BILL ANALYSIS 1
1
SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE
DEBRA BOWEN, CHAIRWOMAN
SB 703 - Florez Hearing Date:
June 10, 2003 S
As Amended: June 3, 2003 FISCAL/URGENCY
B
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0
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DESCRIPTION
This bill requires the California Public Utilities Commission
(CPUC) to establish "incentive rates" for agricultural customers
to induce the replacement of diesel-powered irrigation pumps and
other agricultural equipment with electric-powered equipment.
This bill is an urgency measure.
BACKGROUND
Irrigation pumps and certain other agricultural equipment can be
operated by either diesel engines or electric motors. Based on
current diesel prices and investor-owned utility (IOU)
electricity rates, the operating costs of an electric pump is
significantly higher (probably 50-100%) than the operating costs
of a diesel pump. Equipment costs vary widely and pending air
quality permitting requirements will make operating diesel pumps
more expensive.
According the Air Resources Board, there are over 8,200 diesel
irrigation pumps in the state, which emit almost 44 tons per day
of oxides of nitrogen (NOx) during the high-ozone summer season.
Most of these pumps are located in the Central Valley and are
responsible for about 16% of stationary source NOx emissions in
the valley.
Although diesel pumps and other diesel agricultural equipment
are a significant contributor to severe Central Valley air
pollution from NOx and particulate matter emissions,
agricultural equipment is exempt under state law from the air
quality permitting requirements that apply to other stationary
sources. This exemption has been found to be a violation of the
federal Clean Air Act pursuant to a settlement of a lawsuit
against the U.S. Environmental Protection Agency. The Clean Air
Act violation exposes the state to federal enforcement and
significant financial sanctions. SB 700 (Florez), pending in
the Assembly, addresses this by repealing the exemption for
agricultural equipment and requiring air districts to require
operating permits for agricultural equipment no later than July
1, 2004.
While permitting requirements will increase the cost of diesel
pumps, particularly older, more polluting engines, diesel may
remain more economical than electricity at high IOU rates. The
goal of this bill is to reduce agricultural electricity rates to
the point that electric equipment is cost competitive with
diesel equipment. Given the uncertainty about the future cost
and feasibility of operating diesel agricultural equipment, it's
unclear how much electricity rates would need to drop to make
electric equipment cost competitive.
COMMENTS
1)Should air quality programs be funded out of electricity
rates? While the public interest rationale for the existing
ratepayer-funded energy efficiency and renewable energy
programs relies in part on air quality benefits, most programs
are intended to benefit ratepayers by increasing reliability
and decreasing reliance on conventional sources of
electricity. The program established by this bill is unusual
in that it isn't intended to produce a electric system
benefit, but instead rewards increased electricity consumption
to offset a more polluting energy source (diesel).
2)Is the incentive sufficiently linked to the conversion of
diesel equipment? In establishing "incentive rates" pursuant
to this bill, it's unclear if the CPUC will adopt rates
applicable only to electric load that's been converted from
diesel. There is some precedent for this type of rate. For
example, according to the CPUC, Southern California Edison
currently has a time-of-use agricultural rate that includes
equipment-specific qualifications. This particular rate
schedule even states that the customer is eligible if natural
gas or diesel fuel is being considered as an alternative
energy source to serve pumping load. (This rate schedule is
currently closed to new customers.)
If the rates set pursuant to this bill are available to other
load, to other customers, or to existing electric pumps, there
will be a significant number of "free riders" who aren't
encouraged to do anything other than use more electricity.
The author and committee may wish to consider specifying that
a customer must convert from diesel to electric, and retire
the diesel, in order to be eligible for the discounted rate,
and that the discount and eligibility should be further
limited to what's necessary to support the conversion cost.
The author and committee also may wish to consider whether,
instead of establishing an incentive rate, this bill should
establish an incentive program where individual customers
apply for ratepayer-funded loans or grants to cover the
conversion cost. Further funding for such a program could
come from any surplus emission credits resulting from
conversions.
3)What will it take to make electric pumps feasible on the farm?
As noted above, the basic energy cost of an electric pump is
significantly higher than a diesel pump. Part of the reason
diesel has remained a relatively cheap energy source for
farmers is the exemption from air pollution controls and, more
recently, the exemption from the state sales tax. In addition
to energy cost, the cost of converting a diesel pump to an
electric pump may include the extension of electric
distribution lines to a remote location and the purchase of an
electric motor. While these costs would typically be borne by
the customer, this bill implies that other ratepayers might
pay them in order to offset the economic advantages of diesel
and make electric pumps competitive.
Accomplishing all this could require a very significant rate
discount. The author and the committee may wish to consider
defining "competitive" for the purposes of this bill to
clarify whether the rate discount is supposed to be sufficient
to make energy (fuel) costs comparable, or whether line
extensions, equipment, permitting and other costs are to be
factored in.
4)Some duties may be better left to air districts. This bill
requires the CPUC to certify the retirement of diesel
equipment and quantify air emissions reductions associated
with retirement - duties it would likely order the IOUs to
handle. These kinds of duties would typically fall to air
quality regulators, rather than utility regulators. The
author and the committee may wish to consider whether these
duties instead should be assigned to the appropriate air
district.
POSITIONS
Sponsor:
Author
Support:
Agricultural Energy Consumers Association
California Air Pollution Control Officers' Association
California Citrus Mutual
California Cotton Ginners and Growers Associations
Fresno County Farm Bureau
Monterey Bay Unified Air Pollution Control District
San Joaquin Valley Air Pollution Control District
Sunkist Growers
Oppose:
The Utility Reform Network (unless amended)
Lawrence Lingbloom
SB 703 Analysis
Hearing Date: June 10, 2003