BILL ANALYSIS                                                                                                                                                                                                    Ó






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          |SENATE RULES COMMITTEE            |                       AB 2868|
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                                   THIRD READING 


          Bill No:  AB 2868
          Author:   Gatto (D), et al.
          Amended:  8/19/16 in Senate
          Vote:     21 

           SENATE ENERGY, U. & C. COMMITTEE:  7-2, 6/27/16
           AYES:  Hueso, Cannella, Hertzberg, Hill, Lara, Leyva, McGuire
           NOES:  Morrell, Gaines
           NO VOTE RECORDED:  Pavley, Wolk

           SENATE APPROPRIATIONS COMMITTEE:  5-2, 8/11/16
           AYES:  Lara, Beall, Hill, McGuire, Mendoza
           NOES:  Bates, Nielsen

           SENATE ENERGY, U. & C. COMMITTEE:  6-5, 8/24/16 (Pursuant to  
            Senate Rule 29.10)
           AYES:  Hueso, Cannella, Gaines, Lara, Leyva, Pavley
           NOES:  Morrell, Hertzberg, Hill, McGuire, Wolk

           ASSEMBLY FLOOR:  51-27, 6/1/16 - See last page for vote

           SUBJECT:   Energy storage


          SOURCE:    Author


          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.










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          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) 

          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,  







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            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.

          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  







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          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  |
          |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  







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          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  
          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  







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          additional amendments are needed to resolve the concerns of  
          those stakeholders.


          FISCAL EFFECT:   Appropriation:    No          Fiscal  
          Com.:YesLocal:   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:   (Verified8/24/16)


          Association of California Water Agencies
          California State Association of Electrical Workers
          Coalition of California Utility Employees
          San Diego County Water Authority
          SolarCity
          Stem


          OPPOSITION:   (Verified8/24/16)


          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







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          The Alliance for Solar Choice
          The Utility Reform Network

          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  
          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.

          ASSEMBLY FLOOR:  51-27, 6/1/16
          AYES:  Alejo, Arambula, Atkins, Bloom, Bonilla, Bonta, Brown,  
            Burke, Calderon, Campos, Chau, Chiu, Chu, Cooley, Cooper,  
            Dababneh, Daly, Dodd, Eggman, Frazier, Cristina Garcia,  
            Eduardo Garcia, Gatto, Gipson, Gomez, Gonzalez, Gordon, Gray,  
            Roger Hernández, Holden, Irwin, Jones-Sawyer, Levine, Lopez,  
            Low, McCarty, Medina, Mullin, O'Donnell, Quirk, Ridley-Thomas,  







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            Rodriguez, Salas, Santiago, Mark Stone, Thurmond, Ting, Weber,  
            Williams, Wood, Rendon
          NOES:  Achadjian, Travis Allen, Baker, Bigelow, Brough, Chang,  
            Chávez, Dahle, Beth Gaines, Gallagher, Grove, Harper, Jones,  
            Kim, Lackey, Linder, Maienschein, Mathis, Mayes, Melendez,  
            Obernolte, Olsen, Patterson, Steinorth, Wagner, Waldron, Wilk
          NO VOTE RECORDED:  Hadley, Nazarian

          Prepared by:Jay Dickenson / E., U., & C. / (916) 651-4107
          8/24/16 18:31:47


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