BILL ANALYSIS Ó ----------------------------------------------------------------- |SENATE RULES COMMITTEE | AB 2868| |Office of Senate Floor Analyses | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ----------------------------------------------------------------- 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. AB 2868 Page 2 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, AB 2868 Page 3 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 AB 2868 Page 4 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 AB 2868 Page 5 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 AB 2868 Page 6 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 AB 2868 Page 7 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, AB 2868 Page 8 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 **** END ****