Existing law requires the Public Utilities Commission (PUC) and the State Energy Resources Conservation and Development Commission (Energy Commission) to undertake various actions in furtherance of meeting the states clean energy and pollution reduction objectives.

This bill would require the PUC and the Energy Commission to provide to the Legislature, by March 31, 2020, a joint assessment, as specified, of options for establishing a central statewide entity to procure electricity for all end-use retail customers in the state.

SENATE COMMITTEE ON ENERGY, UTILITIES AND COMMUNICATIONS

Senator Ben Hueso, Chair

2019 - 2020 Regular

Bill No: AB 56 Hearing Date: 7/10/2019

SUBJECT: Electricity: procurement by the California Alternative Energy and Advanced Transportation Financing Authority

DIGEST: This bill would require the California Public Utilities Commission (CPUC) to empower the California Alternative Energy and Advanced Transportation Financing Authority (CAEATFA) to undertake backstop procurement of electricity that would otherwise be performed by an electrical corporation to meet state resource adequacy, integrated resource planning, and renewable portfolio standard goals not satisfied by retail sellers or load-serving entities.

ANALYSIS:

Existing law:

1. Establishes the CPUC has regulatory authority over public utilities, including electrical corporations. (California Constitution, Article XII)
2. Requires the CPUC, in consultation with the California Independent System Operator (CAISO), to establish resource adequacy (RA) requirements for all load-serving entities (LSEs), as defined, in accordance with specified objectives. Further requires each LSE to maintain physical generating capacity adequate to meet its load requirements, including peak demand and planning and operating reserves, deliverable to locations and at times as may be necessary to provide reliable electric service. Requires the CPUC to determine and authorize the most efficient and equitable means for LSEs to achieve specified purposes when meeting their RA requirements. Defines “load-serving entity” to mean an electrical corporation (also known as an investor-owned utility (IOU)), energy service provider (ESP) or Community Choice Aggregator (CCA). Requires the CPUC, in consultation with the CAISO, to establish RA requirements for all LSEs. (Public Utilities Code §380)
3. Authorizes customers of an IOU to aggregate their electric loads as members of their local community with CCAs. Designates a CCA as solely responsible for all generation procurement activities on behalf of the CCA’s customers, except where other generation procurement arrangements are expressly authorized by statute. (Public Utilities Code §366.2)
4. Authorizes the CPUC to fix the rates and charges for every public utility and requires that those rates and charges be just and reasonable. (Public Utilities Code §451)
5. Establishes a renewables portfolio standard (RPS) and requires all retail sellers, including IOUs, ESPs, and CCAs, to procure a minimum quantity of electricity products from eligible renewables energy resources, as defined, so that total kilowatt hours of those products sold to their retail end-use customers achieves 25 percent of retail sales by December 31, 2016, 33 percent by December 31, 2020, 44 percent by December 31, 2024, 52 percent by December 31, 2027, and 60 percent by December 31, 2030. (Public Utilities Code §399.15)
6. Establishes a policy of the state that eligible renewable energy resources and zero-carbon resources supply 100 percent of retail sales of electricity to California end-use customers and 100 percent of electricity procured to serve all state agencies by December 31, 2045. (Public Utilities Code §454.53)
7. Requires the CPUC to adopt a process for each LSE, defined as IOU, ESP, or CCA, serving end-use customers in the state, to file an integrated resource plan (IRP) and a schedule for a periodic updates to the plan to ensure that LSEs accomplish specified objectives. Requires each LSE to prepare and file an IRP consistent with those objectives on a time schedule directed by the CPUC and subject to CPUC review. (Public Utilities Code §454.52)
8. Requires that the IRP of each LSE contribute to a diverse and balanced portfolio of resources needed to ensure a reliable electricity supply that provides optimal integration of renewable energy resources in a cost-effective manner, meets the emissions reduction targets for greenhouse gases (GHG) established by the State Air Resources Board (ARB) for the electricity sector, and prevents cost shifting among LSEs. (Public Utilities Code §454.54)
9. Establishes the CAEATFA to advance the state’s goals of reducing emissions of GHG, increasing the deployment of sustainable and renewable energy sources, implementing measures that increase the efficient use of energy, creating high quality employment opportunities, and lessening the state’s dependence on fossil fuels. (Public Resources Code §26000, et seq.)

This bill:

1. Requires the CPUC to empower the CAEATFA to undertake backstop procurement of electricity that would otherwise be performed by an electrical corporation to meet the state RA, IRP, and RPS goals not satisfied by retail sellers or LSEs.
2. Authorizes the CAEATFA to undertake backstop procurement consistent with specified objectives and to manage the resale of electricity for its contracted resources. Requires the CPUC to periodically review the need for, and the benefits of, continuing to empower the CAEATFA to undertake backstop procurement responsibilities.
3. Provides for the reduction in procurement compliance obligations for LSEs and retail sellers for the electricity procured by the CAEATFA.
4. Requires the CAEATFA to develop and submit annual revenue requirements for review, modification, and approval by the CPUC to recover specified costs, would provide that the CAEATFA is entitled to recover revenue requirements approved by the CPUC for costs incurred on behalf of retail customers of a LSE or retail seller, and would provide that those costs are a direct obligation of the retail end-use customers of LSEs or retail sellers or a direct obligation of the LSE or retail seller on whose behalf the procurement was undertaken.
5. Requires the CPUC to approve a method for recovering revenue requirements from retail end-use customers of LSEs or retail sellers or from LSEs or retail sellers themselves, as specified.

Background

Load-serving Entities: IOUs, ESPs and CCAs. Several types of entities provide electricity service in California. Historically, the main distinction between electricity providers has been whether they are a municipal utility, rural cooperative, or an IOU. Who provides service to your home or businesses largely depends on the location of the home or business. For example, if you live in Los Angeles City, the municipal utility, the Los Angeles Department of Water and Power, provides electricity service, but if you live in East Los Angeles, just a block away from the city limits, the community is served by an IOU. In more recent years, there has been a growth in additional electricity providers within the service territory of the IOU. These entities are referred to in statute as LSEs and also provide electric service within the service territory of the IOU, although the IOU continues to provide distribution, transmission, and billing services to all customers in their service territory. These LSEs include:

• IOUs: privately owned electrical corporations, such as Southern California Edison (SCE), that provide monopoly electric utility services in distinct, defined geographic territories. In addition to providing the distribution and transmission, and billing services, IOUs have historically provided the energy supply. IOUs are rate-regulated by the CPUC to ensure they provide service at a just and reasonable rate. IOUs also have an obligation to serve to all customers, any customers not served by ESPs or CCAs must, generally, be served by the IOU.
• ESPs: also known as direct access (DA) providers, provide electricity to end-use customers who choose the services of the ESP instead of the incumbent IOU or a CCA. An ESP uses the transmission and distribution infrastructure of the IOU to deliver electricity to the customer. ESP customers are generally large commercial customers (such as a university or large corporation) who wish to manage their own energy procurement decisions. ESP customers retain the option to return to the service of the incumbent IOU or to a CCA, if a CCA offers services in their area.
• CCAs: entities, such as MCE and Sonoma Clean Power, where local governments (either cities or counties) elect to buy or generate electricity on behalf of local residents while using the incumbent IOU’s transmission and distribution infrastructure. An individual customer within the territory of a CCA is generally automatically opted-in to receive electric service from the CCA when the customer’s local government elects to join the CCA. However, the customer retains the option to return to the service of the incumbent IOU. Customers, especially commercial customers, can opt to be served by an ESP, where ESP services are allowed.

Growth of LSEs. The combined procurement between CCA and DA service is anticipated to represent the majority (potentially 85 percent) of the customer load served in the IOU service territory in the coming decade or so.

• Growth of CCAs. While IOUs have existed for nearly a century, CCAs are a more recent entity. In 2002, statute first allowed the formation of CCAs. It was not until nearly a decade later that the first CCA—Marin Clean Energy—came into existence. Today, there are 19 CCAs operating in the state with a dozen more communities exploring the formation of a CCA. CCA growth is likely to cover substantial portions of the service territories of the state’s three largest IOUs.
• Growth of ESPs. Last year, the Legislature passed and the governor signed SB 237 (Hertzberg, Chapter 600, Statutes of 2018) which increased the limit of the DA program by 4,000 gigawatt hours for non-residential customers. The bill also directs the CPUC to provide recommendations to the Legislature by June 2020 on the adoption and implementation of a second DA program reopening. The opening of the DA cap creates some additional competition, as well as, uncertainty for the incumbent utility and the CCAs serving energy load that might migrate to an ESP.

