BILL ANALYSIS
AB 64
Page 1
CONCURRENCE IN SENATE AMENDMENTS
AB 64 (Krekorian)
As Amended September 11, 2009
Majority vote.
-----------------------------------------------------------------
|ASSEMBLY: |44-31|(June 3, 2009) |SENATE: | |(September 11, |
| | | | | |2009) |
-----------------------------------------------------------------
(vote not available)
Original Committee Reference: U. & C.
SUMMARY : Implements generation and transmission siting
reforms and procurement reforms to help speed the deployment of
renewable resources in California necessary to meet a new goal
of having 33% of California electricity load served by renewable
resources. Specifically, this bill:
1)Requires PUC to approve an application to build new
transmission lines that are reasonably necessary to develop
renewable resources within 18 months of the filing of a
completed application, if the new transmission line does not
threaten substantial harm to the environment that necessitates
a longer time for review under the California Environmental
Quality Act (CEQA).
2)Clarifies that an IOU shall be allowed to recover in rates the
costs of constructing transmission lines that will primarily
deliver electricity generated renewable electricity and are
located in existing transmission rights-of-way or in CEC
designated transmission corridor zones.
3)Requires the Department of Fish and Game (DFG) to establish an
internal division for the purpose of performing planning and
streamlined environmental compliance services with a priority
given to the building of eligible renewable energy resources.
4)Provides that the California Independent System Operator
(CAISO), Sacramento Municipal Utilities District (SMUD) and
the Los Angeles Department of Water and Power (LADWP) shall
work cooperatively to integrate and interconnect eligible
renewable resources to the transmission grid by the most
efficient means possible to minimize the impact of and need
for additional transmission lines.
AB 64
Page 2
5)Requires PUC to set minimum levels of renewable procurement
all retail sellers must achieve beyond the specified targets
to account for the risk that some planned resources will not
being developed. The minimum level could be set at zero.
6)Requires renewable procurement plans prepared by IOUs and
approved by PUC to include a process to consider the viability
of proposed projects when ranking project bids.
7)Provides that AB 64 shall not become effective unless SB 14
(Simitian) is also enacted prior to January 1, 2010.
EXISTING LAW :
1)Requires IOUs and certain other retail sellers to achieve a
20% RPS by 2010 and establishes a process and standards for
renewable procurement.
2)Provides that POUs are not subject to the same detailed
procurement process and standards as IOUs, but are required to
implement and enforce their own RPS programs.
3)Defines eligible renewable technologies to include biomass,
solar thermal, photovoltaic, wind, geothermal, renewable fuel
cells, small hydroelectric (30 MW or less), digester gas,
municipal solid waste conversion, landfill gas, ocean wave,
ocean thermal, and tidal current.
4)Provides that eligible renewable resources that are located
outside of California may count toward the California RPS if
the generator commences operation after January 1, 2005, and
the facility is directly connected to California's
transmission grid or the associated electricity is delivered
to California.
5)Creates a cap on above-market costs of renewable electricity
each IOU is required to spend under RPS. If the cost cap is
reached, IOUs are not required to sign any renewable contract
that exceeds the market cost of electricity.
6)Requires PUC to develop flexible rules for compliance for RPS
AB 64
Page 3
that allows a retail seller that cannot not meet its annual
targets to delay compliance for up to three years and avoid
penalties under certain conditions.
7)Requires the California Energy Commission (CEC) to certify
electric generation facilities for the construction and
operation of thermal powerplants of 50 MW and larger.
8)Precludes an electrical corporation from constructing a line,
plant, or system without having first obtained a permit from
PUC that the present or future public convenience and
necessity require or will require such construction, a
certificate of public convenience and necessity (CPCN).
FISCAL EFFECT :
1)CEC : CEC will require $650,000 annually for two positions and
contract funds to expedite the siting of renewable energy
generation and transmission. [Energy Resources Programs
Account]
CEC would also incur annual costs of $600,000 for three
positions and contract funds to enforce RPS requirements for
POUs. [Energy Resources Programs Account]
2)PUC : PUC states that meeting the 33% by 2020 goal "will
require an infrastructure build-out on a scale and timeline
perhaps unparalleled anywhere in the world." In addition to
the seven staff current assigned to RPS program, the
commission would incur ongoing special fund costs [Public
Utilities Reimbursement Account] of $1.7 million for 14
additional positions as follows:
a) Five additional regulatory analyst positions to design
and implement the new RPS policies, manage the renewable
energy procurement process, coordinate procurement and
transmission planning, and calculate program costs for
purposes of applying the cost cap;
b) An administrative law judge and an attorney to evaluate
utilities' requests for flexible compliance with the
increased targets; and,
c) Seven additional positions, supplementing five existing
staff, associated with permitting an anticipated four to
AB 64
Page 4
six major new transmission projects and within an 18-month
deadline following application.
