BILL ANALYSIS
SB 1478
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Date of Hearing: June 24, 2004
ASSEMBLY COMMITTEE ON NATURAL RESOURCES
Hannah-Beth Jackson, Chair
SB 1478 (Sher) - As Amended: June 23, 2004
SENATE VOTE : 28-6
SUBJECT : Renewable energy.
SUMMARY : This bill makes numerous changes to the Renewable
Portfolio Standards Program (RPS) and the Renewable Energy
Program (REP).
EXISTING LAW :
1)Requires the California Public Utilities Commission (CPUC) to
reserve a portion of future electrical generating capacity for
renewable resources.
2)Expresses legislative intent to increase renewable electricity
to 17% 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 1% of sales per year
until a 20% renewable resources portfolio is achieved (AB 57
(Wright) Chapter 835, Statutes of 2002).
4)Creates RPS programs that require 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% renewable portfolio and establishes a detailed
process and standards for renewable procurement. Local
publicly-owned electric utilities (municipal utilities) are
exempt from the statutory requirements of RPS and instead are
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% renewable portfolio
from 2017 to 2010.
2)Provides that a renewable energy project may only receive an
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award of Supplement Energy Payments (SEP) if the project is
selected by an IOU pursuant to a competitive solicitation or
by other retail electricity providers through a solicitation
process approved by CPUC.
3)Repeals the requirement that the California Energy Commission
(CEC) direct 10% ($13.5 million/year) of renewable funds
collected via the Public Goods Charge (PGC) for credits to
existing renewable direct access customers (CEC has suspended
the customer credit program and redirected the funds to other
renewable programs).
4)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 for compliance
with a RPS or for verifying a retail product claim.
b) RECs may not be counted for compliance with RPS unless
it is purchased from an instate renewable generator,
another retail electricity provider, or an entity that has
procured the electricity associated with REC under a long
term contract.
c) RECs must originate from an eligible renewable resource.
d) Revenues from the sale of RECs by an IOU must be
credited to ratepayers.
e) RECs must be certified by CEC and comply with all the
provision of this bill before a utility can recover REC
procurement expenses in rates.
f) Retail sellers are not obligated to procure RECs if
funds are not available to award SEP for above market costs
of renewable power.
g) RECs can be sold by municipal utilities only if they are
in compliance with the same RPS standards as other retail
providers.
5)Provides that CEC may not award SEPs for the sale or purchase
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or RECs.
6)Provides that a contract for the purchase of electricity
generated by an eligible renewable resource shall include REC
associated with all electricity generation specified in the
contract.
7)Provides that there are no RECs associated with renewable
power generated under terms of a contract executed before
January 1, 2005, that did not contain explicit terms
specifying ownership of energy credits.
8)Provides that there are no RECs associated with contracts
awarded to Qualifying Facilities (QFs) under the Public
Utility Regulatory Policies Act (PURPA) of 1978, but
deliveries under these contracts shall count toward RPS
obligations.
9)Allows 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 out of state
renewable resources toward its RPS compliance.
FISCAL EFFECT : According to the Senate Appropriations Committee
analysis, $85,000 for the first year, to PUC, offset by fee
revenues.
COMMENTS :
1)Background
In 2002, the Legislature passed SB 1078, SB 1038, and AB 57.
These bills taken together created a RPS in California. Under
the RPS, IOUs are required to increase their renewable
procurement each year by at least 1% of total sales, so that
20% of their sales are from renewable energy sources by
December 31, 2017. Once a 20% portfolio is achieved, no
further increase is required. The CPUC is also required to
adopt comparable requirements for direct access providers and
community choice aggregators. The RPS requires IOUs, and
certain other retail energy providers, to buy renewable
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electricity to the extent PGC funds<1> are available. If no
PGC funds are available, the retail energy providers are not
required to purchase additional renewable power.
Specifically, the RPS applies to:
a) IOUs;
b) Direct access providers, for any new customers or new
contracts, and for all customers beginning January 1, 2006;
and,
c) Community choice aggregators.
RPS explicitly does not apply to:
a) Co-generation supplying customers on-site and via "over
the fence" transactions;
b) The State Department of Water Resources (DWR): and,
c) Municipal utilities. These utilities are responsible
for implementing and enforcing their own, unspecified, RPS.
The RPS required the CPUC to adopt a rule by July 1, 2003,
including processes for determining market prices, ranking
renewable bids according to cost and fit, flexible compliance
rules, and standard contract terms and conditions. On June 9,
2004, the CPUC approved two decisions that established
standard market terms for renewable contracts and a method for
calculating market prices for renewable resources.
The CPUC has also approved a number of renewable contracts
through an ad hoc process lacking clear rules or consistency
with the statutory scheme of RPS. To address concerns with
this ad hoc process, 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 RPS and is
--------------------------
<1> Existing law requires electric utilities to identify and
collect a separate rate component to fund energy efficiency,
public interest renewable energy research, and related "public
goods" programs.
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approved by CPUC.
1)Accelerated RPS Compliance
The "Energy Action Plan" adopted by the CPUC, the CEC and the
Power Authority (PA) pledges that the agencies will accelerate
RPS implementation to meet the 20% goal by 2010, instead of
2017. The Governor has also endorsed "20% by 2010" and
proposed an additional goal of 33% by 2020.
