State Energy Resources Conservation and Development
Commission funds research and demonstration programs to
further the effectiveness of energy storage as an important
resource to the electric grid through the Electric Program
Investment Charge.
(5) Federal Energy Regulatory Commission Order No. 792
directs transmission providers to define energy storage
devices as generating facilities, thereby enabling these
resources to take advantage of generator interconnection
procedures.
(6) Industrial and commercial customers are subject to the
time-of-use tariffs of the load-serving entity providing
electric services, some of which also include demand
charges. Industrial and commercial customers have
challenges modifying their businesses to manage their
electricity consumption and costs.
(7) Section 745 of the Public Utilities Code authorizes the
commission to require or authorize an electrical
corporation to employ default time-of-use pricing for
residential customers.
(8) Changes in customer electricity usage will modify the
peak time for electricity demand and effect demand charges
in rate design.
(9) Properly designed and dispatched energy storage systems
will help customers manage energy costs, help reduce
overall system peak energy demands, improve public health,
AB 2868 (Gatto) Page 10 of ?
and assist in achieving greenhouse gas emissions goals.
(10) Increased demand for energy storage technologies will
drive new business opportunities and create jobs.
(11) Easing energy costs for large energy users will help
keep manufacturing and industrial jobs in California.
(b) It is the policy of the state and the intent of the
Legislature to encourage energy storage as a means to
achieve ratepayer benefits, ambient air quality standards,
and the state's climate change goals.
SEC. 2. Section 2838.2 is added to the Public Utilities
Code, to read:
2838.2. (a) The following definitions apply to this
section:
(1) "Distributed energy storage system" means an energy
storage system with a useful life of at least 10 years
connected to the distribution system or that is located on
the customer side of the meter.
(2) "Energy storage management system" means a system by
which an electrical corporation can manage the charging and
discharging of the distributed energy storage system in a
manner that provides benefits to ratepayers.
(b) The commission, in consultation with the State Air
Resources Board and the Energy Commission, shall direct
electrical corporations to file applications for programs
and investments to accelerate widespread deployment of
distributed energy storage systems to achieve ratepayer
benefits, reduce dependence on petroleum, meet air quality
standards, and reduce emissions of greenhouse gases.
Programs and investments proposed by electrical
corporations shall seek to minimize overall costs and
maximize overall benefits.
(c) (1) The commission may approve, or modify and approve,
programs and investments of an electrical corporation in
distributed energy storage systems with appropriate energy
storage management systems and reasonable mechanisms for
cost recovery as described in subdivision (e)(3) from all
AB 2868 (Gatto) Page 11 of ?
distribution customers for distribution level distributed
energy storage systems, and from transmission customers for
transmission level distributed energy storage, if they are
consistent with this section, and do not unreasonably limit
or impair the ability of non-utility enterprises to market
and deploy energy storage systems , if they are consistent
with this section, do not compete unfairly with nonutility
enterprises, and are in the interest of the ratepayers . An
electrical corporation's programs and investments in
distributed energy storage systems shall not exceed 5
percent of the electrical corporation's annual peak load,
up to 250 megawatts . The total amount of programs and
investments in distributed energy storage systems across
all electrical corporations pursuant to this section shall
not exceed 500 megawatts, divided equally among electrical
corporations.
(2) No more than 25 percent of the distributed energy
storage systems approved under this section, shall be
dedicated to behind-the-meter programs and investments.
(3) The megawatts authorized under subdivision (c)(1) are
in addition to any investments authorized pursuant to
section 2836.
(2) A minimum of 20 percent of the storage capacity in an
electrical corporation's approved programs and investments
in distributed energy storage systems may shall be set
aside dedicated to the benefit of public schools and
military installations. The electrical corporation shall
allocate the benefits of this dedicated storage capacity to
benefitting schools and military installations by reducing
the customer's metered demand in an amount equivalent to
the demand served by the storage that has been dedicated to
these customers pursuant to this section.
(d) The commission shall approve an electrical
corporation's application for a program or investment in
distributed energy storage systems if it is consistent with
the requirements of this section, does not unreasonably
limit or impair the ability of nonutility enterprises to
market and deploy energy storage systems to other
customers, and is in the interest of ratepayers.
(e) (1) The commission shall resolve approve, or modify and
approve, each application filed by an electrical
AB 2868 (Gatto) Page 12 of ?
corporation pursuant to this section within 12 months of
the date of filing of the completed application. The costs
associated with storage investments authorized by the
commission shall be recoverable from all electricity
customers on a nonbypassable basis.
