BILL ANALYSIS � 1
SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE
ALEX PADILLA, CHAIR
AB 2363 - Dahle Hearing Date:
June 23, 2014 A
As Amended: June 16, 2014 FISCAL B
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DESCRIPTION
Current law establishes procurement requirements that electrical
corporations and public utilities must meet in order to attain a
target of 33% renewable generation in their electricity supply
portfolios by 2020. It further requires that electrical
corporations procure eligible resources based on a "least-cost,
best-fit" (LCBF) methodology, rather than directing procurement
of specific energy resource types. (Public Utilities Code �
399.11 et seq.)
Current law requires each electrical corporation to annually
prepare a renewable energy procurement plan and directs the
California Public Utilities Commission (CPUC) to review and
approve those plans. (Public Utilities Code � 399.13)
Current law requires electrical corporations (investor-owned
utilities, IOUs) to file, and the CPUC to review and approve,
long-term procurement plans to ensure that the IOUs have
sufficient and diverse short- and long-term electricity and
demand reduction resources that are cost-effective, reliable,
and feasible to serve its customers. The plans must show that
the IOUs will achieve Renewables Portfolio Standard (RPS)
requirements and first meet unmet resource needs with energy
efficiency and demand response resources that are cost
effective, reliable, and feasible. This is called long-term
procurement planning (LTPP). (Public Utilities Code � 454.5)
This bill would direct the CPUC to adopt estimates of ongoing
expenses resulting from integrating and operating eligible
renewable energy resources, i.e., "integration costs,"
including, but not limited to, any wholesale energy and capacity
costs associated with integrating each eligible renewable
resource. It would also require the CPUC to approve, no later
than October 1, 2015 a methodology for determining integration
costs and require the CPUC to direct electrical corporations to
include integration costs in their LTPP and renewable energy
procurement plan.
BACKGROUND
CPUC Procurement Requirements - California's RPS mandates that
electrical corporations and locally owned public utilities must
meet or exceed a target of 33% renewable generation in their
electricity supply portfolios by 2020.
The CPUC reviews and approves electricity procurement plans and
power purchase agreements that are proposed by IOUs. IOUs are
supposed to procure energy resources that are the LCBF
alternatives.
Definitions - Solar and wind are characterized as "intermittent"
renewable energy resources because they require additional
electric resources to be available to meet demand when the sun
doesn't shine or the wind doesn't blow. The costs of providing
power during calm and dark periods of the day are referred to as
"integration" costs and are a necessary element of integrating
intermittent resources into the grid. Other renewable energy
resources, such as geothermal and bioenergy, are classified as
"baseload" resources because they are able to operate 24/7,
regardless of the weather, and do not impose ramping challenges,
like solar and wind. Baseload facilities may have lower
integration costs than intermittent resources.
Long Term Procurement Planning (LTPP) - The LTPP proceeding
develops assumptions and forecasts of resource availability and
determines if the existing planned mix of resources is
sufficient to meet future needs. The CPUC has designed the LTPP
proceeding to occur every two years and look at least ten years
ahead. The LTPP proceeding has three main functions: to
determine if a sufficient amount of resources will be available
in the future to meet reliability needs over the long-term; if
insufficient resources are available, to authorize the
procurement of new resources to meet the identified needs; and
to examine, revise, and authorize the rules that the three
largest electrical corporations - Pacific Gas & Electric (PG&E),
Southern California Edison (SCE) and San Diego Gas & Electric
(SDG&E) - must follow when procuring electric resources for
bundled customers.
The Duck Chart - The absence of integration costs may be a
contributor to the Duck Chart, a graphic released in 2013 by the
California Independent System Operator (CAISO). Essentially, the
chart demonstrates that as California adds intermittent sources
of renewable energy (i.e., wind and solar), the state will need
additional resources to supply electricity when the sun and the
wind don't.
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, 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 preferred resources such as demand
response and storage and paying (1) renewable generators to
curtail generation; (2) natural gas generators to stand by to
respond to large ramps; or (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 without ramping up and down.
These energy sources may be part of possible policies to address
the issues raised by the Duck Chart.
