BILL ANALYSIS
SB 107
Page A
SENATE THIRD READING
SB 107 (Simitian)
As Amended August 29, 2006
Majority vote
SENATE VOTE :25-14
UTILITIES AND COMMERCE 6-3
APPROPRIATIONS 16-0
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|Ayes:|Levine, Blakeslee, Cohn, |Ayes:|Chu, Sharon Runner, Berg, |
| |De La Torre, Montanez, | |Calderon, |
| |Ridley-Thomas | |De La Torre, Emmerson, |
| | | |Haynes, Karnette, Klehs, |
| | | |Leno, Nakanishi, Nation, |
| | | |Ridley-Thomas, Saldana, |
| | | |Walters, Yee |
| | | | |
|-----+--------------------------+-----+--------------------------|
|Nays:|Bogh, Keene, Wyland | | |
| | | | |
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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.
Allows retail sellers to purchase Renewable Energy Credits
(RECs) to comply with the RPS. Specifically, this bill :
1)Requires that all retail sellers of electricity, excluding
local publicly owned electric utilities (municipal utilities),
procure at least 20% of the total electricity sold from
eligible renewable resources by 2010.
2)Allows renewable electricity that is provided to any location
within California or is scheduled and settled for delivery in
California to count toward a retail seller's RPS obligations.
3)Prohibits the awarding of Supplement Energy Payments (SEPs)
for the purchase of Renewable Energy Credits (RECs) or for
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renewable electricity purchase agreements of less than 10
years in length. Prohibits the allocation of more than 10
percent of SEPs to eligible renewable resources that are
located outside of California.
4)Requires municipal utilities to annually prepare a report to
the California Energy Commission (CEC) on the mix of eligible
renewable resources used in their portfolio and on their
progress toward meeting the municipal utility's RPS.
5)Allows the Public Utilities Commission (PUC) to authorize the
use of Renewable Energy Credits (RECs) to meet the RPS once
CEC has developed a system to track RECs.
6)Allows municipal utilities to sell RECs to retail sellers of
electricity if the municipal utility has established a RPS
that is comparable to RPS of the Investor Owned Utilities
(IOUs) and is in compliance with that RPS.
7)Requires PUC to develop flexible rules for compliance with RPS
that shall address situations where, as a result of
transmission constraints, a retail seller is unable to procure
eligible renewable energy resources sufficient to satisfy
their RPS obligations.
8)Allows a contract for eligible renewable resources that is
less than 10 years in duration to count toward a retail
seller's RPS. Such contracts shall not be eligible for SEPs.
9)Allows PUC to authorize a procurement entity to enter into
contracts for renewable energy on behalf of a retail seller.
The procurement entity will be allowed to recover
administrative and procurement costs through the retail rates
of the end-use customers whom directly benefit from the
procurement of the renewable electricity.
10)Requires CEC to develop a system to certify, track and verify
that RECs are produced by renewable energy resources.
11)Provides that the cost of a new transmission facility that is
built to deliver electricity from areas with high
concentrations of renewable power shall be paid for by all
electricity customers in California.
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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)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.
3)Allows 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 : PUC indicates an ongoing need for four positions
at a cost of $380,000 for increased compliance workload related
to the accelerated RPS and to implement REC program. CEC
indicated absorbable costs to CEC.
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
RPS difficult.
Brief history : In 2002, the Legislature approved SB 1078
(Sher), Chapter 516, Statutes of 2002, and SB 1048 (Sher),
Chapter 515, Statutes of 2002. Together these bills created
California's RPS. Under 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. PUC is required to adopt
comparable requirements for direct access providers (Energy
Service Providers or ESPs) and community choice aggregators
(CCAs). Municipal utilities are not required to meet the same
RPS as IOUs, but instead must implement and enforce their own
RPS program that recognizes the intent of the Legislature to
encourage renewable resources.
RPS also allows new renewable energy providers to apply to CEC
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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 as established by
PUC (known as the Market Price Referent or MPR). 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. To date all contracts have
been for prices below MPR and thus no SEPs have been issued.
However, reports from parties involved in the current renewable
procurement process indicate SEPs will be needed for contracts
that will be approved this year and next.
Accelerated RPS compliance : The "Energy Action Plan"(EAP)
adopted by PUC and CEC pledged 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. PUC has mandated this
accelerated goal without additional legislation.
Currently, all of the three major IOUs may have difficulty of
meeting 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 16.7% of eligible renewable
power in its portfolio. San Diego Gas & Electric (SDG&E)
currently only receives 5.4% of its electricity from renewable
resources.
Making 20% an achievable goal: Currently, provisions in RPS
statute may prevent some retail sellers from meeting the mandate
to procure 20% of their electricity from renewable resources by
2010. Transmission constraints may 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.
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<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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This bill attempts to address the problem of 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 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
provided to the retail seller in another IOU's service
territory, the retail seller and IOU would merely arrange to
swap other electricity. This type of swapping has been a common
practice in the past. PUC has already issued a decision that
allows for renewable power that is delivered anywhere in the
state to count toward an IOU's RPS obligations.
The bill also addresses problems with transmission constraints
by allowing a retail seller to meet its RPS obligations through
the purchase of tradable RECs. A tradable REC is a credit for
the renewable attributes of the renewable generation. It allows
a retail seller to purchase the renewable attributes while
another party can buy the actual electricity.
This bill attempts to address the problems ESPs have in signing
long-term contracts by allowing PUC to approve renewable
contracts that are less than 10 years in length. Such contracts,
however, will not be eligible for SEPs.
The bill also attempts to address problems ESPs have with
signing long-term contracts by allowing PUC to authorize a
procurement entity that could purchase power on behalf of other
retail sellers. The procurement entity would have the ability to
sign long-term contracts for renewable electricity and could
then provide this electricity to ESPs. While most retail sellers
support the idea of a procurement entity they all are concerned
that the language in the bill could result in PUC ordering an
IOU to act as a procurement entity and forcing ESPs to purchase
renewable power from that entity. They have suggested that the
procurement entity should be voluntary.
This bill allows retail sellers of electricity to use RECs to
meet their RPS obligations. REC trading may help retail sellers
meet the accelerated RPS goals by allowing them to purchase the
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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.
Since SB 107 contains explicit provisions against double
counting 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, a REC program will allow the retail providers
to more efficiently meet their renewable obligations.
For more information on RECs please see the August 14, 2006,
Utilities and Commerce Committee analysis.
Flexible rules for compliance: Along with the changes to RPS to
make compliance with the 20% by 2010 easier, the bill also
requires PUC to create flexible rules for complying with RPS
that, among other considerations, take into account situations
where due to transmission constraints, a retail seller cannot
procure sufficient renewable resources. Given that the bill now
allows a retail seller to count renewable power that is
delivered to any part of California to count toward a retailer
seller's RPS obligation and that retail sellers can use RECs, it
is unclear when transmission constraints would make it difficult
for a retail seller to procure sufficient renewable resources.
Analysis Prepared by : Edward Randolph / U. & C. / (916)
319-2083
FN: 0017631