(2) The commission shall prioritize first approve those
programs and investments that provide distributed energy
storage systems to public sector industrial, commercial,
school, military, and low-income customers. Beginning
January 1, 2019, the commission may approve programs and
investments offered to residential customers who enroll in
time-variant pricing pursuant to Section 745.
(3)For purposes of this subdivision, to "compete unfairly
with nonutility enterprises" means to eliminate the ability
of nonutility enterprises to install distributed energy
storage systems for the benefit of utility customers.
(d)This section shall remain in effect only until January
1, 2020, and as of that date is repealed, unless a later
enacted statute, that is enacted before January 1, 2020,
deletes or extends that date.
(3) The commission shall ensure that costs for the programs and
investments are recovered on a nonbypassable basis The
commission shall ensure that the costs for the programs and
investments are recovered through transmission, distribution,
and generation rate components in proportion to the benefits
received .
(f) The commission shall not establish a separate fund for this
program but shall allow standard cost recovery by an electrical
corporation, consistent with subdivision (e)(3).
SEC. 3. No reimbursement is required by this act pursuant
to Section 6 of Article XIII B of
the California Constitution because the only costs that may
be incurred by a local agency or school district will be
incurred because this act creates a new crime or
infraction, eliminates a crime or infraction, or changes
the penalty for a crime or infraction, within the meaning
of Section 17556 of the Government Code, or changes the
definition of a crime within the meaning of Section 6 of
Article XIII B of
the California Constitution.
AB 2868 (Gatto) Page 13 of ?
Prior/Related Legislation
AB 2514 (Skinner, Chapter 469, Statutes of 2010) required the
CPUC to determine appropriate targets, if any, for LSEs to
procure energy storage systems. The bill required LSEs to meet
any targets adopted by the CPUC by 2015 and 2020. The bill
required POUs to set their own targets for the procurement of
energy storage and then meet those targets by 2016 and 2021.
AB 33 (Quirk, 2015) reiterates existing law, which states that
new pumped hydroelectric storage facilitates eligible for any
increased energy storage system targets adopted by the CPUC.
The bill is pending before the full Senate.
SB 886 (Pavley, 2015) requires appropriate energy storage system
procurement targets; requires each load-serving entity and
locally owned public electric utility to plan for the
procurement of energy storage systems before fossil-fuel-based
generation; and requires each electrical corporation to propose
measures to encourage customers to install energy storage
systems. The bill passed the Senate 25-14 and was held in the
Assembly Committee on Appropriations
FISCAL EFFECT: Appropriation: No Fiscal
Com.: Yes Local: Yes
According to the Senate Appropriations Committee:
One-time costs of approximately $500,000 (Utilities
Reimbursement Account) to the CPUC for a consulting budget.
Approximately $419,000 (Utilities Reimbursement Account)
annually to the CPUC for staffing costs.
Minor costs to the ARB for consultation.
SUPPORT:
Association of California Water Agencies
California State Association of Electrical Workers
AB 2868 (Gatto) Page 14 of ?
Coalition of California Utility Employees
San Diego County Water Authority
SolarCity
Stem, with amendments
OPPOSITION:
Advanced Energy Economy
California Energy Storage Alliance
California Solar Industries Association
Marin Clean Energy
San Francisco Public Utilities Commission
Silicon Valley Leadership Group
Solar Energy Industries Association
Sonoma Clean Power
TechNet
The Alliance for Solar Choice
The Utility Reform Network, oppose unless amended
ARGUMENTS IN SUPPORT: According to the author:
This bill requires the CPUC, in consultation with the ARB and
the State Energy Resources Conservation and Development
Commission, to direct electric corporations to file applications
for programs and investments to accelerate widespread deployment
of distributed energy storage systems.
Energy storage systems will help customers manage energy costs
and improve electrical grid reliability by reducing overall
system peak energy demands. Increased demand for energy storage
technologies will drive new business opportunities and will help
keep and create manufacturing and industrial jobs in California.
Energy storage also offers valuable benefits to public and
environmental health by assisting California achieve its
greenhouse gas emissions goals.
ARGUMENTS IN OPPOSITION: Representatives of community choice
aggregators (CCAs), such as Marin Clean Energy, contend this
bill will require the CPUC to assign costs for the customer-side
energy storage programs and investments required by this bill to
all transmission and distribution customers, CCA customers
included, though they receive no benefit from the program or
investments.
In addition, the California Energy Storage Alliance contends
this bill could excessively authorize utility-owned
customer-sited energy storage investments and that this bill
AB 2868 (Gatto) Page 15 of ?
goes too far in promoting utility-owned customer-sited energy
storage potentially to the detriment of businesses engaged in
the deployment and operation of third-party customer-sited
energy storage.
-- END --