BILL ANALYSIS
SB 412
Page 1
Date of Hearing: June 29, 2009
ASSEMBLY COMMITTEE ON UTILITIES AND COMMERCE
Felipe Fuentes, Chair
SB 412 (Kehoe) - As Amended: May 28, 2009
SENATE VOTE : 37-0
SUBJECT : Electricity: self generation incentive program.
SUMMARY : Requires the California Public Utilities Commission
(PUC) to continue the self-generation incentive program (SGIP)
until it has allocated all funds, and expands eligibility for
the SGIP to all self-generation technologies the PUC determines
will support the state's goals for the reduction of emissions of
greenhouse gases.
EXISTING LAW :
1)Authorizes the PUC to administer the SGIP to provide rebates
for fuel cells and wind distributed generation (DG)
technologies through 2012.
2)Restricts SGIP-eligible technologies to wind and fuel cell DG
technologies that meet or exceed specific emissions standards.
3)Requires the California Energy Commission (CEC), on or before
November 1, 2008, in consultation with the California Air
Resources Board (ARB), to evaluate the costs and benefits of
providing ratepayer subsidies for renewable and specific
fossil fuels, and make recommendations for the changes in the
eligibility of technologies and fuels under the program and
whether the level of subsidy should be adjusted.
4)AB 2267 (Fuentes) Chapter 537, Statutes of 2008, requires the
PUC to provide an additional incentive of 20 percent for the
installation of eligible DG resources from a California
supplier.
THIS BILL :
1)Requires the PUC to require the collection of funding for the
self-generation incentive program for nonsolar DG resources
through December 31, 2011, and requires the PUC to extend the
administration of the program until all funds collected for
the program have been allocated as incentives.
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2)Expands the eligibility for incentives to distributed
generation resources that the PUC determines will support the
state's goals for the reduction of emissions of greenhouse
gases pursuant to the California Global Warming Solutions Act
of 2006.
3)Requires that combined heat and power (CHP) units meet ARB
2007 efficiency and emissions requirements, including the
greenhouse gases emission performance standard, to receive
incentives.
4)Requires the PUC to ensure that DG resources are made
available in the program for all ratepayers.
5)Restricts the collection of costs of the program from
ratepayers that participate in the California Alternative
Rates for Energy (CARE) program.
FISCAL EFFECT : Unknown.
COMMENTS : According to the author, the purpose of this bill is
to provide incentives for small-scale CHP generating units.
Achieving targets included in the scoping plan will be further
achieved through available state incentives programs authorized
to include CHP users.
1) The SGIP: As a result of the energy crisis in an effort to
expedite generation and fend off rolling blackouts, the
Legislature passed AB 970 (Ducheny), Chapter 329, Statutes of
2000, to encourage investment in new, environmentally superior
electricity generation. As a result, the PUC established the
SGIP to provide subsidies for up to 50% of the project cost for
the installation of specified DG technologies on a utility
customer's premises. This can equate to up to $1 million per
customer for the installation of large on-site electrical
generating units of up to 5 megawatts (MW). These units are
intended to provide electricity to the individual customer that
owns the generator. Because this was a quick fix in response to
the energy crisis, the bill had a sunset date of January 1,
2004.
Subsequent legislation extended the sunset date and prescribed
more strict eligibility requirements. AB 1685 (Leno), Chapter
894, Statutes of 2003, extended the sunset date to 2008, and
imposed more strict air emission allowances for the fossil-fuel
based microturbines. AB 2778 (Lieber), Chapter 617, Statutes of
2006, further extended the sunset of SGIP from January 1, 2008,
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to January 1, 2012, and transferred solar energy technologies
from the SGIP to the California Solar Initiative. AB 2778
retained the sunset date of January 1, 2008, for fossil-fuel
based technologies; however, after that date only certain wind
and fuel cell technologies qualify.
