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HomeMy WebLinkAboutf-4 Summary of SB 350(DeLeon) Information Item Presented 10\tte 16 F-4 ... *IA! am%iAfIR INFORMATION ITEM TO: HONORABLE CHAIRPERSON ANI) MEMBERS OF THE AZUSA UTILITY BOARD FROM: GEORGE F. MORROW, DIRECTOR OF UTILITIES a N/ DATE: OCTOBER 26,2015 SUBJECT: SUMMARY OF SB 350(DE LEON) SB 350 (de Leon), also known as the Clean Energy and Pollution Reduction Act of 2015, was signed into law by Governor Brown on October 7th Among other things, the bill will increase California's renewable energy standard to 50% by 2030 and require a 50% increase in building energy efficiency by 2030. Attached is a summary of SB 350 as passed by the Legislature. Prepared by:Liza Cawte, Senior Administrative Technician Attachment: CMUA Summary of SB 350 UB-140 • California Municipal Utilities Association ‘S91 L Street,Suite 1460•Sacramento CA 95814.916/326-5800. 916/326-5810 fax•www.cmua.org David L. Modisette Executive Director&CEO • DATE: _ September 21,2015 TO: CMUA Members FROM: Tony Braun. Justin Wynne RE: Summary of SB 350 (2015) as Passed by the Legislature In his 2015 Inaugural Address,, Governor Brown set out three ambitious goals: "Increase from one-third to 50 percent our'electricity derived from renewable sources; Reduce today's petroleum use in cars and trucks by up to 50 percent; Double the efficiency of existing buildings and make heating fuels cleaner."1 Senators Kevin de LeOn and Mark Leno introduced SB 350 to achieve these three goals. After a contentious political battle that ultimately saw the petroleum reduction portion removed, SB 350 was passed by the Legislature on September 11, 2015. The key elements of SB 350 are the following: • Increases the renewables portfolio standard (RPS) to 50% by 2030; • Directs the California Energy Commission (CEC) to set annual statewide targets to achieve a doubling of energy savings by 2030; • Initiates the process to create a multi-state regional governance structure for the California Independent System Operator Corporation (Cal ISO); • Creates a new integrated resource planning (IRP) requirement for investor owned utilities (IOUs), many of the publicly owned electric utilities (POUs), electric service providers (ESPs), and community choice aggregators (CCAs). • Directs the California Air Resources Board (ARB) to adopt regulations to remove disincentives for utility investment in transportation electrification. While the Governor has not yet signed the bill, he is nearly certain to do so. The following is a summary of the key portions of SB 350 that are relevant to POUs. This is not an exhaustive summary of the nearly-100 page bill, but is meant to inform POU policy makers. Please do not hesitate to contact us if you desire any further details or insights. I. 50% RENEWABLES PORTFOLIO STANDARD The most significant piece of SB 350 is the adoption of a 50% RPS by 2030. During the lengthy negotiations on the new RPS, a large number of amendments were discussed. However, the version of SB 350 that passed makes remarkably few changes to the existing structure of the RPS. Most notably, the portfolio content category (PCC) requirements remain unchanged. From 2017 onward, 75% of renewable procurement must be from PCC1, meaning that the renewable energy credits (RECs) and energy are bundled together and located within or scheduled into a California Balancing Authority. The potential consolidation of PacifiCorp and others into the Cal ISO would simplify the requirements for generators in those service territories to qualify as PCC1. However, out-of-state generators can already qualify as PCC1 as long as the underlying energy is scheduled into a California Balancing Edmond G. Brown Jr., Inaugural Address,Jan. 1.2015,available at https://www. ov.ca. ov/news. h ° = 828 41 Summary of SB 350 September 21, 2015 Page 2 Authority. This means that the expansion of the Cal ISO would not significantly increase the number of generators that are eligible to qualify as PCC1. One of the top priorities for the IOUs and POUs was to enable behind-the-meter generation to count towards the RPS. While it is possible to count this generation today, it is only possible to count it towards PCC3, which has very little value. While proposals to treat this generation as PCC1 were being negotiated until the last few days of session, the opposition from labor, some environmental groups, and large renewable generators was simply too strong. The result is that the vast majority of renewable generation that is consumed onsite will not'count towards the RPS targets. A. Interim Procurement Targets SB 350 designates interim targets of 40% by December 31, 2024 and 45% by December 31, 2027. However, the actual RPS procurement obligations apply over multi-year compliance periods, so it is necessary to convert these targets to averages that apply over the entire compliance period. In prior proceedings, the CPUC and CEC used a straight-line averaging methodology to achieve this conversion. The stakeholders 48.3% 50.0% that negotiated SB 350 explicitly 43.3% understood that this 37A% methodology would continue 30.0% into the future. If the same 20.0% 21.796 methodology were used, the approximate compliance period targets would be those identified in the following chart: 2011-2013 2014-2416 2017-2020 2021-2024 2025-2027 2028-2030 2031-2033 B. Excess Procurement One of the few areas where SB 350 provides greater flexibility is in the use of excess procurement. Excess procurement is a mechanism by which