BILL ANALYSIS
SB 32
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Date of Hearing: July 6, 2009
ASSEMBLY COMMITTEE ON UTILITIES AND COMMERCE
Felipe Fuentes, Chair
SB 32 (Negrete McLeod) - As Amended: July 1, 2009
SENATE VOTE : 34-0.
SUBJECT : Feed-in-tariffs.
SUMMARY : Expands the current feed-in-tariff (FIT) program to
allow for renewable resources that are up to 3 megawatts in size
to qualify and to allow the California Public Utilities
Commission (PUC) to increase the rate the electric utility pays
for the electricity based on specified provisions.
EXISTING LAW :
1)Requires investor owned utilities (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)Creates a FIT program that requires electric utilities to
purchase all electricity from an eligible renewable resource
that is no larger than 1.5 megawatt (MW) at a rate determined
by the PUC. The rate is the Market Price Referent (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 utilities to meet a Renewables Portfolio
Standard (RPS) where at least 20% of their electricity
production comes from renewable resources by 2010.
THIS BILL :
1)Expands the current FIT program by requiring IOUs to purchase
all electricity produced by eligible renewable generation that
is less than 3 MW in size and is located within the service
territory of that IOU.
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2)Provides that the price paid by the IOU for electricity
purchased under this program shall be a price determined by
PUC that reflects the cost of fossil fuel generation in the
state; and grants the PUC the authority to adjust the price to
reflect:
a. The value of electricity generated on a
time-of-delivery basis.
b. The value of other environmental attributes of the
renewable generation.
c. The value of an electric generation facility located
on a distribution circuit that generates electricity at a
time and in a manner to offset the peak demand on that
distribution circuit.
3)Requires the PUC, in consultation with the California Energy
Commission (CEC), to establish the cost of generation values
and costs for each technology that is an eligible renewable
resource.
4)Provides that the price paid by IOUs for electricity from an
eligible facility shall be set so that ratepayers that do not
receive the payments under this program are indifferent to the
tariff rate paid to the generators.
5)Requires an IOU to provide expedited interconnection
procedures to eligible generation facilities that are located
on a distribution circuit that generates electricity at a time
and in a manner so as to offset peak demand on the
distribution circuit.
6)Provides that no electric utility is required to offer
additional FITs once the cumulative state wide capacity served
under the FIT program exceeds 500 MW or until each IOU has
reached the caps on above market cost under the California
RPS.
7)Provides that each kWh purchased from the electric generation
facility shall count toward the IOUs RPS obligations.
8)Authorizes the PUC to reduce the maximize size of eligible
resources in this program if the PUC finds that the reduction
is necessary to maintain system reliability.
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9)Provides that a customer who receives a ratepayer-funded
incentive for the renewable generation facility prior to
January 1, 2010, shall be eligible to participate in the FIT
program.
10)Requires all publicly owned electric utilities (POUs) that
serve more than 75,000 customers to create a program to
purchase all electricity produced by eligible renewable
generation that is less than 3 MW.
11)Provides that the PUC cannot create or expand a FIT program
beyond the program authorized in statute.
12)Makes legislative findings.
FISCAL EFFECT : Unknown.
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
furtherance of the goals of the RPS. The author believes that
California is missing opportunities 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 the California Solar Initiative
incentive program or the RPS solicitation program."
1) Background : A FIT is an obligation that utilities purchase
all the electrical output from specified generators under a
standard contract with the price and terms determined by statute
or a regulatory agency. Renewable FITs can help promote the
development of renewable generation by reducing transaction
costs and financing costs for renewable developers since the
terms of the agreement are known ahead of time and will not
change over the life the project. FITs can also act as a
subsidy to help promote more expensive renewable technologies if
the price paid to the generator is set at a rate that is higher
than what the utility would pay for other generation.
In 2006, AB 1969 (Yee), Chapter 731, Statutes of 2006, create a
FIT by mandating that the IOUs purchase all electricity
generated from renewable facilities that are owned by water and
waste water agencies that are smaller than 1 MW in size at
specified rates set by the PUC. When the PUC adopted the final
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rules necessary to implement AB 1969, it expanded the
eligibility of the AB 1969 program to allow ANY customer to take
part of the FIT and to allow for renewable generators up to 1.5
MWs in size. This program has been referred to as "the AB 1969
program."
The rate paid under the AB 1969 program is the market price
referent MPR. The MPR represents a calculation performed by the
PUC on an annual basis to determine the market cost of power
from natural gas facilities. The calculation is used to
determine the above market cost of contracts signed under the
RPS.
