BILL ANALYSIS 1
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SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE
DEBRA BOWEN, CHAIRWOMAN
SB 1398 - Morrow Hearing
Date: April 13, 2004 S
As Amended: March 22, 2004 FISCAL B
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DESCRIPTION
This bill increases eligibility for incentives, decreases
utility charges, and lowers emission standards applicable to
distributed generation (DG) by revising and adding to DG
provisions established by SB 1298 (Bowen), Chapter 741,
Statutes of 2000, SB 28X (Sher), Chapter 12, Statutes of 2001,
SB 1038 (Sher), Chapter 515, Statutes of 2002 and AB 1685
(Leno), Chapter 894, Statutes of 2003.
Specifically, this bill:
1.Directs the Air Resources Board (ARB) to develop guidelines
for local air districts to use in permitting DG which would
require the districts to allow the emissions of a DG source
to be netted against other emissions associated with the
facility where it's being installed.
2.Provides that ownership, operation, control, or management
of DG that delivers energy to tenants within a building or
to buildings with common ownership does not make a person a
public utility subject to the jurisdiction, control, and
regulation of the California Public Utilities Commission
(CPUC).
3.Establishes an alternative to the existing efficiency
standard required to meet the statutory definition of
"cogeneration."
4.Expands and extends eligibility for the limited waiver of
standby charges for DG by removing the 2003 installation
deadline, eliminating the combined heat and power
requirement, increasing the eligible size from five
megawatts to 20 megawatts, and extending the termination of
the waiver from 2011 to 2014.
5.Reduces the emissions standards required to meet the
definition of "ultra clean and low emission" DG, thereby
permitting higher emission DG projects to be exempt from a
portion of the cost recovery surcharge established by the
CPUC.
6.Requires DG to be treated as an "energy efficiency measure"
for purposes of setting rates, which may prevent the
collection of interconnection charges, public purpose
program funds, and cost recovery surcharges on load served
by DG.
7.Eliminates the requirement that customers participate in
real-time metering to be eligible for a waiver of standby
charges.
8.Prohibits the Independent System Operator (ISO) from
metering or assessing charges on consumption of electricity
generated on-site by DG.
9.Requires the ISO to establish a demand reduction tariff and
a capacity market for DG.
10. Requires investor-owned utilities (IOUs) to establish
minimum targets for non-utility DG in their procurement
plans.
11. Provides for payment of a shareholder benefit to IOUs
(equal to the IOU's authorized rate of return) for ratepayer
savings from non-utility DG.
12. Requires a methodology intended to decrease demand
charges and replaces the requirement that customers pay
real-time rates for electricity purchased when their DG is
out of service to requirements that the customer pay
standard generation rates, plus a 10 percent premium for an
unplanned outage during a peak period.
13. Expands eligibility for the CPUC's self-generation
installation subsidy to include larger projects with higher
emissions.
14. Requires gas utilities to lower rates for DG customers so
they are equal to, or less than, rates charged to larger
electric generation customers.
BACKGROUND
SB 1298 required the ARB to adopt a certification program and
uniform emission standards for DG projects that are exempt
from air district permitting requirements, and to issue
guidance to air districts on the permitting or certification
of DG under their regulatory jurisdiction. ARB adopted
two-tiered emission standards in 2002. The second tier, which
starts in 2007, reflects the best performance achieved in
practice by existing central station electrical generation
technologies.
SB 28X established a limited waiver of utility standby charges
for specified DG projects. Under SB 28X, DG projects under
five megawatts, operating in a combined heat and power
application, meeting ARB emissions standards, and commencing
operation by June 1, 2003 are eligible for a waiver of utility
standby charges until 2011. SB 28X also required the CPUC to
adopt new, cost-based standby tariffs for DG customers by
January 1, 2003, making the new tariffs effective upon the
expiration of the waiver. The CPUC failed to meet the
deadline, but extended eligibility for the waiver through the
end of 2004.
