BILL ANALYSIS �
AB 2363
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Date of Hearing: April 28, 2014
ASSEMBLY COMMITTEE ON UTILITIES AND COMMERCE
Steven Bradford, Chair
AB 2363 (Dahle) - As Amended: April 10, 2014
SUBJECT : Electricity procurement.
SUMMARY : This bill would require the California Public
Utilities Commission (PUC) to adopt a nonzero integration cost
adder methodology to use when approving procurement of eligible
renewable resources by a retail seller in excess of the minimum
quantities required by the renewables portfolio standard.
Specifically, this bill :
1)Requires the PUC to adopt, by rulemaking, by October 1, 2015,
a nonzero integration cost adder methodology that reflects a
reasonable estimate of the costs of procuring capacity and
energy required to accommodate the electrical generation of
the particular eligible renewable energy resource.
2)Requires the PUC to consider nonzero integration cost adders
prior to approving procurement of eligible renewable energy
resources by a retail seller in excess of the minimum
quantities of electricity products required to be purchased
pursuant to the renewables portfolio standard.
3)Requires the PUC to direct electrical corporations to include
nonzero integration cost adders in their proposed procurement
plans.
EXISTING LAW
a)Establishes procurement requirements which electrical
corporations and public utilities must meet in order to attain
a target of 33% renewable generation in their electricity
supply portfolios by 2020. (Public Utilities Code 399.11)
b)Establishes a renewables portfolio standard requiring all
retail sellers to procure a minimum quantity of electricity
products from eligible renewable energy resources as a
specified percentage of total kilowatt-hours sold to their
retail end-use customers each compliance period to achieve
various targets. (Public Utilities Code 399.15)
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c)Directs the PUC to review and approve electricity procurement
plans proposed by electrical corporations. The plans are to
meet specified objectives, including just and reasonable rates
and moderating price risks associated with serving utility
customers. (Public Utilities Code 454.5)
d)Authorizes the PUC to require each electrical corporation to
annually prepare a renewable energy procurement plan.
FISCAL EFFECT : Unknown
COMMENTS :
1)Author's statement: "Despite the CPUC's longstanding interest
in integration cost adders that accurately reflect the
differing integration costs associated with particular
renewable technologies, the CPUC has failed to take action to
level the playing field. As a result, biomass and geothermal
projects with low integration costs but high operational and
capital costs cannot compete with intermittent renewables that
have relatively lower operational and capital costs but much
higher integration costs that are simply ignored.
AB 2363 obliges the CPUC to determine appropriate integration
cost adders so that the IOUs' LCBF analysis accurately
reflects the total costs, both direct and indirect, of
particular renewable resources. This is significant given the
range of renewable procurement options available to California
public utilities.
It is important to promote a policy that will assist the
state's RPS to ensure that the procurement process creates a
more level playing field and evaluates all new and existing
renewable resources accurately and fairly. The result will be
a more diverse and cost-effective portfolio of renewable
energy resources, which will help to balance the grid and
maintain reliability while keeping consumer electric rates
affordable."
2)Integration costs. California's Renewable Portfolio Standard
(RPS) mandates that electrical corporations and public
utilities must meet or exceed a target of 33% renewable
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generation in their electricity supply portfolios by 2020.
A wide variety of renewable resources are available, and each
has diverse operating characteristics and costs. Solar and
wind energy are classified as intermittent renewables - they
are dependent upon the sun shining or wind blowing. In order
to ensure a reliable and steady flow of energy to customers,
they require additional generation to be available as a
backup. The costs of backup generation are referred to as
"integration costs" and are a necessary element of integrating
intermittent renewable resources into the grid.
Other renewable energy resources are classified as baseload
facilities - they are able operate 24 hours per day. These
include certain geothermal and biopower facilities. As such,
these types of facilities do not require additional backup
generation and thus may have lower integration costs than
intermittent resources such as solar and wind.
3)The PUC's least cost best fit analysis. Electricity
procurement plans and renewable energy contracts proposed by
investor owned utilities (IOUs) are subject to the PUC's least
cost best fit (LCBF) requirements. Currently, the PUC does not
include integration costs in its LCBF analysis. Therefore, all
renewables are considered to have no integration costs even
though certain renewable resources have higher integration
costs than others.
As background, in the first year of the RPS program (2004),
the PUC recognized that integration costs for intermittent
renewables needed to be captured in a cost adder so that these
costs could inform and improve the renewable procurement
decisions. At the time, with limited renewables penetration
and low associated integration costs, the PUC approved an
adder of zero.<1> Today, estimates of integration costs for
intermittent renewables have suggested that this value is no
longer zero, but the PUC continues its consideration as to
whether a nonzero integration cost adder is appropriate for
such resources.
4)State of RPS procurement. California's electricity portfolio
must be balanced and diversified to promote reliability. Due
to the RPS and the increasingly competitive prices for
---------------------------
<1> PUC Decision 04-07-029.
http://docs.cpuc.ca.gov/word_pdf/FINAL_DECISION/38287.pdf
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renewable generation, renewable technologies are providing
much larger amounts of electricity for California. However,
due to the performance characteristics of the technologies,
reliance on intermittent and variable renewable resources
(wind energy is available when the wind blows and solar energy
is available when the sun shines) balanced with other
renewable technologies, such as geothermal and biopower, which
can generate electricity at any time.
However, the most recent quarterly reports from the
investor-owned utilities (IOUs) show that renewable
procurement is weighted toward intermittent and variable
resources. The table below is based on data reported by PG&E,
SDG&E, and SCE in the most recent compliance reports. With
forecasts extended out to 2020, the data for all three large
IOUs generally show a large shift toward solar PV and wind,
with a corresponding decrease in geothermal and biopower.