2) What is new : This bill modifies the AB 1969 program by:
a) Increasing the size of eligible generation from 1.5 MW
to 3.0 MWs.
b) Allowing the PUC to set a higher price for the
electricity the utility must purchase. The higher price
could be based on a number of additional "benefits" created
by the renewable generation.
c) Capping the total program size so that utilities are no
longer required to purchase electricity under the FITs once
there are 500 MW of statewide capacity from FITs.
d) Clarifying that electric utilities may count their FIT
purchases toward their RPS obligations.
e) Requiring POUs that have more than 75,000 customers to
offer FITs under similar terms as the IOU program.
3) The new price : Under the current AB 1969 pricing mechanism,
a renewable generator that went online in 2009 would receive at
least $0.093 per kWh of electricity produced. However, this
price is increased to $0.189 per kWh for electricity produced
during peak periods of the day in the summer and to $0.096 per
kWh during peak times of day in the winter months. Since solar
energy produces almost all of its electricity at peaks times,
the PUC estimates that under the current AB 1969 program, a
solar generator's payment will average $0.11/kWh.
The supporters of this bill believe the current pricing
mechanism does not adequately reimburse a renewable generator
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for all of the benefits they provide. Since the current price
is based on the average price of natural gas generation, it may
not take into account the benefits created by reduced grid
transmission costs, reduced emissions, and promotion of new
technologies.
Additionally, the current price under the AB 1969 program is
likely set at a level that is below the cost of installing solar
generation. This is evident by the fact that to date only 13
projects have requested to participate in the AB 1969 program
(none of them were solar projects). Additionally, the PUC
recently approved a small scale solar program where Southern
California Edison (SCE) will either own the solar panels
themselves or sign separate contracts for other solar generators
to sell 100% of the output to SCE where SCE will pay $0.24 per
kWh.
This bill attempts to address the issues of accurately pricing
generation under the AB 1969 program without creating a new
subsidy by giving the PUC the authority to mandate a higher
price for electricity purchased under the AB 1969 FIT, while
capping the total price based on the prices the utilities pay
for renewable energy under the RPS. Since the RPS requires
utilities to competitively bid renewable projects, capping the
prices under the FIT based on the RPS could help ensure the
price of FITs reflect the true value and costs of renewable
energy.
The bill also contains language that requires that the PUC set
the price paid under the FIT so that all other ratepayers would
be indifferent to the FIT rate. Under the context of the FIT, it
is not clear what this language requires the PUC to do. In other
situations where "rate payer indifference" language is applied
the result is that the IOU would pay a generator a price close
the average cost of generation based on all generation resources
(natural gas, nuclear, hydroelectric, renewable) this is a rate
that is lower than MPR and the price paid under the current FIT
program. This language may have been intended to prevent the
FIT prices from turning into an unjustified subsidy. If the
goal of the author is to increase participation in a FIT by
ensuring that the price better reflects the costs and benefits
of renewable generation the committee and the author may wish to
consider amending the bill to remove this "rate payer
indifference language."
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4) Size of the generation : The over arching renewable energy
policy in California is contained within the state's RPS which
requires all utilities to procure at least 20% of their
electricity from renewable resources by 2010. The RPS is
designed to be technology neutral and let market forces
determine the price. Instead of statutorily setting prices the
utilities must pay for renewable power, the 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. By creating a standard price, a FIT would
allow these parties to participate in the RPS without having to
participate in the bidding process. While this bill does allow
some parties that cannot effectively participate in the RPS to
sell renewable power to the IOUs, the current size caps are set
at a level that excludes some potential generation.
A review of all renewable contracts signed by the IOUs show over
60% of the signed contracts are for projects that are less than
20 MW in size. Many of these contracts are as small as 5 MW.
There are very few contracts for less than 3 MW in size and most
of these smaller contracts are for biomass and small hydro
facilities. It is likely that this 3 MW threshold is the point
where the cost of participation in the RPS becomes difficult for
entities that want to install renewable generation. The bill
sets the per unit size cap for this program at 1.5 MW. That cap
was set at that level because when units are large (1 MW or 1.5
MWs) they need to meet more rigid performance standards to
ensure that the unit does not impact grid reliability.
5) Pick and choose what's best for you, but maybe not the state :
This bill allows customers that have already received ratepayers
subsidies prior to January 1, 2010, under the California Solar
Initiative to reduce the cost of installing solar energy system
to switch over to the new FIT. This provision allows customers
that received a special subsidy for installing solar generation
to meet their own demand to instead choose to become a wholesale
generator and sell all of their output to the utility without
refunding the subsidies. This could result in ratepayers
doubling paying for renewable power, once through the subsidy
and once through the FIT. The provision does not help bring
more renewable power online since this only applies to utility
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customers that have already installed solar panels. To avoid
requiring ratepayers to double pay for renewable power, the
committee and the author may wish to consider removing the
provision allowing customers that have already received
subsidies under a self generation incentive program to
participate in the FIT or to require those customers to repay
the incentives funds they received under the other program prior
to participating in the FIT program.
