BILL ANALYSIS                                                                                                                                                                                                    




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          Date of Hearing:   July 6, 2009

                    ASSEMBLY COMMITTEE ON UTILITIES AND COMMERCE
                                Felipe Fuentes, Chair
                    SB 14 (Simitian) - As Amended:  June 23, 2009

           
          SENATE VOTE  :   21-16.
           
          SUBJECT  :   Renewable Portfolio Standard

           SUMMARY  :   Increases California's Renewables Portfolio Standard  
          (RPS) to require all retail sellers of electricity and all  
          publicly owned utilities (POUs) to procure at least 33% of  
          electricity delivered to their retail customers from renewable  
          resources by 2020.  Makes changes to current renewable  
          procurement rules and procedures for siting renewable generation  
          and transmission.  

          EXISTING LAW  :  

          1)Requires investor-owned utilities (IOUs) and certain other  
            retail sellers to achieve a 20% RPS by 2010 and establishes a  
            process and standards for renewable procurement.  

          2)Provides that POUs are not subject to the same detailed  
            procurement process and standards as IOUs, but are required to  
            implement and enforce their own RPS programs.  

          3)Defines eligible renewable technologies to include biomass,  
            solar thermal, photovoltaic, wind, geothermal, renewable fuel  
            cells, small hydroelectric (30 MW or less), digester gas,  
            municipal solid waste conversion, landfill gas, ocean wave,  
            ocean thermal, and tidal current. 

          4)Provides that eligible renewable resources that are located  
            outside of California may count toward the California RPS if  
            the generator commences operation after January 1, 2005, and  
            the facility is directly connected to California's  
            transmission grid or the associated electricity is delivered  
            to California. 

          5)Creates a cap on above-market costs of renewable electricity  
            each IOU is required to spend under the RPS.  If the cost cap  
            is reached, IOUs are not required to sign any renewable  









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            contract that exceeds the market cost of electricity. 

          6)Requires PUC to develop flexible rules for compliance for the  
            RPS that allows a retail seller that cannot not meet its  
            annual targets to delay compliance for up to three years and  
            avoid penalties under certain conditions.

          7)Requires the California Energy Commission (CEC) to certify  
            electric generation facilities for the construction and  
            operation of thermal powerplants of 50 MW and larger.

          8)Precludes an electrical corporation from constructing a line,  
            plant, or system without having first obtained a permit from  
            PUC that the present or future public convenience and  
            necessity require or will require such construction, (a  
            certificate of public convenience and necessity or CPCN).

           THIS BILL  :   

          1)Requires retail sellers of electricity to procure at least 20%  
            of electricity delivered to retail customers from renewable  
            sources by 2012, 23% by 2014, 26% by 2016, 30% by 2018, 33% by  
            2020. 

          2)Modifies the definition of eligible renewable resources under  
            the RPS as follows:

               a.     For renewable resources located outside of  
                 California, the electricity from the resources must be  
                 scheduled into California at the same time it is produced  
                 by the renewable facility. 

               b.     The renewable facility must commence initial  
                 operation after January 1, 2010, or the electricity from  
                 the facility that commenced operation prior to January 1,  
                 2010, was sold to a retail seller prior to May 31, 2009. 

          3)Allows retail sellers and POUs to count the renewable output  
            from renewable facilities that do not comply with the  
            definitions of eligible renewable resources toward the RPS if  
            the retail seller or POU had executed a contract prior to May  
            31, 2009, to procure resources from a facility that met the  
            requirements of a renewable resource prior to passage of this  
            bill. 










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          4)Eliminates current rules that allow retail sellers to postpone  
            compliance with annual RPS targets for up to three years in  
            the future.  Replaces those rules with provisions that allow  
            the PUC to grant a retail seller the ability to delay  
            compliance for up to two years if the PUC makes specific  
            findings that there is insufficient transmission to meet the  
            RPS or there were unforeseen delays in permitting or  
            interconnecting projects. The findings must consider whether  
            the retail seller made all reasonable efforts to construct new  
            transmission and made prudent decisions in procuring  
            resources.  The retail seller must also show that it has made  
            all reasonable efforts to procure distributed generation  
            resources and to procure RECs. 

