BILL ANALYSIS
AB 64
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Date of Hearing: April 27, 2009
ASSEMBLY COMMITTEE ON NATURAL RESOURCES
Nancy Skinner, Chair
AB 64 (Krekorian) - As Amended: April 15, 2009
SUBJECT : Renewable energy resources: generation and
transmission
SUMMARY : Raises California's Renewables Portfolio Standard
(RPS) goal to 33 percent by 2020 and revises and reenacts
specified provisions of the existing RPS statutes. Establishes
a new agency, the Renewables Infrastructure Authority (RIA),
which is authorized to finance and permit new renewable energy
generation and transmission projects.
EXISTING LAW :
1)The RPS requires investor-owned utilities (IOUs) and certain
other retail sellers to achieve a 20 percent renewable
portfolio by 2010 and establishes a detailed process and
standards for renewable procurement.
a) Requires local publicly-owned utilities (POUs) to
implement and enforce their own RPS programs. POUs are
not subject to the same detailed process and standards as
IOUs and other retail sellers subject to the jurisdiction
of the Public Utilities Commission (PUC).
b) Provides that eligible renewable technologies are
biomass, solar thermal, photovoltaic, wind, geothermal,
renewable fuel cells, small hydroelectric (30 megawatts
or less), digester gas, municipal solid waste conversion,
landfill gas, ocean wave, ocean thermal, and tidal
current.
c) Provides that renewable resources located outside
the state are eligible if the project commences operation
after January 1, 2005 and is connected to California's
transmission grid or delivers energy to California.
d) Defines and permits the use of unbundled/tradable
renewable energy credits (RECs) for RPS compliance,
subject to PUC approval, and authorizes the PUC to limit
the amount of RECs a retail seller may use for RPS
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compliance.
e) Requires IOUs to submit annual RPS procurements
plans and meet a one percent per year annual procurement
target.
f) Requires the PUC to adopt a market price referent
(MPR) as a benchmark for reasonable prices for RPS
procurement by IOUs.
g) Designates funds (approximately $165 million per
year) available to cover IOUs' RPS procurement costs
which exceed the MPR. Once these funds are exhausted,
IOUs are relieved of their obligation to buy additional
renewable energy through the RPS procurement process, but
may build or continue to buy renewable energy through
bilateral contracts, notwithstanding this RPS "cost cap."
h) Permits specified small, multi-jurisdictional IOUs
to count renewable energy delivered in other states under
specified conditions.
2)Requires the PUC to certify the public convenience and
necessity require a transmission line before an IOU may begin
construction (Certificate of Public Convenience and Necessity,
or CPCN). The CPCN process includes environmental review of
the proposed project under the California Environmental
Quality Act (CEQA). The CPCN confers eminent domain authority
for construction of the project. Judicial review of a PUC
order is limited to the state Supreme Court and Courts of
Appeal.
3)Grants the California Energy Commission (CEC) exclusive
authority to license thermal power plants 50 megawatts and
larger and requires consultation with specified agencies, such
as local air districts and the Coastal Commission for
projects located in the Coastal Zone. The CEC process is a
certified regulatory program under CEQA. In approving a power
plant, the CEC has the authority to override any contrary
state or local decision. Judicial review of a CEC power plant
license decision is limited to the state Supreme Court.
4)The California Global Warming Solutions Act (AB 32) requires
the Air Resources Board (ARB) to adopt a statewide greenhouse
gas (GHG) emissions limit equivalent to 1990 levels by 2020
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and adopt regulations to achieve maximum technologically
feasible and cost-effective GHG emission reductions. Pursuant
to AB 32, ARB has adopted a Scoping Plan which includes
achieving a 33 percent RPS by 2020 as a key measure to achieve
the 2020 GHG emissions limit.
THIS BILL :
1)Maintains the 20 percent by 2010 RPS target and adds 25
percent by 2015 and 33 percent by 2020 targets. These targets
are applicable to IOUs, POUs, energy service providers and
community choice aggregators.
