BILL NUMBER: SB 1398 INTRODUCED
BILL TEXT
INTRODUCED BY Senator Morrow
FEBRUARY 18, 2004
An act to add Section 41514.11 to the Health and Safety Code, and
to amend Sections 216, 218.5, 353.1, 353.2,, 353.3, 353.5, 353.7,
353.13, and 379.6 of, and to add Sections 353.4, 353.10, 353.14, and
2775.8 to, the Public Utilities Code, relating to energy.
LEGISLATIVE COUNSEL'S DIGEST
SB 1398, as introduced, Morrow. Distributed energy resources.
(1) Existing law designates air pollution control districts and
air quality management districts as having the primary responsibility
for the control of air pollution from all sources other than
vehicular sources. Existing law also designates the State Air
Resources Board as the state entity responsible for the coordination
and review of all levels of government in their efforts to control
air pollution.
This bill would require the state board to develop guidelines for
districts to permit the installation of distributed energy resources,
as prescribed.
(2) Existing law defines the term "public utility" for the
purposes of regulation.
This bill would exempt from that definition the ownership,
control, operation, or management of a distributed energy resource,
as defined.
(3) Existing law defines the term "cogeneration" to mean the
sequential use of energy for the production of electrical and useful
thermal energy, and requires, where useful thermal energy follows
power production, the useful annual power output plus one-half the
useful annual thermal energy output to equal not less than 42.5
percent of any natural gas and oil energy input.
This bill would modify that requirement to allow as an alternative
that the facility's total system efficiency at 100% equals at least
60% efficiency on a high heating value.
(4) Existing law defines "distributed energy resources" to mean
any electric generation technology that meets certain criteria,
including having commenced initial operation between May 1, 2001, and
June 1, 2003, except that gas-fired distributed energy resources
that are not operated in a combined heat and power application must
commence operation no later than September 1, 2002. Existing law
defines "ultra-clean and low-emission distributed generation" as an
electric generation technology that produces zero emissions during
operation or that produces emissions that are equal to or less than
limits established by the State Air Resources Board, if the electric
generation technology commences operation between January 1, 2003,
and December 31, 2008. That definition requires that technologies
operating by combustion operate in a combined heat and power
application with a 60-percent system efficiency on a higher heating
value.
This bill would expand the distributed energy resources criterion
in the definition of distributed energy resources to include electric
generation technology that commenced initial operation between May
1, 2001, and June 1, 2008. The bill would modify the ultra-clean and
low-emission distributed generation requirement to require
technologies operating by combustion in a combined heat and power
application operate with a 60-percent system efficiency on a higher
heating value.
(5) Existing law requires the commission to require each
electrical corporation under the operational control of the
Independent System Operator (ISO) as of January 1, 2001, to modify
its tariffs so that all customers that install new distributed energy
resources in accordance with specified criteria are served under
rates, rules, and requirements identical to those of a customer
within the same rate schedule that does not use distributed energy
resources, and to withdraw any provisions in otherwise applicable
tariffs that activate other tariffs, rates, or rules if a customer
uses distributed energy resources. Existing law imposes certain
requirements on customers with distributed energy resources to
qualify for the modified tariffs. Existing law requires each
electrical corporation, as part of its distribution planning process,
to consider nonutility owned distributed energy resources as a
possible alternative to investments in its distribution system in
order to ensure reliable electric service at the lowest possible
cost.
This bill would require each electrical corporation, in setting
rates and establishing tariffs, to treat customer use of distributed
energy resources as a reduction of customer load. The bill would
delete those tariff qualification requirements.
The bill would prohibit the ISO from requiring the metering,
telemetry, or scheduling of a retail customer's consumption of
electric energy that is satisfied by onsite or over-the-fence
generation by distributed energy resources beyond the point of
interconnection. The bill would also prohibit the ISO from assessing
any grid management or transmission charges on a retail customer's
consumption of electric energy that is satisfied by onsite or
over-the-fence generation by distributed energy resources beyond the
point of interconnection. The bill would require the ISO to
establish and maintain an ongoing demand reduction tariff that allows
for the participation of distributed energy resources no later than
January 1, 2005. The bill would require the ISO to establish and
maintain a capacity market that recognizes the value of generation
capacity supplied by distributed energy resources as being
functionally equivalent to central station generation.