          5)Requires all retail sellers to procure renewable resources  
            beyond the specified targets to account for the risk that some  
            planned resources will not being developed. The margin of the  
            over-procurement shall be set at the same level for all retail  
            sellers. 

          6)Requires renewable procurement plans prepared by IOUs and  
            approve by the PUC to include a process to consider the  
            viability of proposed projects when ranking project bids.

          7)Provides that the Market Price Referent (MPR) shall be used to  
            determine above-market costs of renewable electricity. The MPR  
            shall be set based on the value of different generation  
            products within a utility's portfolio and the value of current  
            and anticipated environmental compliance costs. 

          8)Provides that an IOU does not have to procure additional  
            renewable resources in a particular year if the total  
            above-market cost of the renewable electricity procured under  
            the RPS program or bilateral contracts for that year exceeds  
            6% of the IOUs total bundled electricity sales. 

          9)Requires the PUC to adopt mechanisms to limit the influence  
            the MPR has on how sellers price their renewable proposals and  
            buyers select their contracts.

          10)Creates a mechanism to allow the PUC to approve an IOU  
            application to own its own renewable generation and then  
            recover in rates the cost of that generation plus a reasonable  
            rate of return, if the PUC finds the renewable generating  
            facility has a reasonable cost and provides a comparable value  









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            to ratepayers as compared to other solicitations for eligible  
            renewable resource. Caps the total amount of renewable  
            generation an IOU can own at 8.5% of the IOU's total load.  

          11)Allows retail sellers and POUs to use RECs from out-of-state  
            renewable resources that do not deliver electricity into  
            California (undelivered RECs) toward their RPS obligations,  
            but caps the total amount of undelivered RECs at 20% of the  
            retail seller's or POU's renewable procurement targets. 

          12)Provides that retail sellers and POUs can count all  
            undelivered RECs from contracts executed by the retail seller  
            or POU prior to May 31, 2009. 

          13)Requires the PUC to approve an application to build new  
            transmission lines that are reasonably necessary to develop  
            renewable resources within one year of the filing of a  
            completed application, if the new transmission line does not  
            threaten substantial harm to the environment that necessitates  
            a longer time for review under the California Environmental  
            Quality Act (CEQA).

          14)Clarifies that an IOU shall be allowed to recover in rates  
            the costs of constructing transmission lines that will  
            primarily deliver electricity generated within a competitive  
            renewable energy zone identified by the Renewable Energy  
            Transmission Initiative (RETI) or the transmission line is  
            needed to deliver electricity that is to be generated by  
            generation facilities in an area where at least 50% of the  
            generation capacity is from renewable resources.

          15)Requires the California Independent System Operator (CalISO)  
            to adjust its market structure to achieve, in the most cost  
            effective manner, the 33 percent RPS threshold by 2020,  
            develop annual statewide transmission plans, seek proposals  
            from and propose transmission projects to POUs that can be  
            jointly owned, and eliminate barriers over transmission lines  
            in its control area. 

          16)Requires the Department of Fish and Game (DFG) to establish  
            an internal division for the purpose of performing planning  
            and streamlined environmental compliance services with a  
            priority given to the building of eligible renewable energy  
            resources.










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          17)Requires the PUC to prepare, on an annual basis, reports to  
            the Legislature containing information on the status of  
            meeting the RPS, possibilities of retail sellers exceeding  
            caps on above-market costs, overall cost of the RPS  
            compliance, and the status of permitting and siting renewable  
            facilities.

          18)Requires POUs to comply with the same RPS mandates as retail  
            sellers and to meet specified public notice and reporting  
            requirements. Provides that the POUs shall retain discretion  
            over specific renewable procurements decisions necessary to  
            meet the RPS mandates. 

          19)Requires the CEC to establish and enforce a 33% RPS for each  
            POU. 

          20)Requires the CEC in consultation with California Air Resource  
            Board (ARB) to adopt regulations for the enforcement of the  
            RPS on POUs. Provides that the ARB shall, until such time  
            there is a market mechanism to distribute emissions allowances  
            for greenhouse gasses, have the authority to impose penalties  
            on POUs for failure to comply with the RPS.

