BILL ANALYSIS
SB 722
Page 1
Date of Hearing: June 24, 2010
ASSEMBLY COMMITTEE ON UTILITIES AND COMMERCE
Steven Bradford, Chair
SB 722 (Simitian) - As Amended: June 22, 2010
SENATE VOTE : (vote not relevant)
SUBJECT : Utilities: renewable energy resources.
SUMMARY : Increases California's renewables portfolio standard
(RPS) to require all retail sellers of electricity and all
publicly owned utilities (POUs) to procure at least 33% of
electricity delivered to their retail customers from renewable
resources by 2020. Specifically, this bill:
1)Requires the Department of Fish and Game to establish an
internal division with the primary purpose of performing
comprehensive planning and environmental compliance services
with priority given to projects involving the building of
eligible renewable energy resources and requires the internal
division to ensure the timely completion of plans pursuant to
the Natural Community Conservation Planning Act.
2)States legislative intent to increase the amount of
electricity generated from eligible renewable energy resources
per year, to that it equals at least 33 percent of total
retail sales of electricity in California by December 31,
2020.
3)States a program to increase the quantity of California's
electricity generated by renewable electrical generation
facilities located in this state.
4)Permits any existing landfill gas facility approved by a POU
prior to September 16, 2009, as a renewable electric
generation facility to continue to qualify as an eligible
renewable electric generation facility.
5)Permits a facility that is outside the United States, if it is
developed and operated in a manner that is as protective of
the environment as a similar facility located in the state, to
qualify as an eligible renewable electric generation facility.
6)Lessens the determination of need for transmission facilities
and requires the California Public Utilities Commission (PUC)
to make findings that new transmission facilities are
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reasonably necessary or appropriate to facilitate achievement
of the RPS, requires the PUC to provide assurance that costs
that are subject to Federal Energy Regulatory Commission
(FERC) jurisdiction are eligible for recovery in retail rates,
and requires the PUC to approve an advice letter seeking
assurance of cost recovery if the transmission facilities meet
specified criteria, or if not less than 50% of the planned use
for the capacity of the new transmission line is for
interconnecting eligible renewable energy resources.
7)Makes a legislative finding that delivering genuine renewable
electricity to California end-use customers is necessary to
improve California's air quality and public health, and
California end-use customers may be paying higher rates to
achieve the RPS procurement requirements, and that the
delivered electricity may be generated anywhere in the
interconnected grid that includes many states, and areas of
both Canada and Mexico.
8)Defines a balancing authority and California balancing
authority that includes the California Independent System
Operator (CAISO), and a local POU operating a transmission
grid that is not under the control of the CAISO.
9)Requires the PUC to direct each electrical corporation to
annually prepare a five-year renewable energy procurement plan
as part of a general procurement plan process, and an annual
compliance report for prior-year procurement.
10)Permits an investor-owned utility (IOU) to apply to the PUC
for approval to construct, own, and operate an eligible
renewable energy resource.
11)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.
12)Permits the PUC to delay compliance with a RPS requirement if
it makes specific findings that there is insufficient
transmission to meet the 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).
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13)Permits the PUC to establish a limitation for each IOU on its
expenditures to procure eligible renewable energy resources
used to comply with the RPS, and prescribes the elements on
which the PUC shall rely.
14)Requires the PUC to authorize the use of renewable energy
credits (RECs) to satisfy the RPS requirements and retires the
REC after 18 months from the initial date of generation of the
associated electricity or when the retail seller irrevocably
retires the REC.
15)Permits various electricity products from eligible renewable
energy resources located within the Western Electricity
Coordinating Council (WECC) to count toward specific RPS
targets and states a general principle that the resources
provide benefits to this state, consistent with least-cost
best-fit and project viability principles. The products and
amounts include:
a. Not less than 75% from either a new product with
contract executed after June 1, 2010, with a first point
of interconnection with a California balancing authority
or is scheduled from the eligible renewable energy
resource on an hourly or within-the-hour basis into a
California balancing authority without substituting
electricity from another source; or from a product that
has an agreement with a California balancing authority
that allows the balancing authority to dynamically
transfer the electricity product; and,
b. Not more than 10% of the products associated with
contracts executed after June 1, 2010, that do not
qualify under the 75% category, and include unbundled
RECs.
c. All other renewable energy resources contracts
executed on or after June 1, 2010, not subject to the
other limitation that firm and shape eligible renewable
energy resource products providing incremental
electricity, procured through a contract of not less than
10 years using substitute electricity to balance
schedules meeting specific requirements.
