BILL ANALYSIS                                                                                                                                                                                                          1
      1




                SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE
                               DEBRA BOWEN, CHAIRWOMAN
       

       AB 2718 -  Oropeza                                Hearing Date:  August  
       6, 2002               A
       As Amended:         August 5, 2002      FISCAL       B

                                                                     2
                                                                     7
                                                                     1
                                                                     8

                                      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 and micro-turbines operating on  wasted gas   
       eligible for an incentive of $2.50 per watt if the customer  
       demonstrates that operation of the system will produce a net air  
       quality benefit.  Incentives awarded are subject to refund to the  
       extent the fuel cell or micro-turbine does not operate on wasted 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 makes 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 the bill increases the incentive from $1.00  
       per watt to $2.50 per watt.  The waste heat recovery (co-generation)  
       requirement of the existing program would  not  apply.  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, and  
      makes the incentive subject to refund to ensure that units don't switch  
      fuel after receiving the incentive payment.

                                       COMMENTS  

       1.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.

       2.Reconsideration.    This bill was heard by this committee on June 25,  
        and failed on a 4-2 vote.  It is now set for reconsideration on a  
        vote-only basis.

        The August 5 version of the bill reflects amendments agreed to during  
        the June 25 hearing, which include (1) requiring a demonstration that  
        the operation of projects funded will produce a net air quality  
        benefit, (2) making the incentive payments subject to refund, and (3)  
        other technical amendments.

        The bill does not address the cost recovery issue described in  
        Comment 1.

                                     PRIOR VOTES
       







       Senate Energy, Utilities and Communications Committee          (4-2)  
       (Failed)
       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 
       South Coast Air Quality Management District
       Tidelands Oil Production Company
       Valley Energy Ltd.

        Oppose:
        
       None on file

       Lawrence Lingbloom 
       AB 2718 Analysis
       Hearing Date:  August 6, 2002