SB 1038 authorized the CPUC to offer special rate treatment to
"ultra-clean and low-emission" distributed generation in order
to encourage early compliance with emissions standards
established by the ARB pursuant to SB 1298. "Ultra-clean and
low-emission" was defined as meeting ARB's 2007 emission
limits, plus an efficiency standard, and commencing operation
by December 31, 2005.
AB 1685 required the CPUC to administer a self-generation
incentive program (SGIP) for DG resources meeting specified
emissions standards until January 1, 2008. Beginning in 2007,
projects must meet the standard for oxides of nitrogen
emissions currently proposed by ARB for 2007 (0.07 pounds per
megawatt-hour) to be eligible. Between 2005 and 2007,
eligibility requires projects to emit no more than twice the
2007 rate (0.14 pounds per megawatt-hour).
In March 2003, the CPUC issued Decision 03-04-030, which
defined DG customers' responsibility for unrecovered
electricity procurement costs incurred by the IOUs and the
Department of Water Resources. The decision grants an
exemption from most charges for any type of DG installed, up
to a statewide total of 3,000 megawatts. The decision grants
an additional exemption from all charges for the renewable and
low-emission DG that's eligible for financial incentives under
the SGIP.
COMMENTS
1.Are revisions to recently-enacted statutes warranted? The
recent DG-related bills referenced above were enacted after
negotiation and compromise by the interested parties.
Several provisions of this bill address subjects of current
CPUC proceedings initiated pursuant to this previous DG
legislation. For example, the provision in SB 28X requiring
the CPUC adopt new, cost-based standby tariffs was requested
by DG proponents and was intended to decide what fair
charges should be. Adoption of the new tariffs is now
overdue. This bill further delays CPUC action by extending
the deadline until 2006 and, by making the waiver permanent,
seems to make the adoption of new tariffs largely
irrelevant.
Several provisions undo key conditions accepted in previous
DG legislation, or add provisions that were rejected in
those bills. Examples are the elimination of the deadline
for eligibility for standby charge waiver, increase of
eligible project size from five to 20 megawatts, and
elimination of the requirement that DG customers take
electricity from IOUs at real-time rates. These conditions
were intended to limit the cost of the waiver and to reward
prompt installation of reliable and efficient DG.
2.Intent and effect of existing combination of DG policies is
unclear. As a result of recent legislation and CPUC
decisions, customers departing bundled service to install DG
projects are eligible for various financial incentives.
Certain renewable DG projects, such as solar photovoltaic,
are eligible for additional financial benefits via
net-metering, buy-down subsidies, and state and federal tax
credits, deductions and exemptions.
Some subsidies have been justified on the basis they are
needed to develop and deploy high-cost technologies which
have public benefits, such as reducing emissions or peak
electricity consumption. Others have been justified on the
basis they induce new investments in generating capacity or
reliability benefits which would not otherwise occur. None
of the incentives are cost-effective when compared to energy
efficiency programs.
The continuing public purpose of these existing incentives,
particularly those available to commercial gas-fired DG
projects, has never been substantiated and the Legislature
hasn't required much in the way of evidence of their value
or necessity. This bill would expand and add incentives,
but doesn't require any clear or measurable results. The
author and the committee may wish to consider whether
ratepayer-funded incentives for DG should be focused on
projects which are desirable from a ratepayer and broader
public perspective and where there is a demonstrated need
for subsidy, such as technologies which aren't otherwise
economic. To the extent incentives are intended to increase
generation capacity or improve reliability, they should be
set at levels which are cost-effective compared to other
generation, demand response or transmission options.
POSITIONS
Sponsor:
Author
Support:
None on file
Oppose:
Pacific Gas and Electric Company
Southern California Edison
Lawrence Lingbloom
SB 1398 Analysis
Hearing Date: April 13, 2004
Should DG providers be exempt from regulation as public
utilities?
Are subsidies achieving commercialization of desirable
technologies?
"the commission shall consider the amount and duration of
existing incentives, including exemption from standby tariffs,
exemption from Department of Water Resources electricity
procurement obligations, state and federal tax credits,
deductions, and exemptions."
"report to the Legislature on the costs, benefits,
environmental impacts, and efficiency impacts of the incentive
program."
Distribution plan vs. procurement plan.