BILL ANALYSIS 1
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SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE
DEBRA BOWEN, CHAIRWOMAN
SB 703 - Florez Hearing Date:
July 8, 2003 S
As Amended: July 2, 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,
subject to specified criteria and a cap on the net cost of $50
million per year.
Under existing law , the CPUC and the California Energy
Commission (CEC) provide grants to subsidize the purchase of
certain distributed generation systems, subject to eligibility
criteria which include a requirement that the systems be
connected to the grid.
This bill requires electric generation systems utilizing
"ultra-clean and low-emission" technologies to be eligible for
the CPUC and CEC grants, regardless of whether they're connected
to the grid, if they are used in agricultural operations.
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).
The costs of the program are capped at $50 million per year,
and are to be "allocated equitably among those customers
benefiting from the resulting improvements in air quality."
It's not clear how the CPUC might determine who will pay the
costs of the program. The easiest approach would be to spread
the costs evenly across all customer classes throughout an
IOU's territory. If the intent is to recover the costs from
specific customers or geographic areas, the author and the
committee may wish to consider specifying which customers
and/or areas the costs are to be recovered from.
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. Under this particular rate
schedule, a 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 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.
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)Should off-grid projects be eligible for ratepayer-funded
grant programs? Existing grant programs for renewable and
ultra-clean distributed generation require the projects to be
connected to the electric grid in part because the programs
are intended to provide electric system benefits, like peak
load reduction and increased reliability, and in part because
they are funded by distribution rates from grid-connected IOU
customers, so there's a nexus between who pays and who
benefits.
This bill makes off-grid systems eligible for the grant
programs, but only in agricultural operations. It is not
clear why, in expanding eligibility to include off-grid
systems, eligibility is then limited to agricultural
applications. The bill's provisions also override all other
existing eligibility criteria and make installation in
agricultural operations the only criteria.
If the intent is to permit off-grid systems to be eligible, in
agricultural applications or otherwise, the author and the
committee may wish to consider replacing the current section
with specific exemptions to the grid-connection requirements
in the sections of law governing the CPUC and CEC programs
(Public Utilities Code Sections 379.5 and 383.5)
POSITIONS
Sponsor:
Author
Support:
Agricultural Energy Consumers Association
California Air Pollution Control Officers' Association
California Citrus Mutual
California Cotton Ginners and Growers Associations
California Farm Bureau Federation
Fresno County Farm Bureau
Support (continued):
Monterey Bay Unified Air Pollution Control District
San Joaquin Valley Air Pollution Control District
Sunkist Growers
WM Bolthouse Farms, Inc.
Oppose:
California Manufacturers and Technology Association (unless
amended)
The Utility Reform Network (unless amended)
Lawrence Lingbloom
SB 703 Analysis
Hearing Date: July 8, 2003