2)Sunsets the existing RPS article in 2011 and replaces it with
a new chapter which becomes operative in 2011.
3)Revises the definition of "delivery" to eliminate eligibility
of energy from out-of-state resources that is not
"simultaneously scheduled to meet anticipated in-state load."
4)Eliminates the one percent annual procurement targets
applicable to IOUs (in favor of the five-year targets in 2015
and 2020).
5)Requires IOUs' to consider the viability and risk of RPS
contracts in their renewable energy procurement plans.
6)Requires the PUC to provide a preference to contracts for
renewable resources that are from a "California supplier," as
defined.|
7)Modifies the PUC's penalty authority to authorize the PUC to
waive penalties for failure to meet the 20 percent by 2010
target, if the PUC determines that a "commercially reasonable"
effort has been made to comply.
8)Revises the criteria and renames the benchmark price used to
gauge the reasonableness of renewable energy contracts.
Comparison to new generating facilities is deleted and value
of carbon and other emission reductions is added.
9)Repeals existing above-market funds and cost cap provisions
and establishes a new and significantly higher cap on
above-market costs - five percent of an IOU's revenue
requirement.
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10)Requires POUs to adopt an enforcement program and file
specified information regarding renewable contracts with the
CEC. Authorizes the ARB to impose penalties pursuant to AB 32
upon a determination by the CEC that a POU has failed to
comply with the RPS.
11)Establishes a new agency, the RIA, to finance and permit new
renewable energy generation and transmission projects.
a) Defines terms and enacts provisions for the
organization of the RIA.
b) Requires the RIA to be governed by a nine-member
board composed of the Secretaries for Resources and
Environmental Protection, the CEC Chair, the PUC
President, the Treasurer, the president of the
Independent System Operator, a member of the public
appointed by the Governor and confirmed by the Senate,
and two members appointed by the Senate and the Assembly
Speaker.
c) Authorizes the RIA to issue up to $6.4 billion in
bonds to finance renewable energy projects until 2020.
d) Grants the RIA exclusive authority to permit
renewable energy power plants five megawatts and larger
and transmission lines, with specified exceptions.
e) For power plants, establishes permitting provisions
similar to existing provisions applicable to the CEC
process, with some differences, including elimination of
a review authority for local air districts as to air
emissions and the Coastal Commission for projects in the
Coastal Zone. Exclusive judicial review by the Supreme
Court is also eliminated.
f) For power plants, requires the RIA is to issue a
proposed decision within 180 days of receiving a complete
application.
g) Transfers existing permitting authority and requires
the RIA to develop plans by January 1, 2011 (note the
article creating the RIA does not become operative until
January 1, 2011).
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1)Repeals CEC authority related to transmission corridor
designation and withdraws permitting of renewable power plants
from CEC's jurisdiction to conform to authority the bill
grants to the RIA. If the bill is enacted in 2009, these
repeals would be effective January 1, 2010, while the RIA's
authority would not be operative until January 1, 2011.
FISCAL EFFECT : Unknown
COMMENTS :
1)Background. The RPS requires IOUs and certain other retail
energy providers, collectively referred to as "retail
sellers," to buy renewable electricity to the extent funds are
available to pay for any costs exceeding a market price set by
the PUC. Each IOU is required to increase its renewable
procurement each year by at least one percent of total sales,
so that 20 percent of its sales are renewable energy sources
by December 31, 2010. Once a 20 percent portfolio is
achieved, no further increase is required. The PUC is
required to adopt comparable requirements for direct access
energy service providers and community choice aggregators.
The RPS requires the PUC to adopt processes for determining
market prices, ranking renewable bids according to cost and
fit, flexible compliance rules and standard contract terms.
The RPS requires investor-owned utilities to offer contracts
of at least 10 years, unless the PUC approves shorter
contracts. This is intended to support the development of new
renewable resources.