          21)Clarifies that a public utility district receiving 100  
            percent of its electricity pursuant to a preference right  
            pursuant to the federal Trinity River Diversion Act of August  
            12, 1955 is in compliance with the renewable energy  
            procurement requirements of the RPS Program.


           FISCAL EFFECT  :   Unknown

           COMMENTS  :   

           Background  :  In 2002, the Legislature approved SB 1078 (Sher),  
          Chapter 516, Statutes of 2002, which created the RPS.  Under the  
          RPS, Investor Owned Utilities (IOUs) and competitive energy  
          service providers (ESPs) of electricity were 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.  This goal was accelerated  
          to 20% renewable power by 2010 by SB 107 (Simitian), Chapter  
          464, Statutes of 2006.  
               
          The PUC reports that for 2007, the IOUs have achieved varying  









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          levels of progress toward the 20% goal: PG&E = 11.4%; SCE  
          =15.7%; SDG&E = 5.2%.  While each IOU added renewable resources  
          in 2007, the percentage of renewables compared to the rest of  
          the portfolio declined from 2006 due to total load growth. All  
          agencies and stakeholders agree that the IOUs will not meet the  
          2010 deadline.  However, the PUC reported in October 2008 that  
          the IOUs should be in compliance in or around 2013.

          This month the PUC completed a report with preliminary results  
          on analyzing the feasibility and costs of advancing the RPS  
          targets from 20% to 33% by 2020. According to the report,  
          "achieving 33% RPS by the year 2020 is highly ambitious, given  
          the magnitude of the infrastructure buildout required."  

          The report also looked at the costs of achieving a 33% RPS.   
          Under the PUC's analysis, the incremental cost of moving from  
          the current 20% RPS mandate to a 33% RPS would result in a 7.1%  
          increase in utility costs. The increased cost include the costs  
          of more expensive generation resources, new transmission, and  
          other resources that will be needed to provide back up  
          generation when renewable electricity is not available.  The  
          cost increases assumes the utility will continue the same  
          balance of renewable technologies that they are perusing today,  
          which includes a large reliance on wind and solar energy.  The  
          cost increases also assume the direct costs of building new  
          renewable facilities remains unchanged over time and do not take  
          into account potential decreases in technology costs overtime. 

          1)  The New targets :  SB 14  eliminates the requirement that retail  
          sellers procure 20% of their electricity by 2010 and instead  
          requires that following procurement targets: 

               a)     20% by 2012.
               b)     23% by 2014.
               c)     26% by 2016.
               d)     30% by 2018.
               e)     33% by 2020. 

          While this new procurement schedule acknowledges the reality  
          that no retail sellers will comply with the 20% by 2010 targets,  
          it also does not acknowledge the difficulty retail sellers will  
          have moving beyond 20% until several new transmission lines are  
          constructed.  While two needed transmission lines should be  
          completed by 2013, the PUC estimates a total of 7 new lines will  
          need to be constructed, and those lines will likely take 5 to 10  









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          years to complete. Given these transmission limits, a  
          procurement schedule that requires slower renewable growth early  
          in the program and larger incremental increases as 2020  
          approaches may be more realistic.  The committee and the author  
          may wish to consider amending the bill to provide for a  
          renewable growth pattern that better tracks transmission  
          development such as 20% by 2012, 23% by 2015, 28% by 2018 and  
          33% by 2020. 

           2)  Eligible Resources :  Current law defines renewable  
          electricity as electricity that comes from biomass, solar  
          thermal, photovoltaic, wind, geothermal, fuel cells using  
          renewable fuels, small hydroelectric generation of 30 MW or  
          less, digester gas, municipal solid waste conversion, landfill  
          gas, ocean wave, ocean thermal, or tidal current.   