Renewable Portfolio Standard (RPS). California’s ambitious RPS program is jointly implemented and administered by the CPUC and the California Energy Commission (CEC). The RPS program requires the state’s energy retail-sellers (mostly LSEs) and POUs to procure 60 percent of their total electricity retail sales from eligible renewable energy resources by 2030, and a mix of RPS-eligible and zero-carbon resources by December 31, 2045, for a total of 100 percent clean energy. The RPS requires milestones on the path to 2030, including interim goals of 25 percent by 2016, 33 percent by 2020, 44 percent by 2024, and 52 percent by 2027. The state is well on its way to achieving its current RPS targets. Most POUs are on track to meet their 2020 goals and working towards their 2030 goals. The state’s three largest electric utilities generally have met current procurement goals and anticipate exceeding future procurement goals, with each having procured over 40 percent eligible renewable energy resources. To the extent the IOUs continue to experience load migration to other LSEs, their percent of renewable procurement is likely to increase even without procuring new resources, since the RPS is based on a percentage of retail sales.

SB 350 IRP. SB 350 (De León, Chapter 547, Statutes of 2015) established new targets to increase retail sales of renewable electricity to 50 percent by 2030. Subsequently, SB 100 (De León, Chapter 312, Statutes of 2018) accelerated the goal to 60 percent by 2030. SB 350 also required each LSE to file a biennial IRP for approval or certification by the CPUC. The CPUC would then combine all LSEs’ IRPs to ensure the state was on its path to meet the SB 350 goals, including GHG reductions and procurement of at least 50 percent of renewable resources by the year 2030.

CPUC IRP Decision. The CPUC has finalized the first two-year IRP cycle. The findings from the first IRP two-year cycle provides a sense of how LSEs are participating in the process and what potential adjustments may be needed to ensure the state remains on track to achieve its energy procurement-related goals. While recognizing that the first IRP cycle was a learning opportunity for LSEs and the CPUC, the exercise did surface a number of issues, including that the individual resource choices by the LSEs collectively did not result in a diverse and balanced portfolio of resources needed to ensure sufficiently reliable or environmentally beneficial statewide electricity resource portfolio. Additionally, it was often difficult for the CPUC to distinguish between an LSE’s plan for a resource that is aspirational and one that has an executed contract. The CPUC also declined to certify 19 IRPs and required those LSE’s to re-file with the information missing from their plan – generally information about criteria pollution.

CPUC IRP procurement track. In furthering the IRP process, the CPUC has initiated a “procurement track” of the IRP proceeding. In the ruling, the CPUC has identified two broad categories: backstop or backup procurement mechanism and those resources that may require collective action to bring to fruition (such as large facilities or new type of resources). The CPUC proposal states “the need to address near- and medium-term renewable integration and reliability resources as a type most in need of the CPUC’s immediate attention.” The CPUC has outlined a timeline to provide for public comments with the goal of initiating these procurement activities by late 2019 or early 2020. Additionally, CPUC intends to address long-term reliability needs with a proposed decision in late 2020 or early 2021. With regards to the near- medium-term reliability issues, the CPUC is proposing to address concerns for a tightened bilateral market due to retirement of gas power plants in response to the once-through-cooling regulations and declining values of solar energy to count towards the LSE’s RA requirements in August and September. The CPUC is proposing to require all LSEs to procure a proportional share of a total of 2,000 megawatts (MW) new peak capacity statewide to come on line by August 1, 2021 and require SCE to solicit for 500 MW of capacity from existing resources that are without a contract past 2021 to be procured as part of a medium-term contract (two-five years).

Resource adequacy (RA). Following the California energy crisis of 2000-01, the California Legislature enacted legislation to prevent future incidents of widespread black outs and rolling brown outs due to lack of electric generating capacity. Among the reforms was the adoption of Public Utilities Code §380 as an effort to better ensure reliability of electric supply. The statute directs the CPUC, in consultation with the CAISO, to establish RA requirements for all LSEs, including IOUs, ESPs, and now also includes CCAs which did not exist at the time of the crisis. The current RA program consists of system, local, and flexible requirements for each month of a compliance year. In October of each year, LSEs must demonstrate that they have procured 90 percent of their system RA obligations for the five summer months (May-September) of the following year, as well as 100 percent of their local requirements, and 90 percent of their flexible requirements for each month of the coming compliance year.

CAISO backstop procurement. RA rules require that where there is a failure to provide sufficient resources, the CAISO is compelled to utilize centralized backstop procurement mechanisms in order to maintain electric system reliability. Centralized backstop procurement is whereby the CAISO contracts with a generator to address the shortfall. Under Federal Energy Regulatory Commission (FERC) rules, the CAISO, like all other balancing authorities, must ensure system reliability or face penalties by FERC. The CAISO has two mechanisms for centralized backstop procurement: Reliability Must Run (RMR) and Capacity Procurement Mechanism (CPM). A resource receiving RMR designation must continue to operate and is compensated by a rate set by the CAISO, per FERC approved tariffs. RMR contracts can be expensive relative to procurement through the CPUC process, especially considering their limited operating parameters. The use of RMR contracts declined after implementation of the local RA program, except RMR for the Oakland peaker powerplants (~150 MW). CPM can be used for resources that may be needed in the following year and where the resource is at risk of retirement. Like RMR contracts, CPM contracts are also, generally, at a higher price relative to generation procured through the CPUC process. These costs are shouldered by ratepayers in the insufficient Local Capacity Area or by all ratepayers of the LSE(s) lacking the adequate RA.

Recent challenges meeting local RA. The Local RA requirements provide measures to mitigate market power and to address resource availability. For example, LSEs can request a waiver for the deficiency in cases where the LSE is unable to secure enough capacity to meet its local RA requirements, subject to specified conditions. The conditions include a demonstration that the LSE made a good faith effort to solicit bids and that no bids were received or bids with unreasonable terms were received. These provisions had rarely been exercised. However, in the fall of 2017, 11 LSEs filed waiver requests to cover local deficiencies totaling roughly 270 MW. Backstop procurement had been on the decline, except for the above noted contract for the Oakland peaker powerplants. However, in 2017, the CAISO contracted for resources, mostly to address local reliability shortfalls. In the fall of 2018, there were additional waivers filed. Nonetheless, the waivers themselves may not signify that entities are out of compliance, but they may be symptoms of some challenges in the RA market and rules. It’s currently unclear whether the increase in waiver requests is a short-term issue due to the transitions in the energy landscape, particularly with load migrating away from IOUs to other LSEs (especially CCAs) and the retirement of natural gas power plants which have historically (and currently) served the capacity for local RA.

CPUC RA proceeding. The RA rules had largely worked in a landscape that was designed to have the three large IOUs procure the RA. However, the recent migration of energy load to non-IOU entities has posed challenges to the existing RA framework. Over the past year or so, the CPUC has taken actions to address the challenges in the RA market. Specifically, the CPUC has adopted, via a resolution, requirements to provide a year’s lead-in before a CCA can officially launch in order to ensure RA procurement is being addressed appropriately. Additionally, the CPUC has proposed new rules for RA, including a multi-year local RA requirement to ensure that resources needed for reliability are procured in the hopes of providing better incentives to generators to enter into contracts with LSEs, instead of relying on CAISO backstop procurement. The CPUC had also proposed a central buyer, namely the IOU, to procure the local RA where there is a shortfall. However, in a recent decision, the CPUC has delayed adopting the central buyer framework, opting for continued workshops and opportunity for the stakeholders to develop alternative approaches. In the decision by CPUC Commissioner Randolph stated that if the parties don’t develop a workable alternative, the CPUC would adopt a final decision in the fourth quarter of 2019 with the IOU as the central buyer for Local RA.

CPUC Customer Choice Project. As part of their investigation into the changing electricity landscape, California Customer Choice Project, the CPUC identified a number of areas that merit attention. As it relates to a central buyer framework, the CPUC’s report noted that New York and Illinois both administer central buyer frameworks. However, the CPUC’s report noted the use of central buyer framework is being considered for local RA, not for broader procurement issues.

Governor’s Strike Force Report. In May 2018, Governor Newsom released a report titled: Wildfires and Climate Change: California’s Energy Future. The report noted, under a heading “Evaluate Resource Adequacy Back-Stop Options Through the Legislative Process,” to manage the transition, new procurement support models, “including a new state procurement entity that could enter into long-term contracts, provide credit support or otherwise facilitate purchases of electric energy, should be explored.” The report further noted that “Procurement support could have a number of benefits, including providing back stop resource adequacy procurement and ancillary services needed to support reliability.”

About CAEATFA. CAEATFA was established to advance the state’s goals of reducing greenhouse gas emissions, increasing deployment of sustainable and renewable energy sources, implementing measures that increase the efficiency of the use of energy, creating high quality employment opportunities, and lessen the state’s dependence on fossil fuels. CAEATFA works towards these goals by strategically targeting public funds to leverage private capital investment and spur market transformation. CAEATFA is housed in the State Treasurer’s Office and has a board of five members, including: the State Treasurer, State Controller, President of the CPUC, Director of the Department of Finance, and the Chair of the California Energy Commission. CAEATFA’s current portfolio of programs include: Sales and Use Tax Exclusion Program for Manufacturers, California Hub for Energy Efficiency Financing Pilot Programs, Property Assessed Clean Energy Loss Reserve Program, and a Bond Program. CAEAFTA can issue revenue bonds (without voter approval), make loans, loan loss reserves, and loan guarantees.

