BILL ANALYSIS
SB 722
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Date of Hearing: August 4, 2010
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Felipe Fuentes, Chair
SB 722 (Simitian) - As Amended: August 2, 2010
Policy Committee: Utilities and
Commerce Vote: 9-2
Natural Resources 5-3
Urgency: No State Mandated Local Program:
No Reimbursable: No
SUMMARY
This bill modifies the state's Renewables Portfolio Standard
(RPS) to increase, from 20% by 2010 to 33% by 2020, the
proportion of electricity that electric utilities must receive
from renewable resources. (Summary continued below.)
FISCAL EFFECT
Public Utilities Commission (PUC)
1)Ongoing annual costs of approximately $650,000, equivalent to
five positions, to implement the RPS provisions for Investor
Owned Utilities (IOUs), including developing new interim
goals, developing cost limitations on renewable electricity
procurement, communicating with IOUs regarding new
requirements, developing requirements for approval of
IOU-owned electricity generating facilities, and reporting to
the Legislature. (PUC Utilities Reimbursement Account (PURA))
2)Ongoing annual costs of approximately $650,000, equivalent to
five positions, for transmission planning and expedited review
of applications to construct new transmission lines. (PURA)
3)Ongoing annual costs of approximately $1 million for contracts
for program evaluation and technical assistance, such as
analysis of program implementation options. (PURA)
4)Appropriation of $322,000 from the PURA for additional staff
for transmission line applications that facilitate RPS
compliance.
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5)Potential revenue of an unknown amount from fines levied
against IOUs that fail to meet RPS targets.
Energy Commission--
1)Ongoing annual costs of approximately $600,000, equivalent to
four positions, to the Energy Commission to adopt regulations
and monitor RPS compliance among publicly owned utilities
(POUs). (ERPA)
2)One-time costs of approximately $300,000, equivalent to one
position and contract expenses, to the Energy Commission to
update its studies on the capacity of the electricity grid to
carry wind and solar energy resources. (Energy Resources
Program Account (ERPA))
3)Minor, absorbable costs to the Energy Commission to prepare,
in consultation with PUC, its biennial report to the
Legislature on progress towards meeting the RPS. (ERPA)
Department of Fish and Game
Ongoing annual costs of $350,000 to $600,000 to DFG to establish
an internal division to conduct planning and environmental
compliance services. (GF or Fish and Game Preservation Fund)
Air Resources Board
1)Ongoing annual costs of approximately $340,000 for two
positions to enforce POU compliance with the RPS requirements.
(Air Pollution Control Fund (APCF))
2)Potential revenue of an unknown amount from fines levied
against POUs that fail to meet RPS targets. (APCF)
SUMMARY (continued)
Specifically, this bill:
IOUS and ESP RPS Targets and Compliance
1)Revises the existing RPS targets that IOUs, ESPs and other
retail sellers must meet, unless certain conditions exist: (a)
20% by 2012; (b) 25% by 2016; and 33% by 2020. (Currently,
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face an RPS target of 20% by 2010, unless certain conditions
are met.)
2)Requires the PUC to monitor and enforce IOU and ESP compliance
with the RPS targets, including directing each IOU to prepare
and annually update a renewable energy procurement plan, to be
reviewed and approved by the PUC, and an annual RPS compliance
report.
3)Authorizes PUC to approve an IOU's application to construct,
own and operate an eligible renewable energy resources in
order to meet the RPS targets, so that such facilities
represent no more than 8.25% of the IOU's retail sales by
December 1, 2020.
POU RPS Targets and Compliance
4)Newly establishes RPS targets applicable to POUs: (a) 20% by
2013; (b) 25% by 2016; and (c) 33% by 2020.
5)Requires the Energy Commission to adopt regulations specifying
procedures to ensure POUs meet RPS targets and to monitor
their compliance.
6)Assigns the ARB-not the Energy Commission-responsibility to
enforce POU compliance with the RPS.
Other Significant Provisions
1)Requires a "balanced portfolio" of renewable energy, meaning,
among other things, that 75% of the portfolio must be
interconnected to the grid within, scheduled not less than
hourly for direct delivery into, or dynamically transferred by
a California balancing authority.
2)Requires PUC to issue a decision on an application for a
certificate authorizing construction of new transmission
facilities within 18 months of the date of filing of the
completed application.
3)Permits the PUC to delay compliance with a RPS requirement if
it finds insufficient transmission exists to meet the RPS, or
there were unforeseen delays in permitting or interconnecting
projects.
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4)Permits the PUC to establish a cost limitation for each IOU on
its expenditures to procure eligible renewable energy
resources used to comply with the RPS.
5)Relaxes the criteria by which the PUC determines the necessity
of a retail electricity provider's application to build new
transmission facilities to achieve the RPS.
1)Authorizes use of renewable energy credits (RECs) for RPS
compliance, good for 18 months following the generation of
electricity represented by the REC.
2)Directs the Energy Commission to update its previous studies
on the capacity of the electricity grid to carry wind and
solar energy resources.
3)Requires the Department of Fish and Game (DFG) to establish an
internal division to conduct planning and environmental
compliance services, giving priority to eligible renewable
energy projects.
4)Appropriates $322,000 from the PUC Utilities Reimbursement
Account to the PUC for additional staff to transmission line
applications that facilitate RPS compliance.