          While the definition of renewable resources is generally  
          accepted, there is debate over the definition of what types and  
          size of hydroelectricity facilities can count toward the RPS.  
          Current law provides that a hydroelectric facility must have a  
          capacity of 30 MW or less and must meet other specified  
          streamflow standards to count toward the RPS.<1>  Most of the  
          POUs would like to have this definition changed to increase the  
          allowable capacity to 50 MW. This change would allow the POUs to  
          continue to count some existing small hydroelectric facilities  
          to count toward their RPS obligations. However, it is unlikely  
          that the change would result in the construction of new  
          facilities that are larger than 30 MW but smaller than 50 MW.   
          Additionally, PG&E has requested that small hydroelectric  
          facilities in British Columbia count toward its RPS obligation  
          if the facilities comply with British Columbia's environmental  
          standards but not California standards. 

          Another resource that currently cannot be counted as renewable  
          is conversion of solid waste, where solid waste is turned into a  
          gas that can then be used to produce electricity.  Advocates for  
          solid waste conversion believe that these facilities can process  
          solid waste that cannot be recycled and thus prevent the waste  
          from entering landfills. Opponents of solid waste conversion  
          counting toward an RPS requirement are concerned that some of  
          the converted waste could actually be recycled and in most  
          ---------------------------
          <1> Current law also allows all electric generation that is the  
          result of efficiency improvements to existing hydroelectric  
          facilities to count toward the RPS, regardless of the size of  
          the original output of the facility. 








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          circumstances recycling has better environmental benefits than  
          conversion. Some opponents also believe that since most of the  
          material that will be converted was originally produced from oil  
          by-products (plastics) that the material being used is actually  
          a fossil fuel and not renewable. 

          Current law also allows for renewable generation to be owned by  
          retail sellers or for the retail sellers to contract to purchase  
          renewable electricity from merchant generators. Prior to 2008,  
          federal tax rules made utility ownership of renewable generation  
          economically unfeasible. However, new tax rules make IOUs  
          eligible for tax credits for owning renewable facilities. Even  
          with the changes in tax rules IOUs are reluctant to pursue  
          owning their own renewable generation under most circumstances  
          to do concerns over their ability to recover all costs of the  
          generation in rates.  SB 14 includes  a provision to clarify the  
          process in which IOUs can recover the cost of building their own  
          generation, but also caps the total amount of renewable  
          generation they can directly own. 

          3)  Location, deliverability, and renewable energy credits  : To  
          count toward a retail seller's RPS obligation, the renewable  
          facility must meet several requirements including that the  
          facility be located in California or deliver its electricity to  
          California. The definition of "deliver" in current law was  
          written to allow an out-of-state renewable generator that wants  
          to serve California load to comply with CalISO rules that  
          require out-of-state electricity to be scheduled into California  
          at specific times and amounts. Since renewable resources like  
          wind and solar are intermittent, they cannot be scheduled at  
          specific times and amounts. The intent of the language was for  
          the renewable energy to come to California at some point and  
          then offset the need for fossil fuel generation within  
          California. However, the CEC, which sets the eligibility rules,  
          interpreted the statutory language to allow for transactions  
          where the renewable electricity never comes to California to  
          count toward the RPS as an eligible resource.  

           SB 14  potentially limits the amount of out-of-state generation  
          that can count toward the RPS by changing the definition of  
          "deliver."  With the limited exception discussed under the  
          renewable energy credits section below, the new definition  
          requires that electricity from an out-of-state facility that is  
          not directly interconnected to a California control area must be  
          simultaneously scheduled into California. This means that the  









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          renewable electricity must come into California at the same time  
          it is produced or it cannot count toward the RPS. This new  
          definition prevents a utility from counting transactions toward  
          the RPS where it purchases wind generation from an out-of-state  
          generator but then sells that electricity to another  
          out-of-state entity and instead imports electricity from a  
          fossil fuel facility. However, the definition also makes it  
          almost impossible to purchase electricity from a solar or wind  
          facility that is located out-of-state, since these resources  
          cannot be simultaneously scheduled into California.  

          A REC represents the renewable attributes of renewable  
          generation. A REC can remain bundled with the associated energy.  
           In that case, the utility buys the renewable electricity and  
          uses the RECs to meet its RPS obligation and uses the associated  
          electricity to meet its own load.   RECs can also be traded  
          separate from the underlying electricity (tradable RECs or  
          tRECs).  In this case, one retail seller purchases the tREC and  
          applies it toward its RPS obligation and another retail seller  
          purchases the associated electricity to meet its own load.  The  
          second retail seller cannot count that electricity toward its  
          own RPS obligations.