SDG&E shows the most dramatic trend from 2011 to 2020, with a
large shift from 0.1% solar PV to 51.9%, and a decrease in
geothermal from 23.2% to 0%. The other IOUs display similar,
although not as dramatic, trends.
The percentages below represent the percentage of
megawatt-hours, by technology each utility has contracted with
to meet the RPS goals.
----------------------------------------------------------------
| RPS Procurement: August 1, 2013 Compliance Reports |
----------------------------------------------------------------
---------------------------------------------------------------
| | PG&E | SDG&E | SCE |
---------------------------------------------------------------
|---------+---------+---------+---------+---------+---------+---------+---------+---------+---------|
|Energy | 2011 | 2012 | 2020 | 2011 | 2012 | 2020 | 2011 | 2012 | 2020 |
|source | | | | | | | | | |
|---------+---------+---------+---------+---------+---------+---------+---------+---------+---------|
|Biopower | 24.4% | 23.9% | 11.1% | 16.8% | 25.0% | 2.8% | 5.5% | 4.1% | 0.5% |
|---------+---------+---------+---------+---------+---------+---------+---------+---------+---------|
|Geotherma| 25.0% | 26.0% | 10.2% | 23.2% | 28.1% | 0.0% | 46.8% | 43.4% | 20.0% |
|l | | | | | | | | | |
|---------+---------+---------+---------+---------+---------+---------+---------+---------+---------|
|Small | 18.2% | 12.4% | 9.2% | 0.0% | 0.0% | 0.3% | 5.1% | 3.2% | 3.3% |
|Hydro | | | | | | | | | |
|---------+---------+---------+---------+---------+---------+---------+---------+---------+---------|
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|Conduit | 0.0% | 0.0% | 0.0% | 0.5% | 0.6% | 0.1% | 0.8% | 1.0% | 0.5% |
|Hydro | | | | | | | | | |
|---------+---------+---------+---------+---------+---------+---------+---------+---------+---------|
|Solar | 1.4% | 8.0% | 33.4% | 0.1% | 0.1% | 51.9% | 0.7% | 1.1% | 33.1% |
|Photovolt| | | | | | | | | |
|aic | | | | | | | | | |
|---------+---------+---------+---------+---------+---------+---------+---------+---------+---------|
|Solar | 0.0% | 0.0% | 14.4% | 0.0% | 0.0% | 0.0% | 5.7% | 5.8% | 3.2% |
|Thermal | | | | | | | | | |
|---------+---------+---------+---------+---------+---------+---------+---------+---------+---------|
|Wind | 31.0% | 29.7% | 21.8% | 59.4% | 46.2% | 44.9% | 35.4% | 41.5% | 39.5% |
---------------------------------------------------------------------------------------------------
|Ocean/Tid| 0.0% | 0.0% | 0.0% | 0.0% | 0.0% | 0.0% | 0.0% | 0.0% | 0.0% |
|al | | | | | | | | | |
|---------+---------+---------+---------+---------+---------+---------+---------+---------+---------|
|Fuel | 0.0% | 0.0% | 0.0% | 0.0% | 0.0% | 0.0% | 0.0% | 0.0% |0.0% |
|Cells | | | | | | | | | |
---------------------------------------------------------------------------------------------------
In the PUC's proceeding to establish RPS procurement plans,
comments were received from PG&E that suggested a renewable
integration adder. The Center for Energy Efficiency and
Renewable Technology (CEERT), California Wind Energy
Association, and SCE filed comments asking that a process and
timeline for the development of a renewable integration cost
adder be established. The PUC decided in 2012 that integration
costs would remain set at zero until more information and a
public review had occurred.<2> The PUC invited comments on the
integration cost adder in a separate Long Term Procurement
Planning (LTPP) proceeding, R.12-03-014. This proceeding
started in March 2012 and is still underway.
By restricting integration costs to zero, the PUC provides no
value to renewable technologies with different characteristics
(intermittent, variable, dispatchable, baseload). This may be
a contributing factor to the shift in utility procurement
toward intermittent and variable renewable generation.
5)The Duck Chart. The absence of integration costs may also be a
contributor to the "Duck Chart", a graphic released in 2013 by
the California Independent System Operator (CAISO).
---------------------------
<2> PUC Decision 12-11-016.
http://docs.cpuc.ca.gov/PublishedDocs/Published/G000/M033/K783/33
783021.PDF
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Essentially, the chart demonstrates that as California adds
certain intermittent and variable sources of renewable energy
(i.e., wind and solar), the state will need more fossil-fuel
power plants to supply electricity when the sun and the wind
don't. Furthermore, it shows that those plants must be able to
cut or boost their output much faster than older plants can.
The Duck Chart also warns that California may experience
challenges with grid reliability due to a convergence of
policies, including:
closure of at least some of the coastally-located
gas power plants;
closure of the San Onofre Nuclear Generation Station
(SONGS);
lack of transmission flexibility into regions of San
Diego and southern Orange County;
updated hourly demand forecasts; and
performance characteristics of forecasted wind and
solar procurement facilities.
Because wind and solar facilities can produce large upward and
downward ramps of output without predictability or advance
warning (i.e., when the wind starts/stops or the sun is
blocked by cloud cover), the Duck Chart demonstrates that if
current procurement trends continue, there may be added cost
burdens and reliability challenges needed to maintain
compliance with federal reliability standards.
Possible remedies include paying (1) renewable generators to
curtail generation; (2) natural gas generators to stand by to
respond to large ramps; or even (3) other states to take
excess generation. These scenarios may occur if nothing is
done to reduce the size of the ramps, such as but not limited
to building more natural gas plants, modifying renewable
procurement practices within the renewable portfolio, or
increasing the size and effectiveness of energy efficiency and
demand response programs.