The original RPS bill, SB 1078 (Sher), Chapter 516, Statute of
2002, set a goal of 20 percent by 2017. SB 107 (Simitian),
Chapter 464, Statutes of 2006, accelerated the deadline for 20
percent to 2010. Nearly seven years after the RPS was
enacted, IOUs have not advanced very far beyond their 2002
average starting point of 12 percent RPS, are not on pace to
achieve 20 percent by 2010, and are already planning to use
flexible compliance rules to delay attainment of 20 percent
until 2013.
According to the PUC, as of 2007, the IOUs have achieved
varying levels of progress toward the 20 percent target: PG&E
- 11.4%; SCE -15.7%; SDG&E - 5.2%. While each IOU added
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renewable resources in 2007, the percentage of renewable
energy compared to the rest of the portfolio declined from
2006 due to total load growth. Recent renewable solicitations
by IOUs indicate increasing prices for renewable energy may
exhaust the funds set aside to pay above-market costs before
the 20 percent target is achieved.
2)Cost cap, translated. This bill establishes a new limitation
for above-market costs for IOU renewable procurement - five
percent of the IOU's revenue requirement. Based on PUC data,
for the three largest IOUs, five percent of the 2008 revenue
requirement equals approximately: PG&E - $548 million; SCE -
$582 million; SDG&E - $149 million. Thus, a rough estimate of
the total cost cap for all three IOUs is $1.28 billion at 2008
revenues, between four and eight times the amount set aside
for above-market costs under current law, depending on the
accounting method.
The need for the cost cap seems to be rooted in the fact that
the RPS is structured in a way that hinders both regulation
and competition. Although the objective of the cost cap is
understandable, the author and the committee may wish to
consider whether such an arbitrary figure, uniquely applied to
renewable energy costs, should be locked in statute.
3)Does the structure of the RPS devalue energy efficiency and
other greenhouse gas reduction strategies? The current RPS
sets a relative standard (percent of sales) for renewable
purchases, so as overall electricity sales grow, the renewable
component must grow along with it. That fundamental approach
remains unchanged in this bill. In contrast, AB 32 sets an
absolute standard for reductions in greenhouse gases, 80
percent of which result from burning fossil fuels, and much of
that for electricity generation. Under AB 32, statewide
greenhouse gas emissions must be reduced to 1990 levels by
2020.
Under the RPS, direct fossil fuel use reductions are valued
less than buying additional renewable energy, even if the
renewable resource is out of state, remote, and/or
intermittent, requiring firming by gas and construction of
transmission lines to deliver. The RPS also values energy
from all eligible renewable resources equally, regardless of
significant variations in environmental value due to design,
location, production, and delivery details.
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From a climate and air quality perspective, a better policy
would prioritize reducing overall energy use (the
denominator). Instead, the RPS prioritizes increasing the
share of energy sales from renewable resources (the
numerator), regardless of the level of overall energy use and
regardless of the resources' relative environmental values.
While California has successful energy efficiency programs,
they are disconnected from the RPS, which exists in a silo - a
supply-side mandate isolated from demand-side alternatives.
This approach not only creates artificial barriers to rational
selection of the best environmental resources, it creates
barriers to competition which give rise to concerns about the
ratepayer cost of implementing the RPS.
In the RPS, energy efficiency is essentially ignored. One
solution to the policy disconnect between renewables and
efficiency would be to create an equivalent mandate for energy
efficiency results, as opposed to the current approach of
measuring energy efficiency programs by spending. Another
solution would be to integrate renewable energy and energy
efficiency goals into a greenhouse gas reduction goal, so
utilities could legitimately use one resource as an
alternative to the other in a portfolio approach to reducing
GHG emissions.
4)Creating a new agency may create confusion and delay before
any intended efficiencies are realized. Theoretically, a new
agency focused on financing and/or permitting renewable energy
projects could be a benefit to achieving RPS targets.
However, in practice, the RIA proposed in this bill more
likely to hinder renewable development over the next several,
critical years of the RPS program.
