BILL ANALYSIS 1 1 SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE ALEX PADILLA, CHAIR SB 412 - Kehoe Hearing Date: April 21, 2009 S As Introduced: February 26, 2009 FISCAL B 4 1 2 DESCRIPTION Current law requires the California Public Utilities Commission (CPUC) to administer the Self-Generation Incentive Program (SGIP) for fuel cells and wind distributed generation technologies through 2012. This bill extends the SGIP program one year to 2013 and permits the CPUC to provide incentives for any distributed generation resources that the commission determines will support the state's goals for reductions of emission of greenhouse gases and requires the commission to make technologies available to all ratepayers in the program. This bill exempts all residential customers participating in the California Alternate Rates for Energy (CARE) program from the SGIP surcharges. BACKGROUND SGIP History - During the 2000-01 energy crisis the CPUC was directed to create a program of incentives for renewable and super clean, gas-fired distributed generation resources to reduce electricity demand. As a result, the CPUC established the SGIP in March 2001 which has offered rebates for installation of technologies such as photovoltaics, wind, fuel cells, waste gas, and ultra-clean and low emission gas-fired distributed generation (combined heat and power, CHP). Legislation adopted in 2004 eliminated CHP from the program as of January 1, 2008. In 2006 photovoltaic incentives were moved out of the SGIP to the California Solar Initiative (CSI) effective January 1, 2007. Beginning in 2008 only fuel cell and wind technologies are eligible for incentives. According to the CPUC 270 MW of distributed generation was complete and online by the end of 2007. Note that this includes photovoltaics that, as of 1/1/07 are out of the SGIP and funded separately as part of the California Solar Initiative (CSI). Through 2007 installed capacity under SGIP was: Fossil fuel (CHP) 145.6 MW (54%) Renewable fuel CHP 11.8 MW ( 4%) Non-Renewable Fuel Cells 6.3 MW ( 2%) Renewable Fuel Cells .8 MW (>0%) Photovoltaic 104.6 MW (39%) Wind 1.6 MW (>0%) SGIP Funding - For 2009 SGIP will provide $83 million of financial assistance for the installation of wind and fuel cells. Incentive payments are $1.50 per watt for wind turbines, $4.50 for biogas fuel cells, and $2.50 for natural gas. The maximum size for eligible technologies is 5 MW in capacity; incentives are capped at 3 MW of installed capacity for fuel cells and wind turbines. The program is funded by a charge on all ratepayers which is reflected in the distribution charges paid in each billing. The CPUC reports that the average monthly electric bill impact for the SGIP is: PG&E SCE SDG&E ------------------------------------------------------- |Residentia| $ 0.25| $ 0.16| $ 0.36| |l | | | | |----------+--------------+--------------+--------------| |Commercial| $ 0.72| $ 0.46| $ 1.03| | | | | | |----------+--------------+--------------+--------------| |Industrial| $ 106.38| $ 64.94|$ | | | | |142.19 | ------------------------------------------------------- The average monthly gas bill impact for the SGIP is: PG&E SGE SDG&E ------------------------------------------------------- |Residentia| $ 0.14| $ 0.17| $ 0.27| |l | | | | |----------+--------------+--------------+--------------| |Commercial| $ 1.05| $ 1.35| $ 3.04| | | | | | |----------+--------------+--------------+--------------| |Industrial| $ 211.32| $ 2.79|$ | | | | |3.04 | | | | | | ------------------------------------------------------- COMMENTS 1. Follow the Bouncing Distributed Generation - Since authorization of the SGIP, the Legislature has modified the technologies eligible for SGIP funding several times. At each introduction of this issue, different technology representatives have solicited the Legislature's support to add additional technologies not yet evaluated or accepted by the CPUC or reflected in the many different bills on this subject. Next year's legislation could bring more technologies to the fore. In the meantime, the CPUC must continually retool the program to respond to legislative program changes each year. As originally structured the CPUC had the broad authority to establish a program for "renewable distributed generation resources." The author is proposing to return this authority to the CPUC and eliminate specific technologies and permit the inclusion of any technologies that meet the state's GHG goals. This would be new criteria for the program which was designed during the energy crisis to bring as much new generation to the grid as soon as possible. The author opines that the legislature should set broad energy and environmental goals but place the selection of individual technologies in a forum where a thorough analysis can be done for technical viability, commercial readiness, cost and environmental impacts, and overall value for distributed generation incentives. 