Cost Comparisons - According to the February 2014 report to the
Legislature on RPS costs<1>, the 2013 weighted average
time-of-delivery-adjusted contract price was, in cents/kWh:
7.5 for all contracts, on average, including
renewable energy credit only transactions;
10.39 - 15.18 for solar PV and solar thermal
projects;
6.10 - 9.77 for wind projects;
6.75 - 7.19 for geothermal projects; and
5.94 - 7.93 for biogas projects.
CPUC Consideration of Integration Costs - In 2004, the CPUC
recognized that integration costs for intermittent renewables
should be considered to inform and improve procurement
decisions. At that time, considering limited penetration of
renewables and expecting the addition of reasonable amounts of
new renewables, the CPUC approved<2> integration "costs" of zero
- meaning that the costs of integrating any intermittent
renewable resources were nil. The CPUC has since re-evaluated
integration costs (in 2008, 2011, 2012, and 2013) and found<3>
that no evidence had been presented to determine that they are
different than negligible, as originally determined.
In the CPUC's RPS proceeding, stakeholders were given the
opportunity to provide input on the definition, scope, and form
of estimating integration costs as well as potential interim
options, until a general methodology is adopted. PG&E submitted
comments suggesting the need to account for renewable
integration costs. The Center for Energy Efficiency and
Renewable Technology, California Wind Energy Association, and
SCE filed comments asking that a process and timeline for the
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<1> PUC. Padilla Report to Legislature. February 2014.
http://www.cpuc.ca.gov/NR/rdonlyres/775640F8-38D7-4895-9252-7E172
61776FE/0/PadillaReport2014FINAL.pdf
<2> PUC Decision 04-07-029.
http://docs.cpuc.ca.gov/word_pdf/FINAL_DECISION/38287.pdf
<3> D.08-02-008, D.11-06-018, D.12-11-16, D.13-11-024.
development of renewable integration costs be established. The
CPUC decided in 2012 that integration costs would remain set at
zero until more information and a public review had occurred.<4>
The CPUC invited comments on integration costs in a separate
LTPP proceeding, R.12-03-014. This proceeding started in March
2012 and is still underway.
This means that IOUs are required to use an integration cost of
'zero' in their LCBF analyses. As a result, all renewable
resources (intermittent and baseload) are treated as having no
integration costs, even though it is generally accepted that
different technologies have different costs.
COMMENTS
1. Author's Statement . "According to the California Energy
Commission, following the passage and implementation of SB
2x, the utilities' portfolios became less diverse, not
more. The procurement of wind, solar thermal, and solar PV
have gone up dramatically while the procurement of
geothermal and biomass has declined significantly. The
absence of integration costs is one reason for this drop
because it prevents an apples-to-apples cost comparison
among different renewable resources. California's
renewable portfolio needs to be balanced and diversified.
Diversity promotes reliability by balancing intermittent
resources, like wind and solar, with baseload renewable
resources, such as geothermal and biomass. AB 2363 is
intended to correct this imbalance and avoid unnecessary
integration costs burdening ratepayers."
2. A Uniform Standard that Doesn't Create Uniformity . Due
to the RPS and the increasingly competitive prices for
renewable generation, renewable technologies are providing
much larger amounts of electricity for California. However,
this increased supply is not always contracted for in equal
amounts.
The IOUs' most recent (August 1, 2013) quarterly compliance
reports (see table for percentages of contracted MWh, by
technology) show that recent renewable procurement is
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<4> PUC Decision 12-11-016.
http://docs.cpuc.ca.gov/PublishedDocs/Published/G000/M033/K783/33
783021.PDF
weighted toward intermittent resources. With forecasts
extended to 2020, the data for all three IOUs generally
shift from geothermal and biopower and toward solar PV and
wind. Data from SDG&E show the most dramatic trend: from
2011 to 2020, solar PV increases from 0.1% to 51.9% while
geothermal decreases from 23.2% to 0%. Trends for the other
two IOUs are similar, albeit less dramatic.
