BILL ANALYSIS Ó ----------------------------------------------------------------- |SENATE RULES COMMITTEE | SB 1453| |Office of Senate Floor Analyses | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ----------------------------------------------------------------- THIRD READING Bill No: SB 1453 Author: De León (D), et al. Introduced:2/19/16 Vote: 21 SENATE ENERGY, U. & C. COMMITTEE: 7-0, 4/5/16 AYES: Hueso, Hertzberg, Hill, Lara, Leyva, McGuire, Pavley NO VOTE RECORDED: Morrell, Cannella, Gaines, Wolk SENATE ENVIRONMENTAL QUALITY COMMITTEE: 5-1, 4/20/16 AYES: Wieckowski, Hill, Jackson, Leno, Pavley NOES: Gaines NO VOTE RECORDED: Bates SENATE APPROPRIATIONS COMMITTEE: 5-1, 5/16/16 AYES: Lara, Beall, Hill, McGuire, Mendoza NOES: Nielsen NO VOTE RECORDED: Bates SUBJECT: Electrical generation: greenhouse gases emission performance standard SOURCE: Author DIGEST: This bill requires the California Public Utilities Commission (CPUC) to not allow an investor-owned electrical utility (IOU) to recover in rates the cost of any capital expenditure for baseload generation that does not comply with California's greenhouse gas (GHG) emission performance standard. This bill also repeals existing statute that effectively allows the Pacific Corp electrical utility, with CPUC permission, to meet the state's emission performance standard through an alternative form of SB 1453 Page 2 compliance. ANALYSIS: Existing law, pursuant to Public Utilities Code Section 8340 et seq.: 1)Prohibits a load-serving entity - IOU, electric service provider and community choice aggregator - or a local publicly-owned utility (POU) from entering into a long-term financial commitment for baseload electricity generation - meaning either a new ownership investment in baseload generation or a new or renewed contract with a term of five or more years for such generation - unless that generation complies with a GHG emission performance standard. Existing law directs the CPUC and the California Energy Commission (CEC) to establish the GHG emission performance standard applicable to load-serving entities and POUs, respectively. 2)Requires the CPUC, by February 1, 2007, in consultation with the CEC and the California Air Resources Board (ARB), to establish a GHG emission performance standard for all baseload generation of load-serving entities and POUs at a rate of emissions of GHG that is no higher than the rate of emissions of such gases for combined-cycle natural gas baseload generation. Existing law defines "baseload generation" as electricity generation from a powerplant that is designed and intended to provide electricity at an annualized plant capacity factor of at least 60 percent. 3)Requires the CEC, by June 30, 2007, in consultation with the CPUC and the ARB, to establish a GHG emission performance standard for all baseload generation of POU at a rate of emissions of GHG that is no higher than the rate of emissions of such gases for combined-cycle natural gas baseload generation. Statute makes requirements of the CEC in relation to its adoption of the emission performance standard with powers and responsibilities regarding its emission performance standard and the POUs that largely parallel the CPUC's powers and responsibilities regarding its emission performance standard and the load-serving entities. 4)Directs the CEC and the CPUC, each in consultation with ARB, to reevaluate and continue, modify, or replace the GHG emission performance standard once an enforceable standard is in place for SB 1453 Page 3 POUs and load-serving entities, respectively. 5)Authorizes an IOU that provides electric service to 75,000 or fewer customers in California to file with CPUC a proposed alternative for compliance with the emission performance standard. The CPUC may accept upon a showing that (a) the IOU customers are located outside of California and (b) the emissions of GHGs to generate electricity for the IOU customers are subject to review by the utility regulatory commission of at least one other state in which the IOU provides regulated retail electric service. This bill: 1)Repeals from statute the authorization for an IOU that provides electric service to 75,000 or fewer customers in California to file with CPUC a proposal for alternative compliance with the state's emission performance standard. 2)Requires CPUC to review any capital expenditure proposed by an IOU for baseload generation that does not comply with the GHG emission performance standard. Directs CPUC to not allow those costs to be recovered in rates if (a) the proposed capital expenditure will materially extend the service life of the baseload generation; (b) cost-effective alternative resources not already owned or contracted for by the IOU would provide superior long-term value to customers and satisfy the GHG emission performance standard or (c) the accelerated retirement of the baseload generation unit would promote state and regional goals for the reduction of emissions of GHGs. Background The GHG emission performance standard. In the early 2000s, coal-fired powerplants supplied about one-fifth of the electricity consumed in California. (California