BILL ANALYSIS � 1
SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE
ALEX PADILLA, CHAIR
SB 1139 - Hueso Hearing Date:
April 29, 2014 S
As Amended: April 21, 2014 FISCAL B
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DESCRIPTION
Current law requires investor-owned utilities (IOUs), community
choice aggregators (CCAs), and energy service providers (ESPs)
(collectively defined as retail sellers), and publicly-owned
utilities (POUs), to increase purchases of renewable energy such
that at least 33% of total retail sales are procured from
renewable energy resources by December 31, 2020. In the interim
each entity would be required to procure an average of 20% of
renewable energy for the period of January 1, 2011 through
December 31, 2013 and 25% by December 31, 2016. This is known
as the Renewables Portfolio Standard (RPS). (Public Utilities
Code � 399.11 et seq.)
Current law defines as RPS eligible, electric generation
resources from biomass, solar thermal, photovoltaic, wind,
geothermal, fuel cells using renewable fuels, small
hydroelectric generation of 30 megawatts (MWs) or less, digester
gas, landfill gas, ocean wave, ocean thermal, tidal current, and
municipal solid waste conversion that uses a non-combustion
thermal process to convert solid waste to a clean-burning fuel.
(Public Resources Code � 25741)
Current law requires IOUs and 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
sized up to three MWs. Statewide participation is capped at 750
MWs. (Public Utilities Code �� 399.20, 399.32)
Current law requires IOUs to procure at least 250 MWs of
renewable generating capacity from bioenergy projects including
110 MWs from wastewater treatment, municipal organic waste
diversion, food processing and codigestion; 90 MWs from dairy
and other agriculture bioenergy; and 50 MWs from generation
using byproducts of sustainable forest management. (Public
Utilities Code � 399.20)
Current law establishes the Geothermal Resources Development
Account into which federal revenues are deposited to fund grants
to eligible local jurisdictions and private entities for
projects and activities that promote development geothermal
energy resources, mitigate any adverse impacts caused by
geothermal development, or help local jurisdictions offset the
costs of providing public services necessitated by geothermal
development. (Public Resources Code � 3800 et seq.)
This bill mandates the procurement of 250 MWs of geothermal
electric generation no later than 2019, and an additional 250
MWs no later than 2024, for a total of 500 MWs, divided
proportionately between retail sellers and POUs serving more
than 75,000 customers. Retail sellers and POUs would be
required to prepare a procurement plan no later than 2016 for
review, approval, modification, or rejection by the California
Public Utilities Commission (CPUC) for retail sellers and the
California Energy Commission (CEC) for POUs.
BACKGROUND
What is Geothermal? - Geothermal energy is defined as heat from
the Earth. It is a clean, renewable resource that provides
energy in the United States and around the world in a variety of
applications and resources. Although areas with telltale signs
like hot springs are more obvious and are often the first places
geothermal resources are used, the heat of the Earth is
available everywhere, and the industry reports that it is
learning to use it in a broader diversity of circumstances. It
is considered a renewable resource because the heat emanating
from the interior of the Earth is essentially limitless. A
geothermal system requires heat, permeability, and water. The
heat from the Earth's core continuously flows outward. Sometimes
the heat, as magma, reaches the surface as lava, but it usually
remains below the Earth's crust, heating nearby rock and water -
sometimes to levels as hot as 700?F. When water is heated by the
Earth's heat, hot water or steam can be trapped in permeable and
porous rocks under a layer of impermeable rock and a geothermal
reservoir can form. This hot geothermal water can manifest
itself on the surface as hot springs or geysers, but most of it
stays deep underground, trapped in cracks and porous rock. This
natural collection of hot water is called a geothermal
reservoir.
To develop electricity from geothermal resources, wells are
drilled into a geothermal reservoir. The wells bring the
geothermal water to the surface, where its heat energy is
converted into electricity at a geothermal power plant. The
Geysers in Lake County are typical of geothermal generation and
are dry steam power plants where steam is produced directly from
the geothermal reservoir to run the turbines that power the
generator, and no separation is necessary because wells only
produce steam.
Geothermal Serving California - By the end of 2013, an estimated
17,400 MWs of RPS-eligible renewable energy capacity were
operating in California of which approximately 15,500 MWs were
sold to a utility or the market (wholesale) and an additional
1,900 MWs was self-generation. Of the 15,500 MWs of wholesale
generation, 46 projects are geothermal resources and represent
2,782 MWs of capacity which is 4.4% of generation capacity.
However, geothermal produces approximately 25% of the renewable
electricity supplied to California retail customers.
The distribution of the 46 online projects which serve
California load is:
Imperial County, 20 projects; 705 MWs of capacity;
Inyo County, 3 projects; 302 MWs of capacity;
Lake County, 6 projects; 418 MWs of capacity;
Mono County, 4 projects; 54 MWs of capacity;
Sonoma County, 12 projects; 1,238 MWs of capacity; and
State of Nevada, 1 project; 65 MWs of capacity.
Additionally, eight projects for a total of 618 MWs have
received environmental permits but are not yet operational.