Comments

AB 56. This bill would require CAEATFA to operate as the state’s central procurement entity for RA, IRP, RPS, and managing electric generating resources previously under contract with an LSE. The bill is structured to require the CPUC to authorize CAEAFTA to undertake backstop procurement of electricity for any of the purposes identified above. The bill also requires CAEAFTA to manage the resale of electricity for its contracted resources in the wholesale markets administered by the CAISO. AB 56 would provide adjustments to LSE’s compliance obligations, including RPS, RA, long-term contract requirements, based on the renewable and RA procurement procured by CAEAFTA when the customers of the LSE are charged for the procurement. The bill also requires regular reporting to the Legislature.

Ghost of procurement past. In response to the energy crisis, in 2001, the Legislature created the California Consumer Power and Conservation Authority (The Power Authority) by SB 6X (Dutton, Bowen, Chapter 10, Statutes of 2001). SB 6X was sponsored by the then-State Treasurer Phil Angelides. The Power Authority was authorized to procure energy on behalf of the state. While still listed in the statutes, it ceased operation in the 2004-05 fiscal year. The Power Authority was never successful at financing power contracts, in large part due to changes in the market that limited its ability to enter into long-term contracts.

CAISO backstop procurement. Currently, if there is a reliability shortfall in the system, the CAISO steps under its federal authority to purchase the necessary backstop procurement. In many instances, CAISO procurement is conducted at more expensive costs than might otherwise be procured. However, the CAISO procurement is done to address reliability in the system and is often narrow to the particular need (often a localized need).

Central procurement needs. AB 56 attempts to resurrect the concept of a central procurement entity to help fill in procurement gaps as may be identified by the CPUC. The electricity landscape is in the midst of significant transformation with the growth of new LSEs, increasing procurement of intermittent renewables, retirement of natural gas plants, and growth of distributed energy resources. Coordination of procurement resources is a more difficult and complex task than it was when most power on the system was baseload – generally operating 24 hours. As California’s energy landscape continues to shift, the need for a central procurement entity may be warranted. Currently, the CPUC is actively proposing the use of central procurement in two instances: local RA needs and additional system capacity. In the case of local RA needs, as noted above, the CPUC has proposed tasking IOUs with procuring local RA needs, if the parties in the RA proceeding aren’t able to develop a workable alternative. Additionally, in the IRP procurement track the CPUC is proposing 500 MWs of procurement by SCE to serve load throughout the system, including outside SCE service territory. The proposal is currently out for stakeholder and public comment. However, should the CPUC decision determine that these resources are needed, one can imagine tasking a central procurement entity, perhaps CAEAFTA, with this responsibility. Nonetheless, it is not clear that broad procurement will be necessary in the near term. However, the CPUC’s IRP procurement track proposal also suggests tackling resources that are hard to procure by one entity in 2021 or so. Therefore, the conversation prompted by this bill is timely.

IOUs have differing views. As the electricity landscape shifts, IOU perspectives are also shifting. Among the state’s three largest IOUs, SDG&E has expressed a strong desire to transition out of procurement entirely. PG&E is currently in bankruptcy and it is unclear whether procurement will remain a mainstay of the reorganized utility, particularly with about half its load is served by other LSEs. SCE, on the other hand, is vocally supportive of the current model and their continuing desire to serve procurement functions. In establishing CAEAFTA, AB 56 develops an alternative to IOU procurement.

State Treasurer expresses concerns. Treasurer Fiona Ma submitted a letter expressing several concerns with the designation of CAEATFA as the procurement entity within this bill. Specifically, the Treasurer notes she has “several operational questions and concerns regarding the potential implementation of AB 56, and believe additional time is necessary to better assess appropriate next steps and ensure effective public policy; especially when it involves something of this magnitude.” Treasurer Ma’s letter states concerns with the lack of subject matter expertise at CAEATFA in the complex power procurement industry. Her letter goas on to express concerns with the costs and funding liability for a state entity to be able to cost-effectively and efficiently negotiate and procure power.

Need for amendments. As currently drafted the bill is not explicit about the ability of LSEs to first procure on their behalf. The author has provided the below amendments. The author and committee may wish to amend the bill to incorporate language to make clear that ability of LSEs to procure their portion of the identified resource needs for RA and IRP.

(1) The efficient and equitable achievement of resource adequacy requirements for customers of load-serving entities pursuant to Section 380 of the Public Utilities Code. The Authority may be selected for administration of any central resource adequacy mechanism adopted by the Commission pursuant to subdivision (i) of Section 380 of the Public Utilities Code. Load serving entities may procure their portion of any identified resource adequacy obligations to the extent authorized by the Commission pursuant to Section 380 of the Public Utilities Code.

(2) The satisfaction of unmet portfolio needs identified by the Commission pursuant to Section 454.51 of the Public Utilities Code that would otherwise be procured by an electrical corporation on behalf of all customers. Community choice aggregators shall be permitted to submit proposals for satisfying their portion of identified need pursuant to the requirements of subdivision (d) of Section 454.51 of the Public Utilities Code.

Prior/Related Legislation

AB 1584 (Quirk, 2019) requires the CPUC to develop and use methodologies for allocating electrical system integration resource procurement needs to each LSE based on the contribution of that entity’s load and resource portfolio to the electrical system conditions that created the need for the procurement. The bill is pending consideration by the Senate Committee on Appropriations.

SB 155 (Bradford, 2019) makes specified requirements concerning the plans for energy procurement by entities within the jurisdiction of the CPUC. The bill is pending consideration by the Assembly Committee on Appropriations.

SB 350 (Hertzberg, 2019) authorizes the CPUC to consider changes within the RA program, including the use of a multiyear centralized RA mechanism, among other options. The bill is pending consideration by the Assembly Committee on Utilities and Energy.

SB 520 (Hertzberg, 2019) establishes a provider of last resort as an electric LSE that meets specified requirements, including those determined by the CPUC, to ensure electric service for customers not otherwise served by another LSE. The bill is pending consideration by the Assembly Committee on Utilities and Energy.

SB 772 (Bradford, 2019) requires the CAISO to solicit for up to 4,400 megawatts (MWs) of long-duration bulk energy storage recovered by electric ratepayers in the CAISO grid through a federally approved rate. The bill is currently held on the Senate Floor.

SB 1136 (Hertzberg, Chapter 851, Statutes of 2018) revised existing statute that requires the CPUC, in consultation with the CAISO, to establish RA requirements for the state’s electric LSEs.

SB 100 (De León, Chapter 312, Statutes of 2018) established the 100 Percent Clean Energy Act of 2017 which increases the RPS requirement from 50 percent by 2030 to 60 percent, and creates the policy of planning to meet all of the state's retail electricity supply with a mix of RPS-eligible and zero-carbon resources by December 31, 2045, for a total of 100 percent clean energy.

FISCAL EFFECT: Appropriation: No Fiscal Com.: Yes Local: Yes

SUPPORT:

The Utility Reform Network (Sponsor)

California Biomass Energy Alliance

San Diego Gas & Electric Company

OPPOSITION:

350 Bay Area Action

350 Riverside

350 South Bay Los Angeles

Benicians for a Safe & Healthy Community

California Alliance for Community Energy

California Community Choice Association

California Farm Bureau Federation

California Large Energy Consumers Association

California Solar & Storage Association

California Wind Energy Association

Carbon Free Mountain View

Center for Climate Protection

City of Encinitas

City of Monterey

City of Moorpark

City of Ojai

City of Oxnard

City of Richmond

City of San Diego

City of West Hollywood

Clean Energy

Clean Power Alliance of Southern California

County of Santa Clara

East Bay Community Energy

EDP Renewables

Enel X

Feminists in Action

Good Neighbor Steering Committee of Benicia

Hillcrest Indivisible-San Diego

Indivisible Alta-Pasadena

Indivisible California 33

Indivisible California 43

Indivisible California Green Team

Indivisible Marin

Indivisible San Francisco

Indivisible South Bay – LA

League of California Cities

Marin Conservation League

Marin County Board of Supervisors

Peninsula Clean Energy Authority

Pico Rivera Innovative Municipal Energy

Pioneer Community Energy

Rooted in Resistance

Salka Energy

San Jose Clean Energy

San Jose Community Energy Advocates

SanDiego350

Santa Barbara County Board of Supervisors

Silicon Valley Clean Energy

Silicon Valley Leadership Group

SoCal 350

Solar Frontier

Sonoma Clean Power

Southern California Edison

Sunrun

Sustainable Novato

Town of Danville

Vote Solar

30 Individuals

ARGUMENTS IN SUPPORT: According to the author:

California’s progress on decarbonizing the electric grid, achieving clean energy targets and preserving system reliability is placed at risk by the increasing fragmentation of the retail market, credit challenges experienced by the IOUs, and an absence of a robust and clearly defined state-jurisdictional backstop procurement mechanism to fill unmet resource needs.