COMMENTS : AB 64 is double-jointed to SB 14 (Simitian) such that
for either bill to become effective they both must be approved
by the Legislature and approved by the Governor. The two bills
taken together create California's new RPS. SB 14:
1)Requires retail sellers of electricity to procure at least 20%
of electricity delivered to retail customers from renewable
sources by 2013, 25% by 2016, and 33% by 2020.
2)Modifies the definition of eligible renewable resources under
RPS as follows:
a) Requires renewable generators to deliver electrical
output into California by either directly interconnecting
with transmission lines controlled by a California
transmission grid operator or showing that the metered
output of a facility that is not directly connected to a
California controlled transmission grid matches hourly
import schedules to a California transmission grid
operator; and,
b) The renewable facility must commence initial operation
after January 1, 2010, or the electricity from the facility
that commenced operation prior to January 1, 2010, was sold
to a retail seller prior to May 31, 2009.
3)Eliminates current rules that allow retail sellers to postpone
compliance with annual RPS targets for up to three years in
the future. Replaces those rules with provisions that allow
the PUC to grant a retail seller the ability to delay
compliance for up to two years if PUC makes specific findings
that there is insufficient transmission to meet RPS or there
were unforeseen delays in permitting or interconnecting
projects. The findings must consider whether the retail
seller made all reasonable efforts to construct new
transmission and made prudent decisions in procuring
resources. The retail seller must also show that it has made
all reasonable efforts to procure distributed generation
resources and to procure Renewable Energy Credits (RECs).
4)Creates a cap on the potential overall cost of the RPS by:
AB 64
Page 5
a) Requiring PUC to set a Market Price Referent (MPR) to be
used to determine above-market costs of renewable
electricity. MPR shall be set based on the value of
different generation products within a utility's portfolio
and the value of current and anticipated environmental
compliance costs; and,
b) Providing that an Investor Owned Utility (IOU) does not
have to procure additional renewable resources if the total
above-market cost of all renewable electricity procured
under RPS program or bilateral contracts exceeds 6% of
IOUs' total bundled electricity sales.
5)Creates a mechanism to allow PUC to approve an IOU application
to own its own renewable generation and then recover in rates
the cost of that generation plus a reasonable rate of return,
if PUC finds the renewable generating facility has a
reasonable cost and provides a comparable value to ratepayers
as compared to other solicitations for eligible renewable
resource.
6)Allows retail sellers and POUs to use RECs from resources that
do not deliver electricity into California (undelivered RECs)
toward their RPS obligations, but caps the total amount of
undelivered RECs at 25% of the retail seller's or POU's
renewable procurement targets. Provides that if an IOU or POU
builds additional utility owned generation, they can increase
the allowance of undelivered RECs to up to 30%.
7)Provides that retail sellers and POUs can count all
undelivered RECs from contracts executed by the retail seller
or POU prior to September 18, 2009, even if the total amount
of RECs exceeds the limits in 6) above. However, if they
exceed the limits above, the retail sellers and POUs could not
count additional undelivered RECs toward their RPS
obligations.
8)Requires POUs to comply with the same RPS mandates as retail
sellers and to meet specified public notice and reporting
requirements.
Background : In 2002, the Legislature approved SB 1078 (Sher),
Chapter 516, Statutes of 2002, which created RPS. Under RPS,
IOUs and competitive energy service providers (ESPs) of
AB 64
Page 6
electricity were required to increase their renewable
procurement each year by at least 1% of total sales, so that 20%
of their sales are from renewable energy sources by December 31,
2017. This goal was accelerated to 20% renewable power by 2010
by SB 107 (Simitian), Chapter 464, Statutes of 2006.
PUC reports that for 2007, IOUs have achieved varying levels of
progress toward the 20% goal: PG&E = 11.4%; SCE =15.7%; SDG&E =
5.2%. While each IOU added renewable resources in 2007, the
percentage of renewables compared to the rest of the portfolio
declined from 2006 due to total load growth. All agencies and
stakeholders agree that IOUs will not meet the 2010 deadline.
However, PUC reported in October 2008 that IOUs should be in
compliance in or around 2013.
In a recent report providing preliminary results on the
feasibility and costs of achieving a 33% RPS by 2020, PUC
concluded that such a goal "is highly ambitious, given the
magnitude of the infrastructure buildout required." Under PUC's
analysis, the incremental cost of moving from the current to a
33% RPS would result in a 7.1% increase in utility costs. This
increase included the costs associated with more expensive
generation resources, new transmission, and other resources that
will be needed to provide back up generation when renewable
electricity is not available. The estimate assumes the
utilities will continue the same balance of renewable
technologies, which includes a large reliance on wind and solar
energy, and that the direct costs of building new renewable
facilities remains unchanged over time, and thus does not
account for potential technology-related decreases in costs over
time.
