BILL ANALYSIS
AB 1362
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Date of Hearing: April 18, 2005
ASSEMBLY COMMITTEE ON UTILITIES AND COMMERCE
Lloyd E. Levine, Chair
AB 1362 (Levine) - As Amended: April 11, 2005
SUBJECT : Renewable energy: California Renewables Portfolio
Standard Program: renewable energy credits.
SUMMARY : Accelerates California Renewables Portfolio Standard
(RPS) to require retail sellers of electricity to procure at
least 20% of their retail sales from renewable power by 2010
instead of 2017. Allows Renewable Energy Credits (RECs) to be
counted toward a retail electricity provider's RPS requirement.
Specifically, this bill :
1)Requires that all retail sellers of electricity, excluding
local publicly owned electric utilities (munis), to procure at
least 20% of the total electricity sold from eligible
renewable resources by 2010.
2)Authorizes a renewable energy credit (REC) trading program to
allow the sale of the renewable and environmental attributes
of renewable electricity as a commodity unbundled from the
actual electricity produced, subject to the following
limitations:
a) RECs may not be counted more than once for
compliance with the RPS or for verifying a retail product
claim.
b) RECs must originate from an eligible renewable
resource.
c) Revenues from the sale of RECs by an IOU must be
credited to ratepayers.
d) RECs must be certified by California Energy
Commission (CEC) and comply with all the provisions of
this bill before a utility can recover REC procurement
expenses in rates.
e) Retail sellers are not obligated to procure RECs if
funds are not available to award Supplement Energy
Payments (SEPs) for above market costs of renewable
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power.
3)Provides that the CEC may not award SEPs for the sale or
purchase of RECs.
4)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.
5)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.
EXISTING LAW :
1) Requires retail sellers of electricity, except local
publicly owned electric utilities (munis), to increase
their existing level of renewable resources by 1% of sales
per year such that 20% of their retail sales are procured
from eligible renewable resources by 2017.
2) Defines eligible renewable resources to in clued all
generation from an in-state renewable electricity
generation facility that uses biomass, solar thermal,
photovoltaic, wind, geothermal, fuel cells using renewable
fuels, small hydroelectric generation of 30 megawatts or
less, digester gas, municipal solid waste conversion,
landfill gas, ocean wave, ocean thermal, or tidal current,
and any additions or enhancements to the facility using
that technology.
3) Exempts munis from the statutory requirements of RPS and
instead are requires munis to implement and enforce their
own RPS program that recognizes the intent of the
Legislature to encourage renewable resources.
4) Allows the CEC to award SEPs to generators of eligible
renewable resources to cover above market costs of
renewable energy.
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FISCAL EFFECT : Unknown.
COMMENTS : The purpose of this bill is to accelerate the state's
existing RPS requirements so that 20% of retail sales of
electricity in California come from renewable resources by the
year 2010 and to allow retail sellers of electricity to apply
RECs toward their RPS requirements.
1) Brief history : In 2002 the Legislature approved SB 1078
(Sher), Chapter 516, Statutes of 2002, which created
California's RPS. Under the RPS, the Investor Owned Utilities
(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
PUC is required to adopt comparable requirements for direct
access providers and community choice aggregators. Munis are not
required to meet the same RPS as the IOUs, but instead must
implement and enforce their own RPS program that recognizes the
intent of the Legislature to encourage renewable resources.
The RPS also allows new renewable energy providers to apply to
the CEC for SEPs. SEPs will be awarded to renewable energy
providers to cover the difference between the prices they bid in
a competitive solicitation and a market price established by the
PUC. The RPS requires IOUs, and certain other retail energy
providers, to buy renewable electricity to the extent Public
Goods Charges (PGC) funds<1> are available to pay for SEPs. If
no PGC funds are available, the retail energy providers are not
required to purchase additional renewable power.
The RPS requires the PUC to adopt a rulemaking within six months
of its enactment (January 2003), to implement the RPS and to
determine market prices from which SEPs can be determined. On
June 9, 2004, the PUC approved two decisions that established
standard market terms for renewable contracts and a method for
calculating market prices for renewable resources. Since then
the IOUs have issued Requests for Proposals (RFPs) for renewable
energy contracts that would comply with the RPS and potentially
be eligible to receive SEPs. While the IOUs have received
---------------------------
<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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responses to the RFPs, no renewable contract under the RPS which
would qualify for the SEPs have been publicly announced.