Currently, two of the three major IOUs appear to be able to meet
the 20% by 2010 goal. Pacific Gas & Electric's (PG&E) current
baseline of renewable power is at 12%, while Southern
California Edison (SCE) already has 17% of eligible renewable
power in its portfolio. However, San Diego Gas & Electric
(SDG&E) currently only receives 1.8% of its electricity from
renewable resources.
Due to SDG&E's miniscule renewable electricity baseline and
transmission constraints that will limit its ability to
procure new renewable power from outside its service
territory, SDG&E believes it will not be able to meet a 20% by
2010 goal without the addition of a REC program.
2)Renewable Energy Credits
Renewable Energy Credits (REC) program established in this bill
may help IOUs and other retail electric providers meet the
accelerated RPS goals by allowing them to purchase the
attributes of renewable power without having to purchase
unneeded or undeliverable generation. A REC program will
allow the environmental attributes of renewable energy to be
unbundled from the energy itself and allow the energy and the
attributes to be trade as separate commodities. A REC program
would allow SDG&E to purchase RECs from a wind farm in
Northern California while the wind farm sells its electricity
output to another retail electricity provider that does not
need the environmental attributes. SDG&E would not need to
rely on congested transmission lines for delivery of the
actual electricity and instead could produce the needed energy
from non-renewable sources within its service territory.
Alternatively, 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.
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Since SB 1478 contains explicit provisions against double
counting of RECs, the same amount of new renewable power would
need to be built to meet RPS as would be needed without a REC
program. However, REC program will allow the retail providers
to more efficiently meet their renewable obligations.
Similar trading programs are already in place in Texas and
Massachusetts. Additionally, programs have been in place for
some time that allow for the trading of the environmental
benefits of reduced SO2 and NOx emissions.
While SB 1478 leaves much of the task of developing a REC
program to CEC and CPUC, this bill establishes a narrow
definition of RECs and further limits how RECs can be traded.
The limits are an effort to prevent a wide open REC market,
which might undermine RPS goal of promoting investment in new
renewable resources in California and could create the
potential for market gaming. Specifically, under this bill:
a) RECs may only be counted once for compliance with RPS.
b) RECs may not be counted for compliance with RPS unless
it is purchased from an instate renewable generator,
another retail electricity provider, or and entity that has
procured the electricity associated with REC under a long
term contract.
c) Renewable generators who elect to contract with an IOU
under the preferential terms provided to a QF under PURPA
may not separately sell the renewable attributes of the
electricity they produce as RECs.
d) RECs may not be resold by a retail electricity provider
and still be counted toward RPS obligations.
e) Provides that no party may receive SEP for the sale of
RECs.
f) CPUC may limit the total amount of RECs that can be
separately procured to meet annual procurement targets.
Even with these limitations, opponents of this bill are
concerned that a poorly structured REC program will be a
target for market manipulation.
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4)Application to Municipal Utilities
Prior versions of SB 1478 required municipal utilities to comply
with the RPS program on the same terms as any other retail
provider of electricity. However, this bill was amended
before it left the Senate to strike the municipal utility
provisions. Without these provisions, municipal utilities
will only have to comply with current law, which requires them
to develop their own renewable programs, but does not require
them to meet the same standard as other retail providers.
Under existing law, many municipal utilities have adopted
renewable portfolios but a survey of these plans shows that
most of the plans do not come close to meeting the goals of
RPS and that most municipal utilities include sizeable amounts
of large hydroelectric generation as part of their portfolio,
which other retail providers are not allowed to do. Given the
fact that municipal utilities serve close to 30% of the total
electrical load in California, allowing municipal utilities to
set renewable portfolio that are significantly less than the
other retail providers could undermine the state's overall
renewable objectives and make it impossible to ever reach a
statewide benchmark of 20% renewable power.
Municipal utilities have argued that they should not be required
to meet the same RPS goals as other retail providers. They
believe that as municipal utilities they are accountable to
voters and not shareholders, and this accountability will
ultimately lead them to make sound decisions on renewable
procurement. Additionally, most of the municipal utilities
serve very small customer bases and have already procured
most, if not all of their power needs for next few years.
Consequently, they have no ability to build or buy additional
power to meet a state mandated RPS. In order to meet a 20%
RPS standard, many municipal utilities would be forced to buy
significantly more power than they actually need.
With municipal utilities representing close to 30% of the total
electricity demand in the state, there is concern that any RPS
that excludes the municipal utilities will always fall short
of meeting its statewide goals. To assure that the RPS
succeeds statewide, the committee may want to consider
amending this bill to require municipal utilities to meet the
same RPS standards as other retail providers.
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Additionally, under the terms of this bill, municipal utilities
will be allowed to sell RECs. If municipal utilities are not
required to meet the same RPS as other retail providers, they
may have a distinct incentive to reduce their own renewable
portfolio in order to sell available RECs. This would result
in increased profits to municipal utilities but will not add
to the overall renewable portfolio of the state. To avoid
this risk, the committee may want to consider amending this
bill to allow a municipal utility to sell RECs only if they
are in compliance with the same RPS standards as other retail
providers.
REGISTERED SUPPORT / OPPOSITION :
Support
American Lung Association of California
California Public Utilities Commission
Clean Power
League of Women Voters of California
Sierra Club
Sempra Energy
TURN
Opposition
PG&E
City of Roseville
Analysis Prepared by : Kyra Emanuels Ross / NAT. RES. / (916)
319-2092