16)Allows a contract for an eligible renewable energy resource
executed prior to June 1, 2010, to count in full toward the
procurement requirements if the resource was eligible as of
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that date, and if an IOU contract, the contract was approved
by the PUC and the approval occurs after June 1, 2010.
17)Requires the PUC, in consultation with the California Energy
Commission (CEC) to report to the Legislature by January 1 of
every even-numbered year on the progress and status of
procurement activities by each retail seller, the status of
permitting and siting of renewable generation and transmission
facilities necessary to deliver the renewable electricity, the
projected ability of each IOU to meet the RPS, and any
barriers to and policy recommendations for achieving the RPS.
18)Requires the CAISO and the balancing authority of each area
in California to work cooperatively to integrate and
interconnect eligible renewable energy resources to the
transmission grid, and requires the CAISO to seek any
approvals from the Federal Energy Regulatory Commission (FERC)
that are necessary to accomplish the goals and requirements of
the RPS.
19)Requires POUs to adopt and implement a RPS procurement plan
and allows the use of RECs to achieve the following targets:
a. Until December 31, 2012, the same percentage as
actually achieved by the utility in 2009;
b. 20% by December 31, 2013;
c. 25% by December 31, 2016; and,
d. 33% by December 31, 2020.
20)Requires each POU to report on an annual basis to its
customers and to the CEC on specified information regarding
price, resource mix, and status in implementing the RPS.
21)On or before July 1, 2011, requires the CEC in consultation
with California Air Resource Board (ARB) to adopt regulations
for the enforcement of the RPS on POUs. Provides that the ARB
shall have the authority to impose penalties on POUs for
failure to comply with the RPS.
22)Requires the PUC to annually prepare and submit to the policy
and fiscal committees of the Legislature, a written report
summarizing all IOU revenue requirement increases associated
with meeting the RPS, all costs for infrastructure, any
savings experience or costs avoided, all costs for incentives
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for distributed and renewable generation, all procurement
costs of generation, and an change in the electrical load
serviced by an IOU since the preceding report.
23)Requires the PUC to issue a decision on an application for a
certificate within 18 months of the date of filing of the
completed application when specified conditions are met,
including that the PUC finds it is necessary to provide
transmission to load centers for electricity generated in a
high priority renewable energy zone or is reasonably necessary
to facilitate achievement of the RPS.
24)Appropriates $322,000 to the PUC for additional staffing to
identify, review and approve transmission lines reasonably
necessary or appropriate to facilitate achievement of the RPS.
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 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 the RPS. If the cost cap
is reached, IOUs are not required to sign any additional
renewable contract that exceeds the market cost of
electricity.
6)Requires PUC to develop flexible rules for compliance for the
RPS that allows a retail seller that cannot not meet its
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annual RPS targets to delay compliance for up to three years
and avoid penalties under certain conditions.
7)Requires the 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 or CPCN).
FISCAL EFFECT : Unknown.
COMMENTS : Over the past few years, there have been a few
attempts to increase the RPS. The author and members of the
Assembly have convened numerous stakeholder meetings to try to
reconcile divergent concerns over some significant barriers.
Some of the most unsurpassable impediments have included cost
containment, transmission and siting constraints, the location
of eligible generation and whether it's "delivered," and how
much flexibility the utilities will be granted given anticipated
or unanticipated impediments.
The utilities' ability to comply with an increased RPS differs
based on geographic attributes of their service territories.
