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