BILL ANALYSIS
SB 107
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Date of Hearing: July 6, 2005
ASSEMBLY COMMITTEE ON UTILITIES AND COMMERCE
Lloyd E. Levine, Chair
SB 107 (Simitian and Perata) - As Amended: June 21, 2005
SENATE VOTE : 25-14
SUBJECT : Renewable energy.
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. Clarifies existing rules to allow renewable
power to count toward a retail seller's RPS even if the
associated electricity is not delivered to the retail seller.
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)Requires the California Energy Commission (CEC) to review the
feasibility of increasing the 20% renewable resources target
to 33% by 2020 and to make recommendations on how to induce
municipal utilities to comply with the RPS requirements.
3)Changes the definition of eligible renewable resource to allow
renewable power that is produced outside of California to
count toward a retail seller's RPS if the associated
electricity is delivered to an in-state location, and it
complies with California environmental quality standards.
4)Allows eligible renewable generation facilities located
outside of California to receive Supplement Energy Payments
(SEPs).
5)Allows renewable energy projects to receive SEPs for the above
market cost of the renewable electricity for the value of the
life of the contract instead of just for the first 10 years of
the contract.
6)Allows an Investor Owned Utility (IOU) to receive supplemental
energy payments for renewable generation facilities which it
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owns.
7)Requires munis to annually prepare a report to the CEC on the
mix of eligible renewable resources used in their portfolio
and on their progress toward meeting the muni's RPS.
8)Defines Renewable Energy Credit (REC) to mean a certificate
that one unit of electricity was generated by an eligible
renewable energy resource and includes all renewable and
environmental attributes associated with the production of
electricity, except for emission reduction credits.
9)Provides that RECs that are unbundled from the electricity
cannot be used to satisfy the RPS requirements.
10)Requires the CEC to develop a system to certify, track and
verify RECs produced by renewable energy resources.
11)Specifies that a renewable energy project selected by an
Energy Service Provider (ESP) may only receive SEPs only if
the ESP selects the project through a "least-costs best-fit
process" and the SEPs are reasonable in comparison to other
projects.
12)Provides that renewable power generated under terms of a
contract executed before January 1, 2002, shall count toward a
retail seller's RPS obligations.
13)Provides renewable power generated under terms of contracts
awarded to Qualifying Facilities (QFs) under the Public
Utility Regulatory Policies Act (PURPA) of 1978, shall count
toward a retail seller's RPS obligations.
14)Provides that the goal to increase California's renewable
energy production so that 20 % of all retail sales of
electricity come from renewable resources by 2010, is subject
to rules of flexible compliance that would allow a retail
seller to shift their procurement requirements forward three
years.
15)Allows electric corporations with fewer than 60,000 customers
in California that also services customers in other states, to
meet the RPS under different rules than other retail sellers.
16)Provides that the cost of a new transmission facility that is
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built to deliver electricity from areas with high
concentrations of renewable power shall be paid for by all
electricity customers in California.
17)Requires all long term procurement plans entered into by an
electrical corporation or a muni to adopt a strategy to
achieve efficiency in the use of fossil fuel and to address
carbon emissions.
EXISTING LAW :
1)Requires retail sellers of electricity, except 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 include all generation
from a 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. Requires the renewable resource to be
located in California or be directly connected with the
California transmission system.
3)Exempts munis from the statutory requirements of RPS and
instead 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, but SEPs may not be paid to one project for more than
10 years.
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 address issues that may make compliance with
the RPS difficult.
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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.
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"(EAP)
adopted by the PUC, the CEC and the Power Authority (PA) pledges
---------------------------
<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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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. The PUC believes this accelerated goal can be mandated
without additional legislation.
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.
3) Delayed implementation : This bill contains a provision that
requires the PUC to create rules to allow retail sellers to
delay meeting the 20% by 2010 goal if the retail seller cannot
meet the goals. This provision could result in delaying
achievement of the 20% goal until 2013. This provision could
weaken the firm goals already set forth in the EAP and may delay
implementation of the RPS. To assure that this bill does not
actually weaken the current goals in the EAP, the committee may
want to consider amending the bill to delete the provision
allowing retail sellers to delay implementation .
4) Making 20% an achievable goal: Currently, provisions in the
RPS statute may prevent some retail sellers from meeting any
mandate to procure 20% of their electricity from renewable
resources by 2010. Transmission constraints will limit SDG&E's
ability to buy new renewable electricity and have that
electricity delivered to its service territory. The current RPS
statute requires that ESPs procure their renewable resources
through contracts that are at least 10 years in length, but
because of the long term uncertainty of direct access markets in
California, ESPs may not be able to sign enforceable contracts
of that length.
