BILL ANALYSIS 1
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SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE
DEBRA BOWEN, CHAIRWOMAN
SB 1478 - Sher Hearing
Date: April 13, 2004 S
As Amended: April 12, 2004 FISCAL B
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DESCRIPTION
Existing law:
1.Requires the California Public Utilities Commission
(CPUC) to reserve a portion of future electrical
generating capacity for renewable resources (Public
Utilities Code Section 701.3).
2.Expresses legislative intent to increase renewable
electricity to 17 percent of consumption in the state by
2006 (SB 1038 (Sher), Chapter 515, Statutes of 2002).
3.Requires investor-owned utilities (IOUs) to increase
their existing level of renewable resources by one
percent of sales per year until a 20 percent renewable
resources portfolio is achieved (AB 57 (Wright), Chapter
835, Statutes of 2002).
4.The "Renewables Portfolio Standard" (RPS), requires IOUs
and certain other retail sellers to meet essentially the
same renewable procurement goals as AB 57, but sets a
deadline of 2017 for achieving a 20 percent renewable
portfolio and establishes a detailed process and
standards for renewable procurement. Local
publicly-owned electric utilities (munis) are exempt from
the statutory requirements of the RPS and instead
required to implement and enforce their own RPS programs
(SB 1078 (Sher), Chapter 516, Statutes of 2002).
This bill:
1.Advances the deadline for achieving a 20 percent
renewable portfolio from 2017 to 2010.
2.Requires munis to meet the same "20 percent by 2010"
standard as IOUs and report their progress to the
California Energy Commission (CEC).
3.Authorizes a renewable energy credit (REC) trading
program to allow the sale of the renewable attribute of
renewable electricity as a commodity unbundled from the
physical production and delivery of renewable
electricity, subject to the following limitations:
a. RECs may not be counted more than once.
b. RECs must originate from an eligible renewable
resource and may not be resold for RPS compliance.
c. Revenues from the sale of RECs by a retail seller
must be credited to its customers.
4.Provides an IOU may only receive an award of "new
renewable" funds for a project if the project is selected
pursuant to a competitive solicitation the CPUC finds
complies with the RPS and the CPUC has approved a
contract for the project.
5.Requires "emerging renewable" funds to be provided to
projects chosen through a competitive solicitation
process in which all potential bidders are notified that
emerging technologies are the subject of the
solicitation.
6.Repeals the requirement that the CEC direct 10 percent
($13.5 million/year) of renewable funds collected via the
Public Goods Charge (PGC) for credits to existing
renewable direct access customers (the CEC has suspended
the customer credit program and redirected the funds to
other renewable programs).
7.Permits an IOU serving fewer than 60,000 customers in
California that also serves customers in another state
(i.e. PacifiCorp and Sierra Pacific Power) to count its
out-of-state renewable resources toward its RPS
compliance.
BACKGROUND
The RPS requires IOUs, and certain other retail energy
providers, to buy renewable electricity to the extent PGC
funds are available to pay for any costs exceeding a market
price set by the CPUC.
Each IOU is required to increase its renewable procurement
each year by at least one percent of total sales, so that
20 percent of its sales are renewable energy sources* by
December 31, 2017. Once a 20 percent portfolio is
achieved, no further increase is required. The CPUC is
required to adopt comparable requirements for direct access
providers and community choice aggregators.
The RPS applies to:
1.IOUs meeting specified creditworthiness conditions.
2.Direct access providers, for any new customers or new
contracts, and for all customers beginning January 1,
2006.
3.Community choice aggregators.
The RPS explicitly does not apply to:
1.Co-generation supplying customers on-site and via "over
the fence" transactions.
2.The Department of Water Resources.
3.Municipal and other local publicly-owned electric
utilities. These utilities are responsible for
implementing and enforcing their own, unspecified,
renewable portfolio standards.
The RPS requires the CPUC to adopt a rulemaking within six
months of its enactment (January 2003), including processes
for determining market prices, ranking renewable bids
according to cost and fit, flexible compliance rules, and
standard contract terms and conditions. Sixteen months
later, these items still are pending adoption at the CPUC.
In the meantime, the CPUC has approved a number of
renewable contracts through an ad hoc process lacking clear
rules or consistency with the statutory scheme of the RPS.
This bill provides that an IOU may count renewable
resources toward its RPS requirements and receive PGC funds
only if the contract is selected pursuant to a competitive
solicitation that complies with the RPS and is approved by
the CPUC.
The RPS requires IOUs to offer contracts of at least 10
years, unless the CPUC approves shorter contracts. This is
intended to support the development of new renewable
resources. This bill limits contracts less than 10 years
to no more than 10 percent of any solicitation.
The "Energy Action Plan" adopted by the CPUC, the CEC and
the Power Authority pledges that the agencies with
accelerate RPS implementation to meet the 20 percent goal
by 2010, instead of 2017. In his statements on energy, the
Governor has endorsed "20 percent by 2010" and proposed an
additional goal of 33 percent by 2020.
