BILL ANALYSIS                                                                                                                                                                                                    



                                                                  AB 2307
                                                                  Page  1

          Date of Hearing:  May 8, 2002

                        ASSEMBLY COMMITTEE ON APPROPRIATIONS
                              Darrell Steinberg, Chair

                    AB 2307 (Kehoe) - As Amended:  April 23, 2002 

          Policy Committee:                              Utilities and  
          Commerce     Vote:                            13-2

          Urgency:     No                   State Mandated Local Program:  
          No     Reimbursable:               

           SUMMARY  

          This bill:

          1)Extends by two years (until June 2005) the existing deadline  
            by which distributed energy resources must commence operation  
            in order to qualify for a waiver of electrical corporation  
            standby fees through June 1, 2011.  

          2)Requires that, if the Public Utilities Commission (PUC)  
            determines there are net costs that would otherwise be borne  
            by ratepayers due to the waiver of standby charges, those  
            costs will instead be borne by operators who install  
            distributed generation pursuant to (1).

           FISCAL EFFECT  

          Minor absorbable special fund costs to the PUC to determine  
          whether there are net costs that should be borne by distributed  
          generators.

           COMMENTS  

           1)Background  .  As part of 2001-02 First Extraordinary Session,  
            the Legislature passed SB X1 28 (Sher), which established the  
            standby fee waiver provisions until June 2011 for non-diesel  
            fuel "distributed generation" (DG) that commences operation  
            between May 2001 and June 2003 and has a capacity of 5  
            megawatts or less.  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  
            connected to the utility's distribution system normally  








                                                                  AB 2307
                                                                  Page  2

            supplement on-site generation with power purchased from the  
            public utility. Grid-connected DG customers pay a standby  
            charge to the utility, based on the installed capacity of the  
            DG unit, to reserve the capacity needed to serve that  
            customer.  
           
             In July 2001, the PUC adopted interim standby rate design  
            policies for onsite generation facilities that are  
            interconnected to, and operate in parallel with, the  
            distribution system.  Pursuant to SB X1 28, the commission is  
            requiring the electrical corporations to establish new tariffs  
            for DG customers by January 2003.

           2)Purpose  . 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.  This bill would  
            provide an additional two years for entities to install DG and  
            still receive the standby fee waiver.  In order to address  
            concerns regarding cost-shifting among ratepayers due to the  
            fee waiver, the bill was amended in the policy committee to  
            require any costs that would otherwise be shifted, as  
            determined by the PUC, to instead be borne by the new DG  
            customers.  

           3)Opposition  .  Both Pacific Gas and Electric and Southern  
            California Edison are opposed to the bill.  Opponents indicate  
            that the recent amendment directing the PUC to ensure that  
            costs are borne by those who install new DG does not remove  
            their opposition to this bill.  Opponents believe that the  
            PUC's current rulemaking hearing already covers cost  
            determinations for DG, and therefore believe that this bill  
            adds nothing to that process.

           Analysis Prepared by  :    Chuck Nicol / APPR. / (916) 319-2081