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.
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<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
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<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
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<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