BILL ANALYSIS 1
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SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE
MARTHA M. ESCUTIA, CHAIRWOMAN
AB 1362 - Levine Hearing Date:
June 30, 2005 A
As Amended: May 27, 2005 FISCAL B
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DESCRIPTION
Existing law:
1.Requires each investor-owned utility (IOU) to increase its
existing level of renewable resources by one percent of sales
per year until renewable resources account for 20 percent of
its generation portfolio, provided sufficient Public Goods
Charge (PGC) funds are available to cover any above-market
costs.
(AB 57 (Wright), Chapter 835, Statutes of 2002)
2.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.
a. IOUs and other retail sellers must buy renewable
electricity from eligible resources to meet their RPS
obligations. Buying unbundled "renewable energy credits"
(RECs), rather than electricity, won't satisfy RPS
obligations.
b. To be eligible, renewable resources must be located in
or delivered to California. Delivery to a retail seller or
the Independent System Operator is required, but there is
no explicit requirement for delivery to the purchasing
retail seller.
c. Local publicly-owned electric utilities are not subject
to the same detailed process and standards as IOUs, but 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 percent RPS
from 2017 to 2010.
2. Authorizes IOUs and other retail sellers to buy RECs
instead of renewable electricity pursuant to a REC trading
program which allows 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 conditions:
a. RECs may only be counted once.
b. RECs must originate from electricity generated
by an eligible resource.
c. Any revenues received by an IOU for the sale of
excess RECs must be credited to ratepayers.
d. The quantity of RECs that can be separately
procured (as opposed to buying renewable electricity)
to meet an IOU's RPS obligations may be limited by the
California Public Utilities Commission (CPUC).
e. RECs must include all environmental attributes
associated with production from an eligible resource,
unless the California Energy Commission (CEC)
determines that environmental benefits unrelated to
electricity production should be excluded.
1. Prohibits the CEC from recognizing RECs from a
pre-January 1, 2006 contract unless the contract specifies
ownership of the RECs. Prohibits the CEC from recognizing
RECs from a post-January 1, 2006 contract entered pursuant
to the Public Utility Regulatory Policies Act (i.e. a
Qualifying Facility contract).
2. Provides that the output of customer-owned solar and
wind systems participating in net metering count toward
IOUs' RPS compliance.
BACKGROUND
The RPS requires IOUs and certain other retail energy providers,
collectively referred to as "retail sellers," 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 from 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 energy service providers (ESPs)
and community choice aggregators (CCAs).
The RPS requires the CPUC to adopt processes for determining
market prices, ranking renewable bids according to cost and fit,
flexible compliance rules and standard contract terms. 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.
The "Energy Action Plan" adopted by the CPUC, the CEC and the
California Power Authority pledges that the agencies will
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.
COMMENTS
1. Will REC 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 retail 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 electricity to its load can buy
conventional electricity 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.
While REC trading may make RPS compliance more convenient,
it adds considerable complexity to a policy already bogged
down in complex implementation details. It also seems
inherently inconsistent with the goal of supporting the
development of new renewable resources within California.
This bill attempts to overcome this inconsistency by
imposing a variety of conditions on RECs.
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. However, the current RPS
requires 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
REC trading is consistent with the goals of the RPS and
whether it should be permitted for RPS compliance. 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:
a. Permit only one trade of a REC unbundled from
renewable electricity.
b. Permit only renewable producers and retail
sellers to trade RECs.
c. Prohibit REC sales from renewable energy
resources currently included in an IOU's RPS baseline.
d. Ensure that RECs originate only from eligible
renewable energy delivered in California.
e. Require that a system for tracking and
verifying RECs must be operating before RECs may be
used for RPS compliance.
f. Permit a retail seller to purchase unbundled
RECs only if the CPUC finds it is not feasible for the
retail seller to purchase energy.
g. Apply equivalent REC conditions to all retail
sellers, not just IOUs.
1. Is there any evidence that REC trading is needed?
Proponents of REC trading say it is needed to address
either their inability to deliver renewable electricity to
their customers or their inability to enter the long-term
contracts for renewable electricity contemplated by current
RPS law.
Sempra wants RECs because it says it doesn't have enough
renewable electricity potential within San Diego or
deliverable to San Diego using existing transmission lines.
So, instead of investing directly in renewable generation
itself, it wants to be able to purchase RECs from renewable
generation that someone else has invested in. While
Sempra's deliverability issue is legitimate, it doesn't
require REC trading to solve. It can be addressed through
exchanges with other California utilities, while retaining
the new investment focus of the RPS. This approach may
require a fairly minor clarification of delivery
requirements in current law. SB 107 (Simitian), pending in
the Assembly, addresses this issue.
ESPs want RECs because entering long-term contracts to
support development of new renewable resources doesn't fit
their business model - which is to buy electricity
sufficient to serve their customers on a relatively
short-term basis.
Sempra and the ESPs are pointing to prospective problems
which have not been confronted in RPS implementation to
date. Nor have they demonstrated that REC trading is
needed to address them. The author and the committee may
wish to consider whether REC proponents should show
evidence of need prior to permitting REC trading, rather
than permitting it based on speculation about prospective
problems.
2. 20 percent by 2010. 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 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.
3. Related legislation:
SB 107 (Simitian) - SB 107 also advances the 20% RPS
deadline from 2017 to 2010 and contains other provisions
which overlap with this bill. Sections 1-7 of this bill
amend sections also amended by SB 107. The author and the
committee may wish to consider whether a second bill should
be approved on the same subject and, if so, whether the
overlapping provisions should be made consistent in both
bills, or divided between the bills.
AB 200 (Leslie) - AB 200 addresses the RPS obligations of
two small utilities and is in technical conflict with this
bill as both bills add a Section 399.17 to the Public
Utilities Code. If the committee approves this bill with
this section, it should be renumbered.
AB 1585 (Blakeslee) - AB 1585 requires the CEC to review
the feasibility of increasing the RPS target to 33 percent
by 2020, a provision also contained in SB 107.
4. Prior legislation. This bill is similar to SB 1478
(Sher), vetoed by the Governor last year. As approved by
this committee last year, SB 1478 permitted REC trading for
RPS compliance, but allowed only one trade. The "one
trade" condition was removed from SB 1478 in the Assembly
and replaced with a provision that allowed two trades - the
initial "bundled" sale of energy and a subsequent trade.
Even then, SB 1478 was vetoed on grounds including that its
remaining REC conditions were "onerous" and it didn't open
up the RPS to the entire western region.
ASSEMBLY VOTES
Assembly Floor (50-29)
Assembly Appropriations Committee (13-5)
Assembly Natural Resources Committee
(7-3)
Assembly Utilities and Commerce Committee
(8-3)
POSITIONS
Sponsor:
Author
Support:
American Federation of State, County and Municipal Employees
East Bay Municipal Utility District
Pacific Gas and Electric Company (if amended)
Sempra Energy (if amended)
Southern California Edison (if amended)
Oppose:
The Utility Reform Network
Union of Concerned Scientists
Lawrence Lingbloom
AB 1362 Analysis
Hearing Date: June 30, 2005