This bill attempts to address the problems with transmission
constraints by clarifying that electricity from eligible
renewable resources does not have to be delivered to the service
territory of the retail seller and instead only requires that
the electricity be provided to the retail seller at a location
within California. This provision would maintain the RPS's
objective of reducing consumption of fossil fuels within
California, but would allow for more flexibility in the delivery
of electricity. If the renewable electricity were actually
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provided to the retail seller in another IOU's service
territory, the retail seller and the IOU would merely arrange to
swap other electricity. This type of swapping had been a common
practice in the past.
The PUC has recently issued a draft decision that would, if
approved, allow for renewable power that is delivered anywhere
in the state to count toward an IOU's RPS obligations.
This bill does not address the problems ESPs have in signing
long term contracts.
5) Out of state delivery: Current law is ambiguous as to whether
renewable power produced outside of California can count toward
California's RPS and can qualify for SEPs. One of the main
goals of the RPS is to reduce the need for fossil fuel fired
electricity in California. This goal can still be achieved if
electricity from other states is allowed to count toward the
RPS, provided the electricity is actually delivered to the
state. Allowing out of state produced renewable electricity to
count toward the RPS will create a significantly larger market
for renewable power and could potentially lower the overall cost
of renewable power.
Other parties believe that only electricity that is produced
within California should count toward the RPS since another goal
of the RPS is to create California jobs. They believe that
allowing for out of state delivery of renewable power could
eliminate some California jobs.
This bill addresses the issue by allowing renewable power that
is produced outside of California to count toward a retail
seller's RPS obligations, provided it is delivered to
California. The bill also allows these projects to qualify for
SEPs.
While allowing out of state produced renewable power to count
toward California's RPS could lead to lower costs for renewable
power, the committee however may want to consider if these
projects should also qualify for subsidies from California
ratepayers in the form of SEPs. The goal of creating more
California jobs may be better maintained if California ratepayer
money is only used to fund California projects and is not used
to subsidize out of state projects. Therefore, the committee may
want to consider amending the bill to provide that only projects
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located within California can qualify for SEPs.
6) IOU eligibility for SEPs : Current law prohibits an IOU from
receiving SEPs for utility owned renewable generations. Since
the IOUs are entitled to recover all of their reasonable costs
for generation they own from the ratepayers, there appears to be
little need to allow them to access ratepayer funded SEPs to pay
for the above market costs of the renewable generation.
Allowing IOU owned projects to qualify for SEP may not result in
more renewable generation, but would divert SEPs away from other
renewable projects. Because the RPS provides that retail sellers
do not have to comply with the RPS if no SEPs are available to
pay for the above market costs of renewable power, this
diversion could actually result in delays in implementing the
RPS. To assure that there are sufficient SEPs to meet the needs
of the RPS, the committee may wish to consider amending the bill
to delete the provision allowing IOUs to qualify for SEPs.
6) Multiple definitions of delivered: Currently the bill
contains multiple definitions of what is considered "delivery"
of electricity and none of the definitions are clear as to what
would constitute "delivery." It appears that the intent of the
definitions is to define delivery of electricity as providing
electricity to a point within California specified by the retail
seller. To clarify this point, the committee may wish to
consider amending the bill to provide a single definition of
delivery .
7) Related Legislation : AB 1362 (Levine), which was approved by
this committee on an 8 to 3 vote earlier this year, mandates the
acceleration of the RPS to 20% by 2010. AB 1585 (Blakeslee),
which passed this committee on an 11 to 0 vote earlier this
year, requires the CEC to study the feasibility of attaining a
33 percent RPS standard. Both these bills passed the Senate
Energy, Utilities and Communications Committee on June 30, 2005.
Both bills were amended in committee to make their enactment
contingent on the enactment of SB 107.
Additionally, AB 200 (Leslie), which was approved by this
committee on a 9 to 0 vote in April, and is currently pending on
the Senate Floor, addresses the same issues of compliance of out
of state utilities that service less than 60,000 customer in
California that this bill addresses.
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The committee may wish to consider whether an additional 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.
8) Prior Legislation : SB 1478 (Sher) from the 2003-2004 session
contained the provision in this bill to accelerate the RPS
targets to 20% by 2010, but also contained provisions allowing
RECs to be eligible for RPS compliance.
9) Technical changes :
On page 23 starting at line 30, the added subdivision (e) of
Public Utilities Code Section 399.13, was originally intended to
address issues with muni sales of RECs for the purposes of RPS
compliance, but since this bill no longer allows RECs to be used
for RPS compliance, the section does not make sense and should
be deleted.
REGISTERED SUPPORT / OPPOSITION :
Support
California Public Utilities Commission (CPUC) (Support in
concept)
Clean Power Campaign
East Bay Municipal Utility District (EBMUD)
Independent Energy Produces (support if amended)
Sierra Club California
Union of Concerned Scientists
Opposition
Sempra Energy (Oppose unless amended)
Southern California Edison (SCE) (Oppose unless amended)
Calpine (Oppose unless amended)
Pacific Gas and Electric (PG&E) (Oppose unless amended)
Analysis Prepared by : Edward Randolph / U. & C. / (916)
319-2083