Under current law and practice, the only entities capable of performing backstop procurement are the CAISO and the existing IOUs. Since the CAISO is primarily subject to federal jurisdiction, greater reliance on the grid operator to contract for reliability and integration resources could result in significant involvement by the Federal Energy Regulatory Commission that could work at cross-purposes with California’s energy policy objectives.

The increased use of the IOUs to perform this role could prove problematic given ongoing challenges with cost allocation, creditworthiness and the goal of harmonizing such a mechanism with evolving retail market realities. Moreover, the efficient achievement of certain resource planning and reliability goals may require some degree of centralized procurement activity by an entity subject to state jurisdiction as well as review and approval by state regulators. AB 56 seeks to establish a new backstop procurement agent capable of performing this role in a manner that aligns with the evolution of retail markets and prioritizes reductions of fossil fuel use, improved air quality, stable electricity rates, and the development of a safe, reliable and resilient electric grid.

ARGUMENTS IN OPPOSITION: Many of the CCAs and organizations supporting community choice programs express concerns about the lack of demonstrated need, unnecessary structure, overarching authority, and costly structure proposed by this bill. In general these entities believe this bill undermines the ability of community choice programs to make energy procurement decisions. The California Alliance for Community Energy states: “AB 56 is a powergrab by the CPUC, proposing to authorize the centralized procurement of electricity to meet a yet to be demonstrated need.” In a coalition letter of 17 organizations comprised of CCAs, distributed energy resource (DER) providers, and local activist organizations, oppose the bill stating the bill would create a new central procurement bureaucracy with overly broad powers, raise customer costs, disincentivize LSE investments in reliability, which will reduce LSEs incentive to invest in DER.

California Large Energy Consumers Association, who represent large commercial energy users, expresses concerns with the bill due to the potential costs to ratepayers. They express concerns with: “Tasking an entity with no experience in procurement will likely increase electricity costs, not stabilize or lower costs.” They further note the existing processes at the CPUC to resolve any potential procurement issues in both the RA proceeding and the IRP procurement track.

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ASSEMBLY THIRD READING

ATR Bill Id:AB 56

Author:(Eduardo Garcia)

As Amended Ver:May 20, 2019

Majority vote

SUMMARY:

This bill authorizes the California Public Utilities Commission (CPUC), if it makes certain findings, to request the California Alternative Energy and Advanced Transportation Financing Authority (CAEATFA) to procure energy on behalf of the state's load-serving entities (LSEs which are electrical corporations (IOUs), electric service providers (ESPs), and community choice aggregators (CCAs) to meet specified gaps in procurement.

Major Provisions

1. Authorizes the CAEATFA to act as a central buyer of electricity, upon request by the CPUC, for customers of the LSEs to meet gaps in procurement required for resource adequacy and the Renewables Portfolio Standard.
2. For integrated resource plans, limits CAEATFA authority to procure resources on behalf of customers in the territories of electrical corporations, to those gaps identified by the CPUC in the integrated resources planning process, to those resources that would be procured otherwise by an electrical corporation, therefore limiting CAEATFA procurement on behalf of customers of community choice aggregators.
3. Permits CAEATFA to:
   1. Serve as a voluntary procurement entity on behalf of one or more electrical corporations, community choice aggregators, or energy service providers to meet compliance obligations under the California Renewables Portfolio Standard Program; and
   2. Manage electric resources electric generating resources previously under contract with an LSE.

COMMENTS:

Core Concept = Central Buyer. Fundamentally the concept proposed by this bill would put an entity in place that could fill gaps in procurement of resources that could not be met by those mandated to serve electric load in the state – electric utilities, CCAs, and ESPs – to meet resources adequacy needs and to fulfill obligations of the Renewables Portfolio Standard. For the customers of electrical corporations, the CAEATFA could procure resources to meet gaps in procurement identified through the integrated resource planning process. It is intended to keep the state on track to meet goals.

At this time the CPUC has concluded that a central buyer will be needed to address at least some portion of resource adequacy needs and is "most likely to provide cost efficiency, market certainty, reliability, administrative efficiency, and customer protection." Parties have submitted proposals for a central buyer to the CPUC in its pending resource adequacy rulemaking and a recent proposed decision reports that concepts "fall into four categories: 1) the distribution utilities, 2) a special purpose entity, 3) the CAISO, and 4) a centralized capacity market." Although the Federal Energy Regulatory Commission (FERC) does have broad jurisdiction over the wholesale market, using the CAISO or a capacity market as a central buyer would put procurement and costs squarely under FERC control which has historically been avoided by the Legislature." This leaves the three large IOUs or a special purpose entity as options. This bill would establish a structure for the CAEATFA to serve as that special purpose entity.

According to the Author:

California's progress on decarbonizing the electric grid, achieving clean energy targets and preserving system reliability is placed at risk by the increasing fragmentation of the retail market, credit challenges experienced by the IOUs, and an absence of a robust and clearly defined state-jurisdictional backstop procurement mechanism to fill unmet resource needs. Under current law and practice, the only entities capable of performing backstop procurement are the California ISO and the existing IOUs. Since the California ISO is primarily subject to federal jurisdiction, greater reliance on the grid operator to contract for reliability and integration resources could result in significant involvement by the FERC that could work at cross-purposes with California's energy policy objectives. The increased use of the IOUs to perform this role could prove problematic given ongoing challenges with cost allocation, creditworthiness and the goal of harmonizing such a mechanism with evolving retail market realities.

Moreover, the efficient achievement of certain resource planning and reliability goals may require some degree of centralized procurement activity by an entity subject to state jurisdiction as well as review and approval by state regulators.

Arguments in Support:

The Utility Reform Network, as the sponsor of the bill, opines that it will "address a critical missing element of the current electricity resource planning framework by proposing the creation of a statewide backstop electricity procurement entity" which would "be an important tool that could be used to perform various types of residual and backstop procurement as directed by the Legislature and state regulators." In support of the bill, the California Biomass Energy Alliance writes that "CAEATFA could be filling in the gaps created by utility procurement policies that are not valuing the grid and environmental benefits of balanced portfolios which are encouraged in the RPS statues, but regularly ignored."

Arguments in Opposition:

The California Community Choice Association opposes the bill because it finds that it would directly impact the "foundational procurement autonomy" of community choice aggregators. In opposition to the bill Southern California Edison opines that the state already has entities to serve as central buyers which are the IOUs. They state that the bill "proposes the wrong solution to address a significant problem – lack of centralized planning and procurement requirement oversight over certain LSEs."

FISCAL COMMENTS:

According to the Assembly Appropriations Committee, no direct state costs as the bill authorizes, but does not require, the CPUC to authorize CAEATFA to procure electricity on behalf of LSEs. However, should the CPUC exercise its authority, costs for CAEATFA to establish necessary administrative and technical resources and to manage and engage in electricity procurement would be considerable. CAEATFA, understandably, was not able to provide an accurate cost estimate for this bill. Safe to say, CAEATFA startup costs would be in the hundreds of thousands of dollars, at least.

VOTES:

ASM UTILITIES AND ENERGY: 11-1-3

YES: Holden, Burke, Carrillo, Eggman, Cristina Garcia, Nazarian, Mayes, Quirk, Reyes, Santiago, Ting

NO: Cunningham

ABS, ABST OR NV: Patterson, Chen, Muratsuchi

ASM NATURAL RESOURCES: 6-2-3

YES: Friedman, Chau, Eggman, Cristina Garcia, Mathis, McCarty

NO: Melendez, Mark Stone

ABS, ABST OR NV: Flora, Limón, Muratsuchi

ASM APPROPRIATIONS: 13-3-2

YES: Gonzalez, Bloom, Bonta, Calderon, Carrillo, Chau, Eggman, Gabriel, Eduardo Garcia, Maienschein, Obernolte, Quirk, Robert Rivas

NO: Bigelow, Brough, Diep

ABS, ABST OR NV: Fong, Petrie-Norris

UPDATED:

VERSION: May 20, 2019

CONSULTANT: Kellie Smith / U. & E. / (916) 319-2083 FN: 0000883

Date of Hearing: May 8, 2019

ASSEMBLY COMMITTEE ON APPROPRIATIONS

Lorena Gonzalez, Chair

ABPCA Bill Id:AB 56

Author:(Eduardo Garcia) – As Amended Ver:April 30, 2019

Urgency: No State Mandated Local Program: Yes Reimbursable: No

SUMMARY:

This bill authorizes the California Public Utilities Commission (CPUC), if it makes certain findings, to allow the California Alternative Energy and Advanced Transportation Financing Authority (CAEATFA) to procure energy on behalf of the state’s load-serving entities (LSEs), meaning electrical corporations, electric service providers and community choice aggregators, to meet a variety of energy, economic and environmental goals.