While San Diego Gas and Electric is relatively
transmission-constricted, any increase in its RPS would need to
be both in-basin and reliant on significant transmission
investment. Southern California Edison service territory is
replete with sunshine and windy passes, however, to access the
huge quantity of renewable energy an increased RPS demands, also
requires investment in transmission infrastructure. PG&E in
Northern California, as a gift of geography, just happens to be
endowed with a clean and relatively dispatchable watershed in
its backyard (RPS eligibility only includes hydroelectric
facilities under 30 MW). Nevertheless, even PG&E needs
transmission to increase its RPS to 33%. To capture all of this
requisite renewable energy, the CAISO, responsible for balancing
the high-voltage transmission grid, estimates a statewide need
for 6 new 500 kV transmission lines to reach 33% RPS. Just two
have progressed beyond the first phase of planning and the
determination of need.
Background : In 2002, the Legislature approved SB 1078 (Sher),
Chapter 516, Statutes of 2002, which created RPS. Under RPS,
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IOUs and competitive energy service providers (ESPs) of
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.
Last year, SB 14 (Simitian) and AB 64 (Krekorian) proposed to
increase the RPS to 33% by 2020. Each bill took a different
approach, but were similar in overarching goals. AB 64 was
dropped, and the Governor vetoed SB 14 and stated that, although
he supports the intent of increasing the RPS to 33% by 2020, the
provisions in SB 14 would make achieving that goal difficult and
too costly. The Governor's veto message added that an RPS
should provide a streamlined regulatory processes and compliance
flexibility that facilitates the timely construction of in-state
resources. Instead of signing SB 14, he preferred to implement
an executive order with the same RPS goals and directed the ARB
to adopt RPS regulations using its authority for greenhouse gas
reduction efforts provided by AB 32 (Nunez), Chapter 488,
Statutes of 2006. The ARB was expected to complete the
regulations implementing the 33% RPS by the fall of 2010. The
Governor added that he remains ready to sign legislation that
codifies a workable 33% RPS mandate.
A balancing act : The CAISO is a not-for-profit public benefit
corporation formed in 1997 during restructuring of the
electricity industry. The CAISO is responsible for the
operation of 25,526 circuit-miles of long-distance, high voltage
power lines that deliver electricity throughout most of
California and between adjacent balancing authorities,
neighboring states, Canada and northern Mexico.
The CAISO's principle objective is to ensure the reliability of
the California grid, which can become challenging when large
amounts of large-scale solar and wind are expected to become
more prominent in California's resources mix. The CAISO must
balance the electricity inputs and electricity demand to
maintain voltage stability of the grid. Small hydroelectric,
biomass and geothermal generation are more predictable
resources, and the integration of these resources into both the
markets and operations do not present significant problems.
Concentrated solar is an intermittent resource, but the CAISO is
less concerned with integrating solar than with integrating
wind. Wind generation is extremely variable and often produces
its highest energy output when the demand for power is at a low
point.
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This bill requires external resources to schedule their output
to a California balancing authority in the hour or
within-the-hour that they are generating, which creates a
must-take requirement at the interchange. In some intervals,
these deliveries could suppress market clearing prices in the
CAISO's market and even drive prices negative. If that were to
occur, ratepayers will face contract payments for actual energy
as well as additional costs to sell this energy (decrease, or a
dec) to balance the voltage. In some instances, it is also
possible that the CAISO may need to curtail interchange
schedules, which may create additional concerns under RPS
contracts and for purposes of RPS counting.
How much will 33% cost : In a report providing preliminary
results on the feasibility and costs of achieving a 33% RPS by
2020, the PUC concluded that such a goal "is highly ambitious,
given the magnitude of the infrastructure build-out required."
Under the 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.
The PUC's report included the cost of additional transmission to
access the remote renewable resources. The CAISO, in its 2008
Report on Preliminary Renewable Transmission Plans, identifies
six conceptual transmission projects that, if built and brought
on-line by 2020, can help the state meet the 33% renewable
standard in 2020 and for several years beyond. These potential
transmission projects, intended to connect and deliver renewable
resources to the grid, are estimated to cost a total of
approximately $6.5 billion (+/- 50% accuracy) in 2008 dollars.
