BILL ANALYSIS 1
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SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE
DEBRA BOWEN, CHAIRWOMAN
AB 2718 - Oropeza Hearing Date:
June 25, 2002 A
As Amended: June 19, 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 an incentive of $2.50 per
watt, declares that such units are exempt from the statutory
definition of "co-generation," and requires the applicable
interconnection agreement with the utility to specify that such
units will be operated solely on waste gas.
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).
This bill would make fuel cells and micro-turbines operating on
wasted gas (i.e., not salable to gas utilities) eligible for
incentives under the Level 3 category, except that the bill
increases the incentive from $1.00 per watt to $2.50 per watt.
The author also intends that the waste heat recovery
(co-generation) requirement of the existing program not apply
because it may be infeasible for the intended applications. In
addition, the bill requires the customer's interconnection
agreement with the utility to specify that the unit will be
operated solely on waste gas, which is intended to ensure that
units don't switch fuel after receiving the incentive payment.
COMMENTS
1)No assurance that projects funded will displace flares.
Proponents assert this bill would result in a public
environmental benefit which justifies a greater incentive than
those currently offered for the installation of gas-fired
self-generation units. 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 (SCAQMD)
generally doesn't permit flaring as part of the ordinary oil
production or refining process, but only in emergency
situations. True 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 is more likely to displace process flares, which are
more prevalent at oil production sites in Kern County, than
emergency flares. However, proponents suggest that roughly 40
flares run regularly in the SCAQMD, despite their
classification as "emergency."
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. The author and the committee may wish to consider
amending the bill to require applicants to demonstrate that
their project will displace flares, or otherwise provide a net
air quality benefit, in order to be eligible for the incentive
payment.
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 a $2.50 per watt incentive, which would
amount to $2.5 million for the largest eligible project,
regardless of whether they 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 until
2011 pursuant to SB 28X (Sher), Chapter 12, Statutes of 2001.
AB 2307 (Kehoe), pending in this committee, would extend that
deadline to June 1, 2005.
While the bill expands eligibility and raises the incentive
level for micro-turbines, it may effectively lower the
incentive available to certain fuel cells by moving them from
Level 2, where the incentive pays up to 40 percent of
installation costs, to Level 3, where the incentive is limited
to 30 percent of installation costs. The author and the
committee may wish to consider leaving the existing fuel cell
incentive as it is, and making this bill applicable only to
micro-turbines.
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.).
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. 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.
4)Technical amendments. To ensure that this bill doesn't
inadvertently override other SGIP criteria, such as the 30
percent of costs cap and the one megawatt size limit, the
author and the committee may wish to consider amending the
bill to say that all of the existing Level 3 criteria apply,
with the specific exceptions of the $1.00 incentive and the
waste heat recovery requirement. With this, the exemption
from Section 218.5 in the bill is unnecessary.
In addition, the sentence added at Line 29 of Page 3 places a
requirement on fuel cells and micro-turbines to secure an
interconnection agreement. This requirement should instead be
placed on the customer.
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
Powerlight (with amendments)
South Coast Air Quality Management District
Tidelands Oil Production Company
Valley Energy Ltd.
Oppose:
California Public Utilities Commission (unless amended)
Lawrence Lingbloom
AB 2718 Analysis
Hearing Date: June 11, 2002