BILL ANALYSIS
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|SENATE RULES COMMITTEE | SB 1048|
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THIRD READING
Bill No: SB 1048
Author: Machado (D)
Amended: 4/14/05
Vote: 21
SENATE ENERGY, UTIL. & COMMUNIC. COMM. : 9-0, 5/3/05
AYES: Morrow, Alarcon, Battin, Bowen, Campbell, Cox, Dunn,
Kehoe, Murray
NO VOTE RECORDED: Escutia, Simitian
SUBJECT : Electrical restructuring: distributed energy
resources
SOURCE : Author
DIGEST : This bill states legislative intent to develop
distributed generation projects to generate electricity
using natural gas that is a by-product of oil production,
as such projects reduce air pollution and economically
benefit electricity consumers and owners of facilities that
generate electricity.
ANALYSIS : Existing law requires the Public Utilities
Commission (PUC) 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
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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 PUC'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 percent of total project cost. By virtue of a PUC
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,
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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 does not 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.
FISCAL EFFECT : Appropriation: No Fiscal Com.: No
Local: No
SUPPORT : (Verified 5/4/05)
California Independent Petroleum Association
California Oil Producers Electric Cooperative
NC:mel 5/4/05 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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