Five projects for a total of 465 MWs have been permitted in
Imperial County; one 55 MW project has been permitted in Lake
County; and 2 projects for a total of 98 MWs have been permitted
in Sonoma County.<1> There may be additional generation under
contract with the utilities the existence of which has yet to be
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<1> CEC January 2014 Renewable Energy Tracking Summary.
made public.
Geothermal Ramping Capability - Most of the geothermal
generation resources in the state today are baseload resources
and lack the ability to ramp up and down to follow the variable
demands of the grid. To facilitate the integration of
renewables and meet peak electricity demand, a growing integral
part of procurement strategy is increasing flexible capacity
that can be called upon in minutes when the clouds blow over or
the wind suddenly fades. This includes fast-start gas plants
which can be called upon in less than 30 minutes and demand
response.
According to the Geothermal Resources Council, the technology
exists for some new geothermal plants to operate in a flexible
mode that can quickly adapt to variability in the power system.
Those plants can provide regulation, load following or energy
imbalance, spinning reserve, non-spinning reserve, and
replacement or supplemental reserve. Some new geothermal power
plants can ramp up and down multiple times per day to a minimum
of 10% of nominal power and up to 100% of nominal output power.
COMMENTS
1. Author's Purpose . California and the Western United
States have uniquely high quality solar and geothermal
resources. California utilities are dramatically
increasing their utilization of solar resources, but not
effectively increasing utilization of geothermal resources.
In fact, only a fraction of the geothermal resources that
could be supplying California consumers are currently being
tapped, and there has been very little increase in
geothermal generation capacity during the past decade. For
example, the Salton Sea Known Geothermal Resource Area,
which provides one of the greatest opportunities for
geothermal energy development in the United States, is
currently producing less than 500 MWs of power. The
remaining untapped generation capacity at this resource is
estimated to be at 1,700 MWs. This is a wasted opportunity
of such a valuable resource. The long term electric supply
portfolio serving California consumers should include much
greater reliance on geothermal resources so that we have a
balanced portfolio as we move toward a carbon-free
generation supply.
2. The Big Squeeze ? Although geothermal generation
currently meets approximately 25% of the state's renewable
portfolio, several contracts in the generation portfolios
of Southern California Edison and Pacific Gas & Electric
will expire in the next five years (San Diego Gas &
Electric has no geothermal in its portfolio). Those
generation owners have notified the committee that many of
those contracts are at risk and may not be extended. Other
procurement mandates have been made by the Legislature
including 250 MWs of bioenergy and 500 MWs of generation
sized less than three MWs. The biomass generators report
that many of their long-term contracts are also nearing
expiration and they have also been put on notice by the
IOUs that they may not see an extension. Should the
Legislature mandate additional procurement when it is not
clear if the electricity generation will be needed or if
the mandated generation will squeeze out and strand
existing, viable generation?
3. Not Without Tryin g. According to testimony provided to
the Senate Select Committee on California's Energy
Independence, the CPUC has approved 340 MWs of
power-purchase agreements for geothermal in Imperial
County, but all of those projects failed, most because of
either permitting issues with the federal government or
technology issues. Additionally, statewide, the CPUC
opined that there are ample capacity or baseload resources
that run 24/7. Resources are needed in specific local
areas and the state needs more flexible resources that can
turn off fairly quickly at the command of the California
Independent System Operator.
4. Myriad Dynamics Working Against Geothermal . There is no
easy answer as to why more geothermal generation has not
been contracted or developed and there are many dynamics at
play. Consequently, one mandate or one policy change will
not guarantee that more generation will succeed where
others have not. Stakeholders active in development of
renewable generation have provided the following opinions:
significant upfront costs of development to drill for the
fuel supply; baseload generation when flexible resources
are needed; priority and focus given to developing small
scale distributed generation close to load; the need for
new transmission from remote areas; failure to account for
integration costs of some renewables in competitive
procurement causing geothermal to look more expensive when
it may not be; property tax exemptions for solar that are
not available to other generation resources; and an RPS
calculator used by the CPUC in procurement review that
disadvantages geothermal.
5. Procurement Mandates Not Without Precedent . The
Legislature has mandated that the CPUC require the three
large IOUs to procure 250 MWs biomass/biogas by 2013 in
projects sized no more than three MWs. The generation was
specifically allocated to "dairy and other biogas from
wastewater treatment, municipal organic waste diversion,
food processing and codigestion 110 MWs; agricultural
bioenergy 90 MWs; and bioenergy using byproducts of
sustainable forest management, 50 MWs. These resources are
also baseload and could arguably squeeze out other baseload
resources.
Also a priority for the Governor and the Legislature has
been small scale distributed generation which is reflected
in mandated feed in tariffs of 500 MWs of generation sized
less than three MWs of any renewable type.