Renewable technologies such as geothermal and biopower have
different characteristics and can provide power output
consistently over a 24 hour period. These energy sources may
be part of the mix of possible policy actions to address the
issues raised by the Duck Chart. One important factor to
consider is their costs, as described below.
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1)Cost Comparisons . The cost of generation is paid by
ratepayers. The PUC is charged with ensuring safe, reliable,
affordable supplies of electricity to customers and that the
costs paid are just and reasonable.
According to the February 2014 report to the Legislature on
RPS costs<3>: the weighted average time-of-delivery (TOD)
adjusted contract price was approximately 7.5 cents/kilowatt
hour (kWh) for all contracts approved in 2013 (including
renewable energy credit only, or REC only, transactions), and
approximately 8.4 cents/kWh for bundled energy product
(excluding REC only transactions). This 2013 average RPS
contract price is lower than the RPS contracts approved in
2012, which were 9.7 cents/kWh on average, because of price
declines in the renewable market.
Table A-1 in this report also reports that the average TOD RPS
procurement from geothermal projects ranged from 6.5 to 7.19
cents/kWh - numbers relatively similar to those in 2012.
Photovoltaic projects ranged from 10 to 15.18 cents/kWh, a
decrease from the 2012 range of 15.33 to 23 cents/kWh.
With the absence of a non-zero integration cost adder, it is
difficult to perform an "apples to apples" cost comparisons
between different renewable resources.
2)Cost integration in excess of RPS requirements. Currently bill
language mandates the PUC to use nonzero integration cost
adder methodology when approving procurement of eligible
renewable resources by a retail seller in excess of the
minimum required RPS quantities.
This provision may have the unintended consequence of halting
renewable procurement in excess of the minimum quantities, as
the PUC does not currently have an approved nonzero
integration cost adder methodology.
The author may wish to consider an amendment that removes
language related to the use of nonzero cost adder methodology
when procurement is in excess of the RPS requirements.
---------------------------
<3> PUC. Padilla Report to Legislature. February 2014.
http://www.cpuc.ca.gov/NR/rdonlyres/775640F8-38D7-4895-9252-7E172
61776FE/0/PadillaReport2014FINAL.pdf
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3)Cost integration of all technologies and examining least-cost
integration solutions. This bill focuses on the cost of the
RPS qualified technologies. However, all energy facilities are
likely to have integration costs to some extent. It may be a
worthwhile for the PUC to provide integration costs for all
generation technologies so that it does not single out
renewables as the only technologies that has such costs.
It may also be worth considering how renewable integration
costs are defined. For example, it may not be appropriate to
include an assumption for natural gas generation as the only
way to address ramping or intermittency issues (as shown in
the duck chart). Smart demand response or energy storage may
be examples of some mechanisms that could address this in a
cost-effective manner. Smart demand and energy response were
two of four alternate scenarios for addressing potential
over-generation that could occur if the state's RPS is raised
to 50% in the January 2014 report by the consulting firm E3:
"Investigating a Higher Renewables Portfolio Standard in
California."
4)Support and opposition. Supporters claim the bill will improve
the procurement process by recognizing the integration costs
of intermittent resources, and that the full costs and
benefits of various choices should be as transparent as
possible to improve the analysis of least cost, best fit and
to protect ratepayers. Additional supporters say the bill
will assist the state's RPS to ensure that the procurement
process creates a more level playing field and evaluates all
new and existing renewable resources accurately and fairly.
They further state the result will be a more diverse and
cost-effective portfolio of renewable energy resources, which
will help to balance the grid and maintain reliability while
keeping consumer electric rates affordable.
Others are concerned that the term "non-zero" could force a
value onto some resources where the correct value may in fact
be zero.
Opponents claim this bill inappropriately requires assignment
of an additional cost to renewable resources regardless if any
additional cost exists and could unnecessarily result in
negative impacts on both renewable energy procurement and
ratepayer costs. Additionally, they claim this requirement
circumvents the work underway by the PUC and the CAISO to
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determine whether and to what extent there are costs related
to integration of renewable energy onto the California
electricity grid. Furthermore, the PUC has a process underway
to determine the appropriate costs of integration to assign-if
any. Other opponents argue specifically mandating a non-zero
adder, particularly in advance of demonstrated need, may have
the perverse impact of raising costs for consumers without
reason.
5)Suggested amendments.
SECTION 1. The Legislature finds and declares all of the
following:
(a) California is leading the world in adopting comprehensive
programs that reduce emissions of greenhouse gases, including
passage of the California Global Warming Solutions Act of 2006
(Division 25.5 (commencing with Section 38500) of the Health
and Safety Code) and the California Renewables Portfolio
Standard Program (Article 16 (commencing with Section 399.11)
of Chapter 2.3 of Part 1 of Division 1 of the Public Utilities
Code).
(b) The state has an abundant supply of renewable energy
resources, including geothermal, biomass, biomethane, wind,
and solar, that have contributed to the state's ability to
reduce its emissions of greenhouse gases and meet its
renewables portfolio standard procurement targets.
(c) It is in the public's interest that the state continue to
promote policies to ensure eligible renewable energy resources
be procured and contributed to the state's ability to reduce
its greenhouse gas emissions and meet the targets of the
California Renewables Portfolio Standard Program (Article 16
(commencing with Section 399.11) of Chapter 2.3 of Part 1 of
Division 1 of the Public Utilities Code).
(d) There are eligible renewable energy resources in the state
that, if developed and retained, would not require additional
capacity to maintain the reliability of the bulk electrical
system and could generate during periods in which electricity
is likely to be the most valuable, prospectively.