*Eligible renewable technologies are biomass, solar
thermal, photovoltaic, wind, geothermal, renewable fuel
cells, hydroelectric 30 megawatts or less, digester gas,
municipal solid waste conversion, landfill gas, ocean wave,
ocean thermal, and tidal current. Existing small
hydroelectric, existing geothermal, and a garbage burning
plant in Modesto may be counted toward a retail seller's
baseline, but are not eligible for supplemental payments
from PGC funds.
COMMENTS
1.Will credit trading further the purpose of the RPS? Past
examples of environmental compliance via credit trading
programs indicate these programs provide a more
convenient way for regulated industry to achieve minimum
compliance, but don't necessarily promote investments to
improve the environment or effectively mitigate adverse
environmental impacts.
In this case, allowing retailer sellers to purchase RECs
rather than the bundled renewable electricity product
will allow them more flexibility to comply with the RPS.
For example, an IOU with inadequate transmission to
deliver sufficient renewable generation to its load can
buy brown power from a local source to serve its load and
buy RECs originating from a distant renewable producer to
satisfy its RPS obligations. Or, a small retail seller,
such as an ESP, who may not be able to sign the long-term
contracts necessary to develop new renewable resources,
can buy RECs instead.
This bill establishes a limited definition of RECs and
further limits how RECs can be traded in an effort to
prevent a wide open REC market, which might undermine the
RPS goal of promoting investment in new renewable
resources in California. However, the current RPS
appears to require retail sellers to purchase the
renewable electricity itself, and contemplates IOUs will
comply by buying renewable resources via long-term
contracts with in-state producers, rather than by buying
RECs.
The author and the committee may wish to consider whether
the use RECs is consistent with the goals of the RPS and
should be permitted. If the intent is to authorize RECs
as a compliance alternative, the author and the committee
may wish to consider the following additional specific
limitations on their use in the RPS:
Prohibit retail sellers from selling or buying RECs
from the renewable resources already included in their
baseline.
Provide that RECs can only be sold once (i.e. by
the producer to the retail seller) and are thereafter
retired for RPS compliance purposes.
Require each IOU to demonstrate that the RECs it
has purchased meet all RPS requirements as a condition
of seeking recovery of REC expenditures from its
customers.
1.Is 20 percent by 2010 feasible? One percent per year is
the current rate of renewable additions required by AB 57
and the RPS. This pace leads all IOUs to reach 20
percent on or before 2017. Because Southern California
Edison (SCE) is already near 20 percent, advancing the
deadline to 2010 may not have a material impact on its
RPS obligations. Pacific Gas & Electric reports a 2004
baseline of 12.7 percent, so would need to increase to
about 1.2 percent per year to reach 20 percent by 2010.
San Diego Gas & Electric is currently at about 7 percent,
so would need to increase to about 2.2 percent per year
to reach 20 percent by 2010.
Notwithstanding the numerical targets in this bill, or
the current RPS, IOUs obligations are limited to the
availability of supplemental payments to pay any costs
above the market price benchmark set by the CPUC.
The New Renewable Resources Account, from which
supplemental payments will be drawn, will be funded at
about $70 million/year until 2007 under current law.
Because the market price benchmark hasn't been
established by the CPUC and availability and cost of
renewable resources haven't been indicated through a
competitive solicitation, it's not yet known how far the
money might go.
2.Different standards need to be reconciled. This bill
contains two different standards for measuring the level
of renewable electricity. Section 1 expresses
legislative intent to increase renewable electricity to
20 percent of consumption in the state by 2010. Sections
7 and 12 apply a standard of 20 percent of retail sales
to individual retail sellers subject to the RPS.
The Section 1 standard is different (and higher) because
it is based on statewide consumption, which includes
service arrangements which aren't retail sales subject to
the RPS, such as self-generation and wholesale wheeling
of federal power.
3.Competitive solicitation requirement may be incompatible
with CEC's emerging renewable program. The CEC's
emerging renewable program provides buy-down subsidies to
consumers installing renewable distributed generation.
Awards are continuously distributed at predetermined
rates to homeowners meeting established eligibility
criteria, on a first-come, first-served basis. This bill
requires project to be chosen through competitive
solicitation. According to the CEC, it may be infeasible
to require applicants to bid against each other. The
intent of this provision is to ensure that SCE's contract
with TrueSolar for a proposed large central-station
photovoltaic project is not eligible for an award from
this program. However, a project like TrueSolar is
already ineligible due to the statutory requirement that
awards go to projects to serve consumers' own load on
site, as well as the program's size limitations.
4.I take that back. According to the author, the
provisions of this bill requiring munis to meet the same
RPS standard as IOUs were included inadvertently in the
April 12 amendments. The author intends to offer an
amendment to remove those provisions.
POSITIONS
Sponsor:
Author
Support:
Clean Power Campaign
East Bay Municipal Utility District
Sierra Club California
Oppose:
Pacific Gas and Electric Company
Lawrence Lingbloom
SB 1478 Analysis
Hearing Date: April 13, 2004