The bill would additionally require each electrical corporation,
as part of its distribution planning process, to establish a minimum
target for nonutility owned distributed energy resources in its
procurement plans. The bill would require the commission to
authorize each electrical corporation to retain certain ratepayer
savings as profits.
(6) Existing law requires the commission to require each
electrical corporation to establish new tariffs on or before January
1, 2003, for customers using distributed energy resources, but, after
January 1, 2003, distributed energy resources that meet certain
criteria are subject only to those tariffs in existence, until June
1, 2011, subject to a specified exception. Existing law requires
those tariffs to ensure that all net distribution costs incurred to
serve each customer class are fully recovered only from that class.
Existing law requires the commission to prepare and submit to the
Legislature, on or before June 1, 2002, a report describing its
proposed methodology for determining the new rates and the process by
which it will establish those rates.
This bill would extend all of those deadlines by 3 years, would
delete that specified exception, and, with respect to cost recovery,
would require the commission to require that benefits that inure to
all rate classes be netted from the costs, if any, in each customer
class. The bill would require the commission to require the
modification of tariffs as prescribed.
The bill would provide that, if nonbypassable charges are
duplicated as a result of switching from electric to gas service,
charges levied under gas rate schedules that support the same
programs covered by the nonbypassable electric charges may not be
assessed on customers.
(7) Existing law requires the commission, in consultation with the
State Energy Resources Conservation and Development Commission, to
administer until January 1, 2008, a self-generation incentive program
for distributed generation resources, in the same form as existed on
January 1, 2004, but requires that combustion-operated distributed
generation projects using fossil fuels commencing January 1, 2005,
meet a NOx emission standard, and commencing January 1, 2007, meet a
more stringent NOx emission standard and a minimum efficiency
standard, to be eligible for incentive rebates under the program.
This bill would also require the self-generation incentive program
to allow all projects that meet the definition of distributed energy
resources to participate in the program, except that only the first
1,000 kilowatts of facility capacity would be eligible for funding.
(8) Under existing law, the commission has regulatory authority
over public utilities, including gas corporations, and authorizes the
commission to fix just and reasonable rates and charges.
This bill would require the commission, on or before May 1, 2005,
to require a gas corporation to establish a new distributed energy
resources gas rate.
(9) Under existing law, the violation of an order, decision, or
other requirement of the commission is a crime.
This bill, by requiring the commission to impose a number of
requirements on electrical corporations, the violation of which
requirements by an electrical corporation would be crimes, would
create new crimes, thereby imposing a state-mandated local program.
(10) The California Constitution requires the state to reimburse
local agencies and school districts for certain costs mandated by the
state. Statutory provisions establish procedures for making that
reimbursement.
This bill would provide that no reimbursement is required by this
act for a specified reason.
Vote: majority. Appropriation: no. Fiscal committee: yes.
State-mandated local program: yes.
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. The Legislature finds and declares all of the
following:
(a) California energy customers continue to face a critical
shortage of electricity in the years 2004 and beyond.
(b) A shortage of electric generation supply and inadequacies in
the transmission and distribution system endangers the state's
economic recovery.
(c) The state's economic recovery itself could bring about rolling
blackouts or large scale grid disruptions if no action is taken to
improve the reliability of the grid.
(d) Electric customers need the ability to use all of the tools
available to them to increase energy reliability and manage price
without penalty.
(e) Distributed energy resources (DER) provide unique benefits to
all consumers by immediately shifting demand off of the grid and
increasing the supply of generation within California while
contributing to improved environmental quality and public health and
safety.
(f) The cost of customer-sited DER, and the benefits provided to
the grid, are paid for by the individual customer using the DER and
are not borne by other ratepayers.
(g) It is essential that California encourage the installation of
clean DER to increase the supply of electricity, to increase
self-sufficiency of consumers, improve system reliability, and
encourage new generation to connect to the grid.
(h) In compliance with the Governor's Energy Plan, and other
policies regarding load reduction and new generation, the provisions
of this act are urgently needed.
(i) The Independent System Operator can and should play an active
role in encouraging markets and programs that recognize the value of
DER.