(e) Procuring and retaining a diversified portfolio of
eligible renewable energy resources may do all of the
following:
(1) Assist electrical corporations in satisfying renewable
energy procurement and greenhouse gases emissions reductions
goals in a cost-effective manner.
(2) Partially meet peak load requirements with electricity
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generated by eligible renewable energy resources, which will
have substantial benefits from reduced emissions of greenhouse
gases, and cobenefits from reduced emissions of criteria
pollutants.
(3) Maintain the reliability of the electrical grid to meet
demand for electricity on a 24-hour basis.
(4) Contribute to local employment and economic growth
throughout the state.
SEC. 2. Section 399.13 of the Public Utilities Code is amended
to read:
399.13. (a) (1) The commission shall direct each electrical
corporation to annually prepare a renewable energy procurement
plan that includes the matter in paragraph (5), to satisfy its
obligations under the renewables portfolio standard. To the
extent feasible, this procurement plan shall be proposed,
reviewed, and adopted by the commission as part of, and
pursuant to, a general procurement plan process. The
commission shall require each electrical corporation to review
and update its renewable energy procurement plan as it
determines to be necessary.
(2) Every electrical corporation that owns electrical
transmission facilities shall annually prepare, as part of the
Federal Energy Regulatory Commission Order 890 process, and
submit to the commission, a report identifying any electrical
transmission facility, upgrade, or enhancement that is
reasonably necessary to achieve the renewables portfolio
standard procurement requirements of this article. Each report
shall look forward at least five years and, to ensure that
adequate investments are made in a timely manner, shall
include a preliminary schedule when an application for a
certificate of public convenience and necessity will be made,
pursuant to Chapter 5 (commencing with Section 1001), for any
electrical transmission facility identified as being
reasonably necessary to achieve the renewable energy resources
procurement requirements of this article. Each electrical
corporation that owns electrical transmission facilities shall
ensure that project-specific interconnection studies are
completed in a timely manner.
(3) The commission shall direct each retail seller to prepare
and submit an annual compliance report that includes all of
the following:
(A) The current status and progress made during the prior year
toward procurement of eligible renewable energy resources as a
percentage of retail sales, including, if applicable, the
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status of any necessary siting and permitting approvals from
federal, state, and local agencies for those eligible
renewable energy resources procured by the retail seller, and
the current status of compliance with the portfolio content
requirements of subdivision (c) of Section 399.16, including
procurement of eligible renewable energy resources located
outside the state and within the WECC and unbundled renewable
energy credits.
(B) If the retail seller is an electrical corporation, the
current status and progress made during the prior year toward
construction of, and upgrades to, transmission and
distribution facilities and other electrical system components
it owns to interconnect eligible renewable energy resources
and to supply the electricity generated by those resources to
load, including the status of planning, siting, and permitting
transmission facilities by federal, state, and local agencies.
(C) Recommendations to remove impediments to making progress
toward achieving the renewable energy resources procurement
requirements established pursuant to this article.
(4) The commission shall adopt, by rulemaking, all of the
following:
(A) A process that provides criteria for the rank ordering and
selection of least-cost and best-fit eligible renewable energy
resources to comply with the California Renewables Portfolio
Standard Program obligations on a total cost basis. This
process shall take into account all of the following:
(i) Estimates of indirect costs associated with needed
transmission investments and ongoing electrical corporation
expenses resulting from integrating and operating eligible
renewable energy resources.
(ii) The cost impact of procuring the eligible renewable
energy resources on the electrical corporation's electricity
portfolio.
(iii) The viability of the project to construct and reliably
operate the eligible renewable energy resource, including the
developer's experience, the feasibility of the technology used
to generate electricity, and the risk that the facility will
not be built, or that construction will be delayed, with the
result that electricity will not be supplied as required by
the contract.
(iv) Workforce recruitment, training, and retention efforts,
including the employment growth associated with the
construction and operation of eligible renewable energy
resources and goals for recruitment and training of women,
minorities, and disabled veterans.
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(v) A nonzero integration cost adder methodology, to be
initially determined by the commission no later than October
1, 2015, that reflects a reasonable estimate of the costs of
procuring capacity and energy required to accommodate the
electrical generation of the particular eligible renewable
energy resource.
(B) Rules permitting retail sellers to accumulate, beginning
January 1, 2011, excess procurement in one compliance period
to be applied to any subsequent compliance period. The rules
shall apply equally to all retail sellers. In determining the
quantity of excess procurement for the applicable compliance
period, the commission shall deduct from actual procurement
quantities, the total amount of procurement associated with
contracts of less than 10 years in duration. In no event shall
electricity products meeting the portfolio content of
paragraph (3) of subdivision (b) of Section 399.16 be counted
as excess procurement.
(C) Standard terms and conditions to be used by all electrical
corporations in contracting for eligible renewable energy
resources, including performance requirements for renewable
generators. A contract for the purchase of electricity
generated by an eligible renewable energy resource, at a
minimum, shall include the renewable energy credits associated
with all electricity generation specified under the contract.
The standard terms and conditions shall include the
requirement that, no later than six months after the
commission's approval of an electricity purchase agreement
entered into pursuant to this article, the following
information about the agreement shall be disclosed by the
commission: party names, resource type, project location, and
project capacity.
(D) An appropriate minimum margin of procurement above the
minimum procurement level necessary to comply with the
renewables portfolio standard to mitigate the risk that
renewable projects planned or under contract are delayed or
canceled. This paragraph does not preclude an electrical
corporation from voluntarily proposing a margin of procurement
above the appropriate minimum margin established by the
commission.