The bill conditions the CPUC’s authorizing CAEATFA to procure energy upon the CPUC finding the following:

1. The empowerment of CAEATFA to procure electricity pursuant to this chapter can assist the state with the timely achievement of the state’s clean energy and climate policy objectives.
2. The empowerment of CAEATFA to procure electricity would assist in addressing shortfalls or gaps identified in the integrated resource planning of LSEs.
3. The authority could successfully serve as a procurement entity for retail sellers for renewable energy procurement pursuant to the statutory Renewable Portfolio Standard Program.
4. CAEATFA could reasonably manage power supply commitments previously executed by an electrical corporation.

The bill requires the president of the CPUC, who also serves as a member of CAEATFA, to recuse themselves from any CPUC decision relating to CAEATFA.

FISCAL EFFECT:

No direct state costs as the bill authorizes, but does not require, the CPUC to authorize CAEATFA to procure electricity on behalf of LSEs. However, should the CPUC exercise its authority, costs for CAEATFA to establish necessary administrative and technical resources and to manage and engage in electricity procurement would be considerable. CAEATFA, understandably, was not able to provide an accurate cost estimate for this bill. Safe to say, CAEATFA startup costs would be in the hundreds of thousands of dollars, at least.

COMMENTS:

Background, Purpose and Concerns. Compared to the recent past, energy procurement in California is fragmented. Until a few years ago, large electrical corporations (like Pacific Gas and Electric, Southern California Edison and San Diego Gas and Electric), under the regulation of the CPUC, procured nearly all the electricity needed to meet California’s demand for electricity. Today, much energy procurement falls to entities other than the electric utilities, mainly community choice aggregators (CCAs) and electric service providers (ESPs) over whom the CPUC has less, and less clearly defined, authority. Similarly, the state’s sources of electricity are more diverse and scattered than in years past. This diversity and fragmentation of procurement authority and electric supply results, largely, from the state’s policy choices.

Statute tasks the CPUC with, among many other things, adopting a process for the state’s LSEs—electric corporations, CCAs and ESPs—to prepare integrated resource plans (IRPS). The planning documents are to describe how they each will procure sufficient amounts of electricity from a variety of sources to meet the state’s energy and environmental goals, including a limit on greenhouse gas (GHG) emissions, at the lowest feasible cost. Statute requires the CPUC to review the IRP of each LSE and authorizes it to direct an electric utility to procure and recover the costs from all distribution customers, including ESP and CCA customers, if the CPUC identifies procurement deficiencies.

Recently, the CPUC expressed concern with the ability or likelihood of the state’s disparate procurement entities to secure enough electricity to meet system and reliability needs and renewable energy and GHG reduction goals. In response, the CPUC opined a central buyer will be needed to address at least some portion of resource adequacy needs and is “most likely to provide cost efficiency, market certainty, reliability, administrative efficiency and customer protection.”

The state already has a central buyer of electricity. The California Independent System Operator (CAISO) is obligated by federal rules to procure electricity when it identifies shortfalls. This is often referred to as “backstop procurement,” the costs of which are spread across all electric customers who benefit from the procurement. However, CAISO procurement is subject to regulation by the Federal Energy Regulatory Commission, not state regulation, and is generally unplanned, as-needed procurement.

This bill seeks to establish a central buyer, thoroughly under the regulatory control of the state, to procure electricity, when needed, in a planned way. To do so, the bill identifies CAEATFA as the centralized buyer, if authorized by the CPUC to fulfill that role. Currently, CAEATFA does not procure electricity. However, CAEATFA can issue revenue bonds (without voter approval) and make loans, loan loss reserves and loan guarantees to develop and commercialize advanced technologies that conserve energy, reduce air pollution and promote economic development and jobs. It also has an existing governance and administrative structure. The author, and the policy committee that suggested the bill assign CAEATFA the procurement role, contend the existence of CAEATFA make it more ready to procure electricity than would be a newly created entity. According to the author:

California’s progress on decarbonizing the electric grid, achieving clean energy targets and preserving system reliability is placed at risk by the increasing fragmentation of the retail market, credit challenges experienced by the Investor Owned Utilities (IOUs), and an absence of a robust and clearly defined state-jurisdictional backstop procurement mechanism to fill unmet resource needs. These unmet needs include deficits identified through the Integrated Resource Planning process potential scarcity for local and system reliability resources. In addition, there are additional challenges implementing procurement associated with legislative mandates. Finally, there is no identified “procurement entity” to voluntarily assist smaller load-serving with achievement of their Renewable Portfolio Standard long-term contracting obligations…

Due to looming concerns about reliability, the CPUC is moving forward with the development of a central buyer model for local resource adequacy. Although the CPUC suggests that the IOUs could perform this role, AB 56 would create another option that allows state regulators to assign such responsibilities to a transparent, non-profit, publicly accountable entity.

The policy analysis prepared by the Assembly Committee on Natural Resources noted the following concerns with the bill:

The author and the committee may wish to consider whether the bill should grant such broad authority to the PUC and CAEATFA or whether the authority should be limited to clearly identified, high priority system-wide procurement needs, such as local reliability, resource adequacy, and integration of renewable energy. A related question is whether the PUC’s grant of authority to CAEATFA can be tailored to address specific needs. It’s not clear if the PUC can authorize only certain procurement by CAEATFA, or if the PUC authorization then gives CAEATFA blanket authority to procure for any and all reasons authorized by the bill. It’s also not clear whether the PUC can later revoke or amend its authorization.

The Natural Resources Committee amended the bill and, in doing so, narrowed the scope of CAEATFA’s procurement authority somewhat. Nonetheless, the concerns raised in the committee analysis remain valid.

Analysis Prepared by: Jay Dickenson / APPR. / (916) 319-2081

Date of Hearing: April 22, 2019

ASSEMBLY COMMITTEE ON NATURAL RESOURCES

Laura Friedman, Chair

ABPCA Bill Id:AB 56 (

Author:Eduardo Garcia) – As Amended Ver:April 12, 2019

SUBJECT: Electricity: procurement by the California Alternative Energy and Advanced Transportation Financing Authority

SUMMARY: Authorizes the Public Utilities Commission (PUC) to authorize the California Alternative Energy and Advanced Transportation Financing Authority (CAEATFA) to undertake procurement of electricity to meet the state’s climate, clean energy, and reliability goals if the PUC makes specified findings.

EXISTING LAW:

1. Creates CAEATFA for the purpose of promoting the development and utilization of alternative energy sources and the development and commercialization of advanced transportation technologies.
2. Requires the PUC to determine and authorize the most efficient and equitable means for maintaining resource adequacy (RA), including consideration of a centralized resource adequacy mechanism, and minimize the need for backstop procurement by the California Independent System Operator.
3. Requires "retail sellers" of electricity, i.e., investor-owned utilities (IOUs), energy service providers (ESPs), and community choice aggregators (CCAs), as well as publicly-owned utilities (POUs), to procure 60% of their retail electricity sales from eligible renewable energy resources by 2030 and thereafter, including interim targets of 33% by 2020, 45% by 2023, and 50% by 2026, pursuant to the Renewables Portfolio Standard (RPS).
4. Establishes the policy of the state that eligible renewable and "zero-carbon" generating facilities supply all electricity procured to serve California end-use customers no later than December 31, 2045.
5. Permits the PUC to authorize a procurement entity to enter into contracts on behalf of customers of a retail seller for resources to satisfy a retail seller’s RPS procurement requirements.
6. Requires the PUC to adopt a process for each load-serving entity (LSE), including IOUs, ESPs, and CCAs, to file an integrated resource plan (IRP) to meets specified objectives, including integration of renewable energy resources. If procurement deficits are identified in the IRP process, the PUC may direct an IOU to procure and recover the costs from all distribution customers, including ESP and CCA customers. However, a CCA is authorized to self-procure its share, subject to PUC review and approval.

