BILL ANALYSIS 1
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SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE
DEBRA BOWEN, CHAIRWOMAN
SB 9X - Morrow Hearing Date: March 15, 2001
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As Amended: March 12, 2001 FISCAL B
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DESCRIPTION
This bill provides a 10-year waiver of "standby charges"
for specified distributed generation (DG) installations.
Specifically, this bill:
1.Requires the California Public Utilities Commission
(CPUC) to require each electrical corporation (i.e.,
PG&E, Edison and SDG&E) to charge customers who install
new DG between May 1, 2001 and June 1, 2005 the
identical "rates, rules and requirements" as customers
without DG for a period of 10 years.
2.Establishes exceptions to the waiver of DG charges for
"reasonable" interconnection charges, public purpose
program charges, and obligations resulting from
purchasing power from the Department of Water Resources.
3.Requires the CPUC to require each electrical corporation
to consider non-utility-owned DG as an alternative to
investments in its distribution system.
4.Segregates each customer class so that costs associated
with waiver of standby charges for a customer is
recoverable only from that customer's class.
5.Defines eligible DG as follows:
a. Installed and
operational after May 1, 2001.
b. Located within a
single facility.
c. Capacity of five
megawatts (MW) or smaller.
d. Primarily serves
nearby load.
e. Powered by fuel other
than diesel.
f. Meets unspecified
emissions standards.
6.Sunsets the above provisions on January 1, 2005.
7.Requires the CPUC to require each electrical corporation
to establish new rates by January 1, 2005 applicable to
new DG installed after June 1, 2005. To the extent
practicable, these rates are to be the same as rates for
other, non-DG customers with similar load profiles.
8.Requires the CPUC to report its proposed new DG rates to
the Legislature by March 1, 2004 and states the intent
that the Legislature will review the report and provide
direction to the CPUC within 90 days.
9.Requires each municipal utility to review its rates to
identify barriers to DG.
KEY QUESTIONS
1.Are existing standby charges unreasonable? If so, is it
appropriate to prevent such charges for DG customers who
remain connected to a utility's distribution system?
2.Will additional new DG units be installed as a result of
this bill?
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 an 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 "sell"
power back to the utility through a net-metering
arrangement.
Under existing law, grid-connected DG customers pay a
standby charge to the utility to reserve the capacity need
to serve that customer. The standby charges are based on
the installed capacity of the DG unit, and range from $2.55
to $19.82 per kilowatt per month.
This bill effectively prevents PG&E, Edison and SDG&E from
assessing these charges for customers installing generation
up to five megawatts that primarily serves nearby electric
load. The bill would allow DG in any of the applications
described above, or any combination of the applications, to
be eligible for the standby charge waiver.
COMMENTS
1.Who will pay the cost of 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.
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 confines such rate increases to the same customer
class as the customer benefiting from the standby charge
waiver. This prevents cost shifting between customer
classes, so residential customers will not pay the cost
of waiving standby charges for commercial customers, or
vice-versa.
The consequence is that any 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.
2.Standby charge waiver outlives limiting conditions. The
waiver granted by Section 353.3 of this bill is limited
by conditions in Sections 353.7 and 353.9. For example,
reasonable interconnection charges, public purpose
program charges, and obligations resulting from
purchasing power from the Department of Water Resources
are not included in the waiver.
Under this bill, a customer installing an eligible DG
unit between May 1, 2001 and June 1 2005, would receive a
standby charge waiver for 10 years from the date of
installation. However, the limiting conditions described
above expire on January 1, 2005, as does the definition
of an eligible project. The combination of these
provisions would allow, for example, a customer to
install any type of DG unit on June 1, 2005 and receive
an unconditional standby charge waiver until June 1,
2015.
To prevent this consequence, the author and the committee
may wish to consider removing the sunsets on the sections
of the bill which limit the scope of the standby charge
waiver (Sections 353.1, 353.7 and 353.9) so that they
continue to apply for the duration of the standby charge
waiver.
3.Eligibility should be limited to reward a quick response.
Under this bill, a customer can install an eligible DG
unit at any time during the proposed four-year window
(May 1, 2001 - June 1, 2005) and receive a waiver for 10
years from the date of installation. Also, the amount of
waivers to be granted is open-ended, with no dollar or
megawatt "budget." The benefits of this bill do not
diminish for those who wait, so there is no built-in
incentive to install DG this year versus in 2004.
