BILL ANALYSIS 1
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SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE
DEBRA BOWEN, CHAIRWOMAN
SB 1478 - Sher Hearing Date:
April 27, 2004 S
As Amended: April 22, 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.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 an IOU must be credited
to ratepayers.
d. An IOU may not buy or sell RECs from renewable resources
already included in the IOU's baseline.
3.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.
4.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).
5.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.
2.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.
3.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.
POSITIONS
Sponsor:
Author
Support:
American Lung Association of California
Clean Power Campaign
East Bay Municipal Utility District
Sempra (if amended)
Sierra Club California
Oppose:
City of Roseville
Pacific Gas and Electric Company
Lawrence Lingbloom
SB 1478 Analysis
Hearing Date: April 27, 2004