Local Power

4281 Piedmont Ave. Oakland, CA 94611 510 451 1727 

 

 

May 1, 2001

 

California Energy Commission

Re: Docket No. 00-REN-1194

Docket Unit, MS-4

1516 Ninth Street

Sacramento, CA 95814-5504

 

Members of the Commission:

 

I am writing as an advisor to a number of local governments in California to submit comments relative to the Commission’s Draft Investment Plan report P500-00-022, “Investing in Renewable Electricity Generation in CA.” We realize this arrives late but ask that you consider our comments in light of developments at both the state and local level which occurred after the comments deadline of January 9, 2001.

 

In particular, these developments are: (1) sponsorship of an opt-out municipal aggregation (“Community Choice”) bill, AB48x, by Assemblymember and Appropriations Committee Chair Carole Migden (D-SF), and (2) development of municipally-funded, large-scale  renewable “local power” plans by a number of cities, led by the city and county of San Francisco under leadership of San Francisco Board of Supervisors President Tom Ammiano.  While connected, these initiatives are not interdependent.

 

The principal request of this letter is that the Commission re-evaluate its Investment Plan to remove policies that inadvertently discriminate against municipally-sponsored renewable energy development programs. We wish to keep the Commission appraised of some structural changes that are in fact occurring at both the state and local levels, and to ask that the Commission’s policies take these changes into consideration. In particular, we are concerned that the Commission’s programs be tailored to municipally-sponsored large scale solar, wind, and other renewable distributed generation projects currently being planned by local governments on behalf of their residents and businesses, throughout the state.

 

To date, the Commission’s programs are implicitly structured for projects designed for individual customers. In particular, we are thinking of set asides for small renewable resource projects which are designed to benefit small customers but which in the context of community-wide initiatives (which are of particular benefit to small consumers) are discriminatory, because the cost-effectiveness of our projects depends on large scale installations. We ask that the Commission remove barriers to community-wide initiatives, and that it introduce new test criteria for proposed projects that include consideration of a proposed project’s benefits to the electricity system (such as grid efficiency), not merely to an individual customer.

 

We ask that any program designs take into consideration new developments which involve municipal, inter-municipal and county initiatives seeking to develop very large scale distributed generation projects in the service territories of Pacific Gas and Electric, Southern California Edison, and San Diego Gas and Electric.

 

In these cases, we are preparing community-wide initiatives sponsored and financed by local governments but which will be built on privately owned commercial and residential properties, and whose end-use customers are not necessarily the property owner, but the residents and businesses of the surrounding community.

 

 

Community Choice

 

The Community Choice bill (AB48x)– which is already in effect in Massachusetts and Ohio - will give municipalities and groups of municipalities “opt-out” aggregation authority, meaning they will negotiate bulk wholesale power supply contracts on behalf of their residents and businesses in much the same way as they already negotiate for garbage collection, recycling and cable television franchises. As stewards of their community’s energy service, these municipal bodies will be poised to develop new generation as a bundled component of that power supply.  This legislation is widely supported by consumer and environmental advocates, as well as by the independent power lobby, and is not actively opposed by the state’s DISCOs. AB48x was recently passed by the Assembly Energy Cost and Availability Committee with a 19-1 “aye” vote. There are currently 30 municipalities and counties that have requested this law, and many are now leading the movement for municipally-sponsored distributed renewable generation projects.

 

Local Power

 

The local power plans being developed by cities in both northern and southern California are inspired by the campaign for Community Choice, but are not dependent on its passage. These are unprecedented in scale (SF will seek 50MW of photovoltaics in 7 years, six times larger than SMUD, currently the world’s largest), revenue-bond funded “design, build, operate and maintain” solicitations for renewable distributed generation in which competing master developers will bid to sell renewable energy to a municipality from their installed infrastructure both on a price schedule and on the “cash cow period” of the infrastructure, meaning the eventual date (beyond a projected cost recovery and risk capital recovery period) of title transfer of that installed infrastructure to a municipality.