(j) DER provides benefits to all Californians equal to or greater
than large central station powerplants. However, because of the
individual small volume demands for natural gas, DER is underserved
and unfairly competitively disadvantaged in the gas market.
(k) California continues to have a series of statutes,
regulations, rules and tariffs regarding DER that are inconsistent,
send mixed signals, and generally discourage DER by allowing certain
fees, charges, and other restrictions that inhibit customer
deployment of clean DER.
(l) It is in the best interest of all Californians to establish a
public policy across all levels of government that encourages and
promotes the development of clean DER technologies that are
environmentally sensitive, help manage the cost of electricity, and
improve reliability.
SEC. 2. Section 41514.11 is added to the Health and Safety Code,
to read:
41514.11. (a) The state board shall develop guidelines for
districts to permit the installation of distributed energy resources.
The guidelines shall take into account all of the following:
(1) The total volumetric level of emissions attributable to the
facility at the installation location before the installation of the
distributed energy resources system shall be determined. The
district shall consider the average annual electricity consumption at
the facility, the average grid emissions level, as well as specific
sources at the facility in determining the attributable emissions.
(2) The total volumetric level of emissions attributable to the
facility at the installation location after the installation of the
distributed energy resources system shall be determined taking into
account the same factors described in paragraph (1).
(3) The state board shall develop methodologies for which the
districts shall consider the effect on emissions of reduced line
losses, the application of cogeneration, accompanying energy
efficiency and optimization measures, and other factors, including,
but not limited to, the installation of zero or near-zero emissions
technologies.
(b) For the purposes of this section, "distributed energy
resources" shall have the same meaning as in Sections 353.1 and 353.2
of the Public Utilities Code.
SEC. 3. Section 216 of the Public Utilities Code is amended to
read:
216. (a) "Public utility" includes every common carrier, toll
bridge corporation, pipeline corporation, gas corporation, electrical
corporation, telephone corporation, telegraph corporation, water
corporation, sewer system corporation, and heat corporation, where
the service is performed for, or the commodity is delivered to, the
public or any portion thereof.
(b) Whenever any common carrier, toll bridge corporation, pipeline
corporation, gas corporation, electrical corporation, telephone
corporation, telegraph corporation, water corporation, sewer system
corporation, or heat corporation performs a service for, or delivers
a commodity to, the public or any portion thereof for which any
compensation or payment whatsoever is received, that common carrier,
toll bridge corporation, pipeline corporation, gas corporation,
electrical corporation, telephone corporation, telegraph corporation,
water corporation, sewer system corporation, or heat corporation, is
a public utility subject to the jurisdiction, control, and
regulation of the commission and the provisions of this part.
(c) When any person or corporation performs any service for, or
delivers any commodity to, any person, private corporation,
municipality, or other political subdivision of the state, that in
turn either directly or indirectly, mediately or immediately,
performs that service for, or delivers that commodity to, the public
or any portion thereof, that person or corporation is a public
utility subject to the jurisdiction, control, and regulation of the
commission and the provisions of this part.
(d) Ownership or operation of a facility that employs cogeneration
technology or produces power from other than a conventional power
source or the ownership or operation of a facility which employs
landfill gas technology does not make a corporation or person a
public utility within the meaning of this section solely because of
the ownership or operation of that facility.
(e) Any corporation or person engaged directly or indirectly in
developing, producing, transmitting, distributing, delivering, or
selling any form of heat derived from geothermal or solar resources
or from cogeneration technology to any privately owned or publicly
owned public utility, or to the public or any portion thereof, is not
a public utility within the meaning of this section solely by reason
of engaging in any of those activities.
(f) The ownership or operation of a facility that sells compressed
natural gas at retail to the public for use only as a motor vehicle
fuel, and the selling of compressed natural gas at retail from that
facility to the public for use only as a motor vehicle fuel, does not
make the corporation or person a public utility within the meaning
of this section solely because of that ownership, operation, or sale.
(g) Ownership or operation of a facility that has been certified
by the Federal Energy Regulatory Commission as an exempt wholesale
generator pursuant to Section 32 of the Public Utility Holding
Company Act of 1935 (Chapter 2C (commencing with Section 79) of Title
15 of the United States Code) does not make a corporation or person
a public utility within the meaning of this section, solely due to
the ownership or operation of that facility.
