BILL ANALYSIS 1
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SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE
DEBRA BOWEN, CHAIRWOMAN
SB 67 - Bowen Hearing Date: April 8, 2003
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As Introduced: January 17, 2003 FISCAL B
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DESCRIPTION
Existing law (Public Utilities Code Section 701.3) requires the
California Public Utilities Commission (CPUC) to reserve a
portion of future electrical generating capacity for renewable
resources.
Existing law (Public Utilities Code Section 454.5) requires
investor-owned utilities (IOUs) to buy renewable resources with
the goal of increasing their existing level of renewable
resources by one percent per year until a 20 percent renewable
resources portfolio is achieved.
Existing law (SB 1078 (Sher), Chapter 516, Statutes of 2002),
the "Renewable Portfolio Standard" or RPS, requires IOUs to meet
essentially the same renewable procurement goals as Section
454.5, but sets a deadline of 2017 for achieving a 20 percent
renewable portfolio and establishes a detailed process and
standards for renewable procurement.
Under the RPS, the CPUC is prohibited from requiring an IOU to
buy renewable resources to fulfill the RPS until the IOU has
attained an investment grade credit rating as determined by at
least two major rating agencies.
This bill establishes an alternative credit test which permits
the CPUC to require RPS procurement when an IOU is able to buy
renewable resources on reasonable terms, those resources can be
financed if necessary, and the procurement will not impair the
restoration of the IOU's creditworthiness.
BACKGROUND
AB 57 (Wright), Chapter 835, Statutes of 2002, established a
process under which an IOU may be assured its electricity
procurement expenses will be recoverable in customer rates, if
the procurement is conducted consistent with a CPUC-approved
procurement plan. AB 57 included a requirement that IOUs buy
renewable resources with the goal of increasing their existing
level of renewable resources by one percent per year of
electricity sold until a 20 percent renewable resources
portfolio is achieved. Like the RPS, AB 57's requirement to buy
renewable energy is limited by the availability of Public Goods
Charge funds to subsidize above-market costs. AB 57's renewable
procurement requirements are not explicitly contingent on rating
agency decisions.
In August 2002, in anticipation of AB 57 and the RPS, the CPUC
issued an interim procurement order requiring each IOU to buy
renewable energy to achieve the one percent annual increase
contemplated in the legislation. The CPUC relied on its general
authority and the direction provided by Section 701.3 to require
the IOUs to procure renewable resources. Non-creditworthy IOUs
were authorized to enter contracts in partnership with the
Department of Water Resources. While Pacific Gas and Electric's
(PG&E) renewable procurement relied on DWR credit backing,
Southern California Edison's (SCE) did not.
SB 1078, which took effect January 1, 2003, prohibits the CPUC
from requiring an IOU to conduct procurement to fulfill the
renewable portfolio standard until at least two "major rating
agencies" give it an investment grade credit rating. PG&E and
SCE don't meet this condition currently. It is unlikely PG&E
will meet this condition until some time after its bankruptcy
reorganization is resolved, which may result in a delay of its
implementation of the RPS.
According to the author, the purpose of the RPS is undermined by
making its implementation contingent on the decisions of credit
rating agencies. This bill corrects that problem and allows
renewable procurement to proceed on terms which are reasonable
and acceptable to the buyer, the seller and the CPUC.
COMMENTS
Does an IOU need an investment grade credit rating to buy
renewable energy? While the credit standing of a utility is
clearly an important factor in renewable procurement, as in
other aspects of its operations, it is unclear why renewable
procurement should be subject to a different standard than other
aspects of utility procurement or other regulated expenditures.
It is possible for a sub-investment grade IOU to buy renewable
energy, as evidenced by SCE's ability to comply with the recent
CPUC order based on its current credit rating, which has not yet
returned to investment grade.
An IOU must buy enough electricity to serve its customers. The
RPS credit standard in current law does not change that fact, it
only sets a higher threshold for renewable procurement, which
places renewable resources at a disadvantage to non-renewable
resources. An IOU that fails to buy renewable resources under
the RPS isn't relieved of its obligation to serve its customers
- it must buy non-renewable power instead.
POSITIONS
Sponsor:
Author
Support:
Independent Energy Producers (if amended)
Office of Ratepayer Advocates
Southern California Edison
The Utility Reform Network
Oppose:
None on file
Lawrence Lingbloom
SB 67 Analysis
Hearing Date: April 8, 2003