(5) Consistent with the goal of increasing California's
reliance on eligible renewable energy resources, the renewable
energy procurement plan submitted by an electrical corporation
shall include all of the following:
(A) An assessment of annual or multiyear portfolio supplies
and demand to determine the optimal mix of eligible renewable
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energy resources with deliverability characteristics that may
include peaking, dispatchable, baseload, firm, and
as-available capacity.
(B) Potential compliance delays related to the conditions
described in paragraph (4) (5) of subdivision (b) of Section
399.15.
(C) A bid solicitation setting forth the need for eligible
renewable energy resources of each deliverability
characteristic, required online dates, and locational
preferences, if any.
(D) A status update on the development schedule of all
eligible renewable energy resources currently under contract.
(E) Consideration of mechanisms for price adjustments
associated with the costs of key components for eligible
renewable energy resource projects with online dates more than
24 months after the date of contract execution.
(F) An assessment of the risk that an eligible renewable
energy resource will not be built, or that construction will
be delayed, with the result that electricity will not be
delivered as required by the contract.
(6) In soliciting and procuring eligible renewable energy
resources, each electrical corporation shall offer contracts
of no less than 10 years duration, unless the commission
approves of a contract of shorter duration.
(7) In soliciting and procuring eligible renewable energy
resources for California-based projects, each electrical
corporation shall give preference to renewable energy projects
that provide environmental and economic benefits to
communities afflicted with poverty or high unemployment, or
that suffer from high emission levels of toxic air
contaminants, criteria air pollutants, and greenhouse gases.
(b) A retail seller may enter into a combination of long- and
short-term contracts for electricity and associated renewable
energy credits. The commission may authorize a retail seller
to enter into a contract of less than 10 years' duration with
an eligible renewable energy resource, if the commission has
established, for each retail seller, minimum quantities of
eligible renewable energy resources to be procured through
contracts of at least 10 years' duration.
(c) The commission shall review and accept, modify, or reject
each electrical corporation's renewable energy resource
procurement plan prior to the commencement of renewable energy
procurement pursuant to this article by an electrical
corporation.
(d) Unless previously preapproved by the commission, an
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electrical corporation shall submit a contract for the
generation of an eligible renewable energy resource to the
commission for review and approval consistent with an approved
renewable energy resource procurement plan. If the commission
determines that the bid prices are elevated due to a lack of
effective competition among the bidders, the commission shall
direct the electrical corporation to renegotiate the contracts
or conduct a new solicitation.
(e) If an electrical corporation fails to comply with a
commission order adopting a renewable energy resource
procurement plan, the commission shall exercise its authority
pursuant to Section 2113 to require compliance. The commission
shall enforce comparable penalties on any retail seller that
is not an electrical corporation that fails to meet the
procurement targets established pursuant to Section 399.15.
(f) (1) The commission may authorize a procurement entity to
enter into contracts on behalf of customers of a retail seller
for electricity products from eligible renewable energy
resources to satisfy the retail seller's renewables portfolio
standard procurement requirements. The commission shall not
require any person or corporation to act as a procurement
entity or require any party to purchase eligible renewable
energy resources from a procurement entity.
(2) Subject to review and approval by the commission, the
procurement entity shall be permitted to recover reasonable
administrative and procurement costs through the retail rates
of end-use customers that are served by the procurement entity
and are directly benefiting from the procurement of eligible
renewable energy resources.
(g) Procurement and administrative costs associated with
contracts entered into by an electrical corporation for
eligible renewable energy resources pursuant to this article
and approved by the commission are reasonable and prudent and
shall be recoverable in rates.
(h) Construction, alteration, demolition, installation, and
repair work on an eligible renewable energy resource that
receives production incentives pursuant to Section 25742 of
the Public Resources Code, including work performed to
qualify, receive, or maintain production incentives, are
"public works" for the purposes of Chapter 1 (commencing with
Section 1720) of Part 7 of Division 2 of the Labor Code.
SEC. 3. Section 399.15 of the Public Utilities Code is amended
to read:
399.15. (a) In order to fulfill unmet long-term resource
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needs, the commission shall establish a renewables portfolio
standard requiring all retail sellers to procure a minimum
quantity of electricity products from eligible renewable
energy resources as a specified percentage of total
kilowatthours sold to their retail end-use customers each
compliance period to achieve the targets established under
this article. For any retail seller procuring at least 14
percent of retail sales from eligible renewable energy
resources in 2010, the deficits associated with any previous
renewables portfolio standard shall not be added to any
procurement requirement pursuant to this article.
(b) The commission shall implement renewables portfolio
standard procurement requirements only as follows:
(1) Each retail seller shall procure a minimum quantity of
eligible renewable energy resources for each of the following
compliance periods:
(A) January 1, 2011, to December 31, 2013, inclusive.
(B) January 1, 2014, to December 31, 2016, inclusive.
(C) January 1, 2017, to December 31, 2020, inclusive.
(2) (A) No later than January 1, 2012, the commission shall
establish the quantity of electricity products from eligible
renewable energy resources to be procured by the retail seller
for each compliance period. These quantities shall be
established in the same manner for all retail sellers and
result in the same percentages used to establish compliance
period quantities for all retail sellers.
(B) In establishing quantities for the compliance period from
January 1, 2011, to December 31, 2013, inclusive, the
commission shall require procurement for each retail seller
equal to an average of 20 percent of retail sales. For the
following compliance periods, the quantities shall reflect
reasonable progress in each of the intervening years
sufficient to ensure that the procurement of electricity
products from eligible renewable energy resources achieves 25
percent of retail sales by December 31, 2016, and 33 percent
of retail sales by December 31, 2020. The commission shall
require retail sellers to procure not less than 33 percent of
retail sales of electricity products from eligible renewable
energy resources in all subsequent years.
