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Senate Energy, Utilities and Communications Committee
1021 O Street, Suite 3350
Sacramento, CA 95814
Phone: (916) 651-4107
Fax: (916) 642-8979

February 26, 2008 Hearing Information

INFORMATIONAL HEARING 

California's Renewable Portfolio Standard – Progress and Challenges

 

State Capitol, Room 4203
February 26, 2008
9:00 a.m.

 

I. Welcome
II. Introduction
  • Senator Christine Kehoe, Chairwoman
    Senate Energy, Utilities & Communications Committee
III. Panel One: Contract Process & Offramps
IV. Panel Two: Investor-Owned Utilities
V. Panel Three: Publicly-Owned Utilities
VI. Panel Four: Electric Service Providers
  • Dominic DiMare, Legislative Advocate
    Alliance for Retail Energy Markets
VII. Panel Five: Impacts & Observations
VIII. Public Comment

 

INFORMATIONAL HEARING:
CALIFORNIA’S RENEWABLE PORTFOLIO STANDARD
PROGRESS & CHALLENGES

 

Established in 2002 under Senate Bill 1078[1], and accelerated in 2006 under Senate Bill 107[2], the California Renewables Portfolio Standard (RPS) program is one of the most ambitious renewable energy standards in the country. The RPS requires investor-owned utilities, energy service providers, and community choice aggregators to increase procurement from eligible renewable energy resources to 20% of their retail sales by 2010. Additionally, municipal utility districts are required to establish an annual renewables portfolio standard target comparable to those applicable to electrical corporations.[3]

Meeting California's 20% RPS standard has been a challenge for California's investor-owned utilities. The utilities have attained differing levels of RPS achievement: Pacific Gas & Electric 11.9%, Southern California Edison - 16.1%, San Diego Gas & Electric - 5.3%[4]. More than 4,500 MW of renewable power has been contracted for since 2002, yet only 9% of that electricity has actually been brought on line. Although policy makers and electric corporations may opine that California will reach its 2010 goal, it is not apparent by project development status. How the remaining 91% can be developed in less than three year’s time given the fact that it takes two to five years to bring a project online (assuming adequate transmission) is not apparent.

The focus of this hearing is to look beyond contract status and critically examine what is behind those contracts. What circumstances exist that may delay project development called for in those contracts? What makes those contracts vulnerable to failure or renegotiation? What repercussions are there for electric corporations if they do not meet the RPS goal? Are there alternatives?

Although the CPUC has authority to levy fines against an electric corporation that fails to meet the 2010 deadline it can excuse those same entities from meeting the deadline under certain circumstances. Also, as a result of the passage of SB 107, electric providers may have an alternate route for meeting the RPS goal through the purchase of renewable energy credits (REC)[5] the implementation of which is pending at the CPUC.

In this case, allowing retail sellers to purchase RECs rather than the bundled renewable electricity product would allow more flexibility to comply with the RPS. For example, an IOU with inadequate transmission to deliver sufficient renewable electricity to its load could 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.

RPS compliance via REC trading may provide a more convenient way for regulated industry to achieve minimum compliance, but does it promote investments to improve the environment or effectively mitigate adverse environmental impacts? The CPUC is considering allowing electric corporations to purchase RECs that are produced as a result of ratepayer-funded programs such as the California Solar Initiative and Self Generation Incentive Program. Was it intended by the Legislature that ratepayers should pay for the same generation twice?

Also of concern to the committee is the issue of the costs to ratepayers of meeting the RPS. California’s procurement policy relies on competition between wholesale generators. As a consequence the cost of that renewable power is not transparent to ratepayers although standards are in place to protect ratepayers. The RPS statute requires utilities to select renewable resources that are least cost, including the direct costs of renewable energy generation and any indirect costs due to integration of the resource and needed transmission investment. In addition, utilities are required to consider renewable resources that best fit their system needs. An independent evaluator is required for each RPS contract solicitation which provides third party oversight of the RPS procurement process and a procurement review group is appointed (subject to confidentiality agreements) with the right to consult with the utility and review the details of the utility's contract process and terms.

The Legislature is at a disadvantage in its ability to evaluate the full impacts of the RPS program to ratepayers and its impact on the renewable market. What could be done to make costs transparent? If the costs of contracts exceed what would have been the SEP funding, the electric corporations can be excused from the RPS goal. Is this a desired outcome?

Renewable energy prices are expected to rise as region-wide demand grows and the most attractive renewable energy sources get tapped. In approving a 20% RPS standard there was considerable concern that the costs could be unreasonably high because it greatly increased the demand for renewable energy in a short period of time. The “Supplemental Energy Program” (SEP) was the mechanism for ensuring that California's desire for renewable energy did not cause large rate increases. Limiting the ratepayer costs to the funds collected by the existing public goods surcharge for new renewable energy sources meant that an additional $70 million annually would be available to subsidize renewable energy purchases. The SEP was eliminated as a result of the passage of SB 1036[6] last year which authorizes the CPUC to allow investor-owned utilities to recover costs for renewable energy that are in excess of market prices, as determined by the CPUC, with a cap on such costs equal to the maximum SEP that would have been allowed for each investor-owned utility.

Although not contemplated at the time of its adoption, RPS implementation will form the foundation for the energy sector’s compliance with our greenhouse gas reduction goals as mandated by the passage of AB 32.[7] How do those two initiatives work together? Do the goals conflict in any way?

 

Data Sources

 

Progress Towards 20% by 2010, California Public Utilities Commission
http://www.cpuc.ca.gov/PUC/energy/electric/RenewableEnergy/progress.htm

RPS Contracts – CPUC Approved and Pending as of January 2008
http://www.cpuc.ca.gov/PUC/energy/electric/RenewableEnergy/rpsprojects.htm

Database of Investor-Owned Utilities’ Contracts for Renewable Generation, California Energy Commission
http://www.energy.ca.gov/portfolio/contracts_database.html

 

[1] Chapter 516, Statutes of 2002

[2] Chapter 464, Statutes of 2006

[3] Public Utilities Code Section 399.13(d)(2)

[4] As of August 1, 2007 and reported by the CPUC

[5]A REC generally represents the environmental and renewable attributes of renewable electricity as a separate commodity from the energy itself. A REC can be sold either “bundled” with the underlying energy or “unbundled” into a separate REC trading market.

[6] Chapter 685, Statutes of 2007

[7] Chapter 488, Statutes of 2006