BILL ANALYSIS                                                                                                                                                                                                              1
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                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
                                                                        
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                                      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