a utility can commit more RECs to a compliance period than is required and then "bank" the excess RECs for use in future compliance periods. However, under the prior RPS rules, all RECs associated with short- term contracts (less than 10 years) were subtracted upfront, before the calculation was performed to determine if there was excess. If a utility had any procurement from short-term contracts, this restriction would result in a significant loss of value. The impact of this rule was that the large IOUs met almost all of their RPS requirements with long-term contracts. Because it is difficult to get a 10-year contract for a PCC3 (REC-only) purchase, the IOUs have not been taking advantage of the allowable percentage (up to 10% as of 2017) of their procurement that can come from the substantially cheaper PCC3. SB 350 removed this restriction and now the length of a contract does not factor into the excess procurement calculation. Instead, a utility can commit as much excess PCC1 RECs into a compliance period as it wants, and all of the excess procurement will be banked. There is still a restriction on PCC2 and PCC3 RECs, which can be counted toward the excess procurement calculation up to the allowable percentage for that compliance period, UB-142 Summary of SB 350 September 21, 2015 Page 3 but cannot be banked. While there are still limitations on an IOU's ability to procure short- term contracts, this change will likely result in a significant increase in short-term and PCC3 procurement by the large IOUs. C. Long-Term Contracting Requirements In exchange for the new flexibility on the excess procurement rules, stakeholders representing labor, environmental groups, and generators required a standalone long-term contracting requirement. Starting with the 4th Compliance Period (2021-2024) and for all subsequent compliance periods, all RPS-obligated entities (IOUs, POUs, CCAs, and ESPs) must get 65% of their RECs that are counted toward any compliance period from either owned resources or contracts that are at least 10 years in duration. Previously, there were no standalone long-term contracting requirements for POUs. This requirement will be particularly challenging for the smaller POUs, which typically engage in very little long-term renewable resource procurement. D. Other RPS Changes In addition to the changes above, there were numerous other changes to the RPS, including: • Adjustments For POU Voluntary Green Pricing Program Or Shared Renewable Generation Programs: If a POU has a voluntary green pricing program or shared renewable generation program where the customer gets a credit for the output of a generating facility that would otherwise qualify as PCC1, then the POU can subtract the MWh attributed from the facility to those customers from its retail sales calculation. This is consistent with existing treatment for IOUs. • Adjustments for Over-Resourced POUs: For POUs that have a specific situation where they will be over-resourced due to the unwinding of the contracts with the Intermountain Power Plant, those POUs can reduce their RPS obligations during the 4th Compliance Period (2021- 2024). • Adjustment for Large Hydro: POUs that meet retail sales with more than 50%federal or JPA-owned large hydro during a year within a compliance period can reduce their RPS obligation based on a specified calculation. • Expansion of Flexible Compliance Options: Under the existing RPS, a utility can be excused from compliance if certain conditions apply (e.g., major transmission outage). SB 350 adds to this list a new category for when a utility fails to meet its RPS obligations due to an increase in transportation electrification that significantly exceeds the utility's forecasts. • IOU Ranking of RPS Procurement: The IOUs must now expressly consider GHG reduction and system reliability in the ranking of RPS procurement (so-called Least Cost Best Fit). II. ENERGY EFFICIENCY The negotiations over energy efficiency in SB 350 occurred in the context of other related bills, primarily AB 1330, which would have required a 1.5% increase in energy efficiency resources per year up until 2020 and 2% per year until 2025. This target far exceeds the typical increase in energy efficiency resources achieved by most of the POUs in California. UB-143 • Summary of SB 350 September 21, 2015 Page 4 As an alternative to the aggressive AB 1330 targets, the various stakeholders agreed to the structure in SB 350, which builds on the CEC's existing authority to adopt statewide energy efficiency targets. SB 350 directs the CEC to initiate a proceeding (coordinated with the CPUC and POUs) to develop annual targets for statewide energy savings that will achieve the Governor's goal of doubling statewide energy savings by 2030. SB 350 specifies exactly how the CEC will measure and count the energy efficiency targets. The CEC is also authorized to adopt targets that aggregate electricity and natural gas savings. A key benefit of the approach taken by SB 350 is that the targets include the energy efficiency increases from a myriad of existing state programs (e.g., Prop 39, Codes and Standards), instead of placing the entire burden on electric utilities. Additionally, both the CEC and the CPUC are directed to evaluate the cost effectiveness and feasibility of the energy efficiency targets. POUs are obligated to adopt their energy efficiency targets consistent with the CEC's statewide goal. III. TRANSFORMATION OF THE INDEPENDENT SYSTEM OPERATOR A provision that was long known to be