 

Parameters of Local Power Systems

 

Every parameter of these solicitations is designed to optimize engineering and to reduce financial risks to the municipality. (1) The emphasis is on large-scale (above 300kw) photovoltaic installations, which have significantly lower O&M costs than smaller systems. (2) It is critical that the locations selected for these installations be optimal in terms of solar conditions, grid congestion conditions, and proximity to peak load conditions, so (3) we do not wish to restrict installations either to municipal properties (4) nor to properties owned by the end user of the resulting capacity. A critical innovation of Local Power solicitations is to separate the infrastructure from the end user. Rooftops will be selected for acquisition according to their efficiency from a strictly engineering perspective. Accordingly, we are seeking a Distribution-Only Wheeling Tariff for renewable distributed generation from the legislature in order to improve the future economic climate for load shaving and shifting.

 

We wish to impress upon the Commission that the economies of scale created by these initiatives will greatly facilitate the RESIA’s three main objectives;

 

1.   The economies of scale and revenue benefits introduced through volume purchasing and Sacramento’s basic “Sustainable and Orderly Development and Commercialization” model by cities still operating in DISCO service territories will raise the bar on the “vigorous pursuit of the mist cost-effective and efficient investments in renewable resources,”

2.   Because these municipally-sponsored projects both add local public moneys (municipal revenue bonds) to the equation and propose larger scale projects for benefits to the whole community (rather than individual customers), they also offer a more promising model for “increase(ing), in the near term, the quantity of California’s electricity generated by in-state renewable energy resources, while protecting system reliability, fostering resource diversity, and obtaining the greatest environmental benefits for California residents”;

3.   Because of the distributed nature of municipally-sponsored projects (to date they are all photovoltaics-oriented), municipally-sponsored programs are the most promising method of  “identify(ing) and support(ing) emerging renewable energy technologies that have the greatest near-term commercial promise and that merit targeted assistance.”

 

We support the principle conveyed in the Commission’s December 2000 investment plan that it should “remain as flexible as possible to ensure that the extended funds are used to support the most cost-effective and efficient investments in renewable resources,” and that “there is greater uncertainty today about the market structure within which the investment plan must operate.” We are very supportive of the Committee’s recommendation that “the Energy Commission be given the flexibility to make appropriate adjustments in the investment plan allocations,” because we believe that coming events will turn the market on its head and render current policies inappropriate if it remains the goal of this commission to use these funds “to support the most cost-effective and efficient investments in renewable resources.”

 

Before addressing the Committee’s Draft Report of December 2000, we want to observe that in light of the failure of California’s market for electricity (which includes renewable energy resource development), that the -Report’s continued emphasis on “markets” needs revision. Clearly, the market needs some help from government in order to prove sustainable. On page 12 the Committee maintains “the following three objectives…remain important in maximizing the effectiveness of the funds provided by the RESIA:

 

“1. To assist in developing a consumer-driven renewables market in California that facilitates consumers choice of renewable power.

 

“2. To encourage market-based development of new and emerging renewable resources.

 

“3. To maintain the benefits and diversity of the renewables industry and move towards market competitiveness with the broader electricity industry.”

 

We believe that the idea of a “consumer-driven” market was the essential error of Assembly Bill AB1890 (Chapter 854), and that the essential solution to California’s energy crisis lies in local government. While we are not convinced that municipalizations, or wires takeovers, are essential to solve the problem, we do believe that (1) Community Choice is critical to diversifying California’s market and introducing real competition at the wholesale level, and (2) municipally-sponsored “Local Power” solicitations are critical both to lower the price of renewable technologies for the consumer, and to facilitate a “big business” rather than niche market approach to their deployment. Given the demonstrated limits of consumer buying power in the electricity market, we recommend that the Commission aspire to a “demand-driven” rather than a “consumer-driven” market for renewables.

 

Our specific recommendations are as follows:

 

 

1.   Exempt community-sponsored projects from Emerging Renewable Resource Fund size quotas.  We urge the Commission to modify the allocation structure within the Emerging Renewables Fund, which inadvertently discriminates against community-wide programs sponsored by municipalities by requiring that 60% of funding go to 10kw or smaller systems, 15% to 10-99kw systems, and only 25% to 100kw or larger systems. Again, community-sponsored projects depend on large (300kw and larger) systems to lower O%M costs and are essential to both efficiency and cost-effectiveness. We ask that community-sponsored initiatives be made exempt from this allocation structure, which was clearly designed from within AB1890’s individual consumer economic model. Given that small consumers benefit from community-sponsored programs, the size quotas are not relevant.