(h) The ownership, control, operation, or management of an
electric plant used for direct transactions or participation directly
or indirectly in direct transactions, as permitted by subdivision
(b) of Section 365, sales into the Power Exchange referred to in
Section 365, or the use or sale as permitted under subdivisions (b)
to (d), inclusive, of Section 218, shall not make a corporation or
person a public utility within the meaning of this section solely
because of that ownership, participation, or sale.
(i) The ownership, control, operation, or management of a
distributed energy resource as defined in Sections 353.1 and 353.2
that delivers energy or energy services to tenants within a building,
or buildings within an area of common ownership, shall not make a
corporation or person a public utility within the meaning of this
section solely because of that ownership, control, operation,
management participation, sale, or delivery.
SEC. 4. Section 218.5 of the Public Utilities Code is amended to
read:
218.5. "Cogeneration" means the sequential use of energy for the
production of electrical and useful thermal energy. The sequence can
be thermal use followed by power production or the reverse, subject
to the following standards:
(a) At least 5 percent of the facility's total annual energy
output shall be in the form of useful thermal energy.
(b) Where useful thermal energy follows power production, the
useful annual power output plus one-half the useful annual thermal
energy output equals not less than 42.5 percent of any natural gas
and oil energy input , or the facility's total system efficiency
at 100 percent equals at least a 60 percent efficiency on a high
heating value .
SEC. 5. Section 353.1 of the Public Utilities Code is amended to
read:
353.1. As used in this article, "distributed energy resources"
means any electric generation technology that meets all of the
following criteria:
(a) Commences initial operation between May 1, 2001, and June 1,
2003 2008 , except that gas-fired
distributed energy resources that are not operated in a combined heat
and power application must commence operation no later than
September 1, 2002.
(b) Is located within a single facility.
(c) Is five megawatts or smaller in aggregate capacity.
(d) Serves onsite loads or over-the-fence transactions allowed
under Sections 216 and 218.
(e) Is powered by any fuel other than diesel.
(f) Complies with emission standards and guidance adopted by the
State Air Resources Board pursuant to Sections 41514.9 and 41514.10
of the Health and Safety Code. Prior to the adoption of those
standards and guidance, for the purpose of this article, distributed
energy resources shall meet emissions levels equivalent to nine parts
per million oxides of nitrogen, or the equivalent standard taking
into account efficiency as determined by the State Air Resources
Board, averaged over a three-hour period, or best available control
technology for the applicable air district, whichever is lower,
except for distributed generation units that displace and therefore
significantly reduce emissions from natural gas flares or reinjection
compressors, as determined by the State Air Resources Control Board.
These units shall comply with the applicable best available control
technology as determined by the air pollution control district or
air quality management district in which they are located.
SEC. 6. Section 353.2 of the Public Utilities Code is amended to
read:
353.2. (a) As used in this article, "ultra clean and low emission
distributed generation" means any electric generation technology
that meets both of the following criteria:
(1) Commences initial operation between January 1, 2003, and
December 31, 2008.
(2) Produces zero emissions during its operation or produces
emissions during its operation that are equal to or less than the
2007 State Air Resources Board emission limits for distributed
generation , except that technologies .
Technologies operating by combustion must
in a combined heat and power application shall operate
in a combined heat and power application with a
60-percent system efficiency on a higher heating value.
(b) In establishing rates and fees, the commission may consider
energy efficiency and emissions performance to encourage early
compliance with air quality standards established by the State Air
Resources Board for ultra clean and low emission distributed
generation.
SEC. 7. Section 353.3 of the Public Utilities Code is amended to
read:
353.3. (a) The commission shall require each
electrical corporation under the operational control of the
Independent System Operator as of January 1, 2001 , in
setting rates and establishing tariffs, to treat customer use of
distributed energy resources as a reduction of customer load and
, to modify its tariffs so that all customers installing new
distributed energy resources in accordance with the criteria
described in Section Sections 353.1
and 353.2 are served under rates, rules, and requirements
identical to those of a customer within the same rate schedule that
does not use distributed energy resources, and to withdraw any
provisions in otherwise applicable tariffs that activate other
tariffs, rates, or rules if a customer uses distributed energy
resources.
