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HomeMy WebLinkAboutAgenda Report - September 20, 2017 C-10TM CITY OF LODI COUNCIL COMMUNICATION AGENDA ITEM Casio AGENDA TITLE: Receive Report Regarding Communication Pertaining to Independent System Operator Governance Change and Grid Regionalization (Assembly Bills 726 and 813) MEETING DATE: September 20, 2017 PREPARED BY: City Clerk RECOMMENDED ACTION: Receive report regarding communication pertaining to Independent System Operator (ISO) governance change and grid regionalization (Assembly Bills 726 and 813). BACKGROUND INFORMATION: The City received a request for communication from the Northern California Power Agency (NCPA) regarding Assembly Bills 726 and 813 relating to ISO governance change and grid regionalization. There was a need to send a letter of opposition immediately in light of a pending hearing. The purpose of these bills is to remove the Governor and Senate from the role of controlling who sits on the ISO's governing board. This is expected to attract transmission operators in other states to join and expand the ISO grid — otherwise known as grid regionalization. The potential environmental and consumer risks associated with grid regionalization are significant, and the process outlined in AB 726 and AB 813 to change the ISO's governance Tacks adequate safeguards. 1. The consumer and environmental risks with grid regionalization are significant and could dwarf the purported benefits. Those risks include: • Increases in transmission access charges • Stranded California investments • Increases in greenhouse gas emissions 2. The process to change ISO governance lacks adequate safeguards. Concerns and questions include: • Federal Energy Regulatory Commission and ISO could circumvent the bills' intent • The ad hoc committee's structural and timing problems • No requirement to consider less aggressive alternatives • An inappropriate delegation of legislative authority The attached letter, electronically signed by the Mayor, was sent to NCPA on September 11, 2017. A copy of the initial request is also attached. This report is provided for informational purposes only, pursuant to policy. FISCAL IMPACT: Not applicable. FUNDING AVAILABLE Not applicable. APPROVED Ferraiolo, City Clerk Step echwabau-+- Manager N:\Administration\CLERK\Council\COUNCOM\LeagueReceiveReportMaster2.doc CITY COUNCIL DOUG KUEHNE, Mayor ALAN NAKANISHI, Mayor Pro Tempore MARK CHANDLER BOB JOHNSON JOANNE MOUNCE CITY OF LODI CITY HALL, 221 WEST PINE STREET P.O. BOX 3006 LODI, CALIFORNIA 95241-1910 (209) 333-6702 / FAX (209) 333-6807 www.lodi.gov cityclerk©Iodi.gov September 11, 2017 The Honorable Ben Hueso Senate Energy, Utilities and Communications Committee State Capitol, Room 4035 Sacramento, CA 95814 RE: ISO Governance Change and Grid Regionalization (AB 726 and AB 813) — Strongly Oppose STEPHEN SCHWABAUER City Manager JENNIFER M. FERRAIOLO City Clerk JANICE D. MAGDICH City Attorney Dear Senator Hueso: The City of Lodi strongly opposes AB 726 and AB 813, both of which are 11`h hour attempts to relinquish California's jurisdiction over the governance of the California Independent System Operator (ISO). Any attempt to change the ISO governance structure demands a thorough public vetting through the normal state legislative process; especially since once California loses its authority over the ISO, there will be no turning back. Unfortunately, there is no legitimate path where a robust legislative debate and informed legislative action can be taken on these bills in the final days of session. The purpose of these bills is to remove the Governor and Senate from the role of controlling who sits on the ISO's governing board. This is expected to attract transmission operators in other states to join and expand the ISO grid—otherwise known as grid regionalization. As discussed in further detail below, the potential environmental and consumer risks associated with grid regionalization are significant, and the process outlined in AB 726 and AB 813 to change the ISO's governance lacks adequate safeguards. 1. The consumer and environmental risks with grid regionalization are significant and could dwarf the purported benefits. According to a rushed set of studies commissioned by the ISO last year to justify grid regionalization, the stated benefits to California consumers generally amount to a financial savings of only two to three percent in retail rates. The estimated benefits, however, are based on assumptions on regulations and tariffs that have not been finalized or may never materialize. Moreover, the studies have not thoroughly assessed or quantified the risk of regionalization (presumably because the expedited review did not provide the time to engage in such an assessment). As such, rushing into grid regionalization would likely expose consumers to potentially large risks for a relatively small overall level of uncertain benefits. These risks include, but are not limited to, the following: • Increases in Transmission Access Charges. Transmission access charges (TAC) to use California's main transmission grid are already the highest in the nation. Grid regionalization will likely lead to the development of billions of dollars of new transmission systems out-of-state, which will expose California consumers to additional transmission charges. Many publicly -owned electric utilities in California do not need the development of these transmission systems to meet their energy needs and renewable energy requirements. • Stranded California Investments. Through regionalization, out-of-state power will compete with California generation. This could lead to significant reductions in energy production for many California plants. California power plants are held to a higher level of compliance with environmental requirements that do not apply to facilities in other states. This "environmental premium" puts California facilities at a significant cost disadvantage when competing with older and dirtier plants in other states. Such a dynamic threatens the economic dispatch of facilities that California consumers have invested in to be served by some of the cleanest and most efficient generation in the country. • Increases in Greenhouse Gas Emissions. The stated purpose of grid regionalization is to promote renewable energy and reduce greenhouse gas emissions. However, since regionalization will involve several states that generate coal, many prominent environmental groups have formally gone on record raising serious questions regarding the environmental benefits of regionalization, or are calling for further studies before regionalization occurs. Since the impetus for regionalization is the potential environmental benefits, regionalization should not move forward until California has conducted additional analyzes through a public stakeholder process that better understands the potential environmental effects. 2. The process to change ISO governance lacks adequate safeguards. This is the third consecutive year in which the ISO and proponents of grid regionalization have attempted an end of session strategy to change ISO governance. Last year, the Governor decided to abandon his end of session push, telling the Legislature in a letter dated August 8, 2016 that "there remain some important unresolved questions that would be difficult to answer in the remainder of this legislative session." The Governor's letter concludes that "The goal is to develop a strong proposal that the Legislature can consider in January." No proposal was introduced to the Legislature in January, and no effort was made by the administration to hold a public stakeholder process this year to address the unresolved questions. Instead, AB 726 and AB 813 raise additional concerns and questions, many of which are discussed below. • FERC and the ISO Could Circumvent the Bills' Intent. Both AB 726 and AB 813 envision a process where (1) the ISO's governing board develops and approves proposed revised corporate governing documents, and (2) an ad hoc committee consisting of various state representatives' issues findings regarding those documents, as specified. December 31, 2018 is the deadline for the ad hoc committee to make its findings, and once they are made, AB 726 and AB 813 render the state's existing laws regarding the ISO inoperative. This is problematic for several reasons. Any governance change to the ISO will require approval by the Federal Energy Regulatory Commission (FERC). Presumably, the proposed revised corporate governing documents would not be submitted to FERC until after the ad hoc committee makes its findings (the bill is silent on the FERC process). It is within the realm of possibility that a Trump -influenced FERC could reject the proposed revised corporate governing documents unless it comports with the Trump Administration's well established pro -coal policies. If FERC rejects the proposal, AB 726 and AB 813 provide no process to reinstate the ISO -related statutes that were repealed by the ad hoc committee's findings. Nor do the bills require the ISO and the ad hoc committee to go through the process again to revise the governance change proposal. Under this scenario, the ISO would be free to submit a new proposal to FERC without any parameters set by the state. Even if FERC approves the governance change proposal certified by the ad hoc committee, nothing in state law would preclude the new ISO to subsequently change its governance structure without legislative or ad hoc committee approval. • The Ad Hoc Committee's Structural and Timing Problems. The ad hoc committee discussed above would consist of eight members. Four members would be from the administration: the Governor; the chair of the Energy Commission; the president of the Public Utilities Commission; the chair of the Air Resources Board. The other four members would be from the Legislature: the chair of the Assembly Utilities and Commerce Committee; the chair of the Senate Energy, Utilities, and Communications Committee; a member of the Assembly (appointed by the Speaker), and a member of the Senate (appointed by the Senate Rules Committee). A majority of these committee members are already likely to support regionalization, and may be overly deferential to the ISO when making findings on the proposed revised corporate governing documents. Therefore, the scrutiny involved in this process may be minimal. The ad hoc committee also lacks the diversity of the Legislature, and it is possible that no legislators from districts that represent the City of Lodi would be included. Furthermore, there would likely be no Republicans on this committee, which undermines any possibility of a bipartisan review of grid regionalization, which should be encouraged. The timing of the ad hoc committee's deadline creates problems, too. There will be a new Governor and Legislature elected in November 2018, which is during the time the ad hoc committee will be reviewing the ISO's proposed revised corporate governing documents. The ad hoc committee, which already has a short review period, may be rushed even further to make its findings prior to the election in order to avoid a change in committee membership that disrupts grid regionalization. • No Requirement to Consider Less Aggressive Alternatives. The ISO has been developing an energy imbalance market (EIM) to share generation with other grids operating in the West. It is a voluntary market that realizes many of the same benefits intended in regionalization, without the risks. Unlike regionalization, EIM does not involve modifying the ISO's governing board. Unfortunately, AB 726 and AB 813 do not require the ISO or the ad hoc committee to explore new concepts or analyze less aggressive