The author and the committee may wish to consider
shortening the window to qualify for the waiver from four
years to two years to create a stronger incentive for
prospective DG customers to respond quickly. In
addition, the duration of the waiver should be limited to
a date certain, regardless of when it is granted. (e.g.,
if a waiver is desired for up to 10 years, then authorize
a waiver which terminates in 2011.) This will give
customers who install DG units at the earliest date the
longest waiver, again rewarding a quick response.
4.Will eligible DG reduce peak demand? Full service
utility customers use energy during peak and off-peak
times and pay a rate for energy which theoretically
averages the cost of energy during peak and off-peak.
A DG customer may have a unit that meet its ordinary
demand, but has to draw from the grid at times of peak
demand. Currently, such a customer pays an averaged rate
for the energy they draw from the grid, like a non-DG
customer. In order to be eligible for a standby charge
waiver, the author and the committee may wish to consider
requiring DG customers pay the actual cost of energy they
draw from the grid through a real-time metering/pricing
program. This would create disincentive for a DG
customer to draw energy from the grid at times of peak
demand, better ensure that DG contributes to peak demand
reduction and may effectively reduce the capacity
utilities need to reserve to serve these customers.
5.What kind of projects are eligible? As proposed, a new
DG installation 5 MW or smaller would be eligible for a
standby charge waiver, as long as it is not
diesel-powered. Eligible DG is also required to meet
emission standards required by SB 1298 (Bowen), Chapter
741, Statutes of 2000, which have not yet been adopted.
In the interim, DG is required to meet an unspecified
emission standard.
In adopting an emission standard, or an efficiency
standard, to define eligible DG, the author and the
committee may wish to consider whether incentives are
warranted for certain gas-fired units, which are less
efficient and more polluting than central power plant
alternatives. In its proposed incentive program for DG,
the CPUC limits incentives for gas-fired units to those
that are installed in "combined heat and power"
applications, which increases the efficiency by utilizing
waste heat.
6.An inventory of incentives for DG. In addition to the
waiver proposed by this bill, there are a number of
existing or imminent incentive programs for the
installation of DG.
AB 970 (Ducheny), Chapter 329, Statutes of 2000, required
the California Energy Commission, as part of its peak
electricity demand reduction grant program, to award
grants to reduce the cost of financing renewable DG. AB
970 also required the CPUC to adopt an incentive program
for distributed generation and authorized the CPUC to
recover the costs of the program through distribution
rates.
In a draft decision scheduled for consideration on March
15, the CPUC proposes a distribution charge to provide
$125 million per year of financial assistance for
installation of photo-voltaics, fuel cells, and
micro-turbines up to 1 MW. The proposal offers
incentives of $4.50 per watt of installed on-site
renewable generation capacity, up to a maximum of 50% of
total installation costs. Non-renewable self-generation
would also be eligible under the program, but with a
lower incentive of $1.00 per watt of on-site generation,
up to 30% of total costs.
In addition to the new incentives authorized by AB 970,
AB 995 (Wright), Chapter 1051, Statutes of 2000,
re-authorized funding for renewable generation
technologies and allocated $54 million for a program to
foster the development renewable DG technologies.
Finally, SB 5X (Sher), pending on the Senate Floor,
proposes $20 million for incentives for the retrofit of
existing distributed generation owned and operated by
municipal water districts to replace diesel and natural
gas generation with cleaner technology that reduces
oxides of nitrogen emission to less than two parts per
million.
7.Related legislation. AB 75X (Calderon), pending in the
Assembly Natural Resources Committee, was amended in the
Assembly Energy Costs and Availability Committee to
require the CPUC to establish "an appropriate cost-based
rate structure for standby charges." Prior to amendment,
AB 75X proposed a waiver of standby charges for specified
micro-generation and renewable facilities under one
megawatt.
POSITIONS
Sponsor:
Author
Support:
Building Owners and Managers Association of California
Capstone Turbine Corporation
Oppose:
Pacific Gas and Electric Company
Southern California Edison
Lawrence Lingbloom
SB 9X Analysis
Hearing Date: March 15, 2001