BILL ANALYSIS
AB 44
Page 1
Date of Hearing: March 23, 2009
ASSEMBLY COMMITTEE ON UTILITIES AND COMMERCE
Felipe Fuentes, Chair
AB 44 (Blakeslee) - As Amended: March 18, 2009
SUBJECT : Energy storage facilities.
SUMMARY : Creates incentives for investor owned utilities
(IOUs) and non-utility companies to build energy storage devices
that store energy produced from renewable facilities.
EXISTING LAW :
1)Authorizes the California Public Utilities Commission (PUC) to
approve an increase of between one-half of one percent and one
percent in the rate-of-return otherwise allowed an IOU for
investment by the IOU in renewable generation facilities.
2)Requires IOUs to procure at least 20% of their electricity
sales from renewable resources by 2010.
THIS BILL :
1)Authorizes the PUC to approve an increase of between one-half
of one percent and one percent in the rate-of-return otherwise
allowed an IOU for investment by the IOU in energy storage
devices that store energy from eligible renewable resources
during off-peak periods and dispatch that energy during
on-peak periods.
2)Authorizes the PUC to establish additional incentives for
eligible storage facilities including but not limited to
tariffs for customers, increases in the rate-of-return that
exceed the one percent authorized above, and/or rebates for
storage facilities.
3)Requires the PUC to develop a time-variant tariff that creates
appropriate incentives for an eligible storage facility.
FISCAL EFFECT : Unknown.
COMMENTS : According to the author, the purpose of this bill is
to create incentives and remove barriers for both utility-owned
and merchant-owned energy storage facilities. The author
believes these energy storage facilities will be necessary for
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California to meet its renewable energy goals since they can
store energy produced by wind and solar facilities at times that
electricity is not needed to be used at peak periods when
electricity is in high demand.
1) Why do we need energy storage facilities : California law
requires all retail sellers of electricity to meet at least 20%
of the retail sales using electricity from renewable resources
by 2010 - a Renewable Portfolio Standard (RPS). The California
Air Resources Board (CARB) has identified an advancement of the
RPS to 33% by 2020 as one of the key actions needed to be taken
in order to meet the greenhouse gas (GHG) reduction goals of AB
32 (Nunez), Chapter 488, Statutes of 2006. Two bills have been
introduced this legislative session to create the 33% RPS goals
(AB 64 (Krekorian) and SB 14 (Simitian)).
While several studies have determined that a 33% RPS is
achievable, it can only be met with a heavy reliance on wind and
solar energy. The problem is that both resources are
intermittent. They only produce electricity when the wind is
blowing or the sun is out. This intermittency could create
reliability problems for the electricity grid since the grid
managers cannot count on the solar and wind energy being
available at the same time there is demand for electricity.
One way to resolve this reliability problem is to build more
electricity generation facilities that are capable of turning on
and off quickly and can be available when the renewable energy
facilities are not operating. These facilities are referred to
as "peaker plants." They generally run on natural gas. They are
also relatively expensive to operate compared to other
generating facilities that operate around the clock.
Another approach would be to find ways to store the electrical
output of renewable facilities to use hours later. The storage
devices could help take the place of peaker plants.
2) What is energy storage : Energy storage devices are devices
that can take electricity and covert the electricity into some
other form of energy so it can be stored and converted back to
electricity at some later point. The most common form of energy
storage device in use today are batteries. However, there are no
commercially available batteries that could cost-effectively
store the large amounts of electricity that can be produced by
large scale wind farms or solar facilities. Another form of
electricity storage that is already in use in California is pump
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storage, where water is pumped into a reservoir at night and
then released through turbines during the daytime to produce
electricity. Additionally, there is research taking place today
to develop other storage devices using compressed air,
flywheels, and fuel cells.
This bill defines storage systems to include any device that
stores energy generated from an eligible renewable resource
during off-peak periods and dispatched the energy during on-peak
periods. The device must also be capable of storing energy for
at least two hours and must be able to respond to orders from
the transmission grid managers to absorb or dispatch energy.
The author envisions the development of storage devises that are
owned and operated by the utilities and storage devices that are
owned by private parties that could buy renewable power from
renewable developers or the utility and then sell that power
back to the utility at a later time.
3) Incentives to IOUs : This bill allows IOUs to earn a higher
profit on investments they make in energy storage devices than
they do on investments in natural gas generation facilities. The
higher profit concept is based on Public Utilities Code section
454.3 which allows IOUs to earn higher profits on investments in
renewable facilities. According to the PUC, no IOU has applied
for higher rate-of-return under 454.3 since it was approved in
1988.
Section 454.3 also contains language that provides that the IOU
can only earn the higher rate-of-return if the facility results
in ratepayer benefits by lowering the cost of electricity over
the life of the facility and if the facility is actually used.
To ensure that ratepayers receive similar benefits from storage
devices, the author and the committee may wish to amend the bill
to include a provision that in order to receive the higher
rate-of-return the energy storage devise must be less expensive
to operate than a comparable peaker plant taking into account
the economic costs of the carbon and other air emission from the
peaker plants and that the facility must actually be useful and
used .
4) Incentives to non-utilities : The bill requires the PUC to
develop a time-variant tariff that would create the appropriate
incentives for eligible storage facilities. Generally
time-variant pricing allows a utility to charge its customers
more for electricity at peak times of the day when electricity
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is more expensive to procure, but then charge less at off-peak
times when it is less expensive to procure. A time-variant
tariff could benefit storage facilities if the facility was able
to "buy" the electricity from the utility when it is at the
lower rate and then "sell" the electricity back to the utility
when it is more expensive.
The bill provides that the tariff should be set to provide the
appropriate incentives for the storage facility, but contains no
language to ensure that the tariff also benefits ratepayers.
This language gives the PUC wide latitude that could result in
tariffs that the Legislature may view as a give away to the
energy storage device owner without a commensurate benefit to
rate payers. To ensure that this bill also protects ratepayers,
the author and the committee may want to consider amending the
bill to add language to provide that the time-variant tariff
should be set at an appropriate level that provides incentives
to invest in energy storage facilities if the PUC finds that the
tariff does not result in ratepayers paying an increased cost
for storage facilities beyond the economic benefits the
facilities provide through load shifting and voltage support .
The bill requires that an eligible storage device must store
energy produced from an eligible renewable resource. However, a
time-variant tariff would apply to purchase of all electricity
delivered from the utility, irrespective of whether the
electricity is from renewable resources. There does not appear
to be an easy way to create a time-variant tariff just for
renewable power.
5) Open ended incentives : The bill also allows the PUC to create
additional incentives for eligible storage facilities that it
sees fit. These incentives could include rebate programs,
additional increases in the rate-of-return, standard-offer
contracts, or revolving loan programs. Over the past few years,
the PUC has created a number of similar programs for other
technologies without clear legal authority and at times in
contradiction to Legislative goals. In each case, the
Legislature has had to pass legislation to change the programs
so they are more consistent with Legislative goals. Examples of
this included the PUC's Self Generation Incentive Program, the
California Solar Initiative, and the California Climate
Institute. Given the PUC's history of creating ratepayer-funded
programs that are inconsistent with Legislative goals, the
committee and the author may wish to consider the
appropriateness of giving the PUC broad latitude to create new
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incentive programs as it sees fit .
REGISTERED SUPPORT / OPPOSITION :
Support
None on file.
Opposition
None on file.
Analysis Prepared by : Edward Randolph / U. & C. / (916)
319-2083