BILL ANALYSIS � 1
SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE
ALEX PADILLA, CHAIR
SB 1122 - Rubio Hearing Date:
April 24, 2012 S
As Amended: April 16, 2012 FISCAL B
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DESCRIPTION
Current law requires all investor-owned utilities (IOUs) and
publicly-owned utilities (POUs), that serve more than 75,000
retail customers, to develop a standard contract or tariff (aka
feed-in-tariff or FiT) available for renewable energy facilities
up to three megawatts (MWs). Statewide participation is capped at
750 MWs.
Current law requires that the pricing mechanism for IOU FiTs to be
based on the market price for renewable generation, include the
value of different electricity products including baseload,
peaking and as-available electricity.
This bill requires that the California Public Utilities Commission
(CPUC) mandate, no later than June 1, 2013, that each of the
state's three largest IOUs collectively procure at least 250 MWs
of renewable generating capacity from small renewable biomass or
biogas projects at a price that accounts for the benefits to
ratepayers and the environment and at a price that is consistent
with the operational characteristics of the projects.
BACKGROUND
What is a Feed-in-Tariff? - A FiT is a simple, comprehensible,
transparent contracting mechanism for small renewable generators
to sell power to a utility at predefined terms and conditions,
without contract negotiations. For the IOUs, the FiT operates as a
"must-take" contract in its portfolio. If the participant
generates the power, the IOU must take it and pay for it according
to the pre-defined terms of the FiT.
Small renewable generator FiTs are available in the territories of
the three largest IOUs and provide a 10, 15, or 20-year
fixed-price, non-negotiable contract for systems sized up to 1.5
MW. The CPUC has a rulemaking open to implement the terms of SB
32 (Negrete McLeod, 2009) and SB x1 2 (Simitian, 2011) to expand
the IOU FiT to 3 MWs and modify the pricing mechanism. The total
program allocation between the three IOUs, would be approximately
500 MWs.
Competitive Procurement v. Fixed Price - Since the restructuring
of the electricity industry in California in the 1990s, the CPUC
has relied on a "competitive market first" approach for the
procurement of electricity. The IOUs develop an annual
procurement plan which includes plans under which the IOUs solicit
bids for electricity deliveries. The underlying premise of
wholesale competitive procurement is that ratepayers benefit as a
result of lower cost electricity deliveries. Competitive
procurement also underlies the RPS program which requires IOUs to
establish a competitive process to select renewable contracts
based on least cost and best fit. Competitive markets are
generally thought to benefit ratepayers by using competitive
pressures to lower total costs.
In contrast, a textbook FIT uses administrative processes to set a
fixed price for the purchase of electricity by the IOU, the price
of which does not benefit from competition. Although a FiT may
result in lower transaction costs to renewable developers, it is
not clear that it will result in the best price for renewable
electricity deliveries for ratepayers. It is difficult if not
impossible to administratively set the right price for a FiT. If
the FiT price is too high, the FiT results in a gold rush for
renewable developers at the expense of ratepayers who will
overpay; if the FiT price is too low the FiT will not attract new
investment. What is the chance that a regulatory agency can set
just the right price which will protect ratepayers and bring new
projects online?
Additionally, under a traditional FiT structure the utility
generally has no control over where power is built, whether it's
needed, or whether it is consistent with its renewable procurement
plan. This is particularly critical for renewable resources, some
of which (e.g. solar and wind) do not provide base load power but
are intermittent and must be firmed and shaped by the IOU or ISO.
Federal FiT Restriction - The Federal Power Act grants the Federal
Energy Regulatory Commission jurisdiction over wholesale electric
sales in interstate commerce, including sales made entirely
intrastate and sales delivered locally to a distribution system.
The CPUC can set rates but the rate at which a utility must
purchase power from a facility must be:
"Just and reasonable" to consumers;
In the public interest;
Not discriminate against the facility; and
Not exceed the purchaser's incremental avoided cost.
The commission has litigated the issue of FiT pricing at the FERC
and based on that proceeding has determined that it can
differentiate renewable pricing for particular sources of energy
(e.g. based-load, peaking) but cannot, under federal law,
establish technology-specific pricing.