For example, the provisions of the bill establishing the RIA
become operative in 2011. In the interim and for however long
it takes for the RIA to get organized, CEC, PUC and local
agency permitting authority and/or activities may be
suspended, creating a "dead zone" in generation and
transmission development, where project proponents won't know
whether to stick with the existing process or wait for the new
process to prove itself. Another delay may result from
preparing a master or programmatic environmental impact report
(EIR), which is contemplated in the bill to ease review of
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subsequent projects. Preparing a programmatic EIR, even for a
single renewable energy development zone or transmission line,
will be a very complicated, time-consuming process,
optimistically taking two years. Considering that the RIA
will not be formed, much less prepared to identify a zone and
begin CEQA review, until sometime in 2011, the RIA is not
likely to be able to act on projects until 2013.
The RIA provisions suffer from several inconsistencies with
current project review standards at the CEC and under CEQA.
For example, the bill establishes a deadline of 180-days to
move from complete application to decision. This is not
enough time in any case where significant state agency review
or federal permits are required, which would be typical for
many renewable energy projects. 180 days is not adequate time
to complete CEQA review where an EIR must be certified. As
the bill is drafted, the RIA may be forced to choose between
rejecting an application or approving it prematurely and
risking litigation. Rather than impose an arbitrary and
clearly impractical deadline, time can be squeezed out of the
current permitting processes when the applicant presents a
well-planned, low-impact project (e.g., without endangered
species issues, streambed alteration, park or coastal
impacts).
The RIA's project permitting provisions also leave out
important participation and accountability features in
existing CEC, PUC, other state agency processes, including
Office of Administrative Law review, intervenor compensation,
and review by the Coastal Commission of projects in the
Coastal Zone.
The bill seems to create an institutional conflict by giving
the RIA the responsibilities of financing development of
projects and issuing permits for projects. Applicants will be
in the position of competing with the RIA if they are not
"participating parties" in a financing deal or being favored
by the RIA if they are "participating parties."
The author and the committee may wish to consider deleting the
provisions of this bill creating the RIA (Sections 1 and 2 and
Article 6) and instead focus on enhancing the capacity of
existing renewable generation and transmission permitting
processes to efficiently review the projects needed in the
next several years to meet a 33 percent RPS, such as
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eliminating duplicative responsibilities, requiring better
coordination, and ensuring adequate staffing.
5)Bill's approach to redrafting existing RPS statute causes some
technical and substantive problems. Although the provisions
of this bill are largely based on existing statute, the bill
was drafted by taking chunks of the existing statute and
moving them to a new series of code sections, as if they were
new law. Among other things, this approach makes it
unnecessarily difficult to decipher how the bill changes
existing law. In some cases, the existing provisions have
been transplanted intact. In other cases, existing provisions
have been reordered or amended without the usual benefit of
indicating the changes in strikeouts and italics. The redraft
has also resulted in a number of apparently unintended
consequences, such as altering eligibility for existing
facilities and repealing provisions applicable to small,
multi-jurisdictional utilities. At a minimum, some attention
needs to be given to correcting drafting errors and unintended
consequences. However, the author and the committee may wish
to consider whether it would be more efficient to replace the
current language with a draft that amends the existing
statutes in a more straightforward manner.
REGISTERED SUPPORT / OPPOSITION :
Support
American Lung Association of California
Breathe California (if amended)
California Biomass Energy Alliance (if amended)
California Hydropower Reform Coalition
California League of Conservation Voters
Clean Power Campaign (if amended)
Coalition for Clean Air
Large-Scale Solar Association
Natural Resources Defense Council (if amended)
Physicians for Social Responsibility - SF Bay Area
Sierra Club California (if amended)
Southern California Public Power Authority (if amended)
The Solar Alliance
Union of Concerned Scientists (if amended)
Vote Solar
Opposition
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Alliance for Retail Energy Markets
California Chamber of Commerce
California Farm Bureau Federation
California Manufacturers & Technology Association
Public Utilities Commission (unless amended)
Sempra Energy (unless amended)
Solid Waste Association of North America (unless amended)
Trinity Public Utility District (unless amended)
TURN (unless amended)
Western State Petroleum Association (unless amended)
Analysis Prepared by : Lawrence Lingbloom / NAT. RES. / (916)
319-2092