BILL ANALYSIS AB 1685 Page 1 Date of Hearing: September 10, 2003 ASSEMBLY COMMITTEE ON UTILITIES AND COMMERCE Sarah Reyes, Chair AB 1685 (Leno) - As Amended: September 4, 2003 SUBJECT : Electricity: Self Generation Incentive Program. SUMMARY : Extends the Self-Generation Incentive program until January 1, 2008 and requires that combustion-operated distributed generation projects meet specific emissions targets in order to qualify for Self-Generation Incentive Program rebates. Specifically, this bill : 1)Requires investor owned utilities to develop differential incentives for renewable or super clean distributed generation resources that meet the emissions standards established under this bill. 2)Requires PUC in consultation with the State Energy Resources Conservation and Development Commission to administer a self-generation incentive program in the same form as it exists on January 1, 2004. 3)Requires combustion-operated distributed generation project using fossil fuels, beginning January 1, 2005, to meet certain NOx emission standards, and beginning January 1, 2007, requires them to meet ultra-clean and low-emission standards. 4)Revises the definition of "ultra-clean" and "low-emission distributed generation" to include electric generation technologies that commence operation prior to December 31, 2008 and gives PUC flexibility to include other technologies, and to consider public policy interests, such as environmental impacts. EXISTING LAW: 1)Requires PUC to offer differential incentives for renewable and super clean distributed generation. 2)Requires the State Air Resources Board (ARB) to adopt emissions standards for distributed generation technologies beginning in 2003. AB 1685 Page 2 FISCAL EFFECT : According to the Senate Appropriations Committee PUC's costs to continue this program are approximately $300,000 to $500,000 annually, for five positions. COMMENTS : Pursuant to AB 970 (Ducheny) Chapter 329, Statutes of 2000, authorized PUC to offer incentives for renewable and super clean distributed generation resources. In response to AB 970 PUC established the Self Generation Incentive Program (SGIP) in March 2001. 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. 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). "Super clean" is not defined in statute. SGIP doesn't require projects to meet any exceptional environmental standards. Last year, SB 1038 (Sher), Chapter 515, Statutes of 2002, authorized PUC to offer special rate treatment to "ultra-clean and low-emission" distributed generation in order to encourage early compliance with emissions standards established by 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, PUC 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. Among other things, the decision grants a complete exemption from any such charges for distributed generation that's eligible for financial incentives under 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. This bill reduces the pool of applicants eligible to receive AB 1685 Page 3 incentives. Under this bill any future combustion-operated DG projects would be required to meet the new standards, or would no longer be eligible for the incentive and may be subject to paying specified exist fees as set by PUC. REGISTERED SUPPORT / OPPOSITION : Support The Planning and Conservation League City and County of San Francisco Pacific Gas and Electric Company AMECO Bay Solar Power Design Borrego Solar Systems, Inc. California Solar Energy Industries Association City of San Diego East Bay Municipal Utility District EcoEnergies International Energy Systems Corporation Light Energy Systems Ocean Beach Organic Food Co-op Owens Electric Inc. Pacific Energy Company Performance Solar Inc. POCO Solar Energy R.A. Energy International, Inc. RWE Schott Solar Sacramento Municipal Utility District San Diego Regional Energy Office Shell Solar Industries Short Electric Six Rivers Solar, Inc. SoCal Solar Energy Solar Integrated Technologies SOLutions in Solar Electricity Solar Wind Works SUN Utility Network, Inc. Tri-Power Group Numerous individuals Opposition California Independent Petroleum Association (unless amended) AB 1685 Page 4 Analysis Prepared by : Daniel Kim / U. & C. / (916) 319-2083