THIS BILL:

1. Authorizes the PUC to authorize CAEATFA to undertake procurement of electricity to meet the state’s climate, clean energy, and reliability goals if the PUC makes all of the following findings:
   1. The empowerment of CAEATFA to procure electricity can assist the state with the timely achievement of the state’s clean energy and climate policy objectives.
   2. The empowerment of CAEATFA to procure electricity would assist in addressing shortfalls or gaps identified in the IRPs of LSEs.
   3. CAEATFA could successfully serve as a procurement entity for retail sellers pursuant to the RPS.
   4. CAEATFA could reasonably manage power supply commitments previously executed by an IOU.
2. Authorizes CAEATFA to undertake procurement to support the following objectives:
   1. The development of new generating or storage resources mandated by state law or policy on behalf of the state where a specific procurement obligation is not deemed appropriate to assign to an LSE by the PUC.
   2. The efficient achievement of local reliability and resource adequacy requirements for LSE customers.
   3. The satisfaction of residual or unmet needs relating to the IRP process that include both of the following:
      1. Achieving optimized long-term planning goals for the state after accounting for the long-term commitments made by LSEs.
      2. Assembling a diverse and balanced portfolio of resources needed to ensure a reliable electricity supply and achieve the goals of the IRPs on a statewide basis.
   4. Serving as a voluntary procurement entity on behalf of one or more retail sellers for purposes of the RPS.
   5. Managing electric generating resources previously under contract with an LSE. CAEATFA may accept contractual assignments for those resources to the extent authorized by the PUC.
   6. Any additional objectives authorized by the commission.
3. Requires CAEATFA to manage the resale of electricity for its contracted resources. All resale shall occur pursuant to a procurement plan approved by the PUC, consistent with the objective of realizing maximum revenues to reduce the net above-market costs of those resources to end-use retail customers.
4. Requires CAEATFA, unless otherwise directed by the PUC, to acquire all environmental, renewable energy, and resource adequacy attributes associated with the electricity procured from its contracted resources. Attributes acquired by CAEATFA shall be retired and shall not be resold or transferred.
5. Requires CAEATFA to limit the procurement of new eligible renewable energy resources to products that satisfy RPS requirements for delivery of energy to California.
6. Provides that new construction work resulting from the procurement of newly developed resources shall be deemed public works for purposes of Chapter 1 (commencing with Section 1720) of Part 7 of Division 2 of the Labor Code.
7. Requires the retirement of renewable, environmental, or resource adequacy attributes by CAEATFA to result in adjustments to specific compliance obligations for an LSE assigned to collect the costs incurred for the procurement of those attributes.
8. Requires the retirement of renewable energy credits associated with electricity procured from eligible renewable energy resources to be used to reduce the obligations of retail sellers pursuant to the RPS.
9. Requires the retirement of resource adequacy attributes to be used to reduce, by an equivalent amount, the requirements applied to LSEs.
10. Requires the PUC to ensure that procurement by CAEATFA and the adjustment of a retail seller’s compliance obligations do not do any of the following:
    1. Infringe on the flexibility of an LSE to procure electricity resources to serve end-use customer loads.
    2. Prevent an LSE from voluntary over-compliance with a state standard or requirement.
    3. Affect the calculation of emissions of greenhouse gases attributable to the procurement of an LSE.
    4. Affect reporting by retail suppliers under the power source disclosure program.
11. Requires CAEATFA to develop and submit annual revenue requirements for review and approval by the PUC to recover the net costs associated with the activities resulting from previously approved procurement plans. The revenue requirements shall include, at a minimum, all of the following:
    1. Reasonable administrative, overhead, and transaction costs associated with the operation of CAEATFA.
    2. Procurement costs associated with approved contracts.
    3. Anticipated revenues from the resale of electricity.
    4. Approved reserves in an amount determined by the PUC to be necessary or desirable to support credit and collateral requirements associated with procurement activities.
    5. An adjustment to account for prior year over- or under-collections.
12. Requires CAEATFA to be entitled to recover revenue requirements approved by the PUC for costs incurred on behalf of retail customers of an LSE. Approved requirements shall be a direct obligation of the retail end-use customers of LSEs, with all payments to be remitted to the CAEATFA by LSEs.
13. Requires the PUC to approve a method for recovering revenue requirements from retail end-use customers of LSEs by a rate component that is a non-bypassable element of the local distribution service and collected on the basis of usage. Cost approved on behalf of customers of each LSE shall be recovered from those customers. The recovery method shall ensure that all end-use retail customers pay a fair and reasonable share of the cost obligations and that those obligations cannot be avoided if a customer migrates to another LSE or installs new self-generation resources.

FISCAL EFFECT: Unknown

COMMENTS:

1. CAEATFA background. The California Alternative Energy Source Financing Authority was established in 1980 with an authorization of $200 million in revenue bonds to finance projects utilizing alternative or renewable energy sources, such as wind, solar, co-generation and geothermal. In 1994, the authority was renamed as CAEATFA and its charge was expanded to include the financing of "advanced transportation" technologies. During the energy crisis of 2001, CAEATFA's authority was expanded again to provide financial assistance to public power entities, independent generators, and others for new and renewable energy sources, and to develop clean distributed generation. In recent years its responsibilities were expanded to include administration of a sales tax exclusion program for manufacturers, develop and administer a risk mitigation program for Property Assessed Clean Energy loans, and effectuate other energy efficiency financing programs.

CAEATFA can issue revenue bonds (without voter approval), make loans, loan loss reserves, and loan guarantees to develop and commercialize advanced technologies that conserve energy, reduce air pollution, and promote economic development and jobs. State law limits CAEATFA's total debt to $1 billion. The CAEATFA board consists of five members: the Treasurer, Controller, Director of Finance, Chair of the Energy Commission, and President of the PUC.

1. Author’s statement:

California’s progress on decarbonizing the electric grid, achieving clean energy targets and preserving system reliability is placed at risk by the increasing fragmentation of the retail market, credit challenges experienced by the IOUs, and an absence of a robust and clearly defined state-jurisdictional backstop procurement mechanism to fill unmet resource needs. Under current law and practice, the only entities capable of performing backstop procurement are the California ISO and the existing IOUs. Since the California ISO is primarily subject to federal jurisdiction, greater reliance on the grid operator to contract for reliability and integration resources could result in significant involvement by the Federal Energy Regulatory Commission that could work at cross-purposes with California’s energy policy objectives. The increased use of the IOUs to perform this role could prove problematic given ongoing challenges with cost allocation, creditworthiness and the goal of harmonizing such a mechanism with evolving retail market realities.

Moreover, the efficient achievement of certain resource planning and reliability goals may require some degree of centralized procurement activity by an entity subject to state jurisdiction as well as review and approval by state regulators. AB 56 seeks to establish a new backstop procurement agent capable of performing this role in a manner that aligns with the evolution of retail markets and prioritizes reductions of fossil fuel use, improved air quality, stable electricity rates, and the development of a safe, reliable and resilient electric grid.

1. Procurement authority should be focused on specific unmet needs. While there seems to be broad recognition of certain system-wide procurement needs that may be compromised due to upheaval in utility service, the bill authorizes CAEATFA to perform other duties including voluntary RPS procurement, taking over management of existing LSE energy contracts and/or power plants, and “(a)ny additional objectives authorized by the (PUC).”

There may be disputes between the PUC, CAEATFA, and LSEs about whether a particular procurement need is not being met, which may be magnified to the extent the bill veers beyond the existing RA and IRP processes into other procurement objectives without clear statutory frameworks. It’s not clear how such disputes would be resolved, but LSEs appear to have no choice but to accept cost responsibility for any procurement executed by CAEATFA, provided it is approved by the PUC.

The author and the committee may wish to consider whether the bill should grant such broad authority to the PUC and CAEATFA or whether the authority should be limited to clearly identified, high priority system-wide procurement needs, such as local reliability, resource adequacy, and integration of renewable energy.

A related question is whether the PUC’s grant of authority to CAEATFA can be tailored to address specific needs. It’s not clear if the PUC can authorize only certain procurement by CAEATFA, or if the PUC authorization then gives CAEATFA blanket authority to procure for any and all reasons authorized by the bill. It’s also not clear whether the PUC can later revoke or amend its authorization. However, the bill does include an effective check on CAEATFA by requiring its annual revenue requirement to be reviewed and approved by the PUC.

1. Playing both sides? CAEATFA is governed by a five-member board, including the President of the PUC. Under the bill, the President of the PUC, sitting as a CAEATFA board member, would be acting as the buyer, approving procurement executed by CAEATFA staff or consultants. The President of the PUC would also be judging the reasonableness of CAEATFA’s procurement-related expenses when CAEATFA’s revenue requirement is reviewed by the PUC. The author and the committee may wish to consider whether these two roles are compatible.
2. Should CAEATFA’s operating costs be part of the PUC revenue requirement or subject to budget appropriation by the Legislature? This bill includes in the CAEATFA revenue requirement, reviewed by the PUC and recovered from LSE customers, “(r)easonable administrative, overhead, and transaction costs associated with the operation of the authority.” The author and the committee may wish to consider whether CAEATFA’s administrative costs should be included in utility rates, or remain subject to budgetary oversight and appropriation by the Legislature. If administrative costs are to be included in the revenue requirement, it should be clarified that it only include administrative costs associated with the procurement duties, and not any of CAEATFA’s existing duties.
3. Double referral. This bill passed the Utilities and Energy Committee by a vote of 11-1 on April 10, 2019.