Cost cap : SB 14 provides that IOUs will not be required to
procure renewable resources that are above the market price of
all electricity (MPR) if the total above market cost of all
renewable procurement the IOU executed 6% of the IOUs total
revenue requirement for the ten year period leading to 2020.
This cost cap allows the Legislature to determine how much
impact renewable electricity should have on a retail sellers'
overall cost structure and then set the cost cap at that level
by basing it on a percentage of overall revenue. According to
numbers provided by PUC, the new cost cap should allow for close
to $17 billion allowable above market costs for PG&E, SCE, and
SCE combined. This is a roughly 20 times the amount set aside
for above-market costs under current law, depending on the
AB 64
Page 7
accounting method.
The language in the bill gives PUC some flexibility to determine
how to calculate the cost of individual contracts that expire
after 20%. The contracts could be calculated against the cost
cap on a pro-rata basis such that only the cost of the contract
associated with the years prior to 2020 would count against the
cap.
Location, deliverability, and renewable energy credits : To
count toward a retail seller's RPS obligation, the renewable
facility must meet several requirements including that the
facility deliver its electricity to California. A resource can
"deliver" to California if it is either directly interconnected
to a California control area or is scheduled into California
within the same hour it is produced and from the same location
at which it is produced. These definitions ensure that all
electricity that is counted toward RPS is actually used to
offset the need for non-renewable generation within California.
This definition could make it difficult to apply electricity
from a solar or wind facility that is located out-of-state to
RPS, since many of these resources cannot be scheduled into
California at the same time it produced by the resource. Some
of these resources do not schedule their actual output into
California and instead use resources from non-renewable
facilities to "match" the output. Even with this inability for
some resources located outside of California to meet the
delivery requirements there are approximately 22,000 MWs worth
of proposed projects today that are located outside of
California that will be able to meet the definition of delivery.
SB 14 also allows a retail seller or POU to procure RECs to meet
a portion of their RPS obligation. The bill caps the total
amount of these RECs at 25% of the total RPS obligation and
allows utilities to meet up to 30% if the utilities invest in
more utility owned generation.
A REC represents the renewable attributes of renewable
generation. A REC can remain bundled with the associated
energy. In that case, the utility buys the renewable
electricity and uses the RECs to meet its RPS obligation and
uses the associated electricity to meet its own load. RECs can
also be traded separate from the underlying electricity
AB 64
Page 8
(tradable RECs or tRECs). In this case, one retail seller
purchases the tREC and applies it toward its RPS obligation and
another retail seller purchases the associated electricity to
meet its own load. The second retail seller cannot count that
electricity toward its own RPS obligations.
Some retail sellers and some renewable generators have advocated
for broader use of RECs. They believe that RPS should not limit
the use of RECs or put restriction on the geographic location or
deliverability of the associated renewable resource. They
believe this broad REC market would give retail sellers more
procurement options and could reduce the cost of complying with
RPS.
A number of environmental groups, the Coalition of Utilities
Employees, and California Wind Energy Association have all
advocated for a very limited allowance for out-of-state RECs.
They fear that a wide-open REC market will lead to "paper
compliance with RPS" and will not result in the construction of
any renewable generation within California.
Enforcement and off Ramps : SB 14 provides that PUC may grant a
retail seller that cannot meet its RPS targets an additional two
years to meet compliance targets if PUC finds that there is
inadequate transmission capacity to meet RPS or there were
unanticipated permitting delays for planned eligible renewable
electricity projects. The retail seller must also show that it
made reasonable efforts to procure cost effective distribute
generation resources and to procure RECs.
Publicly Owned Utilities : Current law does not require POUs to
meet the same RPS that other electricity providers are required
to meet. Rather, current law directs each POU to put in place
and enforce its own RPS and allows each publicly owned utility
to define the electricity sources that it counts as renewable.
No state agency enforces POU compliance or places penalties on a
publicly owned utility that fails to meet the renewable energy
goals it has set for itself.
SB 14 requires most POUs to meet the 33% RPS by 2020
requirement. The bill requires each POU to meet the same RPS
procurement targets as other retail sellers. The bill allows
POUs to comply with the same provisions allowing for up to 30%
undelivered RECs to meet their RPS compliance. While the bill
allows PUC to adopt rules for REC purchases for retail sellers,
AB 64
Page 9
POUs should be able to comply with the statutory restrictions on
REC purchases without PUC involvement.
Most of POUs do not object to creating a specific POU RPS
mandate. However, while the largest POU in the state, the Los
Angeles Department of Water and Power, supports this bill, most
other POU oppose the bill due in large part to their concern
that the bill's delivery requirements makes it difficult to
procure some resources that had hope to use for RPS compliance.
Analysis Prepared by : Edward Randolph / U. & C. / (916)
319-2083
FN: 0003195