COMMENTS
1. Author's Purpose . The author reports that the CPUC has
issued a proposed decision (PD) revising the FiT program that
ignores market considerations for small renewable biomass or
biogas projects and fails to promote diversity in resource
technologies. Without differentiating small renewable
biomass and biogas projects from other renewable distributed
generation technologies, opportunities for methane pollution
reduction and clean energy generation will not be
realized?This bill establishes a statewide procurement
requirement of 250 MW from small (less than 5 MW) renewable
biomass or biogas projects that utilize low-emission
technologies from landfills and organic waste diversion
facilities, waste water treatment plants, food and
agricultural processing facilities, animal waste facilities,
and farms. It requires the CPUC to allocate the 250 MW among
the state's three major IOUs.
2. Presupposes CPUC Action . The CPUC has a PD which would
result in a program with a standardized contract for
renewable generation facilities sized under 3 MW based market
prices. The issue presented in this bill was thoroughly
considered by the commission and participating stakeholders
and the PD rejected the technology-specific pricing mechanism
for bioenergy called for by this bill. The PD proposes that
the commission continue its procurement philosophy to:
?create a market for small renewable distributed
generation that harnesses renewable market forces to
set a program price that minimizes costs to
ratepayers, prevents overpayment, and stimulates
market demand.
The PD rejects technology-specific pricing because it "fails
to comply with federal and state law and with our policy
guidelines" for implementing the FiT. Specifically the PD
further opines that:
Technology-specific pricing does not establish a
price based on the renewable market and competitive
pressures, but rather uses administratively-determined
calculations to establish a price based on the costs
plus a fair rate of return to build and operate a
specific technology, which removes any incentive or
ability for competition to decrease contract costs?;
This method does not ensure the maximum value to
the ratepayer and utility...; and
Increases administrative complexity and
increases the transaction costs for the regulator.
The full commission is expected to consider the PD in the
next 30 to 60 days.
1. Societal Benefits v. The Market . At the heart of the
debate over this bill is whether the commission should
establish administratively-determined prices for contracts
for specific renewable biomass and biogas electric generation
resources based on the needs of the renewable generator or
utilize the standardized contract associated with a FiT but
with a pricing mechanism that relies on the competitive
wholesale market to determine the price to the benefit of
ratepayers. The statute at issue very clearly requires the
commission to use a competitive, market-based approach but
the sponsors of this bill argue that this mechanism does not
account for the societal benefits to ratepayers and the
environment from encouraging the development of biogas and
biomass resources. The PD provides that this would result in
"administrative guesses at prices can result in pricing being
either too high, leading to windfalls for project developers
and unnecessarily high procurement costs for customers?"
2. Commission Bioenergy FiT . Although the author opines that
the commission has "ignored market considerations for small
renewable biomass or biogas projects and fails to promote
diversity in resource technologies," the PD clearly
considered this issue and specifically found that the pricing
mechanism it developed could also:
?benefit bioenergy and the other technologies because
it allows renewable resources to compete against other
similarly-valued renewable resources, rather than the
entire renewable market?it is probably that the prices
for each product type will differ. The result is that
bioenergy projects, for example, could receive prices
that are different than those available to solar
projects that may seek a contract from different
product type.
In response to concerns that solar was dominating the
solicitations for generation by the IOUs and might garner the
lion's share of contracts under the FiT, the CPUC has
proposed that the FiT contracts be made available in groups
according to the generation characteristics of the power -
baseload (e.g. bioenergy and geothermal), peaking (e.g.
solar), and as-available electricity (e.g. wind and hydro).
Each of the three product types will have a starting price
based on the weighted average of the highest executed
Renewable Auction Mechanism contract for each IOU which would
result in a price based on the most recent comparable
competitive solicitation for renewable distributed
generation. The price would then be adjusted for
time-of-delivery factors and could increase or decrease each
month based on the prior month's FiT contract activity. The
IOUs would be required to divide the available contracts
equally between the product types. If the quota is not used
for any specific product type in a given month, the unused
portion would be divided equally over the remaining months
for that product category.
Utilizing this approach, bioenergy (along with geothermal)
will have its own set-aside in the program. The initial
price for all FiT contracts will start at the same rate but
can be adjusted up and down each month based on the prior
month's contract activity in that product category.
POSITIONS
Sponsor:
Clean Power Campaign
Support:
Agricultural Council of California
Agricultural Energy Consumers Association
California Cotton Ginners and Growers Associations
California Farm Bureau Federation
California Poultry Federation
Clean Coalition
E. & J. Gallo Winery
FlexEnergy Inc.
Milk Producers Council
Sustainable Conservation
Union of Concerned Scientists
Western Agricultural Processors Association
Oppose:
None on file
Kellie Smith
SB 1122 Analysis
Hearing Date: April 24, 2012