BILL ANALYSIS 1
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SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE
DEBRA BOWEN, CHAIRWOMAN
AB 2307 - Kehoe Hearing Date:
June 25, 2002 A
As Amended: June 6, 2002 FISCAL B
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DESCRIPTION
Under existing law (SB 28X (Sher), Chapter 12, Statutes of
2001), distributed generation (DG) projects under five
megawatts, operating in a combined heat and power application,
meeting established air pollution standards, and commencing
operation by June 1, 2003 are eligible for a waiver of utility
standby charges until 2011
This bill extends the installation deadline for these projects
to June 1, 2005 .
BACKGROUND
DG is typically considered to be a site-specific generation
resource which is owned by the customer and used to meet some or
all of that customer's energy needs, including electricity and,
in many applications, heating.
Examples of DG units range from a residential rooftop solar
array to a collection of large combustion turbines at a
commercial office building or industrial facility. DG can be
used for reliability back-up (standby or emergency generation),
to meet base load requirements, to meet peaking requirements, or
to meet all on-site requirements, and sell power to adjacent
sites ("over the fence" transactions).
For a customer that owns a DG unit that is connected to the
utility distribution system, on-site generation is complemented
by power purchased through, and delivered by, the utility.
Depending on the reliability, capacity and purpose of the DG
unit, the customer may, at various times, buy some or all of its
power from the utility, or even, in the case of smaller solar or
wind projects, "sell" power back to the utility through a
net-metering arrangement.
Grid-connected DG customers pay a standby charge to the utility
to reserve the capacity need to serve that customer. For DG
units meeting specified conditions, most importantly that they
be installed no later than June 1, 2003, SB 28X established a
waiver of standby charges of as long as 10 years (no standby
charges may be assessed before June 1, 2011). SB 28X also
established a lesser waiver for non-cogeneration DG units
installed by September 1, 2002 (until June 1, 2006). This bill
would extend eligibility for the former waiver to units
installed no later than June 1, 2005.
COMMENTS
1)Hark back to yesteryear. There were two reasons for the 2003
cut-off established by this committee last year in SB 9X
(Morrow) and transferred to SB 28X (SB 9X originally contained
the 2005 cut-off proposed by this bill, but was amended to
2003 in the Extraordinary Session version of this committee).
The first was to address the urgent need for additional
electric generation capacity. SB 9X was heard in committee on
March 15, 2001, at the height of the utilities' financial
crises, in the midst of rampant abuse of market power on the
part of generators and marketers, and prior to any substantive
action from the Federal Energy Regulatory Commission to
discipline the wholesale market. The waiver was justified on
the basis that it would attract needed generation and
eligibility was limited to reward a quick response. The
waiver was intended to diminish between 2001 and 2003, and
then expire.
The second reason for the 2003 cut-off was that the waiver was
intended to be a stop-gap, pending the California Public
Utilities Commission's (CPUC) adoption of new, cost-based
standby tariffs for DG customers. SB 28X established a
deadline of January 1, 2003 for the adoption of these tariffs,
so that they would be effective upon the expiration of the
waiver.
Since last year, the potential customer advantages of DG
relative to wholesale electricity prices, system reliability,
and other customers' interests seem much less favorable.
Notwithstanding the value of the relatively clean generation
resources that this bill may induce, the desirability of
relieving utilities of customer load depends in large part on
whether the departing customers pay for costs incurred on
their behalf while they were bundled-service customers, or
leave those costs to be paid by the utility's remaining
customers (see Comment 3 below).
2)Who pays for the waiver? As long as a DG customer remains
connected to the utility distribution system, and the utility
remains obligated to serve that customer, the capacity to
serve that customer must be maintained. If a DG customer is
entirely self-sufficient and "off-grid," there is no standby
charge and there is no obligation to serve.
Like SB 28X, this bill prevents utilities from recovering the
cost of maintaining capacity for eligible DG customers in the
form of standby charges. The likely result is a proportional
increase in the distribution rates charged to customers
without eligible DG. A provision of the bill (subdivision
(g)) references existing law, which confines such rate
increases to the same customer class as the customer
benefiting from the standby charge waiver. This prevents
shifting of distribution (but not procurement) costs between
customer classes, so residential customers will not pay the
direct cost of waiving standby charges for commercial
customers, or vice-versa.
The consequence is that any distribution cost shifting is
limited to within customer classes. For example, the cost of
waived standby charges for commercial customers who install an
eligible DG unit will be paid by other commercial customers.
3)Another potential ratepayer subsidy. Customers departing
utility service since the energy crisis bear some
responsibility for a share of procurement costs and
obligations incurred by their utility and the Department of
Water Resources (DWR) to serve them that have not yet been
recovered via customer rates. Recoverable procurement costs
attributable to departing customers will be shifted to
remaining utility customers if they are not recovered from the
departing customers.
The question of departing customers' responsibility for
outstanding procurement costs and obligations incurred on
their behalf is being addressed currently at the CPUC, as well
as in a number of pending bills - SB 1519 (Bowen), SB 1755
(Soto) AB 80 (Havice) and AB 117 (Migden). Each of these
measures makes reimbursing DWR for power costs incurred on
their behalf a condition of the benefit they offer (in the
case of those bills, the benefit is allowing customers to
leave utility service).
Under other provisions of SB 28X which would continue to be
applicable under this bill, DG customers qualifying for a
standby charge waiver are required to be served under
identical rates, rules and requirements to comparable
bundled-service customers. SB 28X also stated that the waiver
would not relieve any customer of obligations determined by
the CPUC to result from purchase of power through DWR.
The author and the committee may wish to consider whether,
like the bills referenced above, this bill should explicitly
address the departing customers' obligation for unrecovered
procurement costs.
ASSEMBLY VOTES
Assembly Floor (75-1)
Assembly Appropriations Committee (22-0)
Assembly Utilities and Commerce Committee
(13-2)
POSITIONS
Sponsor:
Clarus Energy
Support:
Building Owners and Managers Association of California
California Chamber of Commerce
California Independent Petroleum Association
California Manufacturers & Technology Association
California State University
hotel Power, Inc.
San Diego Regional Chamber of Commerce
University Mechanical & Engineering Contractors
Oppose:
Association of California Water Agencies
Pacific Gas and Electric Company
Southern California Edison
Lawrence Lingbloom
AB 2307 Analysis
Hearing Date: June 25, 2002