          Current law allows the use of tRECs to meet RPS obligations, but  
          the tRECs must come from a facility that meets all of the  
          requirements to be an eligible renewable resource. The tREC must  
          come from a facility that is located in state or from an  
          out-of-state facility that delivers the associated electricity  
          into California. While current law allows for tRECs, it also  
          requires the PUC to develop specific rules on tREC eligibility  
          before retail sellers can count tRECs toward their RPS  
          obligations. A decision to implement the tREC rules is pending  
          at the PUC. 

          Most retail sellers and some renewable generators have advocated  
          for broader use of RECs. The retail sellers and the Clean Power  
          Campaign state that the RPS should not limit the use of RECs or  
          put restriction on the geographic location or deliverability of  
          the associated renewable resource. They believe this broad REC  
          market would give retail sellers more procurement options and  
          could reduce the cost of complying with the RPS. 

          A number of environmental groups, the Coalition of Utilities  
          Employees, the Large Solar Association, and California Wind  
          Energy Association have all advocated for a very limited  









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          allowance for out-of-state RECs. They fear that a wide-open REC  
          market will lead to "paper compliance with the RPS" and will not  
          result in the construction of any renewable generation within  
          California. 

           SB 14  continues to allow for unlimited tRECs if they are  
          associated with an eligible renewable facility. The bill also  
          allows a retail seller to meet up to 20% of its RPS obligations  
          with tRECs from out-of-state facilities that cannot meet the new  
          delivery requirements established in SB 14. The end result of  
          the change in the delivery requirements and the tREC  
          requirements is that there is now a 20% cap on most forms of  
          out-of-state generation.  

          4)  Cost containment  : Current law provides that if the  
          above-market costs of renewable electricity exceed set limits an  
          IOU is not required to acquire any additional renewable  
          resources that are priced above the market price.  The market  
          price is determined by the PUC based on forecasts of the  
          estimated cost of running a natural gas fired power plant plus  
          the cost of carbon emissions from a natural gas facility.  The  
          market price is referred to as the market price referent (MPR).   
 

          The MPR is not a cap on project costs. An IOU must purchase  
          renewable electricity even when contract costs exceed the MPR.   
          However, an IOU is required to acquire this higher-cost  
          renewable electricity only to the extent that sum total of all  
          the above-market costs from renewable procurement is less than  
          the a statutorily set cost cap. If the above-market costs exceed  
          the cost cap, then the IOUs are not required to sign any  
          additional contracts that exceed the MPR. However, if there are  
          suitable contracts which cost less than the MPR the IOU would  
          still be required to procure power under those contracts. 

          The above-market cost cap was not established based on a  
          determination of the perceived reasonable cost of renewables,  
          ratepayer benefits, or tolerable ratepayer impacts.  Instead, it  
          was based on the amount of funds that were to be collected for a  
          prior renewable electricity grant program.  Consequently, it is  
          possible that the cap was set at a level that makes achieving a  
          20% RPS or a 33% RPS impossible. While the current cost cap has  
          not been reached, the PUC testified at a hearing of the Select  
          Committee on Renewable resources that is likely that a  
          determination will be made in the next month that the cap has  









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          been reached.

          Over the past year, there has been significant debate over how  
          to best contain costs of renewable contracts under a mandatory  
          renewable procurement program. Parties have settled on two basic  
          approaches. The first is leave the structure of the current  
          system in place but alter the MPR so it is not based so heavily  
          on natural gas forecasts and then increase the caps on  
          above-market costs to reflect the actually expected costs of  
          complying with a 33% mandate. The second approach is to  
          eliminate the cap on the total cost of the RPS and instead  
          require the PUC to only look at the cost of the individual  
          renewable contracts a IOU signs and determine if that contract  
          offers a fair value to rate payers and is just and reasonable. 
           