(C) Retail sellers shall be obligated to procure no less than
the quantities associated with all intervening years by the
end of each compliance period. Retail sellers shall not be
required to demonstrate a specific quantity of procurement for
any individual intervening year.
(3) The commission may require the procurement of eligible
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renewable energy resources in excess of the quantities
specified in paragraph (2). Prior to approving any procurement
of eligible renewable energy resources that would be in excess
of the quantities specified in paragraph (2), the commission
shall consider the nonzero integrated cost adder methodology
determined pursuant to clause (v) of subparagraph (A) of
paragraph (4) of subdivision (a) of Section 399.13.
(4) Only for purposes of establishing the renewables portfolio
standard procurement requirements of paragraph (1) and
determining the quantities pursuant to paragraph (2), the
commission shall include all electricity sold to retail
customers by the Department of Water Resources pursuant to
Division 27 (commencing with Section 80000) of the Water Code
in the calculation of retail sales by an electrical
corporation.
(5) The commission shall waive enforcement of this section if
it finds that the retail seller has demonstrated any of the
following conditions are beyond the control of the retail
seller and will prevent compliance:
(A) There is inadequate transmission capacity to allow for
sufficient electricity to be delivered from proposed eligible
renewable energy resource projects using the current
operational protocols of the Independent System Operator. In
making its findings relative to the existence of this
condition with respect to a retail seller that owns
transmission lines, the commission shall consider both of the
following:
(i) Whether the retail seller has undertaken, in a timely
fashion, reasonable measures under its control and consistent
with its obligations under local, state, and federal laws and
regulations, to develop and construct new transmission lines
or upgrades to existing lines intended to transmit electricity
generated by eligible renewable energy resources. In
determining the reasonableness of a retail seller's actions,
the commission shall consider the retail seller's expectations
for full-cost recovery for these transmission lines and
upgrades.
(ii) Whether the retail seller has taken all reasonable
operational measures to maximize cost-effective deliveries of
electricity from eligible renewable energy resources in
advance of transmission availability.
(B) Permitting, interconnection, or other circumstances that
delay procured eligible renewable energy resource projects, or
there is an insufficient supply of eligible renewable energy
resources available to the retail seller. In making a finding
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that this condition prevents timely compliance, the commission
shall consider whether the retail seller has done all of the
following:
(i) Prudently managed portfolio risks, including relying on a
sufficient number of viable projects.
(ii) Sought to develop one of the following: its own eligible
renewable energy resources, transmission to interconnect to
eligible renewable energy resources, or energy storage used to
integrate eligible renewable energy resources. This clause
shall not require an electrical corporation to pursue
development of eligible renewable energy resources pursuant to
Section 399.14.
(iii) Procured an appropriate minimum margin of procurement
above the minimum procurement level necessary to comply with
the renewables portfolio standard to compensate for
foreseeable delays or insufficient supply.
(iv) Taken reasonable measures, under the control of the
retail seller, to procure cost-effective distributed
generation and allowable unbundled renewable energy credits.
(C) Unanticipated curtailment of eligible renewable energy
resources necessary to address the needs of a balancing
authority.
(6) If the commission waives the compliance requirements of
this section, the commission shall establish additional
reporting requirements on the retail seller to demonstrate
that all reasonable actions under the control of the retail
seller are taken in each of the intervening years sufficient
to satisfy future procurement requirements.
(7) The commission shall not waive enforcement pursuant to
this section, unless the retail seller demonstrates that it
has taken all reasonable actions under its control, as set
forth in paragraph (5), to achieve full compliance.
(8) If a retail seller fails to procure sufficient eligible
renewable energy resources to comply with a procurement
requirement pursuant to paragraphs (1) and (2) and fails to
obtain an order from the commission waiving enforcement
pursuant to paragraph (5), the commission shall exercise its
authority pursuant to Section 2113.
(9) Deficits associated with the compliance period shall not
be added to a future compliance period.
(c) The commission shall establish a limitation for each
electrical corporation on the procurement expenditures for all
eligible renewable energy resources used to comply with the
renewables portfolio standard. In establishing this
limitation, the commission shall rely on the following:
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(1) The most recent renewable energy procurement plan.
(2) Procurement expenditures that approximate the expected
cost of building, owning, and operating eligible renewable
energy resources.
(3) The potential that some planned resource additions may be
delayed or canceled.
(d) In developing the limitation pursuant to subdivision (c),
the commission shall ensure all of the following:
(1) The limitation is set at a level that prevents
disproportionate rate impacts.
(2) The costs of all procurement credited toward achieving the
renewables portfolio standard are counted towards the
limitation.
(3) Procurement expenditures do not include any indirect
expenses, including imbalance energy charges, sale of excess
energy, decreased generation from existing resources,
transmission upgrades, or the costs associated with
relicensing any utility-owned hydroelectric facilities.
(e) (1) No later than January 1, 2016, the commission shall
prepare a report to the Legislature assessing whether each
electrical corporation can achieve a 33-percent renewables
portfolio standard by December 31, 2020, and maintain that
level thereafter, within the adopted cost limitations. If the
commission determines that it is necessary to change the
limitation for procurement costs incurred by any electrical
corporation after that date, it may propose a revised cap
consistent with the criteria in subdivisions (c) and (d). The
proposed modifications shall take effect no earlier than
January 1, 2017.
(2) Notwithstanding Section 10231.5 of the Government Code,
the requirement for submitting a report imposed under
paragraph (1) is inoperative on January 1, 2021.
(3) A report to be submitted pursuant to paragraph (1) shall
be submitted in compliance with Section 9795 of the Government
Code.
