BILL ANALYSIS 1
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SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE
DEBRA BOWEN, CHAIRWOMAN
AB 1684 - Leno Hearing Date:June 8,
2004 A
As Amended: January 16, 2004 FISCAL
B
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DESCRIPTION
Previous law required the California Public Utilities Commission
(CPUC) to offer differential incentives for renewable and super
clean distributed generation (AB 970 (Ducheny), Chapter 329,
Statutes of 2000). Pursuant to AB 970, the CPUC established the
Self-Generation Incentive Program (SGIP) in March 2001.
Existing law (AB 1685 (Leno), Chapter 894, Statutes of 2003)
repealed the above provision, requires the CPUC to administer
the SGIP until 2008, and prescribes eligibility for gas-fired
distributed generation as follows:
1.In 2005 and 2006, projects must meet an oxides of nitrogen
(NOx) emissions rate of 0.14 pounds per megawatthour.
2.In 2007, projects must meet a NOx emissions rate of 0.07
pounds per megawatthour and have a minimum efficiency of 60
percent.
This bill extends SGIP eligibility to projects which do not meet
the emissions standards above, if the project operates solely on
natural gas that is not eligible for delivery to the utility
pipeline system (waste gas), and the project provides a net air
emissions benefit.
BACKGROUND
Pursuant to AB 970's direction to offer incentives for renewable
and super clean distributed generation resources, the CPUC
established the SGIP in March 2001. The current SGIP offers
$125 million of financial assistance per year through 2004 for
installation of photo-voltaics, fuel cells, and certain
gas-fired resources up to one megawatt in size. 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 category of "super
clean," but with lower incentives. Fuel cells using
non-renewable fuel and waste heat recovery are eligible for
$2.50 per watt, up to 40% of total costs (Level 2). Internal
combustion engines and 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).
SB 1038 (Sher), Chapter 515, Statutes of 2002, authorized the
CPUC to offer special rate treatment to "ultra-clean and
low-emission" distributed generation in order to encourage early
compliance with emissions standards established by the ARB
pursuant to SB 1298 (Bowen), Chapter 741, Statutes of 2000. SB
1038 defined "ultra-clean and low-emission" as distributed
generation meeting 2007 ARB emission limits, plus an efficiency
standard, and commencing operation by December 31, 2005.
In March 2003, the CPUC issued Decision 03-04-030, which defined
distributed generation customers' responsibility for unrecovered
electricity procurement costs incurred by the investor-owned
utilities and the Department of Water Resources (DWR). Among
other things, the decision grants a complete exemption from any
such charges for distributed generation that's eligible for
financial incentives under the SGIP , and only requires projects
to meet existing emissions standards. The same decision grants
a lesser exemption for self-generation that meets the more
stringent "ultra-clean and low-emission" criteria.
Last year, AB 1685 required the CPUC to continue the SGIP until
2008 "in the same form as it exists," except eligibility
standards for gas-fired distributed generation were raised. AB
1685 established a two-stage emissions standard which, in 2005
and 2006, requires projects to exceed current emissions
standards to be eligible for SGIP rebates. In 2007, projects
must meet the emission standard slated for implementation by the
ARB in 2007.
COMMENTS
1.Procedures for verification of use of waste gas and net
emissions benefit are needed. The basis for permitting a
waste gas-fired project to be eligible for incentives, even
though it doesn't itself meet the applicable emissions
standards, is the project will produce a net benefit to air
quality by recovering waste gas from petroleum production that
would otherwise be flared or re-injected, reducing emissions
that would otherwise occur.
If this is the basis for the incentive, the CPUC should be
assured, before it awards the incentive, that the project will
run on waste gas and produce an emissions benefit.
Clarification is needed about how eligibility is determined
and what the remedy is if a project stops using waste gas
after the incentive payments have been awarded.
To ensure the continued use of waste gas, the author and the
committee may wish to consider requiring the customer to
specify that the project will be operated solely on waste gas
as part of the customer's interconnection agreement and
require incentives to be refunded by the recipient to the
extent the project does not operate on waste gas.
To verify an emissions benefit, the author and the committee
may wish to consider requiring a determination by the
applicable air district as part of its review of the permit to
operate the project.
2.SGIP eligibility also triggers exemption from "exit fees."
For gas-fired projects, the economic benefits of SGIP
eligibility primarily lie in avoiding utility and DWR costs
under the 2003 CPUC decision. The incentive payment itself is
worth less than the ability to avoid these costs. The CPUC
granted a complete exemption from these charges for
distributed generation that's eligible for financial
incentives under the SGIP, which had no standards for
emissions from gas-fired projects at the time. Later, AB 1685
raised the bar on eligibility for the SGIP and, by extension,
narrowed eligibility for the exit fee exemption. This bill
would now expand eligibility for both to include projects
using waste gas.
3.Related legislation. AB 2006 (Nunez), pending in this
committee, requires electrical corporations to prepare a
long-term resource plan which, among other things, must
"provide for the continuation of the (SGIP)?for ultra-clean
and low-emission distributed generation, as defined in Section
353.2."
AB 2593 (Calderon), pending in this committee, authorizes the
CPUC to suspend collection of funds from ratepayers to support
SGIP incentives if it determines sufficient funds are
available to meet the reasonable anticipated demand for
incentives for that year. AB 2593 and AB 1684 are in conflict
in that each bill amends the same section of existing law.
SB 107 (Bowen), pending in the Assembly Utilities & Commerce
Committee, requires the CPUC to replace the SGIP with an
incentive program for renewable and ultra-clean distributed
generation resources, requires a performance report to the
Legislature in 2006, and sunsets in 2007.
AB 2718 (Oropeza) of the 2001-2002 session made fuel cells and
micro-turbines operating on waste gas eligible for an
incentive under the SGIP of $2.50 per watt if the customer
demonstrated operation of the system produced a net air
quality benefit. AB 2718 made incentives subject to refund to
the extent the fuel cell or micro-turbine didn't operate on
wasted gas. AB 2718 was defeated in this committee.
ASSEMBLY VOTES
Assembly Utilities and Commerce Committee
(12-0)
Assembly Appropriations Committee (23-0)
Assembly Floor (79-0)
POSITIONS
Sponsor:
Planning and Conservation League
Support:
Clean Power Campaign
Sierra Club
Oppose:
None on file
Lawrence Lingbloom
AB 1684 Analysis
Hearing Date: