BILL ANALYSIS 1
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SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE
ALEX PADILLA, CHAIR
AB 1954 - Skinner Hearing Date: June
29, 2010 A
As Amended: June 27, 2010 FISCAL B
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DESCRIPTION
Current law requires investor-owned utilities (IOUs) and energy
service providers (ESPs) to increase existing purchases of
renewable energy by 1% of sales per year such that 20% of retail
sales, as measured by usage, are procured from eligible
renewable resources by December 31, 2010. This is known as the
Renewables Portfolio Standard (RPS).
Current law exempts publicly owned utilities (POUs) from the
state RPS program and instead requires these utilities to
implement and enforce their own renewable energy purchase
programs that recognize the intent of the Legislature to
encourage increasing use of renewable resources.
Current law defines as RPS eligible, electric generation
resources from biomass, solar thermal, photovoltaic, wind,
geothermal, fuel cells using renewable fuels, small
hydroelectric generation of 30 megawatts or less, digester gas,
landfill gas, ocean wave, ocean thermal, tidal current, and
municipal solid waste conversion that uses a noncombustion
thermal process to convert solid waste to a clean-burning fuel.
Current law requires the California Energy Commission (CEC) to
certify eligible renewable energy resources that may be used by
retail sellers of electricity to satisfy RPS procurement
requirements and limits the electricity generated by an eligible
renewable energy resource attributable to the use of fossil
fuels, to a de minimus quantity, as determined by the CEC.
This bill defines "de minimus" quantity to be 2% of the total
fuel used by the renewable resource but allows the CEC to adjust
the quantity up to 5% if the higher use of fossil fuel will lead
to a meaningful increase in renewable generation and reduce the
intermittency of the renewable generation.
Current law permits the CPUC to guarantee rate recovery for any
increase in transmission costs as a result of transmission for
renewables if those costs are not approved by the Federal Energy
Regulatory Commission (FERC).
This bill modifies the standard and process used by the CPUC to
guarantee cost recovery for transmission projects that
facilitate renewable development.
BACKGROUND
Renewable Facilities Using Multiple Fuels - The CEC is
responsible for certifying all eligible renewable resources and
tracking the procurement of such resources to ensure compliance
with the RPS. In general, a facility is eligible if it uses an
eligible renewable resource or fuel, satisfies resource-specific
criteria, and is either located within the state, or satisfies
applicable requirements for out-of-state facilities.
The CEC can allow RPS-eligibility for renewable facilities that
use fossil fuels to generate electricity if the annual fossil
fuel use at the facility does not exceed a de minimus amount
which the CEC has defined as 2% of all fuels used, and measured
on an annual total energy input basis. For example a solar
thermal facility might use a natural gas turbine to maintain
fluids at a higher temperature when the sun isn't shining to
reduce the time to ramp-up the solar thermal facility when the
sun is shining because less sun time would be required to heat
the fluids that run the turbines. As long as the natural gas
turbine does not comprise more than 2% of the electricity
production at the facility, electricity produced by the gas
turbine and the renewable resource would both be considered RPS
eligible delivered electricity.
Transmission Cost Recovery - The FERC generally sets and
approves rates for transmission and recovery by transmission
developers. Traditionally generation developers fund the costs
of transmission to sell their energy to the market as part of
their development and construction costs. Once a generation
project comes on line those costs are recouped in the form of
rates and the generation/transmission developer is paid back
over time. This historic process has created problems in
financing transmission lines that are primarily needed for new
renewable generation development. A number of factors make it
difficult for the generation developer to provide the upfront
financing for the transmission lines. Instead the electric
utility in some instances will pay the upfront costs, but the
utility does not want to be responsible for those costs, which
require FERC approval for recovery, if the generation never
comes on line.
The Legislature addressed this issue by allowing backstop cost
recovery to resolve the "chicken and egg" problem presented by
renewable transmission projects by allowing the CPUC to
guarantee that a utility that constructs a renewable
transmission project can obtain recovery in retail rates where
FERC does not permit wholesale rate recovery.