(f) If the cost limitation for an electrical corporation is
insufficient to support the projected costs of meeting the
renewables portfolio standard procurement requirements, the
electrical corporation may refrain from entering into new
contracts or constructing facilities beyond the quantity that
can be procured within the limitation, unless eligible
renewable energy resources can be procured without exceeding a
de minimis increase in rates, consistent with the long-term
procurement plan established for the electrical corporation
pursuant to Section 454.5.
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(g) (1) The commission shall monitor the status of the cost
limitation for each electrical corporation in order to ensure
compliance with this article.
(2) If the commission determines that an electrical
corporation may exceed its cost limitation prior to achieving
the renewables portfolio standard procurement requirements,
the commission shall do both of the following within 60 days
of making that determination:
(A) Investigate and identify the reasons why the electrical
corporation may exceed its annual cost limitation.
(B) Notify the appropriate policy and fiscal committees of the
Legislature that the electrical corporation may exceed its
cost limitation, and include the reasons why the electrical
corporation may exceed its cost limitation.
(h) The establishment of a renewables portfolio standard shall
not constitute implementation by the commission of the federal
Public Utility Regulatory Policies Act of 1978 (Public Law
95-617).
SEC. 4. Section 454.5 of the Public Utilities Code is amended
to read:
454.5. (a) The commission shall specify the allocation of
electricity, including quantity, characteristics, and duration
of electricity delivery, that the Department of Water
Resources shall provide under its power purchase agreements to
the customers of each electrical corporation, which shall be
reflected in the electrical corporation's proposed procurement
plan. Each electrical corporation shall file a proposed
procurement plan with the commission not later than 60 days
after the commission specifies the allocation of electricity.
The proposed procurement plan shall specify the date that the
electrical corporation intends to resume procurement of
electricity for its retail customers, consistent with its
obligation to serve. After the commission's adoption of a
procurement plan, the commission shall allow not less than 60
days before the electrical corporation resumes procurement
pursuant to this section.
(b) An electrical corporation's proposed procurement plan
shall include, but not be limited to, all of the following:
(1) An assessment of the price risk associated with the
electrical corporation's portfolio, including any
utility-retained generation, existing power purchase and
exchange contracts, and proposed contracts or purchases under
which an electrical corporation will procure electricity,
electricity demand reductions, and electricity-related
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products and the remaining open position to be served by spot
market transactions.
(2) A definition of each electricity product,
electricity-related product, and procurement related financial
product, including support and justification for the product
type and amount to be procured under the plan.
(3) The duration of the plan.
(4) The duration, timing, and range of quantities of each
product to be procured.
(5) A competitive procurement process under which the
electrical corporation may request bids for
procurement-related services, including the format and
criteria of that procurement process.
(6) An incentive mechanism, if any incentive mechanism is
proposed, including the type of transactions to be covered by
that mechanism, their respective procurement benchmarks, and
other parameters needed to determine the sharing of risks and
benefits.
(7) The upfront standards and criteria by which the
acceptability and eligibility for rate recovery of a proposed
procurement transaction will be known by the electrical
corporation prior to execution of the transaction. This shall
include an expedited approval process for the commission's
review of proposed contracts and subsequent approval or
rejection thereof. The electrical corporation shall propose
alternative procurement choices in the event a contract is
rejected.
(8) Procedures for updating the procurement plan.
(9) A showing that the procurement plan will achieve the
following:
(A) The electrical corporation, in order to fulfill its unmet
resource needs, shall procure resources from eligible
renewable energy resources in an amount sufficient to meet its
procurement requirements pursuant to the California Renewables
Portfolio Standard Program (Article 16 (commencing with
Section 399.11) of Chapter 2.3).
(B) The electrical corporation shall create or maintain a
diversified procurement portfolio consisting of both
short-term and long-term electricity and electricity-related
and demand reduction products.
(C) The electrical corporation shall first meet its unmet
resource needs through all available energy efficiency and
demand reduction resources that are cost effective, reliable,
and feasible.
(10) The electrical corporation's risk management policy,
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strategy, and practices, including specific measures of price
stability.
(11) A plan to achieve appropriate increases in diversity of
ownership and diversity of fuel supply of nonutility
electrical generation.
(12) A mechanism for recovery of reasonable administrative
costs related to procurement in the generation component of
rates.
(c) The commission shall review and accept, modify, or reject
each electrical corporation's procurement plan. The
commission's review shall consider each electrical
corporation's individual procurement situation, and shall give
strong consideration to that situation in determining which
one or more of the features set forth in this subdivision
shall apply to that electrical corporation. A procurement plan
approved by the commission shall contain one or more of the
following features, provided that the commission may not
approve a feature or mechanism for an electrical corporation
if it finds that the feature or mechanism would impair the
restoration of an electrical corporation's creditworthiness or
would lead to a deterioration of an electrical corporation's
creditworthiness:
(1) A competitive procurement process under which the
electrical corporation may request bids for
procurement-related services. The commission shall specify the
format of that procurement process, as well as criteria to
ensure that the auction process is open and adequately
subscribed. Any purchases made in compliance with the
commission-authorized process shall be recovered in the
generation component of rates.
(2) An incentive mechanism that establishes a procurement
benchmark or benchmarks and authorizes the electrical
corporation to procure from the market, subject to comparing
the electrical corporation's performance to the
commission-authorized benchmark or benchmarks. The incentive
mechanism shall be clear, achievable, and contain quantifiable
objectives and standards. The incentive mechanism shall
contain balanced risk and reward incentives that limit the
risk and reward of an electrical corporation.