REGISTERED SUPPORT / OPPOSITION:

Support

California Biomass Energy Alliance
The Utility Reform Network

Opposition

California Community Choice Association

Analysis Prepared by: Lawrence Lingbloom / NAT. RES. /

Date of Hearing: April 10, 2019

ASSEMBLY COMMITTEE ON UTILITIES AND ENERGY

Chris Holden, Chair

ABPCA Bill Id:AB 56 (

Author:Eduardo Garcia) – As Amended Ver:March 18, 2019

SUBJECT: California Clean Electricity Authority

SUMMARY: Requires the establishment of the California Clean Electricity Authority (Authority), a public non-profit benefit corporation, to serve as a backstop procurement entity upon authorization by the California Energy Commission (CEC) and the California Public Utilities Commission (CPUC). Specifically, this bill:

1. Establishes the Authority as a public, non-profit benefit corporation upon authorization by the CEC on behalf of local publicly owned electric utilities (POUs) and the CPUC on behalf of electrical corporations (IOUs), community choice aggregators (CCAs), and energy service providers (ESPs) (collectively referred to LSEs or load serving entities) to serve as a backstop procurement entity under specific circumstances on behalf of retail electricity customers within the state.
2. The Authority would be:
   1. Governed by a seven-member board of directors appointed by the Governor (3), Senate Rules Committee (2), and Speaker of the Assembly (2), each serving three-year terms after initial term appointments on a staggered basis;
   2. Required to maintain open meeting and public records access standards consistent with state law; additional standards to ensure transparency, public accountability, public participation, and effective governance would be jointly established by the CEC and CPUC which would also approve the Authority’s annual budgets;
   3. Permitted to solicit, negotiate, and execute contracts for any electric generation and storage resources (hereinafter resources) presented in annual procurement plans submitted to, and reviewed and approved by, the CEC (for POUs) and the CPUC (for LSEs). Procurement may support resource adequacy, reliability, the Renewables Portfolio Standard, or a public policy purpose; resources would be required to have a first point of interconnection with a California balancing authority, or have an agreement to be dynamically transferred, and would be deemed a public work;
   4. Authorized to procure resources at the request of any IOU, CCA, or ESP for purposes of satisfying procurement required by the Renewables Portfolio Standard;
   5. Permitted to manage (e.g. dispatch in the wholesale market) resources owned or previously under contract with an LSE, or contracted for by the Authority;
   6. Undertake any additional objectives authorized by the CEC or CPUC; and
   7. Required to submit annual revenue requirements to the CPUC and CEC to allow the Authority to recover net costs associated with implementation of procurement plans and administration of the Authority which would be recoverable from POU customers in a manner determined by the POUs and recoverable from the customers of LSEs through a nonbypassable charge on distribution service and collected on the basis of usage.
3. Expresses the intent of the Legislature that $5 million be appropriated for costs associated with the startup of the Authority to be repaid by the Authority.

EXISTING LAW:

1. Grants the Legislature plenary power to confer additional authority and jurisdiction upon the CPUC. (Art. XII § 5, California Constitution)
2. Establishes the California Consumer Power and Conservation Financing Authority (the Power Authority, or CPA) to assure a reliable supply of power to Californians at just and reasonable rates, including planning for a prudent energy reserve and encouraging energy efficiency, conservation, and the use of renewable resources. The CPA is authorized to issue up to $5 billion in revenue bonds to finance these activities. (Public Utilities Code §§ 3300 et seq.)
3. Prohibits the CPUC from establishing a nonstate entity with any moneys other than those moneys that would otherwise belong to a public utility’s shareholders and subjects a nonstate entity created with moneys from a public utility’s shareholders to a 30-day review by the Joint Legislative Budget Committee prior to creation. Does not limit the CPUC from forming a body whose budget is subject to oversight by the CPUC and the Department of Finance. (Public Utilities Code § 854.5)
4. Requires the CPUC to report on expenditures by entities or programs created by order of the CPUC which are not part of the state budget. (Public Utilities Code § 910.4)
5. Creates the California Alternative Energy and Advanced Transportation Financing Authority (CAEATFA) for the purpose of promoting the development and utilization of alternative energy sources and the development and commercialization of advanced transportation technologies. (Public Resources Code §§ 26000 et seq.)
6. Requires the CPUC to determine and authorize the most efficient and equitable means for maintaining resource adequacy (RA), including consideration of a centralized resource adequacy mechanism, and minimize the need for backstop procurement by the California Independent System Operator. (Public Utilities Code § 380)
7. Permits the CPUC to authorize a procurement entity to enter into contracts on behalf of customers of a retail seller for resources to satisfy a retail seller’s Renewables Portfolio Standard procurement requirements. (Public Utilities Code § 399.13 [f])
8. Existing federal law, grants jurisdiction of wholesale electric power sales in interstate commerce to the Federal Energy Regulatory Commission (FERC) from which a state or any political subdivision of a state is exempt. (16 U.S.C. § 824 [f])

FISCAL EFFECT: This bill is keyed fiscal and will be referred to the Appropriations Committee for its review of the fiscal effect of this bill.

BACKGROUND:

The “Original” Power Authority – The concept of a central buyer of resources for the customers of electrical corporations is not new in the state. In response to the energy crisis in 2001 the California Consumer Power and Conservation Financing Authority (California Power Authority, or CPA) was created to assure a reliable supply of power to Californians at just and reasonable rates, including planning for a prudent energy reserve. The CPA was also created to encourage energy efficiency, conservation, and the use of renewable resources. The CPA was authorized to issue up to $5 billion in revenue bonds to finance programs and projects.

The CPA was established during the height of the energy crisis that started in 2000. The crisis was partially the result of electricity supply that did not keep pace with growing demand, which caused energy prices to reach historically high levels and some areas of the state to experience power blackouts. The CPA was created in statute with the broad charge of assuring a reliable supply of power to Californians at just and reasonable rates, including planning for a prudent energy reserve. In order to meet these goals, CPA was authorized to purchase, lease, or build new power plants using its revenue bonding authority to supplement private and public sector power supplies, and was granted eminent domain powers. These significant powers reach beyond those of other state energy agencies. It was intended that CPA would be able to exercise these powers in the event that the market did not produce enough electricity to serve all of the state’s needs.

In addition to these core powers, CPA was also charged with encouraging energy conservation and the use of renewable energy sources. It was given the authority to finance natural gas transportation and storage projects recommended by the CPUC and to provide financing to retrofit old and inefficient power plants. The CPA was also required to develop an energy resource investment plan for California.

The CPA contributed to the state’s energy planning efforts and delivered 250 megawatts of energy conservation during the summer of 2003 at relatively cost-competitive prices. It also issued $28 million of its revenue bond authority to support the CEC’s Energy Efficiency and Conservation Loan which was the only bonding authority it ever used. However, it had no success in financing new power plants.

The CPA was an on-budget, state entity and governed by a five-member board of directors. Four appointments were made by the Governor and were to have experience in the energy sector. The fifth member was the State Treasurer.

The Legislature intended that the CPA would be supported by revenues from investments it made with its bonding authority. Although intended to be self-supporting, $8.9 million was provided in start-up capital from the General Fund and other special fund sources. The CPA never attained self-sufficiency and it’s not clear that any funds were ever repaid. Ultimately the CPA was dissolved and funding eliminated although the statutory structure remains. The final appropriation for the CPA was $424,000 in the 2004-05 Budget Act.

California Alternative Energy and Advanced Transportation Authority – The California Alternative Energy Source Financing Authority was established in 1980 with an authorization of $200 million in revenue bonds to finance projects utilizing alternative or renewable energy sources, such as wind, solar, co-generation and geothermal. In 1994, the authority was renamed as CAEATFA and its charge was expanded to include the financing of "advanced transportation" technologies. During the energy crisis of 2001, CAEATFA's authority was expanded again to provide financial assistance to public power entities, independent generators, and others for new and renewable energy sources, and to develop clean distributed generation. In recent years its responsibilities were expanded to include administration of a sales tax exclusion program for manufacturers, develop and administer a risk mitigation program for Property Assessed Clean Energy loans, and effectuate other energy efficiency financing programs.

CAEATFA can issue revenue bonds (without voter approval), make loans, loan loss reserves, and loan guarantees to develop and commercialize advanced technologies that conserve energy, reduce air pollution, and promote economic development and jobs. State law limits CAEATFA's total debt to $1 billion. The CAEATFA board consists of five members: the Treasurer, Controller, Director of Finance, Chairperson of the Energy Commission, and President of the Public Utilities Commission.

COMMENTS:

1. Author’s Statement. Despite ambitious climate goals for 2030, California’s progress on decarbonizing the electric grid has stalled. These efforts provide important co-benefits to California communities, including but not limited to reduction of fossil fuel use, improved air quality, stable electricity rates, and the development of a safe, reliable and resilient electric grid. The nature of procurement in California is changing, with more small buyers entering the market and the larger buyers facing financial uncertainty. California must ensure existing renewable energy resources stay online and that new projects continue to develop if the state is to meet the greenhouse gas emissions mandates in statute. AB 56 will establish a tool that the state can use to ensure our grid maintains reliability while also staying on track to meet our ambitious climate and clean energy goals.
   
2. Procurement Challenges. California’s progress on decarbonizing the electric grid, achieving clean energy targets and preserving system reliability is placed at risk by a changing energy market. California’s electric system is undergoing – and planning for – significant structural changes that include: integrating greater numbers of intermittent renewable resources; repowering or retiring over 16 gigawatts of gas-fired power plants that rely on once-thorough cooling (OTC) technology; and an increasing number of resources that will surpass their design life in the coming years.