2. Combined Heat & Power (CHP) - One of the technologies previously funded in the SGIP program was CHP. Also referred to as cogeneration, CHP generates electricity and useful thermal energy in a single integrated system. This contrasts with the common practice of separate heat and power where electricity is generated at a central power plant, while on-site heating and cooling equipment is used to meet non-electric energy requirements. The thermal energy recovered in a CHP system can be used for heating or cooling in industry or buildings. Because CHP captures the heat that would otherwise be rejected in traditional generation of electric power, the total efficiency of these integrated systems is much greater than from separate systems. Amendments to the SGIP statute made late in the 2006 legislative session eliminated CHP eligibility for the program. The basis for this action is not fully known but appears to be due to a philosophical objection to any subsidies for technologies that rely on fossil fuel. This bill would allow the CPUC to reinstate CHP for SGIP eligibility. The technology is widely recognized as a valuable energy efficiency tool. The American Council for an Energy-Efficient Economy includes CHP as a means of energy efficiency and includes the technology in its state scoring of state energy efficiency policies and programs. The California Air Resources Board (CARB) has called for 4,000 megawatts to meet the state's GHG reduction goals. The CARB scoping plan reports that that the "widespread development of efficient CHP systems would help displace the need to develop new, or expand existing, power plants." Additionally, federal law now provides for a 10 percent investment tax credit for CHP through 2016. 3. SGIP Evaluation - Legislation in 2006 mandated that the California Energy Commission provide a cost-benefit analysis on ratepayer subsidies for renewable and fossil fuel "ultraclean and low-emission distributed generation" for inclusion in the Integrated Energy Policy Report. The consultant report developed for the CEC found that "the environmental benefits of the SGIP, although small, indicate that systems operating with clean and renewable fuels, particularly those in efficient combined heat and power applications, do provide air quality benefits and GHG reductions. The benefits of these applications to date are small, however, this is primarily a reflection of the installed capacity of clean and renewable sources of DG." The consultant report recommended "re-instating the eligibility of internal combustion engines, microturbines, and small gas turbines with requirements that these technologies meet ultra clean and low emission targets using appropriate fuels (e.g., renewable fuels or natural gas) and that they are used in efficient combined heat and power applications." This bill does not specifically reinstate those technologies but the CPUC would have the discretion to do so. 4. Ratepayer Impact - This bill does not increase funding for the SGIP (currently $83 million annually) which is derived from a surcharge on all ratepayers except residential ratepayers who limit usage to tiers 1 and 2. The CPUC has the broad authority to establish the surcharge; this bill does not change that authority. However, because the bill exempts all CARE customers from the surcharge there would be a negligible shift of the surcharge from CARE customers to the remainder of the residential ratepayer class. 5. Residential Ratepayers - TURN writes in opposition to this bill expressing concern that the SGIP primarily benefits commercial and industrial customers since the technologies available under the program are generally not used in a residential setting. In response the author has directed the CPUC to ensure that technologies are made available in the program for all ratepayers but TURN still argues that "the funding for the SGIP program should be collected in direct proportion from the customer classes that utilize the incentives" which the CPUC does not do for any other ratepayer program. All surcharges are assessed across the board regardless of direct benefit to the ratepayer class. For example, large business is assessed to support low-income residential ratepayers and the CSI program yet they receive little or no direct benefit. It would be a slippery slope to start carving out surcharges based on direct benefit. CPUC programs are generally thought to have a broader, indirect benefit for all ratepayers which warrant charges across all rate classes. POSITIONS Sponsor: Author Support: BluePoint Energy LLC California Baptist University California Clean DG Coalition Capstone Turbine Corporation Caterpillar California Counsel DE Solutions, Inc. Engine Manufacturers Association EPS Corp. Hawthorne Machinery Co. Holt of California Industrial Environmental Association Nong Shim Foods, Inc. Northstar Power Onsite Energy Company Pierce College QUALCOMM Quinn Power Systems Sempra Energy SDP Energy Water and Energy Management Co. Inc. Oppose: The Utility Reform Network Kellie Smith SB 412 Analysis Hearing Date: April 21, 2009