BILL ANALYSIS
AB 1362
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Date of Hearing: April 25, 2005
ASSEMBLY COMMITTEE ON NATURAL RESOURCES
Loni Hancock, Chair
AB 1362 (Levine) - As Amended: April 11, 2005
SUBJECT : Renewable energy: California Renewables Portfolio
Standard Program: renewable energy credits.
SUMMARY : This bill 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.
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 Supplemental Energy Payments (SEPs) to
generators of eligible renewable resources to cover above
market costs of renewable energy.
THIS BILL :
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1)Requires that all retail sellers of electricity, excluding
munis, to procure at least 20% of the total electricity sold
from eligible renewable resources by 2010.
2)Authorizes a 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 SEPs for above market
costs of renewable 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
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deliveries under these contracts shall count toward RPS
obligations.
FISCAL EFFECT : Unknown.
COMMENTS :
1)Background
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
responses to the RFPs, no renewable contract under the RPS which
would qualify for the SEPs have been publicly announced.
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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.
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.
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
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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.
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.
REGISTERED SUPPORT / OPPOSITION :
Support
None on file
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Opposition
None on file
Analysis Prepared by : Kyra Emanuels Ross / NAT. RES. / (916)
319-2092
[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.