California Feed-in Tariff Bill, AB 1106, Amended

By Paul Gipe


California’s State Senate amended AB 1106 on June 25, 2009 and again on July 15, 2009. The bill has now been amended by the Senate Energy, Utilities, and Communications Committee and reported to the Appropriations Committee.

AB 1106 is one of several feed-in tariff bills in the California legislature. It has passed the Assembly and is now in the Senate.

The bill’s authors are Felipe Fuentes (D-District 39) and Ira Ruskin (D-District 21).

Assemblyman Fuentes previously had introduced the California Feed-in Tariff Act, AB 1807, in early 2008. The bill languished in committee. Since that time Fuentes has become chairman of the Assembly’s powerful Committee on Utilities and Commerce.

The program proposed in AB 1106 is far more modest than either Ontario or Vermont’s feed-in tariff programs and similarly less ambitious than proposed legislation in a host of US states, including Michigan and Minnesota.

AB 1106 directs the California Public Utility Commission (PUC) to differentiate rates or tariffs by technology, a key element of successful policies elsewhere. However, it creates two classes of renewable energy projects based on size. The PUC is directed to set Tier 1 tariffs for projects less than 5 MW and Tier 2 tariffs for projects 5-10 MW.

Only Tier 1 tariffs would be comparable to feed-in tariffs in Europe, Ontario, and Vermont.

Previously, the California Energy Commission has recommended that feed-in tariffs initially be created for projects up to 20 MW and to base those tariffs on the cost of generation plus a reasonable profit. AB 1106 falls substantially short of that recommendation with the limitation on Tier 1 tariffs to projects less than 5 MW.

Because of the project size limitation, AB 1106 will primarily benefit commercial solar photovoltaic projects.

The PUC would be required to approve feed-in tariffs and standard contracts by June 1, 2011, and utilities would be required to offer contracts by June 30, 2011, two years from the time the bill was ammended.

Tier 1 Tariffs

As in successful programs in Europe, Tier 1 tariffs would be based on the cost of generation plus profit. Recently, California’s Attorney General Jerry Brown argued in a filing to the PUC that tariffs should be based on the cost of generation plus a reasonable profit.

Reasonable profit is defined in AB 1106 as the same rate of return authorized by the PUC for electric utilities operating in the state.

AB 1106 had originally directed the PUC to create separate tariffs for each of the several specific technologies. However, amendments on July 15 eliminated the specific technologies with a requirement to set tariffs for “eligible renewable energy resources.”

The PUC in setting the tariffs are directed to include federal or state tax credits and other incentives.

AB 1106 sets a cap on any specific tariff of $0.30/kWh or an unspecified percentage above the average cost of qualifying renewable energy technologies under the act. The cap is targeted at limiting the cost of solar PV to ratepayers.

Contracts for Tier 1 must be offered for a minimum of 25 years.

Tier 2 Tariffs

The bill specifies that contracts should be offered for Tier 2 of 10, 15, and 20 year duration.

However, in the most significant departure from successful feed-in tariff policies, AB 1106 specifies that Tier 2 tariffs must be based on the value of the renewable generation to the system, not on the cost of generation.

The “avoided cost” under the Public Utility Regulatory Policies Act (PURPA) is essentially a determination of the “value” of the generation to the electric system. In California, the PUC’s term for avoided cost is the Market Price Referant (MPR).

California already has a largely ineffective feed-in tariff based on the MPR.

AB 1106 directs the PUC to consider attributes other than the avoidance of natural-gas fired generation, such as the time of day generation occurs, in setting the tariff. Time of day is also already considered in the existing California feed-in tariff.

And in another departure from best practice, AB 1106 doesn’t direct the PUC to differentiate tariffs in Tier 2 by technology, project size, resource intensity, or any other factor. Under AB 1106, it is one size fits all depending upon the PUC’s determination of their “benefits” to the system.

Further, the program proposed by AB 1106 is limited to a total of only 500 MW, relatively less than the program in Vermont.

Vermont consumes 6 TWh of electricity per year whereas California, the most populous state in the nation, consumes 255 TWh per year–43 times more than tiny Vermont.

Vermont’s program is limited to only 50 MW. For California to rival Vermont’s program, California would need a program cap greater than 2,150 MW, not 500 MW.

There are no program caps on the feed-in tariff program in Ontario. The cap in Ontario is effectively what the transmission and distribution system can physically accept.

It appears that in most regards, Vermont’s modest system of Advanced Renewable tariffs exceeds the simple feed-in tariffs for Tier 1 proposed in AB 1106.

Tier 2 tariffs in AB 1106 are equivalent to the system currently in place.

AB 1106

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