           SB 14  takes the first approach by modifying the MPR process so  
          that it takes into account more factors and will not be based  
          solely on natural gas. The bill also sets the cost cap at 6% of  
          an IOU's annual total revenues.  This new cost cap allows the  
          Legislature to determine how much impact renewable electricity  
          should have on a retail sellers' overall cost structure and then  
          set the cost cap at that level by basing it on a percentage of  
          overall revenue. 

           SB 14  also calculates the caps on above-market costs of  
          renewables on an annual basis instead of over the life of the  
          program as current law does. This means that if in one year the  
          IOU had reached its above-market cost for that year it would not  
          have to procure more renewable electricity for that year, but  
          could have to restart procurement the next year.  It is not  
          clear how this annual cost cap would work with a multiyear  
          procurement process. Most renewable contracts are for 10 to 20  
          years in length. Often times, utilities do not actually begin  
          paying for electricity under a contract for several years after  
          the contract is completed since the renewable facility is not  
          yet constructed. Utilities may sign a number of large contracts  
          in one year and then only a few the next year.  This all means  
          the triggers that would require utilities to procure more or  
          less renewable electricity may not come into play until several  
          years after an IOU must make the actual procurement decisions  
          and could result and less certainty and transparency for  
          projects bidding into the RPS.   Since procurement trends do not  
          coincide well with an annual cap on costs, a cap based an  
          utility's revenue in the past year multiplied by 10 to use as a  
          10-year cap may be a more effective means of monitoring  









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          above-market costs  . 

          Under current law, the cost cap is only applied to renewable  
          contracts signed under a competitive solicitation process. It  
          does not apply to any other efforts the IOUs took to procure  
          renewable electricity, including signing bi-lateral contracts  
          and purchasing electricity through standard offer contracts.   
          These rules have created loopholes that allow utilities to sign  
          a number of contracts that are not subject to the cost cap. The  
          loophole means that the actual total costs of the RPS are not  
          actually included in the mechanism intended to control above  
          market costs. SB 14 leaves this loophole in place.  The committee  
          and the author may wish to clarify this by providing that the  
          calculations of total above-market costs shall include all  
          procurement activities that apply to a retail seller's RPS  
          obligations  . 

          The caps on above-market costs in SB 14 only apply to the IOUs.   
          As drafted, SB 14 does not provide the same cost protections to  
          ESPs or the POUs.   The committee and the author may wish to  
          consider amending the bill to provide a similar cap on  
          above-market costs for other retail sellers of electricity and  
          for POU's.  

          5)  Enforcement and off Ramps  : Current law requires the PUC to  
          enforce IOU and ESP compliance with the RPS.  The PUC may fine  
          an IOU or an ESP that fails to meet its year-to-year RPS target.  
          The PUC has set the penalties at 5 cents per kilowatt hour by  
          which the retail seller falls short of its RPS target. The PUC  
          has capped the total amount of penalties that can be charged in  
          a year at $25 million. Current law does not direct the use of  
          these penalty monies, which will be deposited in the state  
          General Fund.

          Current law also requires the PUC to develop rules of flexible  
          compliance that would allow retail sellers to avoid penalties  
          for non-compliance under certain conditions. The flexible  
          compliance rules allow retail sellers to miss RPS goals in one  
          year provided that it meets that goal within three years. This  
          means that a retail seller will not be penalized for failing to  
          meet the 20% by 2010 goal if it actually procures 20% of its  
          power from renewable resources by 2013. 

          A second flexible compliance rule allows the PUC to waive  
          penalties for a retail seller if the PUC finds that there was  









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          insufficient transmission to meet the RPS goals. 

           SB 14 provides  that the PUC may grant a retail seller an  
          additional two years to meet compliance targets if the PUC  
          finds, after an evidentiary hearing, that there is inadequate  
          transmission capacity to meet the RPS or there were  
          unanticipated permitting delays for planned eligible renewable  
          electricity projects. The retail seller must also show that it  
          made reasonable efforts to procure cost effective distribute  
          generation resources and to procure RECs. 
           