COMMENTS
1) RPS Booster . In essence current law allows the use of
fossil fuels to boost the output of electricity from a
renewable generator and to count that generation as
renewable. The resulting generation that mixes fossil
fuels with a renewable fuel source sounds antithetical on
its face. However the justification has been that, in
total, the kilowatt hours produced with the boost of fossil
fuel is a more efficient use of the renewable generator.
The current legal standard for determining the amount of
fossil fuel is "de minimus use" which has been defined as
2% by the CEC.
This bill codifies the 2% definition for de minimus and
also allows an amount up to 5% if volume of fossil fuel
used will lead to a meaningful increase in renewable
generation and reduce the intermittency of the renewable
generation. The use of meaningful may be too subjective;
the author has agreed to change this to "substantial."
2) Backstop Cost Recovery - The CPUC has adopted policies
to permit backstop cost recovery for renewable transmission
as called for under current law and from what the committee
can find has not denied backstop cost recovery for a
renewable transmission line. However, the sponsors opine
that the law and CPUC policy is lacking because it does not
clearly allow for recovery of preconstruction costs such as
those for general planning. This bill addresses that issue
by specifically including recovery for costs incurred prior
to permitting or certification of the line by the CPUC.
The CPUC has implemented backstop recovery. They report
that the rules establish criteria for eligibility for
backstop cost recovery; for a finding of need under the
RPS; the process for applying for eligibility by advice
letter or application; and the process for tracking and
recovering eligible costs. The commission supports the
intent of the changes proposed in this bill which are to
create financial certainty that IOUs will recover the costs
of building new transmission lines needed to meet the RPS.
However, they are concerned that the provisions of this
bill could be interpreted as allowing recovery for
renewable as well as non-renewable lines. Consequently,
the CPUC has proposed amendments which the author has
agreed to accept that clarify the bill and ensure that the
bill supplements current CPUC policies rather than
supplants those policies requiring a whole new proceeding.
3) Ratepayer Impact . Traditionally all costs of
development of new generation including the transmission
facilities needed to interconnect a generator to the grid
have been covered by the developer. In this way all risks
of development are placed on the developer and the
ratepayers are insulated from project failure since they do
not pay any costs of transmission or generation until the
facility comes on line and is productive. Under current
law ratepayers can be at risk for stranded transmission
costs if the project fails. Under this bill that risk will
be increased since additional lines and costs would be
eligible for backstop cost recovery.
4) Contingent Enactment . In addition to increasing the RPS
goal to 33% by 2020, substantive changes have been proposed
for the RPS program through SB 722 (Simitian) which also
addresses the issue of backstop cost recovery. To ensure
that the bills move on a parallel and consistent track, the
author and committee may wish to consider making this bill
contingent on enactment of SB 722.
5) Related Legislation . The following bills have been
introduced in 2010 which affect the RPS program:
SB 722 (Simitian) increases the RPS mandate to 33%
by 2020 and makes other program changes including
modifications to backstop cost recovery for transmission
as provided for in AB 1954. Status: Set for hearing in
Assembly Utilities & Commerce Committee June 24, 2010.
SB 1247 (Dutton) modifies the criteria required for
RPS eligibility for incremental efficiencies in
hydroelectric facilities. Status: Senate Appropriations
Committee.
SB 1367 (Wyland) extends the RPS compliance timeline
to 20% by 2020. Status: Referred to but held in the
Senate Committee on Energy, Utilities & Communications.
AB 2378 (Tran) expands the definition of eligible
renewable resources to include any combination of the
currently eligible renewable resource technologies.
Status: Senate Floor.
AB 2514 (Skinner) requires the adoption of energy
storage procurement targets. Status: Referred to Senate
Committee on Energy, Utilities & Communications; set for
hearing June 29, 2010.
ASSEMBLY VOTES
Assembly Utilities & Commerce 14-0
Assembly Natural Resources 9-0
Assembly Appropriations 17-0
Assembly Floor 76-0
POSITIONS
Sponsor:
BrightSource Energy
Large Scale Solar Association
Support:
Clean Power Campaign
Union of Concerned Scientists (if amended)
Oppose:
California Public Utilities Commission (unless amended)
Kellie Smith
AB 1954 Analysis
Hearing Date: June 29, 2010