BILL ANALYSIS 1
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SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE
MARTHA M. ESCUTIA, CHAIRWOMAN
SB 1048 - Machado Hearing Date:
May 3, 2005 S
As Amended: April 14, 2005 Non-FISCAL
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DESCRIPTION
Existing law requires the California Public Utilities Commission
(CPUC) to administer the Self-Generation Incentive Program (SGIP)
until 2008, and prescribes emission standards for eligible
gas-fired distributed generation projects. Projects which provide
a net air emissions benefit and operate solely on natural gas
unsuitable for delivery to the utility pipeline system (i.e. waste
gas) are eligible for financial incentives under the SGIP.
This bill expresses legislative intent that:
1. Distributed generation projects are developed to use
natural gas produced in association with oil production (i.e.
waste gas).
2. Such projects reduce air pollution, as well as benefit
consumers and project owners.
BACKGROUND
The CPUC's SGIP offers ratepayer-funded financial incentives for
installation of photo-voltaics, fuel cells, and certain gas-fired
distributed generation projects up to one megawatt in size.
Internal combustion engines and micro-turbines using waste heat
recovery (i.e. co-generation) are eligible for rebates of $1.00
per watt, up to 30% of total project cost. By virtue of a CPUC
decision, projects eligible for the SGIP also get an additional,
substantial benefit - exemption from payment for un-recovered
electricity procurement costs incurred by the investor-owned
utilities and the Department of Water Resources. The incentive
payment itself is worth less than the ability to avoid these
lingering energy crisis costs.
Waste gas is a by-product of oil production, most prevalent in the
Kern County and the Long Beach areas. Waste gas was once used to
fuel oil field pumps, but air quality regulations have required
conversion to electric pumps, simultaneously "stranding" the gas
and creating additional electricity demand. Waste gas is now
disposed of via flaring, which causes air pollution, or
re-injection into the oil wells, which consumes more energy.
According to the South Coast Air Quality Management District,
flaring is not permitted as part of the ordinary oil production or
refining process, but is permitted for "emergency" situations.
Genuine emergency flaring typically results from an upset in the
oil production process in which the quantity and quality of gas is
unpredictable and probably would not be suitable to meet the
regular fuel requirements of an electric generator, although oil
producers say "emergency" flares in the Long Beach area burn
continuously.
Waste gas now regularly disposed of using process flares, which
are more prevalent at oil production sites in Kern County, may be
more suitable to meet the regular fuel requirements of small
electric generators. These generators could meet electricity
demand from pumps and other oil field facilities and perhaps
generate surplus electricity for sale to electric utilities.
Oil producers have justified SGIP eligibility for distributed
generation projects fueled by waste gas, even if the project
doesn't meet the conventional emission standards, on the basis
that excess waste gas now flared by oil producers will be
recovered and burned in a controlled manner to produce
electricity, resulting in lower net emissions. Waste gas may be
an economical fuel source for distributed generation projects,
which may lead to two public benefits - low-cost electricity and
reduced air pollution from flares. According to oil producers,
the Energy Information Administration reported in 2001 that
California could have generated about 850 megawatts of electricity
from gas that was flared or re-injected.
COMMENTS
What will be the mechanism to develop these projects? Currently,
this bill is merely a statement of intent reflecting the theory
that waste gas now flared can be harnessed to produce electricity
economically. The author and the committee may wish to consider
how this theory can be tested and/or carried out. One alternative
would be to initiate a demonstration project between an oil
producer and an electric utility. The Independent System Operator
may also need to participate to ensure that the small increments
of electricity produced by each waste-gas generator can be
scheduled onto the transmission grid. Another alternative would
be to require electric utilities to purchase the output of a
waste-gas generator if it is priced below their average generation
cost. Finally, waste gas generation meeting stringent
environmental standards could be granted status as an "eligible
renewable energy resource" under the California Renewable
Portfolio Standard (RPS), as landfill gas is, and allowed to bid
into electric utilities' RPS solicitations.
POSITIONS
Sponsor:
Author
Support:
California Independent Petroleum Association
California Oil Producers Electric Cooperative
Oppose:
The Utility Reform Network
Lawrence Lingbloom
SB 1048 Analysis
Hearing Date: May 3, 2005