BILL ANALYSIS
AB 1106
Page 1
ASSEMBLY THIRD READING
AB 1106 (Fuentes and Ruskin)
As Amended May 6, 2009
Majority vote
UTILITIES AND COMMERCE 10-4 NATURAL
RESOURCES 6-3
-----------------------------------------------------------------
|Ayes:|Fuentes, De La Torre, |Ayes:|Skinner, Brownley, |
| |Carter, Fong, Furutani, | |Chesbro, |
| |Huffman, Krekorian, | |De Leon, Hill, Huffman |
| |Skinner, Swanson, Torrico | | |
| | | | |
|-----+--------------------------+-----+--------------------------|
|Nays:|Duvall, Tom Berryhill, |Nays:|Gilmore, Knight, Logue |
| |Fuller, Smyth | | |
| | | | |
-----------------------------------------------------------------
APPROPRIATIONS 12-5
----------------------------------------------------------------
|Ayes:|De Leon, Ammiano, Charles | | |
| |Calderon, Davis, Fuentes, | | |
| |Hall, John A. Perez, | | |
| |Price, Skinner, Solorio, | | |
| |Torlakson, Krekorian | | |
| | | | |
|-----+---------------------------+---+--------------------------|
|Nays:|Nielsen, Duvall, Harkey, | | |
| |Miller | | |
| | Audra Strickland | | |
| | | | |
----------------------------------------------------------------
SUMMARY : Requires the California Public Utilities Commission
(PUC) to develop a feed-in tariff for eligible renewable electric
generation that is less than 20 megawatt (MWs) in size.
Specifically, this bill:
1)Provides that all investor owned utilities (IOUs) must purchase
all electricity produced by eligible renewable generation that
is less than 20 MWs in size and is located on property that is
owned or under the control of the customer and pay the customer
a price determined by PUC.
AB 1106
Page 2
2)Provides that rate paid for the generation is the Market Price
Referent (MPR), which represents the average cost natural gas
fired generation plus the added costs of carbon emissions from a
natural gas generator.
3)Provides that each kilowatt hour (kWh) generated from the
electric generation facility shall count toward IOUs Renewable
Portfolio Standard (RPS) obligations including generation used
to offset the customer's own usage.
EXISTING LAW :
1)Requires IOUs to offer customers with solar electricity or wind
generation a net-metered tariff where the customer can sell back
electricity produced from the solar or wind facility that
exceeds that customer's demand at that moment in time as a bill
credit against electricity that the customer receives from the
utility when their renewable facility produces less than the
customer is consuming.
2)Provides that an electricity utility must purchase all
electricity from an eligible renewable resource that is no
larger than 1.5 MWs at a rate determined by PUC. The rate is
MPR, which represents the average cost of natural gas fired
generation plus the added costs of carbon emissions from a
natural gas generator.
3)Requires electric corporations to meet a RPS where at least 20%
of their electricity production comes from renewable resources
by 2010.
FISCAL EFFECT : According to the Assembly Appropriations
Committee, PUC would incur ongoing costs of $335,000 for three
positions to develop new rules for a greatly expanded feed-in
tariff program, including a commission proceeding, and then to
implement the program. The proceeding would also require one-half
position for an administrative law judge at a one-time cost of
$50,000.
COMMENTS : According to the author, the purpose of this bill is
to ensure that renewables are properly valued for their locations'
benefits, time-of-delivery attributes, and further the goals of
RPS. The author believes that California is missing opportunities
AB 1106
Page 3
to expand the use of solar energy because "excellent sites with
space and interest in installing solar energy equipment cannot use
solar because they cannot participate in either CSI incentive
program or RPS solicitation program."
In 2006, AB 1969 (Yee), Chapter 731, Statutes of 2006, mandated
that IOUs purchase all electricity generated from renewable
facilities that are owned by water and waste water agencies that
are smaller than 1 MWs in size at specified rates set by PUC. The
AB 1969 program was expanded by PUC to allow ANY customer of an
IOU to take part of the program and to allow for renewable
generators up to 1.5 MWs in size. Programs like this, which
require an electric utility to purchase all the electricity
produced by a specified type of generator at a fixed price are
known as feed-in tariffs (FITs). These programs are really a
standard contract offered by each electric utility where the
utility is required to purchase all of the output of the
generators that want to sign the standard offer contracts.
Supporters of FITs believe they can be an effective way to promote
the development of new renewable resources by guaranteeing the
developer a set price for their generation at standard contract
terms and eliminate the need for the generators to negotiate with
the utility.
While there is general acceptance of FITs in principle, there are
two parts of FIT proposals where there is little agreement: size
and price.
While the European FIT programs applies to both utility scale
generation projects and small projects, most advocates of FITs in
California suggest that FITs should be used to help promote the
development of smaller distributed generation sized units that
cannot afford the high transaction costs of the competitive
solicitation process required under RPS.
The RPS is designed to be technology neutral and to let market
forces determine the price. RPS requires all renewable generators
to bid into a competitive solution for renewable power. The
utility then signs contracts for the offers that are the least
costly and best fit to their needs. This bidding process is
difficult for individuals that want to build smaller generation.
Smaller generators lack the expertise and up front economic
resources to participate in the complex bidding process.
AB 1106
Page 4
A FIT could allow smaller generators to produce renewable power
without having to participate in the bidding process. However,
there is little agreement on how big a generator can be and still
be considered small enough for FIT program. CEC has proposed that
the maximum size should be set at 20 MWs. This cap is based on
the fact that any generation unit larger than 20 MWs is subject to
interconnection rules set by the Federal Energy Regulatory
Commission and not PUC's interconnection rules. PUC has recently
released a proposal to cap the size of FIT at 10 MWs. PUC's
proposal states that developers building units larger than 10 MWs
have the expertise and resources to compete in RPS.
A review of all renewable contracts signed by IOUs under RPS show
that 47% of the signed contracts are for projects that are less
than 20 MWs in size, 35% of the contracts are for projects less
than 10 MWs in capacity, 18 % of the contracts are for contracts
less than five MWs in size.
The current feed-in tariff program caps the price paid to
renewable developers to MPR, which is the price used within RPS
program to measure above market costs of renewable generation.
MPR may be less than the actual cost of production of most
smaller-scale renewable technologies. In fact, even many large
RPS contracts actually exceed MPR today. Because MPR is less than
the cost of the renewable generation, the current FIT program may
not create the needed incentives to develop more renewable
generation.
A number of environmental groups and solar industry
representatives have suggested that the California FIT program
should follow the European model and set the tariff rate based on
the actually cost of production of each specific technology plus a
reasonable profit for the generator. They believe these high
prices would lead to a rapid expansion of small-scale renewable
generation.
The utilities and consumer groups oppose this cost-based approach
and believe that the rate should be set to represent the actual
benefit ratepayers receive from the renewable resources. If all
the quantifiable benefits of small scale renewable resources were
added together it is likely they would exceed MPR, but in some
cases, they still may be less than the cost of production of some
renewable technologies.
AB 1106
Page 5
AB 1106 adopts CEC's proposal and allows for FITs for eligible
renewable resources up to 20 MWs in capacity. The bill also
provides that the rate for FITs will be at MPR.
Analysis Prepared by : Edward Randolph / U. & C. / (916)
319-2083
FN: 0001131