          Under current law, there is no penalty or enforcement mechanism  
          for POUs since there is no specific RPS mandate for the POUs.   
           SB 14 provides  that CARB may enforce penalties on the POUs if  
          they fail to meet their RPS targets.

          6)  Publicly Owned Utilities  : Current law does not require POUs  
          to meet the same RPS that other electricity providers are  
          required to meet. Rather, current law directs each POU to put in  
          place and enforce its own RPS and allows each publicly owned  
          utility to define the electricity sources that it counts as  
          renewable.  No state agency enforces POU compliance or places  
          penalties on a publicly owned utility that fails to meet the  
          renewable energy goals it has set for itself.

           SB 14 requires  most POUs to meet the 33% RPS by 2020  
          requirement.  While the bill requires each POU to set its own  
          RPS, the bill also provides that the CEC shall establish a 33%  
          RPS for each POU and enforce the RPS upon the establishment of  
          the RPS standards. It also requires the CEC, in consultation  
          with CARB, to adopt regulations for the enforcement of the RPS  
          on POUs. CARB then has the authority to impose penalties on POUs  
          for failure to comply with the RPS  

          Most of the POUs do not object to creating a specific POU RPS  
          mandate.  However, they believe that they should be allowed to  
          make most of the procurement decision on their own and the  
          requiring the CEC to establish an RPS and regulations for  
          enforcement is unnecessary and hinders their local control. The  
          POUs have also argue that all penalty costs would simply result  
          in a rate increase for their customers and would not result in  
          helping that POU actually procure renewable resources.  


          7)  Siting transmission and generation:   Current law provides the  









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          CEC with theauthority to site electric thermal generation  
          facilities with a capacity of greater than 50 MW.  As part of  
          compliance with the California Environmental Quality Act (CEQA),  
          other state agencies provide input, such as the Coastal  
          Commission and/or the Department of Fish and Game.  A number of  
          renewable generators do not fall under CEC jurisdiction because  
          they are smaller than 50 MW or they do not use thermal  
          technologies, and therefore, are approved and sited by local  
          jurisdictions.  Any major transmission lines needed to connect  
          renewable regions of the state with the high-voltage  
          transmission grid must be approved by the CalISO, the PUC, and  
          the Federal Energy Regulatory Commission (FERC).  If a generator  
          or an IOU wants to develop a project on federal land, then the  
          project must also be approved by at least one federal agency.   
          Additionally, most POUs do not need approval from either the  
          CalISO or the PUC to construct new transmission lines; instead,  
          they follow their own local approval process


          This complex approval process has delayed the development of a  
          number of proposed projects.  There is evidence that even when  
          one state agency wants to streamline approval of a specific  
          process approval is almost always delayed once the agency has to  
          coordinate activates with other state agencies or with the  
          federal government. 

          Using funds from a grant from the CEC, a group composed of  
          representatives from renewable developers, utilities,  
          environmental groups, land owners, the PUC, and the CEC began  
          convening meetings over a year ago to develop long-term  
          development and transmission plans for renewable energy in  
          California. The group, know as the Renewable Energy Transmission  
          Initiative (RETI), has already identified a number of Clean  
          Renewable Energy Zones (CREZs) where there is large potential  
          for renewable development and has started the work of fine  
          tuning these zones and identifying specific transmission  
          corridors that could be developed to connect the CREZs to the  
          main transmission grid. 

          While the RETI process includes participation from a broad range  
          of interests including the CEC and the PUC, it is a stakeholder  
          driven process that has not been subject to state open meeting  
          laws. Consequently, it is likely that some parties that could be  
          affected by the development of CREZs or transmission corridors  
          have not had adequate opportunity to comment on the proceeding  









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          and that RETI has not developed a sufficient legal record to  
          allow transmission and generation permitting agencies to adopt  
          RETI recommendations without public review. 

           SB 14  tries to address the problems in permitting new renewable  
          generation and transmission by requiring:

          1)The PUC to approve the application to construct a transmission  
            line within one year of filing if the line is needed to  
            provide transmission to achieve the goals of the RPS if the  
            transmission line does not threaten substantial harm to the  
            environment that necessitates a longer time for review under  
            the CEQA.