The PUC has also approved a number of renewable contracts
through an ad hoc process. These contracts have resulted in the
IOUs agreeing to purchase renewable power that will count toward
their RPS obligations but that will not be eligible to receive
SEPs.
2) Accelerated RPS Compliance : The "Energy Action Plan" adopted
by the PUC, 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 13%, while Southern California
Edison (SCE) already has 18% of eligible renewable power in its
portfolio. San Diego Gas & Electric (SDG&E) currently only
receives 5.5% of its electricity from renewable resources.
Due to SDG&E's small renewable electricity baseline and
transmission constraints that will limit its ability to procure
new renewable power from outside its service territory, SDG&E
believes they will not be able to meet a 20% by 2010 goal
without the addition of a REC program.
3) Renewable Energy Credits : The REC program established in this
bill will help the 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 traded 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
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resources, can buy RECs instead.
Since AB 1362 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, the 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 this bill leaves much of the task of developing a REC
program to the CEC and the PUC, 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 the 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) 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.
c) The PUC may limit the total amount of RECs that can be
separately procured to meet annual procurement targets.
4) Treatment of REC in existing contracts : Since no REC program
currently exists in California, very few contracts between the
retail providers and the renewable generators address the
ownership of the environmental attributes as a commodity
separate from the generated energy. A logical assumption is
that they are a bundled product. With the creation of a REC
program, there is a need to determine how to treat existing
contracts that are silent as to how to treat the environmental
attribute.
If generators are allowed to sell RECs associated with
generation already under contract with the IOUs, the current
baselines of renewable power for IOUs will decrease, since the
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IOU can no longer count that power toward RPS. This could also
lead to a double dipping situation for some renewable generators
as they would continue to receive payments from IOUs that
reflect that increased costs of renewable generation, but will
also be able to sell off the environmental attributes of that
generation.
To avoid this problem AB 1362 provides that there are no RECs
associated with renewable power generated under terms of a
contract executed before January 1, 2006, that did not contain
explicit terms specifying ownership of energy credits.
RELATED LEGISLATION :
SB 107 (Perata & Simitian) accelerates the RPS requirement to
require retail sellers to procure at least 20% of their
electricity from eligible renewable resources by 2010 and allows
RECs to be applied toward a retail seller's RPS obligation. The
bill also makes changes to existing provisions in the RPS
statute that regulated what types of power can be counted toward
the RPS and what procedures parties must follow to qualify for
SEPs. This bill is currently awaiting action in the Senate
Energy, Utilities and Communications Committee.
AB 1585 (Blakeslee) accelerates the RPS requirement to require
retail sellers to procure at least 20% of their electricity from
eligible renewable resources by 2010; allows the PUC to require
an IOU to continue to add 1% of new renewable resources per year
to its portfolio even after the IOU has reached the 20%
threshold; requires munis to procure at least 20% their
electricity from renewable resources by 2017; and allows RECs to
be applied toward a retail seller's RPS obligation. This bill is
set for hearing on April 18, 2005, in the Assembly Utilities and
Commerce Committee.
AB 1555 (La Malfa) allows electricity generated from an existing
hydroelectric facility that generates more than 30 megawatts of
electricity to count toward the California Renewable Portfolio
Standard (RPS). This bill is set for hearing on April 18, 2005,
in the Assembly Utilities and Commerce Committee.
SB 1478 (Sher) in the 2003-2004 session accelerated the RPS
requirement to require retail sellers to procure at least 20% of
their electricity from eligible renewable resources by 2010 and
allows RECs to be applied toward a retail seller's RPS
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obligation. This bill was vetoed by the Governor.
REGISTERED SUPPORT / OPPOSITION :
Support
Amended Federation State County Municipal Employees (AFSCME)
Coalition of Utilities Employees (CUE)
California Public Utilities Commission (CPUC) (in concept)
Clean Power Campaign (with amendments)
East Bay Municipal Utility District (with amendments)
National Resources Defense Council (NRDC) (with amendments)
Pacific Gas & Electric (with amendments)
Sempra Energy (with amendments)
Opposition
None on file.
Analysis Prepared by : Edward Randolph / U. & C. / (916)
319-2083