(b) To qualify for the tariffs described in subdivision (a), each
customer with distributed energy resources that meet the criteria of
Section 353.1 shall participate in a real-time metering and pricing
program, when these programs become available, in which rates for any
energy purchased from the electrical corporation reflect the actual
cost to the electrical corporation of energy it purchases at the time
it is consumed by the customer. Prior to the time these programs
become available, the customer shall participate in a time-of-use
pricing tariff. On or before December 31, 2001, the commission shall
adopt a real time pricing tariff for the purpose of this section.
(c) Except as specified in Section 353.7, customers may not be
subject to the application of additional rates or tariffs solely
because of their use of distributed energy resources to serve onsite
loads or over-the-fence transactions allowed under Sections 216 and
218.
SEC. 8. Section 353.4 is added to the Public Utilities Code, to
read:
353.4. (a) The Independent System Operator may not require the
metering, telemetry, or scheduling of a retail customer's consumption
of electric energy that is satisfied by onsite or over-the-fence
generation by distributed energy resources behind the point of
interconnection. The Independent System Operator may not assess any
grid management or transmission charge on a retail customer's
consumption of electric energy that is satisfied by onsite or
over-the-fence generation by distributed energy resources behind the
point of interconnection.
(b) The Independent System Operator shall establish and maintain
an ongoing demand reduction tariff that allows for the participation
of distributed energy resources no later than January 1, 2005.
(c) The Independent System Operator shall establish and maintain a
capacity market that recognizes the value of generation capacity
supplied by distributed energy resources as being functionally
equivalent to central station generation.
SEC. 9. Section 353.5 of the Public Utilities Code is amended to
read:
353.5. Each (a) The commission shall
direct each electrical corporation, as part of its distribution
planning process, shall to establish a
minimum target for nonutility owned distributed energy resources in
its procurement plans and to consider nonutility owned
distributed energy resources as a possible alternative to investments
in its distribution system in order to ensure reliable electric
service at the lowest possible cost.
(b) The commission shall authorize each electrical corporation to
retain as profits, 10 percent of the ratepayer savings realized from
the deployment of nonutility owned distributed energy resources.
SEC. 10. Section 353.7 of the Public Utilities Code is amended to
read:
353.7. Notwithstanding Except for the
requirements of Section 353.3, nothing in this article may
result in any exemption from reasonable interconnection charges, lead
to any reduction in contributions by each customer class to public
purpose programs funded under Section 399.8, or relieve any customer
of any obligation determined by the commission to result from
participation in the purchase of power through the Department of
Water Resources pursuant to Division 27 (commencing with Section
80000) of the Water Code.
SEC. 11. Section 353.13 of the Public Utilities Code is amended to
read:
353.13. (a) The commission shall require each electrical
corporation to establish new tariffs on or before January 1,
2003 2006 , for customers using distributed
energy resources, including, but not limited to, those that do not
meet all of the criteria described in Section
Sections 353.1 and 353.2 . However, after January
1, 2003 2006 , distributed energy
resources that meet all of the criteria described in Section 353.1
shall continue to be subject only to those tariffs in existence
pursuant to Section 353.3, until June 1, 2011
2014 , except that installations that do not operate
in a combined heat and power application will be subject to those
tariffs in existence pursuant to Section 353.3 only until June 1,
2006 . Those tariffs required pursuant to this section
shall ensure that all net distribution costs incurred to serve each
customer class, taking into account the actual costs and benefits of
distributed energy resources, proportional to each customer class, as
determined by the commission, are fully recovered only from that
class , except that the commission shall require that those
benefits that inure to all rate classes, be netted from the costs, if
any, in each customer class . The commission shall require
each electrical corporation, in establishing those rates, to ensure
that customers with similar load profiles within a customer class
will, to the extent practicable, be subject to the same utility
rates, regardless of their use of distributed energy resources to
serve onsite loads or over-the-fence transactions allowed under
Sections 216 and 218. Customers with dedicated facilities shall
remain responsible for their obligations regarding payment for those
facilities.