          2)Requires the CalISO to undertake all feasible efforts to  
            cooperate with POUs and IOUs to develop statewide transmission  
            plans that incorporate POU plans and potential joint  
            transmission ownership plans between IOUs, POUs, and private  
            entities. 

          3)Requires the CEC to facilitate the development of annual  
            statewide transmission plans that incorporate POU transmission  
            plans and IOU plans. 

          4)Requires the CEC to facilitate the siting and approval of new  
            transmission lines that can be jointly owned by POUs, IOUs,  
            and merchant generators.  This last provision could be read to  
            give the CEC authority to site transmission lines. The CEC  
            does not have this authority under current law and instead the  
            authority rests with the PUC or FERC. Without removing the  
            PUCs authority, this provision could actually create another  
            layer of complexity and delays to transmission siting.  The  
            committee and the author may wish to consider removing this  
            new authority from the bill  . 

          8)  Transition Issues  :  SB 14 changes  some of the current rules  
          regarding what resources are eligible and how resources can be  
          procured. Given the fact that these rule changes will impact  
          already committed investments needed to build renewable  
          resources, it is important that the transition from the current  
          rules to the new rules is carefully addressed.  

          A prior version of SB 14 addressed the transition from the  
          current procurement rules to the new rules by allowing the  
          current rules of procurement to continue to apply to procurement  









                                                                  SB 14
                                                                  Page P
          needed to meet the 20% RPS, and then applied the new rules to  
          all procurement beyond 20%.

          The current version of SB 14 takes a more abrupt approach and  
          changes the eligible rules for all renewable resources effective  
          January 1, 2010, even for resources that are already under  
          contract. SB 14 does contain grandfather clauses that allow  
          utilities to continue to count renewable resources that are made  
          ineligible by SB 14 toward their RPS obligations if the utility  
          had signed a contract or procured actual electricity from the  
          facilities prior to the passage of this bill. The clauses,  
          however, appear to leave some gaps and could result in renewable  
          resources that are already serving California load today or are  
          under development to meet California's RPS being ruled  
          ineligible under the new RPS rules. 

          The PUC and Evolution Markets, a firm that runs markets for  
          trading of REC, have both expressed concerns that retroactive  
          nature of the transition clauses in the bill could hinder  
          renewable development if current investments in renewable energy  
          appears to not count toward California's RPS. 

           1)Technical amendments  : 

             1)   On page 10, line 13, strike "at least 20" and insert  
               "33", Strike line 15 and insert "by December 31, 2020." 
             2)   On page 13, line 39, strike "The" and replace "sold to"  
               with "procured by"
             3)   Move definition of "delivered" located in the Public  
               Resources code into the 399.12 of the Public Utilities  
               Code. 
             4)   On page 47, line 23, replace "may" with "shall"
             5)   On page 49, replace "may" with "shall" 
             6)   On page 50, strike lines 9 through 25
             7)   On page 66, line 32, replace "report prepared pursuant  
               to Section 910" with "reports prepared under SB 14." 
             8)   On page 65, strike lines 1 - 28. 


           REGISTERED SUPPORT / OPPOSITION  :

           Support 
           
          California Public Utilities Commission (CPUC) (if amended)
          California State Association of Electrical Workers









                                                                  SB 14
                                                                  Page Q
          California State Pipe Trades Council
          California Wind Energy Association (CalWEA) (if amended)
          Coalition of California Utility Employees
          Natural Resources Defense Council (NRDC) (if amended)
          Planning and Conservation League (if amended)
          TURN (if amended)
          Union of Concerned Scientists (UCS) (if amended)
          Western States Council of Sheet Metal Workers
           
            Opposition 
           
          California Biomass Energy Alliance
          California Manufacturers & Technology Association (CMTA)
          City of Roseville 
          Clean Power Campaign
          Covanta Energy
          Evolution Markets, Inc. (unless amended)
          Independent Energy Producers
          Pacific Power (unless amended)
          Renewable Alliance
          Terra-Gen Power
          Western States Petroleum Association (WSPA) (unless amended)


           Analysis Prepared by  :    Edward Randolph / U. & C. / (916)  
          319-2083