6. Divvying up the Mandate . POUs serve roughly 25% of the
state's electric load which would leave them an obligation
to buy about 125 MWs of geothermal. This bill applies to
eight POUs in the state - Los Angeles, Sacramento,
Imperial, Modesto, Anaheim, Riverside, Turlock and
Glendale. The POUs may not be able to find generation in
small increments to satisfy the individual procurement
mandate for each of the eight POUs. Although the author
includes a provision which allows the POUs to aggregate
their procurement mandate, in essence investing in one
generation project and splitting the required purchase
between the utilities, purchases in small increments
between many utilities, or the utilities individually, may
be an administrative challenge to manage. The author and
committee may wish to permit additional flexibility and
include language which permits compliance with the bill by
fewer than eight of the POUs as long as the collective goal
is met any one or more of the POUs.
7. Approval of POU Procurement Plans . This bill calls for
POUs to submit geothermal procurement plans to the CEC no
later than June 30, 2016. However, the CEC does not have
authority to manage any other POU procurement. To do so in
this bill would be unprecedented. The California Municipal
Utilities Association writes in opposition to this bill
that "[n]ever has the CEC had the power to modify or reject
adopted energy plans. This policy would be a first of its
kind, and apply only to the procurement of geothermal
energy developed after 2015." The author and committee may
wish to strike the language which requires the CEC to
review and approve, modify, or reject the POU plans which
would leave the POUs with only a reporting requirement to
the CEC.
8. Funding Salton Sea Restoration ? The adoption of this
bill is viewed by some supporters as providing a funding
stream for the restoration of the Salton Sea. The Imperial
Irrigation District writes in support of this bill that:
"?Imperial Irrigation District (IID) and the
County of Imperial have joined together to
advance the Salton Sea Restoration and Renewable
Energy Initiative. In short, this Initiative
calls for the development of new renewable
energy projects at the Salton Sea that will at
the same time create a sustainable funding
source for air quality management and habitat
restoration projects. Although this Initiative
may only be a small piece of a larger puzzle, it
represents a collection of new opportunities and
potential partnerships to be explored further."
Further questioning of the bill's supporters as to the
correlation between geothermal development and Salton Sea
restoration reveals an intent to require geothermal
developers to pay mitigation fees associated with siting
permits to help the region address a $9 billion restoration
plan. This may be a valuable and necessary priority but it
would be an inappropriate expense to place on electric
ratepayers. Additionally, the mitigation required by CEQA
is for the impacts of the project being sited; not for
environmental damage done as a result of prior activities
or degradation occurring from external factors long before
the project appears.
It should also be noted that there is no guarantee or
requirement that the procurement mandates of this bill
occur in the Imperial Valley. In fact the two most recent
geothermal contracts of which the committee is aware that
could be in compliance with this bill's provisions are in
Inyo County and the state of Nevada. Both are due to come
online in 2018. The construction date is not known at this
time.
9. Not RPS Eligible . This bill requires the procurement of
generation which is defined as a renewable resource under
current law. However a retail seller or POU would not be
permitted to count this generation for purposes of
complying with the 33% by 2020 RPS mandate.
10. Legislative Ratemaking . Opponents to this bill have
opined that the mandated generation would undermine the
usual tool utilized for procurement - competitive bidding.
They also note the exclusion of any IOU contracts from cost
control provisions of the RPS program. The author
responded with amendments that attempt to limit the cost
provisions of power purchase agreements and then mandate
cost recovery. The author reports his intent that this
provision prevent any excessive cost to the utilities if
there is a shortage of competition among geothermal
generators and that limiting the amount of the power
purchase agreement would prevent geothermal generators from
extracting excess profits from the mandate to purchase
geothermal generation.
These provisions amount to legislative ratemaking and
include elements that should be left to the discretion of
the contacting parties and the CPUC or POU review of what
is just and reasonable for those customers. To ensure that
the CPUC and POUs have the maximum latitude necessary to
determine just and reasonable rates and the review of
procurement for generation, the author and committee may
wish to consider striking this provision.
11. Ratepayer Impact . Mandating procurement can empower
generators to control price when a utility is mandated to
purchase since the generator sits in the cat-bird seat.
Ratepayers can be disadvantaged by contract costs not
competitively bid. Although the bill calls for
procurements to "reasonably minimize costs," the very
mandate undermines this goal. Additionally, the
procurement would be specifically exempted from the cost
limits established by the CPUC for IOUs under the RPS.
POSITIONS
Sponsor:
Author
Support:
California Coalition of Utility Employees
California Latino Water Coalition
California State Association of Electrical Workers
California State Pipe Trades Council
Coachella Valley Economic Partnership
Desert Valleys Builders Association
Energy Source
Environment California
Greater Palm Springs Convention & Visitors Bureau
GreenFire Energy Inc.
Geothermal Energy Association
Imperial County Board of Supervisors
Imperial County Building Construction Trades Council
Imperial Irrigation District
Indio Chamber of Commerce
MidAmerican Renewables
Ormat
Western States Council of Sheet Metal Workers
Oppose:
California Chamber of Commerce
California Manufacturers & Technology Association
California Municipal Utilities Association
California Wind Energy Association
M-S-R Public Power Agency
Office of Ratepayer Advocates
Pacific Gas and Electric Company
PacifiCorp, unless amended
Southern California Edison
Southern California Public Power Authority
The Utility Reform Network
Kellie Smith
SB 1139 Analysis
Hearing Date: April 29, 2014