coming but did not surface until the final days of the legislative session addressed possible governance changes to the Cal ISO. SB 350 adds a new Public Utilities Code Section 359.5, which expresses the intent of the Legislature to transform the ISO into a regional organization to promote "electricity transmission markets" in the western states and to improve access of consumers served by the ISO to those markets. However, the intent is qualified by the phrase that the transformation should only take place where it is in the "best interests of California and its ratepayers." Section 359.5(a) contemplates a voluntary transformation through the addition of transmission owners after they have received necessary state or local regulatory approvals. It does not mandate, for example, that larger POUs join the Cal ISO and transfer operation control of their transmission. The bulk of this section establishes the mechanism to consider governance reforms. It is ISO driven. The ISO is charged with crafting bylaws and performing studies that will be the foundation of any changes. All of the following must occur: (1) the ISO must conduct a public study taking into account overall benefits to ratepayers, including job creation, environmental factors, impacts on disadvantaged communities, and greenhouse gas and other emissions; (2) applicable state regulators (CEC, CPUC, ARB) must hold at least one joint public workshop; (3) the ISO submits the studies and revised bylaws to the Governor; (4) no later than December 31, 2017, the Governor transmits the revised bylaws and associated governance changes to the Legislature; and (5) the Legislature enacts a statute implementing the changes. SB 350 goes on to clarify that the withdrawal rights of transmission owners are unimpeded by any possible governance changes, although it is unclear how state statute would create such an impediment, particularly for non-California transmission owners. Finally, the ISO is obligated to create a report to the states it serves one year after the seating of the new revised Board, and every two years thereafter, documenting its "furtherance of applicable state and federal laws and regulations." UB-144 Summary of SB 350 September 21, 2015 Page 5 It is clear that this was a priority of the Governor for many months. However, those that wanted to see a process that did not require Legislative ratification were disappointed. IV. INTEGRATED RESOURCE PLANNING SB 350 creates a new obligation for POUs with annual retail sales over 700 GWh to produce and adopt integrated resource plans ("IRP"). While this section parallels in certain ways the RPS reporting requirements, it also has the potential to grow CEC intrusion into POU policy and rate making. The section is short on detail, and there will likely be regulations to implement this new requirement, so many important implementation measures are not specified and the full impact of this requirement on POUs has yet to be determined. The governing body of a POU must adopt an IRP on or before January 1, 2019, and put in place a process to update the plan at least every five years. The plan must ensure that: (1) the POU meets GHG reduction targets for the electricity sector and for each POU, reflecting an economywide GHG reduction of 40% from 1990 levels by 2030; and (2) ensures at least 50% RPS compliance by 2030. In addition, and importantly, the plan must ensure just and reasonable rates, minimize impacts of procurement on customer bills, ensure system and local reliability, strengthen diversity, sustainability and resilience of both the grid and local communities, enhance demand side energy management, and minimize local pollutants with a priority on disadvantaged communities. These elements of the plan mirror language applicable to CPUC review of IOU IRPs; the notable difference is that the CPUC is the ratemaking body for the IOUs, and the CEC is not the ratemaking authority for POUs. The plans must be submitted by the covered POUs to the CEC, which will then determine if the plan is inconsistent with the above requirements, and make recommendations to correct deficiencies if it is not. Any further enforcement is not specified in the bill, so it is fair to speculate on the actual impact this new requirement will have on covered POUs. The CEC is further empowered to adopt guidelines for the IRPs to govern submission of date, information, and report to enable effective review of the Plans. V. TRANSPORTATION ELECTRIFICATION In 2012, Governor Brown issued an executive order (B-16-2012) setting a goal of 1.5 million zero emission vehicles by 2025. If California were to achieve this goal, it would represent a substantial increase in retail electric load. Electric utilities would be faced with the burden of meeting the environmental obligations associated with that new load, while not getting benefits for the reduction in GHGs that result from the customer switching to an electric vehicle. Additionally, parties to ongoing CPUC proceedings have raised questions about the authority of IOUs to own and operate vehicle-charging stations. SB 350 seeks to address both of these issues by doing the following: • Directs the California Air Resources Board (ARB) to adopt regulations that would remove any disincentive for a POU or IOU to invest in transportation electrification, including allocating allowances. • Directs the CPUC to adopt regulations that direct the IOUs to implement programs and investments for the acceleration of transportation electrification. UB-145