The California electric system is also witnessing rapid expansion of CCAs which has fragmented the retail market, credit challenges experienced by the IOUs, and an absence of a robust and clearly defined state-jurisdictional backstop procurement mechanism to fill unmet resource needs; a role historically managed by the IOUs. Most critically, the CPUC has tracked and reported severe deficiencies in the resource adequacy program. Finally, a recent proposed CPUC decision concerning the filing of integrated resource plans of CCAs reports that they “are having trouble keeping up”:

…several CCAs are beginning to procure new resources, primarily renewables and storage, in order to achieve the ambitious GHG goals for 2030. However, the amount of new resource procurement will need to be roughly twice what the CCAs have procured to date by 2022, and close to six times as much by 2030. These are ambitious goals that require a lot of concrete contracting in order to secure the resources necessary. It is not yet clear to us if it is feasible to rely on the CCAs for this level of procurement to achieve the 2030 portfolio. For example, the median project size so far being reported by CalCCA is approximately 1.75 MW. At that level of contract size, it would take almost 6,000 individual contracts to reach the 2030 new resource goals to achieve the optimal portfolio. This seems to be a serious challenge.^[1]

1. Core Concept = Central Buyer. Fundamentally the concept proposed by this bill would put an entity in place that could fill gaps in procurement of resources that could not be met by those mandated to serve electric load in the state – electric utilities, CCAs, ESPs, and POUs – for whatever reason. It is intended to keep the state on track to meet goals. The bill would also allow the central buyer to procure resources without regard to need but to achieve unspecified policy goals.
   

At this time the CPUC has concluded that a central buyer will be needed to address at least some portion of resource adequacy needs and is “most likely to provide cost efficiency, market certainty, reliability, administrative efficiency, and customer protection”^[2] Parties have submitted proposals for a central buyer to the CPUC in its pending resource adequacy rulemaking and a recent proposed decision reports that concepts “fall into four categories: (1) the distribution utilities, (2) a special purpose entity, (3) the CAISO, and (4) a centralized capacity market.” Although the Federal Energy Regulatory Commission (FERC) does have broad jurisdiction over the wholesale market, using the CAISO or a capacity market as a central buyer would put procurement and costs squarely under FERC control which has historically been avoided by the Legislature.”^[3]

This leaves the three large electrical corporations or a special purpose entity. This bill would establish a structure for a central procurement entity.

1. What Would the Authority Do? The central buyer provisions in this bill would authorize the creation of a nonprofit entity at the direction of the CEC and CPUC to procure on behalf of all electric customers in the state. It would be governed by a politically appointed seven member board, do its own procurement plans for the review of the CEC (on behalf of POUs) and the CPUC (on behalf of IOUs, CCAs, and ESPs).
   
   The Authority proposed in this bill would:
   1. Be authorized to procure resources to specifically meet resource adequacy, reliability, and Renewables Portfolio Standard requirements. However, there is also broad authority for it to procure any resource to serve any policy purpose as authorized by the CEC and CPUC;
      
   2. Submit annual procurement plans for review and approval by the CEC (on behalf of POU customers) and CPUC (on behalf of IOU, ESP, and CCA customers);
      
   3. Be empowered to solicit, negotiate, and execute procurement contracts with project developers upon approval of the plan. All contracts would be required to receive CPUC/CEC approval in order to become eligible for rate recovery. The Authority could manage all contracted resources and take assignment of existing resources which would include selling electricity output into wholesale markets; and
      
   4. Develop forecasts of net above-market costs of resources under contract, propose revenue requirements for each group of retail customers, and submit annual true-up to ensure full recovery of net costs. The CPUC and CEC would ensure full cost recovery of approved revenue requirements from POUs and the retail customers of the IOUs.
2. Déjà Vu. In response to the energy crisis the Legislature created “The Power Authority” in 2001. The authorization is still on the books but it ceased operation in the 2004-05 fiscal year. The crux of the responsibility of the Authority in this bill and the Power Authority is the same – to purchase and manage resources to fill gaps in procurement. Statutory authority remains on the books for the Power Authority and it could be funded and resurrected. However the energy landscape has changed significantly since that time. Procurement was dominated by baseload resources – hydro, nuclear, gas and coal – and vertically integrated utilities. Determining need and balancing load was straightforward and closer to simple math. The regulated utilities dominated procurement, CCAs were a glimmer, and direct access had been frozen. The Power Authority is viewed as a failed construct and associated with an era of great frustration. Additionally, the original Power Authority has a very large and expensive construct with a great deal of ramp time needed to achieve operation – as this bill does – which would not likely help the more immediate procurement needs identified by the CPUC.
3. Alternative Construct & Governance. The CAISO has already had to utilize its federal backstop authority to procure electricity on behalf of California customers. When the CAISO sees gaps in procurement, it is required under federal law to fill those gaps. The state’s response to the energy crisis was robust. Reliability has been maintained and the markets have been stable for years but the ground is shaky. The state is entering a new era in its energy landscape and the CPUC has identified circumstances in the market that have triggered tremendous concern about achieving goals and maintaining reliability. It’s not a good idea to wait until the last minute to take the steps necessary to meet goals and keep the lights on.

However, it is not clear that an entity of this size and scope proposed by this bill is warranted at this time. It appears certain that some central procurement will be necessary. But how much? What if only a few contracts are needed each year? Is an off-budget, non-profit association the most transparent construct to manage what would could be hundreds of millions, if not billions, of dollars of electricity contracts? More critically, the entity would be an off-budget, nonprofit out of the control and oversight of the Legislature.

Issues of concern with the structure of the Authority in this bill include:

• A large upfront investment to establish the Authority and a long ramp before it could be operational when procurement may be needed sooner;
• Uncertainty about the quantity of resource procurement needed; in the end there may not be enough to justify an entity of this size and scope;
• Requiring the Authority to develop its own procurement plan for approval by the CEC and/or CPUC seems to be the tail wagging the dog. The Legislature mandated extensive integrated resource planning by the agencies, LSEs and POUs in SB 350. The duplication of effort does not seem warranted. The entity should act at the direction of the agencies; and
• Authorizing procurement on behalf of POU customers when there are no demonstrated deficiencies does not appear to be warranted.

In the alternative, the committee may wish to consider amending the bill to expand the scope of the California Alternative Energy and Advanced Transportation Fund (CAEATFA) to contract for energy on behalf of IOU, CCA, and ESP customers if a resolution is adopted by the CPUC based on need as determined by integrated resource plans or to meet resource adequacy or reliability needs, and striking procurement for POU customers.

The CAEATFA is not currently staffed to manage this program but it is not without precedent for a state entity to contract for procurement and manage the power in the wholesale market. The Department of Water Resources currently provides this service. The CAEATFA has an existing administrative structure, a board of constitutional officers and agency leaders, would be funded through the annual state budget, and have direct legislative oversight.

1. Double Referral. This measure has been double-referred to the Assembly Natural Resources Committee.
   
2. Related Legislation.

SB 350 (Hertzberg) Authorizes the CPUC to consider changes within the RA program, including the use of a multiyear centralized resource adequacy mechanism, among other options. Status: Passed Senate Energy, Utilities & Communications Committee, 13-0; pending hearing in Senate Appropriations Committee.

1. Prior Legislation.

AB 893 (E. Garcia) Among its provisions, required the CPUC and the CEC to provide the Legislature, by March 31, 2019, with a joint assessment of options for establishing a central statewide entity to procure electricity for all end-use retail customers in the state. Status: Held in Senate Rules Committee, 2018.

AB 1121 (De Leon) requires the California Alternative Energy and Advanced Transportation Financing Authority (CAEATFA), in consultation with the Air Resources Board (ARB), to develop and administer a California Climate Technology and Infrastructure Financing program to finance eligible greenhouse gas (GHG) emissions reductions programs. Status: Died on Assembly Inactive File, 2014.

REGISTERED SUPPORT / OPPOSITION:

Support

California Biomass Energy Alliance
The Utility Reform Network

Support If Amended

California Farm Bureau Federation
Natural Resources Defense Council
Sempra Energy Utilities

Opposition

350 Bay Area Action
California Community Choice Association
California Municipal Utilities Association
Marin Clean Energy
Monterey Bay Community Power
Sacramento Municipal Utility District
Silicon Valley Leadership Group
Sonoma Clean Power
Southern California Edison
Southern California Public Power Authority (SCPPA)

Oppose Unless Amended

Center for Climate Protection
Northern California Power Agency

Analysis Prepared by: Kellie Smith / U. & E. /

1. See R.16-02-007, Proposed Decision Adopting Preferred System Portfolio and Plan for 2017-18 Integrated Resource Plan Cycle, CPUC, March 18, 2019, at p. 131, hereinafter PD. ↑

2. See D.18-06-030, Adopting Local Capacity Obligations for 2019 and Refining the Resource Adequacy Program, CPUC, June 21, 2018, at p. 30. ↑

3. See D.19-02-022, Decision Refining the Resource Adequacy Program, CPUC, February 21, 2019, at p. 7. ↑