alternatives, like the expansion of EIM, prior to moving forward with a governance change. • An Inappropriate Delegation of Legislative Authority. Authorizing an outside ad hoc committee to unilaterally repeal state law, as proposed in AB 726 and AB 813, is an inappropriate – and potentially illegal – delegation of legislative authority, especially since the bills include no discernible standards to govern the committee. The bills only require the committee to hold one public meeting, and there is no defined process to take evidence, consider alternative views, and deliberate or issue proposed findings. The bill is even silent on the voting requirements. This lack of structure and process provides the committee with too much uncontrolled discretion and unguided power to be trusted with deciding whether to repeal important state law. These concerns and unanswered questions must be adequately addressed before the state moves forward with grid regionalization. Any effort to change the ISO governance is too important to hurry, and should occur through a thorough public process—not as part of an end of session strategy that significantly limits review and debate. As such, the City of Lodi respectfully requests that you vote "no" on AB 726 and AB 813. If you have any questions, please do not hesitate to contact Lodi's Electric Utility Director, Elizabeth Kirkley, at (209) 333-6828 or ekirkley(a�lodi.gov. Sincerely, /4/ Dm,uett:Ke Doug Kuehne Mayor, City of Lodi Jennifer Ferraiolo Subject: Attachments: FW: Urgent --Regionalization Oppose Letter AB 726.pdf; AB 813.pdf; NCPA Regionalization Oppose Letter_Lodi.docx Importance: High From: Elizabeth Kirkley Sent: Monday, September 11, 2017 9:19 AM To: sschwabauer@lodi.gov Subject: FW: Urgent --Regionalization Oppose Letter Importance: High Steve, See below. Please let me know if you support having Mayor Kuehne sign the attached letter. Thanks, Liz From: Mario De Bernardo[mailto:Mario.DeBernardo@ncga.com] Sent: Monday, September 11, 2017 1:07 AM To: *L&R Committee Subject: Urgent --Regionalization Oppose Letter Dear L&R Committee, For your review, I have attached AB 726 (Holden) and AB 813 (Holden), which are the two bills that were amended on Friday to authorize ISO grid regionalization. NCPA strongly opposes these two bills for the reasons stated in the attached letter. Please feel free to use this letter as a template for your own opposition letter. There is a possibility that the Senate Energy Committee hears this bill this afternoon (Monday, September 11th), so I would like to encourage you to send me your signed letter this morning if possible. If that's not possible, please send the letter in when you can, as I will make sure they get to the next committee and to your legislators if the bills gets a floor vote. Here is some background on the two bills: • Both AB 726 and AB 813 are virtually the same. They have the same regionalization proposals. They also contain language requiring IOUs, CCAs, and Energy Service Providers to procure additional wind and solar to take advantage of the federal tax credits before they expire in a couple of years. AB 726 contains requirements for electric corporations regarding smart meters and costumer notification. It is not clear why Holden has two bills instead of one, but we will try to find out. • The regionalization provisions in both bills would do the following: o On or before October 31, 2018, require the ISO to develop and approve proposed revised corporate governing documents and submit them to the Commission of Regional Grid Transformation (a newly formed ad hoc committee) for certification. ■ The ISO's proposal must preserve state authority over matters traditionally relegated to the states themselves (e.g., resource procurement policies, resource adequacy). The proposal must also include an open and transparent governance framework, with a meaningful stakeholder process (e.g., a stakeholder advisory committee consisting of, among other entities, local publicly owned electric utilities). o On or before December 31, 2018, allow the Commission of Regional Grid Transformation to certify the ISO's proposed revised corporate governing documents. 1 ■ This ad hoc committee would consist of eight people: a representative from the Governor's Office, the chairs of the CEC, PUC, and ARB, the chairs of the Senate Energy Committee and Assembly Utilities and Energy Committees, and one other legislator picked from each house. ■ This committee would be required to make findings, as specified. ■ If the committee made the findings by the deadline, the existing statutes governing the ISO would become inoperative. • SCPPA, CMUA, TURN, Sierra Club and the environmental justice groups are also opposing the regionalization proposals. The CCAs and IOUs are opposing the bills because of the other provisions regarding wind and solar mandates. Please do not hesitate to contact me if you have any questions or comments about these bills. Just a reminder, the end of session is this Friday, so there will be a lot of action this week. We will keep you updated. Mario De Bernardo State Government Relations and External Affairs Manager Northern California Power Agency* (916) 781-4222 (office) (916) 878-0319 (cell) (916) 782-2191(fax) mario.debernardo@ncpa.com www.ncpa.com *NCPA is a nonprofit California joint powers agency established in 1968 to construct and operate renewable and low - emitting generating facilities and assist in meeting the wholesale energy needs of its 16 members: the Cities of Alameda, Biggs, Gridley, Healdsburg, Lodi, Lompoc, Palo Alto, Redding, Roseville, Santa Clara, Shasta Lake, and Ukiah, Plumas-Sierra Rural Electric Cooperative, Port of Oakland, San Francisco Bay Area Rapid Transit (BART), and Truckee Donner Public Utility District—collectively serving nearly 700,000 electric consumers in Central and Northern California. 2