SB 14 provided that IOUs would not be required to procure
renewable resources that are above the market price of all
electricity (market-price referent, or 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" was meaningless and the
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contracts exceeded the MPR early in the program.
SB 722 would permit the PUC to establish a limitation for each
IOU on the procurement expenditures and prescribes the elements
on which the PUC must rely when establishing the limitations.
The bill requires the PUC to ensure the limitation is set at a
level that prevents disproportionate rate impacts, however, it
does not define or provide a quantitative definition of
"disproportionate." The bill is only permissive. In order to
ensure cost-containment is mandatory, this committee may wish
to, by not later than January 1, 2016, require the PUC to
establish cost limitations, and require the PUC to prepare a
report assessing whether each electrical corporation can achieve
a 33% RPS by 2020 within the adopted cost limitations. If the
PUC determines that it is necessary to change the limitation, it
may propose a revised cap. Absent further legislative action,
the proposed modifications may take effect no earlier than
January 1, 2017. If the cost limitation is insufficient, the
IOU may refrain from entering into new contracts or to construct
facilities beyond the quantity that can be procured within the
limitation unless eligible renewable energy resources can be
procured without increasing ratepayer costs relative to the
procurement of conventional energy resources, and the cost of
mitigating greenhouse gas emissions associated with such
generation.
Some of the parties have suggested additional language that
requires the PUC to monitor the status of the cost limitation
for each IOU and prescribes action the PUC must take within 60
days if it determines that an IOU may exceed its cost
limitation. The additional language also requires the PUC to
investigate and identify the reasons why the IOU may exceed its
annual cost limitation, and notify the appropriate policy and
fiscal committees of the Legislature that the IOU may exceed its
cost limitation and the reasons. This committee may wish to
adopt the additional language that requires the PUC to monitor
and investigate each utility with regard to the status of
reaching the cost limitations, and notify the Legislature.
In addition, this bill states that California end-use customers
may be paying higher rates to achieve the procurement
requirements of this article. In order to ensure the PUC allows
only just and reasonable rates, this committee may wish to
strike that provision, and instead replace it with, "the
commission shall ensure rates are just and reasonable, and are
not significantly affected to achieve the procurement
requirements of this article."
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The loading order : In previous RPS attempts, the term
"delivery" was highly debated. The definition in SB 14 required
simultaneous scheduling. A resource could "deliver" to
California if it was either directly interconnected to a
California control area or was scheduled into California within
the same hour it was produced and from the same location from
which it was produced. This requirement would have made it
difficult to apply electricity from an out-of-state solar or
wind facility toward a utilities' RPS, since many of these
resources cannot be scheduled into California at the same time
it actually generated. As a result, the utility could contract
with the out-of-state renewable generator but never receive the
actual renewable electrons. The actual generation would need to
come from another, usually non-renewable facility, to compensate
for the undelivered renewable electricity to "match" the output.
This bill allows various "electricity products" from eligible
renewable energy resources located within the WECC to count
toward specific RPS targets. The bill states a general
principle that the resources provide benefits to this state,
consistent with least-cost best-fit and project viability
principles.
Not less than 75% of new renewable energy resources products
from June 1, 2010, going forward, must meet the strongest
reliability criteria. This category allows eligibility to
products that have a first point of interconnection with a
California balancing authority, or are scheduled from a
renewable facility on an hourly or within-hourly basis without
substituting energy from another source. SB 722 also allows
eligibility for a renewable energy product that allows a
balancing authority to "dynamically transfer" the renewable
energy product. This is an attempt to mitigate the problems
encountered in SB 14, where California paid to increase its
renewable portfolio, but actually received non-renewable
generation. In addition, it is intended to grandfather in the
existing contracts that utilities have already signed.