------------------------------------------------------------
| RPS Procurement Compliance as of August 1, 2013 |
------------------------------------------------------------
------------------------------------------------------------
| | 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 | | | | | | | | | |
|---------+---------+---------+---------+---------+---------+---------+---------+---------+---------|
|Conduit | 0.0% | 0.0% | 0.0% | 0.5% | 0.6% | 0.1% | 0.8% | 1.0% | 0.5% |
|Hydro | | | | | | | | | |
|---------+---------+---------+---------+---------+---------+---------+---------+---------+---------|
|Solar PV | 1.4% | 8.0% | 33.4% | 0.1% | 0.1% | 51.9% | 0.7% | 1.1% | 33.1% |
| | | | | | | | | | |
---------------------------------------------------------------------------------------------------
|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% |
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By setting the same value-zero-for the integration costs of
fundamentally different renewable energy resources, the
CPUC has not, in fact, 'leveled the playing field'. And so
it is impossible to perform an "apples to apples" cost
comparison between different renewable resources.
Intermittent resources appear cheaper - and therefore win
more contracts - because costs associated with their
procurement are not included in the price. LCBF becomes,
effectively, LC.
3. Is There a Tradeoff: Capacity vs. Energy . Capacity is
the maximum electric output a generator can produce under
specific conditions. Energy generation is the amount of
electricity a generator produces over a specific period of
time. Many generators do not operate at their full capacity
all the time; they may vary their output according to
conditions at the power plant, fuel costs, and/or as
instructed from the electric power grid operator.
One key question is how should a utility balance its
portfolio among more expensive renewable energy resources
with higher capacity value (geothermal, solar thermal,
biomass, etc.) and cheaper renewable energy resources with
lower capacity value (wind, solar PV, etc.), which would
require firming and shaping.
4. Legislative Solution to a Regulatory Problem ? The CPUC
has the authority to determine whether, and to what extent,
there are costs related to integrating renewable energy
resources into the California electricity grid. Is changing
statute necessary? Does it undermine current initiatives
and proceedings at the CPUC to develop an integration cost
methodology?
5. Fiscal Impact . The CPUC stated to the Assembly Committee
on Appropriations that it does not have the expertise to
develop an integration costs methodology and therefore
would need to hire a consultant for assistance. The
Assembly Committee on Appropriations estimated that this
bill would increase costs to the CPUC in the $300,000 to
$600,000 range. Sponsors note that instead of hiring a
consultant for assistance, the CPUC could direct IOUs to
submit their own proposals for review and comment by the
CPUC and the public.
6. Ratepayer Impact . To the extent that this bill would
incent electrical corporations to contract with higher-cost
renewable energy resources, rates could increase.
7. Related Legislation . AB 177 (Perez) would have required
the CPUC to include a value for renewable integration when
authorizing electricity procurement by electrical
corporations, among other provisions. Status: Died on the
Assembly inactive file.
ASSEMBLY VOTES
Assembly Floor (76-0)
Assembly Appropriations Committee (17-0)
Assembly Utilities and Commerce Committee
(13-0)
POSITIONS
Sponsor:
California Biomass Energy Alliance
Calpine Corporation
Support:
ADM Rice, Inc.
California Farm Bureau Federation
California Fire Safe Council
California Manufacturers and Technology Association
California State Association of Counties
California Wind Energy Association
California Women for Agriculture
California Women in Timber
Coalition for Renewable Natural Gas
Support: (cont.)
Covanta Delano, Inc.
Covanta Mendota
HL Power Company
IHI Power Generation
Imperial Irrigation District
Lake County Board of Supervisors
Natural Resources Defense Council
North Coast Chapter of California Women in Timber
PacifiCorp
Rural County Representatives of California
San Diego Gas and Electric Company
Sierra County Board of Supervisors
Sierra Pacific Industries
Southern California Edison
Tuolumne County Business Council
Tuolumne County Chamber of Commerce
Tuolumne County Economic Development Authority
Union of Concerned Scientists
Wadham Energy LP
Oppose:
Large-scale Solar Association
Alexis Erwin
AB 2363 Analysis
Hearing Date: June 23, 2014