6) Publicly Owned Utilities : This bill also requires all POUs
with more than 75,000 customers to adopt a FIT program that is
identical to the one the IOUs are required to offer. Currently,
all POU's offer net metering for solar energy.
7) Future limits on the PUC's Authority : The bill prohibits the
PUC from creating any additional must-buy renewable FIT
programs. The PUC currently has an open proceeding where they
are soliciting comments on creating a new FIT program for
generation units sized up to 10 MW and at a price that is set
higher than the current price under the AB 1969 program.
The PUC believes they currently have authority to create a FIT
program that is not authorized by statute based on their broad
authority to regulate utility procurement practice. However,
the PUC may not possess the authority to create a FIT program
that goes beyond the AB 1969 program is already limited. The
California Supreme Court has ruled that despite the PUC's broad
regulatory authority, once the Legislature has made express
decision to create a program, the PUC does not have authority to
create a different program.<1>
Both the PUC and the CEC are in the process of developing
recommendations for new FIT programs. The CEC is looking at FITs
as part of its bi-annual Integrated Policy Report. The PUC has
an open proceeding to require IOUs to offer FITs. Due to the
thorough detail of a draft FIT decision issued by the PUC in
March 2009, and the number of parties that have filed thoughtful
comments to that proposal, the PUC process could provide
valuable information to the Legislature on whether it should
amend or expand the existing FIT programs. Given the PUC's
efforts to date, the committee and the author may wish to
consider amending the bill to authorize the PUC to conduct a
proceeding on FITs and report to the Legislature on how to best
---------------------------
<1> See Southern Cal. Gas Co. v. Public Utilities Commission,
(1985) 38 Cal.3d 64, 67)
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design a FIT that encourages the development of distributed
generation renewable power while protecting ratepayers.
8) What is the program cap : The author's office states that it
is her intent that the obligation of an electricity utility to
offer FITs shall be capped. Each POU and IOU shall not be
obligated to offer more FITs once the individual POU has
provided its proportional share of a 750 MW statewide cap.
However the language in the bill does not clearly reflect this
intent. To address this intent, the author and the committee
may wish to make the following amendments :
a) On page 7, strike lines 16 through 28, and insert:
"(e) A local publicly owned electric utility that sells
electricity at retail to 75,000 or more customers shall
make the tariff available to the owner or operator of an
electric generation facility within the service territory
of the utility, upon request, on a first-come-first-serve
basis, until the utility meets is proportionate share of a
statewide cap of 750 megawatts cumulative rate generation
capacity served by electric generation facility receiving
the tariff under this section and section 399.20. The
proportionate share shall be calculated based on a ratio of
the utility's peak demand compared to the total statewide
peak demand.
(f) The local publicly owned electric utility may make
the terms of the tariff available to owners and operators
of an electrical generation facility in the form of a
standard contract subject to commission approval.
b) On page 9, strike lines 39 and 40, on page 10 strike
lines 1 through 13 and insert:
"(f) Every electrical corporation shall make the tariff
available to the owner or operator
of an electric generation facility within the service
territory of the electrical corporation, upon request, on a
first-come-first-serve basis, until one of the following
conditions is met:
(1) The electrical corporation meets is proportionate
share of a statewide cap of 750 megawatts cumulative rate
generation capacity served by electric generation facility
receiving the tariff under this section and section 399.20.
The proportionate share shall be calculated based on a
ratio of the electrical corporation's peak demand compared
to the total statewide peak demand.
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(2) The electrical corporation has reached or exceeds its
above-market cost limitation established pursuant to
subdivision (d) of Section 399.15.
(g) The electrical corporation may make the terms of the
tariff available to owners and operators of an electrical
generation facility in the form of a standard contract
subject to commission approval."
9) Technical amendments :
a) On page 9, line 36, after "distribution" insert
"circuit"
b) On page 11, line 6, replace "may" with "shall"
REGISTERED SUPPORT / OPPOSITION :
Support
Agricultural Energy Consumers Association (AECA)
California Solar Energy Industries Association (CalSEIA)
(Sponsor)
Inland Empire Utilities Agency (IEUA)
Pacific Gas and Electric Company (PG&E) (if amended)
Sempra Energy (if amended)
Opposition
California Coalition of Utility Employees (CUE) (unless amended)
Southern California Public Power Authority (SCPPA)
Analysis Prepared by : Edward Randolph / U. & C. / (916)
319-2083