BILL ANALYSIS AB 2307 Page A Date of Hearing: April 15, 2002 ASSEMBLY COMMITTEE ON UTILITIES AND COMMERCE Roderick D. Wright, Chair AB 2307 (Kehoe) - As Introduced: February 21, 2002 SUBJECT : Electrical corporations: distributed energy resources. SUMMARY : Extends the date by which small distributed generation systems must be installed in order to qualify for waiver of a standby fee. Specifically, this bill : Extends by 3 years the deadline by which distributed energy resources must commence operation in order to qualify for the waiver of electrical corporation standby fees, which is in effect until June 1, 2011. EXISTING LAW : 1)Defines "distributed energy resources" (DER) for purposes of standby fee waivers as electric generation technology that: a) Commences initial operation between May 1, 2001 and June 1, 2003;<1> b) Is located within a single facility; c) Has a capacity of 5 megawatts or less; d) Serves onsite loads or over-the-fence<2> transactions; e) Is powered by a fuel other than diesel; and f) Complies with applicable air emission standards of the State Air Resources Board. -------------------------- <1> Except that gas-fired distributed energy resources that are not operated in a combined heat and power application must begin operation no later than September 1, 2002. <2> Examples of over-the-fence transactions include, electric power sold to entities located on land immediately adjacent to the generation site, and sales to an electric company or to a state or local agency. AB 2307 Page B 2)Provides that all standby charges imposed by electrical corporations, on customers who have installed distributed generation equipment that is in operation by June 1, 2003, shall be waived until June 1, 2011, except that gas-fired units enjoy the waiver only until June 2006. 3)Specifies that each customer with DER to participate in a real-time metering and pricing<3> program when available. 4)Requires each electrical corporation to consider nonutility owned distributed energy resources as a possible alternative to investments in its distribution system. FISCAL EFFECT : Unknown. COMMENTS : Last year, the Legislature passed SB X1 28 (Sher) [Chap. 12, Stats. 2001], which established the standby fee waiver provisions for DER, which is also known as "distributed generation" (DG). Power generated onsite by DG is normally used to meet some of the energy needs of a utility customer. DG can be used as backup power, to meet base or peak load needs, or to sell to adjacent sites in an "over-the-fence" transaction. Customers who operate a DG unit that is connected to the utility's distribution system normally supplement on-site generation with power purchased from the public utility. Grid-connected DG customers pay a standby charge to the utility to reserve the capacity need to serve that customer. The standby charges are based on the installed capacity of the DG unit. Last year's legislation suspended standby fees until June 2011 for DG units with a capacity of 5 megawatts or less. According to the author, the 2003 deadline to install DG equipment and thereby take advantage of the standby fee waiver is too soon for businesses to make significant investments in DG systems, particularly in light of the fact that the DG industry is relatively new. The California Energy Commission is actively promoting the --------------------------- <3> Under real time metering and pricing, rates for energy purchased reflect the actual cost to the electrical corporation of energy it buys at the time it is consumed by the customer. AB 2307 Page C development of standardized interconnection rules on a statewide basis, providing outreach services to publicly owned utilities, irrigation districts, and electric cooperatives to accommodate further development of DG. In July 2001, the California Public Utilities Commission (PUC) adopted interim standby rate design policies for onsite generation facilities that are interconnected to and operate in parallel with the distribution system. Burdens vs. benefits This measure was heard in Committee last week. During the hearing, several Members of the Committee discussed views about what should be the appropriate Legislative and public policy concerning DG, net metering and other special energy programs and incentives, that are subsidized to a greater or lesser degree by the remaining ESP customers. In general, Members suggested that the beneficiaries of these incentives and subsidies should themselves provide benefits to the ratepayers or the state in return for those enjoyed -- or at least do no economic harm to the remaining customers on the grid. Examples might be, providing power to the grid during peak demand times of the day, agreeing to power interruption during times when energy reserves are deficient. Proposed amendment by author and sponsor In response to the issues raised last week by the Committee, the author proposes to amend this bill as follows: "To the extent that [PUC] determines that there is a net cost to [this bill], those costs shall not be borne by ratepayers and shall be borne by the distributed generators that come online between June 1, 2003 and May 31, 2006." Opponents Among other things, opponents argue that numerous subsidies already exist for distributed generation that should not be extended further without a review of the cost-effectiveness of the existing programs. AB 2307 Page D Opponents contend that the above statement, that directs PUC to ensure that costs are borne by those who install new DG, does not suffice to remove their opposition to this bill. It is the view of opponents that PUC's rulemaking hearing, now going on, already covers cost determinations for DG. Opponents therefore believe that this bill adds nothing to what is already out there. While it is clear that opponent ESPs generally object to standby fee waivers for DG, it has been suggested that DG customers who provide "physical assurance"<4> -- allowing the ESP to thus defer adding distribution capacity -- might resolve the issue. It appears that, when DG is relied on by ESP for distribution capacity goes down, the load on the electric grid increases during the time the unit is not working, unless there is a physical assurance that a corresponding amount of electric load will be dropped when DG is not operating. Physical assurance or similar measures may also solve ratepayer equity and grid demand issues raised by the Committee. Conflict This bill is in apparent conflict with SB X2 9 (Morrow) and SB X2 35 (Morrow), which amends the same sections of law. REGISTERED SUPPORT / OPPOSITION : Support Clarus Energy (source) California Independent Petroleum Association (CIPA) Capstone Turbine Corporation California State University hotel Power, Inc. California Chamber of Commerce Building Owners and Managers Association of California California Manufacturers & Technology Opposition --------------------------- <4> Physical assurance means use of switching equipment that interrupts a DG customer's normal load when DG does not operate. AB 2307 Page E Pacific Gas & Electric Southern California Edison Analysis Prepared by : Paul Donahue / U. & C. / (916) 319-2083