 

2.   Expand Funding for Emerging Technologies Fund. We believe that the allocation for Emerging Technologies Fund should be increased from 10% to 40%. San Francisco’s plan alone will result in an application for approximately $150 million, more than half of the entire Emerging Technologies Fund. Similar plans currently under development in the East Bay, the (Edison) Los Angeles area and San Diego County oversubscribe current allocation levels, so that a dramatic increase is in order.

 

3.   Defund the Consumer Education and Customer Credit Funds. The Consumer Education Fund (5%) and the Customer Credit Fund (25%) should be eliminated to focus the state’s resources on immediately viable projects. Consumer education is a waste of money in a market without consumer choice in effect now or in the foreseeable future. The Customer Credit Fund was designed for the AB1890 market, and should also be eliminated to make funds available for large scale distributed Emerging Technologies projects.

 

4.   Fully Fund the Emerging Technologies Fund. We urge the Commission to give the Emerging Technologies Fund its full allocation in addition to rollover funds despite its under-enrollment during the functional years of AB1890. Again, this under-enrollment was caused by a market entirely based on consumer-driven investment decisions. With very large scale, photovoltaic-centered Local Power plans already in place and a Community Choice law approaching, the Commission should anticipate a dramatic increase in applications for the Emerging Technologies Fund moneys, and should see to it that all funds are made available. For example, the San Francisco Local Power plan alone will seek more than half of the funds in the Emerging Technologies account.

 

5.   Reserve Emerging Renewables Funds. We oppose automatic rollovers of unused Emerging Renewables funds to the New Renewables Fund on an annual basis. Given the scale and level of commitment to put municipally-sponsored proposals in place, funds should be kept available for projects on the drawing board.

 

6.   Eliminate “On Premises” Eligibility Requirement for Emerging Renewable Resource Fund. We ask that eligibility of systems for the Emerging Renewable Resources Fund not be limited to facilities “located on the premises of the end-user and be primarily designed to offset the customers own load.” (p.21). This is another instance of the AB1890 individual consumer-based approach inadvertently discriminating against community-wide programs sponsored by municipalities. As mentioned above, economies of scale (which vastly increase the cost-effectiveness and efficiency of the renewable resources) depend on engineering distributed resources to offer a maximum benefit to a whole community in the form of grid efficiency, a benefit which reach DISCO-connected end-users without necessarily being physically built on their property. Any requirement that infrastructure must be built on the end-user’s premises is counter-productive and runs contrary to the principle of cost-effectiveness and efficiency. We urgently request that the Commission reconsider this policy in light of both Community Choice and the Local Power initiatives.

 

7.   Make “On Site” generation eligible for New Renewable Resource Funds. We support the Committee’s recommendation that on-site generation be allowed eligibility for funding for the New Renewable Resources Account in SB90, for all the reasons sited on page 22.

 

8.   Protect Photovoltaics. We support expansion of emerging renewable resource technologies, but only on condition that the fund is expanded or photovoltaics are made eligible for New Renewable Resources Funds.

 

9.   Continue Prohibition on Utility Ownership of Generation. Finally, we are vehemently opposed to the Committee’s recommendation that utility ownership of facilities be allowed. It is critical that the market for distributed generation be kept separate from the wires business to avoid further gaming of the market. Given the dismal performance of the Energy Efficiency funds under utility administration, we see no reason to allow wires companies which are supposed to remain market-neutral to be allowed to compete as generators, as this would threaten to further undermine the competitive climate of California’s electricity market. Finally, there is no shortage of entities, whether commercial or public, which are eager to develop renewable resources using SB90 funds. We are alarmed at the Committee’s recommendation and urge reconsideration.

 

In closing, we hope the Commission will accept our comments despite their lateness, and ask that we be added to the mailing list for this Docket. If you have any questions, please call Paul Fenn at 510 451 1727 at any time.

 

Thanks for your consideration,

 

 

 

Paul Fenn

Local Power