(3) Upfront achievable standards and criteria by which the
acceptability and eligibility for rate recovery of a proposed
procurement transaction will be known by the electrical
corporation prior to the execution of the bilateral contract
for the transaction. The commission shall provide for
expedited review and either approve or reject the individual
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contracts submitted by the electrical corporation to ensure
compliance with its procurement plan. To the extent the
commission rejects a proposed contract pursuant to this
criteria, the commission shall designate alternative
procurement choices obtained in the procurement plan that will
be recoverable for ratemaking purposes.
(d) A procurement plan approved by the commission shall
accomplish each of the following objectives:
(1) Enable the electrical corporation to fulfill its
obligation to serve its customers at just and reasonable
rates.
(2) Eliminate the need for after-the-fact reasonableness
reviews of an electrical corporation's actions in compliance
with an approved procurement plan, including resulting
electricity procurement contracts, practices, and related
expenses. However, the commission may establish a regulatory
process to verify and ensure that each contract was
administered in accordance with the terms of the contract, and
contract disputes that may arise are reasonably resolved.
(3) Ensure timely recovery of prospective procurement costs
incurred pursuant to an approved procurement plan. The
commission shall establish rates based on forecasts of
procurement costs adopted by the commission, actual
procurement costs incurred, or combination thereof, as
determined by the commission. The commission shall establish
power procurement balancing accounts to track the differences
between recorded revenues and costs incurred pursuant to an
approved procurement plan. The commission shall review the
power procurement balancing accounts, not less than
semiannually, and shall adjust rates or order refunds, as
necessary, to promptly amortize a balancing account, according
to a schedule determined by the commission. Until January 1,
2006, the commission shall ensure that any overcollection or
undercollection in the power procurement balancing account
does not exceed 5 percent of the electrical corporation's
actual recorded generation revenues for the prior calendar
year excluding revenues collected for the Department of Water
Resources. The commission shall determine the schedule for
amortizing the overcollection or undercollection in the
balancing account to ensure that the 5 percent threshold is
not exceeded. After January 1, 2006, this adjustment shall
occur when deemed appropriate by the commission consistent
with the objectives of this section.
(4) Moderate the price risk associated with serving its retail
customers, including the price risk embedded in its long-term
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supply contracts, by authorizing an electrical corporation to
enter into financial and other electricity-related product
contracts.
(5) Provide for just and reasonable rates, with an appropriate
balancing of price stability and price level in the electrical
corporation's procurement plan.
(e) The commission shall provide for the periodic review and
prospective modification of an electrical corporation's
procurement plan.
(f) The commission may engage an independent consultant or
advisory service to evaluate risk management and strategy. The
reasonable costs of any consultant or advisory service is a
reimbursable expense and eligible for funding pursuant to
Section 631.
(g) The commission shall adopt appropriate procedures to
ensure the confidentiality of any market sensitive information
submitted in an electrical corporation's proposed procurement
plan or resulting from or related to its approved procurement
plan, including, but not limited to, proposed or executed
power purchase agreements, data request responses, or
consultant reports, or any combination, provided that the
Office of Ratepayer Advocates and other consumer groups that
are nonmarket participants shall be provided access to this
information under confidentiality procedures authorized by the
commission.
(h) Nothing in this section alters, modifies, or amends the
commission's oversight of affiliate transactions under its
rules and decisions or the commission's existing authority to
investigate and penalize an electrical corporation's alleged
fraudulent activities, or to disallow costs incurred as a
result of gross incompetence, fraud, abuse, or similar
grounds. Nothing in this section expands, modifies, or limits
the State Energy Resources Conservation and Development
Commission's existing authority and responsibilities as set
forth in Sections 25216, 25216.5, and 25323 of the Public
Resources Code.
(i) An electrical corporation that serves less than 500,000
electric retail customers within the state may file with the
commission a request for exemption from this section, which
the commission shall grant upon a showing of good cause.
(j) (1) Prior to its approval pursuant to Section 851 of any
divestiture of generation assets owned by an electrical
corporation on or after the date of enactment of the act
adding this section, the commission shall determine the impact
of the proposed divestiture on the electrical corporation's
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procurement rates and shall approve a divestiture only to the
extent it finds, taking into account the effect of the
divestiture on procurement rates, that the divestiture is in
the public interest and will result in net ratepayer benefits.
(2) Any electrical corporation's procurement necessitated as a
result of the divestiture of generation assets on or after the
effective date of the act adding this subdivision shall be
subject to the mechanisms and procedures set forth in this
section only if its actual cost is less than the recent
historical cost of the divested generation assets.
(3) Notwithstanding paragraph (2), the commission may deem
proposed procurement eligible to use the procedures in this
section upon its approval of asset divestiture pursuant to
Section 851.
(k) The commission shall direct electrical corporations to
include in their proposed procurement plans the use of any
nonzero integration cost adders determined pursuant to clause
(v) of subparagraph (A) of paragraph (4) of subdivision (a) of
Section 399.13.
REGISTERED SUPPORT / OPPOSITION :
Support
Athens Services
California Forestry Association
California Manufacturers & Technology Association (CMTA)
California Wind Energy Association (CalWEA)
California Women for Agriculture
Calpine Corporation
Covanta
HL Power Company
Individual Letters (5)
Lassen County
North Coast Chapter of California Women in Timber
PacifiCorp (if amended)
Paramount Farming Company
Plumas County Fire Safe Council (PCFSC)
Sierra County Board of Supervisors
Sierra Pacific Industries
Tubit Enterprises, Inc.
Wadham Energy LP
Opposition
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Large-scale Solar Association (LSA) (unless amended)
Solar Energy Industries Association (SEIA)
Analysis Prepared by : Brandon Gaytan / U. & C. / (916)
319-2083