Energy Commission Energy Almanac (http://energyalmanac.ca.gov/electricity/ total_system_power.html.) Following passage of SB 1368 (Perata, SB 1453 Page 4 Chapter 598, Statutes of 2006), the CEC and the CPUC adopted an emission performance standard (EPS) for baseload electricity generation, meaning generation from a powerplant designed and intended to provide electricity of at least 60 percent the powerplant's capacity. The two agencies set the standard at an emissions rate of 1,100 pounds of carbon dioxide (CO2) per megawatt-hour (MWh). This was, according to the agencies' calculations, a rate that did not exceed the rate of GHG emitted by a natural gas-fired combined-cycle powerplant used for baseload generation, the standard established by SB 1368. The effect of the EPS was to prevent the state's retail sellers of electricity and POUs from entering into new contracts for coal-fired generation of electricity or from renewing such contracts. In 2012, the CEC concluded the EPS had: Successfully prevented new long-term investments by California utilities in high-emitting baseload resources, such as coal facilities. Encouraged the early divestiture of existing high-GHG emitting baseload resources. In 2013, coal-fired powerplants supplied less than eight percent of the electricity consumed in California. Coal should provide even less of California's power in coming years as older contracts for coal-generated electricity expire. PacifiCorp allowed alternative to emission performance standard. SB 1368 allows an IOU that meets certain criteria to file with the CPUC a proposal for alternative compliance with the EPS. The law permits CPUC to accept the proposal if (a) a majority of the IOU's customers are located outside of California and (b) the emissions of GHGs to generate electricity for the IOU customers are subject to review by the utility regulatory commission of at least one other state in which the IOU provides regulated retail electric service. This alternative compliance option applies to any IOU that serves 75,000 or fewer customers in California. SB 1453 Page 5 PacifiCorp is large electric utility - it serves 1.7 million customers in six states in the Pacific Northwest and Rocky Mountain regions. However, PacifiCorp serves approximately only 45,000 customers in Northern California. Thus, PacifiCorp is the only IOU that qualifies for the alternative compliance provisions of SB 1386. The rationale for the PacifiCorp's' special treatment is that the IOU has a much smaller customer base over which PacifiCorp could spread the costs of compliance than do the state's larger IOUs. In addition, a large portion of PacifiCorp's' California customers are low income. Bill proponents argue it is time to end PacifiCorp's treatment under the emission performance statute." They note that, today, and unlike other California IOUs, PacifiCorp's receives most of its electricity from coal-fired powerplants that cannot meet California's emission performance standard. In addition, proponents complain of PacifiCorp's' efforts at the CPUC to recover in rates the costs associated with capital investments in coal-fired power generation. Proponents argue this bill will end a "loophole," which allows PacifiCorp's to extend the life of its coal fleet to the detriment of California's policy goals and, potentially, at the expense of California ratepayers. Prior/Related Legislation SB 1368 (Perata, Chapter 598, Statutes of 2006) required CPUC and CEC, respectively, to establish a GHG emission performance standard applicable to new long-term financial commitments for baseload electricity generation of load-serving entities and POUs. SB 180 (Jackson, 2015) would have (1) defined "peaking" and "nonpeaking" electricity generation, (2) required establishment of GHG emission performance standards for each type of generation and (3) prohibited long-term financial commitments with generating sources that do not meet the emission standards. The bill passed the Senate Energy, Utilities, and Communications Committee on a vote of eight to three and ultimately was held on suspense by Senate Appropriations Committee. SB 1453 Page 6 FISCAL EFFECT: Appropriation: No Fiscal Com.:YesLocal: No According to the Senate Appropriations Committee: Approximately $131,000 (Public Utilities Commission Utilities Reimbursement Account to the CPUC) for staffing costs. Minor and absorbable costs to the ARB. SUPPORT: (Verified5/17/16) Asian Pacific Environmental Network California Coastal Protection Network California League of Conservation Voters Coalition for Clean Air Sierra Club California The Utility Reform Network Vote Solar OPPOSITION: (Verified5/17/16) None received ARGUMENTS IN SUPPORT: Proponents argue the changes in SB 1453 are necessary to ensure consistent application of California's GHG policies to all utilities operating in the state. They also contend this bill protects California ratepayers from having to pay the capital costs of PacifiCorp's' coal-fired powerplants located in other Western states. Prepared by: Jay Dickenson / E., U., & C. / (916) 651-4107 5/18/16 16:28:12 **** END **** SB 1453 Page 7