COMMENTS
1)Rationale . The author notes that ARB has identified a 33% RPS
goal as key among its measures to achieve the state's
greenhouse gas (GHG) emission reduction goals. The author
proposes to codify the 33% RPS goal to increase the amount of
electricity procured from renewable generation sources to
reduce GHG emissions, improve public health and air quality,
and stimulate economic development by encouraging innovation
in energy technologies and creating new employment
opportunities in California.
2)Background .
a) Provision of Electricity Service. Californians generally
receive their electricity service from one of three types
of providers: investor owned utilities (IOUs), local
publicly owned utilities (POUs), and electric service
providers (ESPs).
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The state's three largest electricity IOUs-Pacific Gas and
Electric, Southern California Edison, and San Diego Gas and
Electric-each have a unique, defined geographic service
area and are legally required to serve customers within
their respective service areas. The California Public
Utilities Commission (PUC) regulates IOUs' rates and how
their electricity service is to be provided to the
customer.
A POU is a local governmental entity that provides
electricity service to residents and businesses in its
local area. POUs set their own terms of service and are not
regulated by PUC. Major POUs include the Los Angeles
Department of Water and Power and the Sacramento Municipal
Utility District.
A third type of retail electricity provider is known as
"electric service providers" or "ESPs." ESPs provide
retail electricity service to customers who have chosen not
to receive service from the utility that serves their area,
but instead have entered into "direct access" contracts
with ESPs that deliver electricity through the local
utility's transmission and distribution system. There are
currently about 20 registered ESPs operating in the state,
generally serving large industrial and commercial
businesses. Under current law, the ESPs are required to
register with PUC for licensing purposes, but their rates
and terms of service are not regulated by PUC.
Recently, the IOUs accounted for about 68 % of retail
electricity sales in the state, municipal utilities account
for around 24 %, and ESPs account for around 8 %.
b) Renewables Portfolio Standard . The original RPS bill,
SB 1078 (Sher, Chapter 516, Statutes of 2002) set a goal of
20% of electricity from renewable resources by 2017. SB
107 (Simitian, Chapter 464, Statutes of 2006) accelerated
the deadline for 20% to 2010. Current law requires a
retail seller of electricity, such as an IOU, that fails to
meet its RPS target in a given year to compensate for that
shortfall by procuring additional renewable energy in the
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following year. Should a retail seller fail to meet its
RPS target, the PUC may impose penalties. According to the
PUC, as of 2007, the IOUs have achieved the following
levels of progress to the statutory goal: PG&E - 11.4%; SCE
-15.7%; SDG&E - 5.2%.
Current law does not require POUs to meet the same RPS that
retail sellers are required to meet. Rather, statute
directs each POU to implement and enforce its own renewable
portfolio standard. However, no state agency enforces
municipal utility compliance or imposes penalties on a POU
for failing to meet its renewable portfolio standard
objectives.
The different classes of electricity providers vary in
their progress towards achieving the state's RPS goal of
generating 20 % of electricity from renewable resources by
2010.
3)In-State Generation Versus Out-of-State Generation . One of
the more contentious aspects of this bill, like other RPS
bills before it, is use of out-of-state electricity generation
towards compliance with an RPS target. On the one hand,
some-including many labor groups and others-contend the costs
of RPS compliance that will be paid by California ratepayers
should go towards the creation of renewable energy jobs in
California. Others, including many industry groups and retail
electricity providers, want the flexibility to seek renewable
electricity from wherever it is cheapest. Currently, the bill
settles on allowing a mix of in-state and out-of-state
resources to meet the RPS. Roughly speaking, the bill
requires 75% of electricity that comes from eligible renewable
resources for RPS compliance to be produced "in-state."
4)To REC or Not To REC . As described in the policy committee
analysis, a renewable energy credit (REC) represents the
renewable attributes of renewable generation. Electric
utilities use RECs as evidence of their procurement of
renewable electricity for RPS compliance. They do this
directly, by submitting the RECs as evidence of their
procurement of renewable electricity. Or, they purchase RECs,
which may be traded as commodities, and use them as evidence
of RPS compliance.
This bill limits the amount of RECs to not more than 10% of
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RPS compliance. Many industry groups and electric utilities
push for greater use of RECs, claiming they provide a flexible
compliance option that can reduce the cost of meeting RPS
targets. Conversely, some environmental groups want to
restrict the use of RECs, fearing they represent theoretical,
or "paper" compliance with RPS targets that does not lead the
construction of new renewable energy facilities in California.
5)Related Legislation .
a) SB 1078 (Sher, Chapter 516, Statutes of 2002) created
the RPS, which originally required IOUs and ESPs to
increase their renewable procurement each year by at least
1% of total sales, so that 20% of their sales would be from
renewable energy sources by December 31, 2017.
b) SB 107 (Simitian, Chapter 464, Statutes of 2006)
maintained the 20% RPS target but moved it up to 2010.
c) SB 14 (Simitian, 2009) and AB 64 (Krekorian, 2009)
sought to establish RPS goals of 33% by 2020. Both bills
were vetoed by the governor, who subsequently issued an
executive order calling for a 33% RPS.
Analysis Prepared by : Jay Dickenson / APPR. / (916) 319-2081