BILL ANALYSIS 1
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SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE
DEBRA BOWEN, CHAIRWOMAN
AB 2718 - Oropeza Hearing Date:
June 11, 2002 A
As Amended: April 18, 2002 FISCAL B
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DESCRIPTION
Existing law (AB 970 (Ducheny), Chapter 329, Statutes of 2000)
requires the California Public Utilities Commission (CPUC) to
offer differential incentives for renewable and super clean
distributed generation resources and requires the CPUC to recover
the costs of the program through distribution rates.
This bill makes fuel cells or micro-turbines operating on flared
or otherwise wasted gas eligible for the same "Level 1" incentive
($4.50/watt, up to 50% of costs) as renewable generation
resources.
BACKGROUND
Pursuant to AB 970, the CPUC established the Self-Generation
Incentive Program (SGIP) in March 2001, which offers $125 million
per year through 2004 of financial assistance for installation of
photo-voltaics, fuel cells, and certain micro-turbines up to one
megawatt. The SGIP offers incentives of $4.50 per watt of
installed on-site renewable generation capacity, up to a maximum
of 50% of total installation costs (Level 1). Certain
non-renewable self-generation is also eligible under the program,
but with lower incentives. Fuel cells using non-renewable fuel
(including wasted gas) and waste heat recovery are eligible for
$2.50 per watt, up to 40% of total costs (Level 2).
Micro-turbines using waste heat recovery (i.e. co-generation) are
eligible for $1.00 per watt, up to 30% of total costs (Level 3).
Renewable energy resources are resources whose fuel sources are
inexhaustible, or virtually inexhaustible, and are typically
pollution free, or virtually pollution free. Renewable fuel
sources include wind, solar, geothermal heat and bio-mass. The
most common renewable fuel source appropriate for distributed
generation applications is solar (photovoltaic). Others are wind
turbines and fuel cells using renewable fuels (e.g. hydrogen or
ethanol). Renewable resources have received state and federal
subsidies because they are viewed as superior alternatives to
petroleum resources and in need of public support in order to be
economically viable due to relatively high capital costs, compared
to conventional electricity sources. Natural gas is not a
renewable fuel.
COMMENTS
1.No assurance that projects funded will displace flares or
continue to burn waste gas. Proponents assert this bill would
result in a public environmental benefit which justifies an
incentive on par with that offered to renewable generation. The
benefit is that excess waste gas now flared by oil producers
will be recovered and used to fuel a micro-turbine, a less
polluting method of disposing of the gas. It is unclear whether
waste gas is a reliable or suitable fuel source, or whether
using it will effectively displace flaring that would otherwise
occur.
The South Coast Air Quality Management District generally
doesn't permit flaring as part of the ordinary oil production or
refining process, but only in emergency situations. Emergency
flaring typically results from an upset in the process in which
the quantity and quality of gas is unpredictable and probably
would not be absorbed by the fuel requirements of a
micro-turbine. Self-generation using waste gas may displace
process flares, which are more prevalent at oil production sites
in Kern County, but is unlikely to effectively displace
emergency flares. This bill may lead to a small reduction in
the frequency or extent of flares, but the bill doesn't require
applicants to displace flares in order to be eligible for the
incentive it offers.
In addition, there's no reason that a micro-turbine installed to
burn waste gas could not also burn utility-grade gas. Nothing
in the bill would prevent an applicant, once awarded the
installation incentive, from switching from waste gas, thus
defeating the public benefit which is supposed to justify the
incentive. Even if the bill did require continuous use of waste
gas, without an ongoing monitoring program, it would be
impossible to ensure compliance. In effect, this bill would
invite applicants to claim they were using waste gas to qualify
for the incentive, whether or not they intended to actually use
it.
2.Waste gas projects currently eligible for incentives. Under the
existing SGIP, a fuel cell using waste gas could be eligible for
the Level 2 incentive, which would amount to a $2.5 million
ratepayer subsidy for the largest eligible project (one
megawatt). A micro-turbine using waste gas could be eligible
for the Level 3 incentive, which would amount to $1 million for
the largest eligible project. In both cases, the generator
would have to be installed in a co-generation application to be
eligible. Under this bill, the CPUC would be required to make
fuel cells and micro-turbines using waste gas eligible for the
Level 1 incentive, which would amount to $4.5 million for the
largest eligible project, regardless of whether it used
co-generation to improve efficiency.
In addition, any of the above projects commencing operation by
June 1, 2003 and meeting established air pollution standards are
eligible for a waiver of utility standby charges pursuant to SB
28X (Sher), Chapter 12, Statutes of 2001.
The author and the committee may wish to consider whether the
potential of promoting the recovery and beneficial use of wasted
gas justifies giving a renewable-level incentive to a generation
technology and fuel source which is well-established and has a
track record of being economical without such a large incentive.
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), SB
1871 (Monteith) 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.).
This bill establishes a ratepayer-funded incentive for
additional customers to leave utility service, but does not
address the departing customers' obligation for unrecovered
procurement costs.
ASSEMBLY VOTES
Assembly Floor (72-0)
Assembly Appropriations Committee (23-0)
Assembly Utilities and Commerce Committee
(15-0)
POSITIONS
Sponsor:
California Independent Petroleum Association
Support:
American Lung Association of California
Berry Petroleum Company
California Chamber of Commerce
California Manufacturers and Technology Association
California Oil Producers Electricity Cooperative
Paper, Allied-Industrial, Chemical and Energy Workers Union
South Coast Air Quality Management District
Tidelands Oil Production Company
Valley Energy Ltd.
Oppose:
California Public Utilities Commission
Lawrence Lingbloom
AB 2718 Analysis
Hearing Date: June 11, 2002