This bill attempts to "grandfather in" qualifying RPS contracts
that were eligible under the RPS in effect or approved by the
PUC as of June 1, 2010. Some parties have voiced concern that
this language does not "grandfather in" existing contracts where
minor or technical the terms and conditions may change, or where
it might be most feasible for the utility to extend an existing
contract. It is understood that the author will work with the
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affected utilities to resolve this issue while keeping within
the spirit of the RPS.
What's a REC : 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 as a separate commodity from the underlying
electricity (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.
This bill limits the amount of RECs and renewable energy
products that do not qualify under the interconnected
requirement to not more than 10% of the renewable energy
products associated with contracts executed after June 1, 2010.
Some retail sellers and renewable generators have advocated for
broader use of RECs. They believe that RPS should not limit the
use of RECs or put restrictions 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 722 permits the PUC to allow a
retail seller to delay compliance with a RPS procurement
requirement if it finds that the retail seller has demonstrated
that specific conditions have been encountered that are beyond
the control of the retail seller. Some allowable delays include
inadequate transmission capacity, unanticipated permitting or
interconnection delays, insufficient supply of renewable
electricity, or unanticipated curtailment of renewable resources
by the balancing authority or transmission owner. If a retail
seller fails to procure sufficient renewable resources to comply
with the RPS and the IOU has failed to obtain an order from the
PUC authorizing a compliance delay, SB 722 requires the PUC to
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exercise its authority to punish the utility in the same manner
and to the same extent as contempt is punished by courts of
record.
Some renewable developers and environmental groups are concerned
that there are too many "off-ramps." They believe that the
rules should be stricter and the punishment for noncompliance
may not be significant enough of a deterrent to compel the
utilities to comply. The utilities, on the other hand, believe
that there should be flexibility because 2020 is 10 years into
the future, and it is impossible to forecast all factors that
might affect their ability to procure remote and intermittent
renewable resources with any accuracy. Unanticipated
consequences are bound to emerge.
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 POU 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 722 requires most POUs to meet the 33% RPS by 2020
requirement. While the bill allows the PUC to adopt rules for
REC purchases for retail sellers, 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, some are concerned that their existing
contracts would be precluded from future RPS compliance if they
are amended or changed in any way.
Where are the jobs : The renewable energy developers tout
job-creation as one of the impetuses for increasing renewable
energy procurement to 33% by 2020. Utilities have job training
programs and most utility jobs are relatively good-paying secure
jobs. PG&E has a Power Pathways program that offers programs
aimed at producing the skilled workers needed by PG&E and the
energy and utility industry. SCE provided $150 million to 10
community colleges to create customized training programs for
utility workers.
The jobs required to site and build the renewable generators may
likely be short-term construction jobs. Most large-scale wind
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and solar facilities require very few ongoing maintenance
technicians to keep them running. The solar panel manufacturers
state that most of the job creation would be generated in the
manufacturing sector, the industries that actually fabricate the
solar panels or the wind turbines. In order to determine
whether jobs are truly being created, and whether these jobs
include women, minorities, and disabled veterans, this committee
may wish to require the IOUs in their annual reports, to report
on the efforts they are taking in recruiting and training
employees to ensure an adequately trained and available
workforce, including but not limited to, the quantity of
new-hires associated with implementing the RPS, the diversity of
the trainees and new-hires associated with RPS, and to the
extent the information is provided, the same information for the
renewable energy generation contracts. In addition, in its
process to develop criteria for the rank ordering and selection
of eligible renewable resources, require the PUC to consider the
workforce recruitment, training, and retention efforts including
the diversity of the employment growth associated with the
construction and operation of the eligible renewable energy
project.
REGISTERED SUPPORT / OPPOSITION :
Support
California Biomass Energy Alliance (CBEA) (if amended)
California Coalition of Utility Employees (CCUE)
California Labor Federation
California State Association of Electrical Workers
California State Pipe Trades Council
Large-Scale Solar Association (LSA)
The Solar Alliance
Union of Concerned Scientist (UCS) (if amended)
Western States Counsel of Sheet Metal Workers
Opposition
California Manufacturers & Technology Association (CMTA)
Analysis Prepared by : Gina Adams / U. & C. / (916) 319-2083