(b) The commission shall prepare and submit to the Legislature, on
or before June 1, 2002 2005 , a report
describing its proposed methodology for determining the new rates
and the process by which it will establish those rates.
(c) In establishing the tariffs, the commission shall consider
coincident peakload, and the reliability of the onsite generation, as
determined by the frequency and duration of outages, so that
customers with more reliable onsite generation and those that reduce
peak demand pay a lower cost-based rate.
(d) To ensure that customers with distributed energy resources
receive the economic benefits of their investment and pay the true
economic costs when their distributed energy resources system is
unreliable, the commission shall require each electrical corporation
to modify its tariffs so that both of the following occur:
(1) The component of the tariff commonly referred to as the
"demand charge" is calculated on a daily basis and measured against
the actual peak rate for the period of the day when the demand is
called for by that customer.
(2) A premium of 10 percent is assessed on the generation
component of the rate for that period of time when the customer's
distributed energy resources equipment was unavailable due to an
unplanned outage. Customers shall not be penalized for outages
during off peak periods or if it provides an electrical corporation a
14-day advance notice for peak outages.
SEC. 12. Section 353.14 is added to the Public Utilities Code, to
read:
353.14. Where nonbypassable charges are duplicated as a result of
switching from electric to gas service, charges levied under gas
rate schedules that support the same programs covered by the
nonbypassable electric charges may not be assessed on customers.
SEC. 13. Section 379.6 of the Public Utilities Code is amended to
read:
379.6. (a) The commission, in consultation with the State Energy
Resources Conservation and Development Commission, shall until
January 1, 2008, administer a self-generation incentive program for
distributed generation resources, in the same form as exists on
January 1, 2004.
(b) Notwithstanding subdivision (a), the self-generation incentive
program shall do all of the following:
(1) Commencing January 1, 2005, require all combustion-operated
distributed generation projects using fossil fuels to meet an oxides
of nitrogen (NOx) emissions rate standard of 0.14 pounds per
megawatthour to be eligible for self-generation rebates.
(2) Commencing January 1, 2007, require all combustion-operated
distributed generation projects using fossil fuels to meet an oxides
of nitrogen (NOx) emissions rate standard of 0.07 pounds per
megawatthour and a minimum efficiency of 60 percent, to be eligible
for self-generation rebates. A minimum efficiency of 60 percent
shall be measured as useful energy output divided by fuel input. The
efficiency determination shall be based on 100 percent load.
(3) Combined heat and power units that meet the 60 percent
efficiency standard may take a credit to meet the applicable oxides
of nitrogren (NOx) emission standard of 0.14 pounds per megawatthour
or 0.07 pounds per megawatthour. Credit shall be at the rate of one
megawatthour for each 3.4 million British Thermal Units (BTUs) of
heat recovered.
(4) Allow all projects that meet the definitions in Sections
353.1 and 353.2 of distributed energy resources to participate in the
program provided that only the first 1,000 kilowatts of facility
capacity shall be eligible for the funds.
(5) Provide the commission with flexibility in administering
the self-generation incentive program, including, but not limited
to, flexibility with regard to the amount of rebates, inclusion of
other ultra clean and low emission distributed generation
technologies, and evaluation of other public policy interests,
including, but not limited to, ratepayers, and energy efficiency and
environmental interests.
SEC. 14. Section 2775.8 is added to the Public Utilities Code, to
read:
2775.8. On or before May 1, 2005, the commission shall require a
gas corporation to establish a new distributed energy resources gas
rate. This rate shall be a noninterruptible rate and the price
charged to a customer taking service on this rate shall be equal to,
or less than, the price charged to any other comparable electric
generation rate. This rate shall be available to any natural-gas
fueled distributed energy resource that meets the requirements of
Sections 353.1 and 353.2.
SEC. 15. No reimbursement is required by this act pursuant to
Section 6 of Article XIII B of the California Constitution because
the only costs that may be incurred by a local agency or school
district will be incurred because this act creates a new crime or
infraction, eliminates a crime or infraction, or changes the penalty
for a crime or infraction, within the meaning of Section 17556 of the
Government Code, or changes the definition of a crime within the
meaning of Section 6 of Article XIII B of the California
Constitution.