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