In 2007, AB 1064 (Lieber) was introduced with similar provisions
to extend fossil-fuel technologies through 2012. Those
provisions were removed by this committee due to two significant
concerns: (1) the state's energy policy was transitioning
toward assisting innovative, clean, and renewable fuels, and the
market was stable enough to not have to subsidize fossil-fuel
based generation, and (2) the current SGIP is disproportionately
funded by residential ratepayers, although only the largest
customers can qualify for the subsidies (the systems have to be
at least 30 kW, which can serve about 225 residential units).
This committee offered a compromise and AB 1064 was amended to
continue to allow all customers to pay the SGIP surcharge, and
retain the sunset date of January 1, 2008, for fossil-fuel
generators eligibility. AB 1064 was ultimately held in the
Senate Energy and Communications committee.
Last year, SB 1012 (Kehoe) was substantially similar to this
bill except that it extended the SGIP through 2012. SB 1012
failed passage in the Assembly.
2) The ARB Scoping Plan : The PUC states that the ARB Scoping
Plan "identifies the need for an additional 4,000 MW of CHP
facilities to meet the AB 32 goals." According to ARB, the
Scoping Plan is not a determination of need. The Scoping Plan,
released in December 2008, sets "a target of an additional 4,000
MW of installed CHP capacity by 2020, enough to displace
approximately 30,000 GWh of demand from other power generation
sources." According to ARB, the Scoping Plan is not a mandate
or a requirement. It is intended to be a catalogue or a menu of
policy items and associated greenhouse gas emission reductions
that could be achieved. CHP was only a subset of the Energy
Efficiency line item. The list includes 28 additional items
with associated greenhouse gas reductions. Items are diverse
and include vehicle efficiency measures, sustainable forests,
refinery measures, and green buildings.
The "target" of 4,000 MW of CHP is questionable as to whether
this number is the optimal capacity or a priority item for
subsidies when evaluated against and in combination with the
other 29 options. First, 4,000 MW is a significant portion of
statewide installed capacity. The California Independent System
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Operator shows total in-state the installed capacity as 59,930
MW. The ARB's target of 4,000 MW of CHP would equate to about
6.7% of total system power, which far exceeds existing solar
(368 MW or 0.6%). Since the inception of the SGIP when fossil
fuel fired generation including CHP was eligible, the SGIP had
provided financial incentives which resulted in just 223 MW
(0.4% of total installed system power) of all DG through the end
of 2007.
Second, the 4,000 MW of installed capacity was based on a
CEC-funded consultant report that predicted a potential market
for CHP based on the amount of policy incentives and subsidies
provided for the purchase, installation, and operation of CHP
systems. For example, if the state provided CHP facilities with
the full portfolio of subsidies and policy incentives, such as
feed-in-tariffs, utility-provided incentive payments (SGIP),
transmission and distribution support payments, and a CO2
reduction payment, this scenario could result in a high
deployment of CHP of 7,300 MW. The "low deployment" scenario
with far less subsidies resulted in a potential market for CHP
of 1,966 MW. According to ARB, they chose the middle of 4,000
MW and calculated emission reductions based on offsetting those
CHP-generated megawatts with other generation sources. When
results of this study are assessed with the quantity of demanded
installed capacity, one could conclude that even moderate
subsidies and policy incentives could induce a significant
over-investment in CHP or to a point where the marginal benefits
significantly decrease.
3) Strive for excellence: The CEC listed several
recommendations in its 2007 Integrated Energy Policy Report to
provide support to CHP systems, including: "The CPUC's
self-generation program incentives should be based upon overall
efficiency and performance of systems, regardless of fuel type."
Historically, standards for qualifying SGIP facilities have
exceeded the lowest efficiency standards and emission standards
required by state law. When standards were initially included
in the SGIP, they were twice those of the ARB. The standards in
this bill are the same as ARB.
The U.S. CHP Association states that CHP units can achieve much
cleaner results than those required by state law. According to
the U.S. CHP Association website, "under common circumstances,
CHP systems will achieve efficiencies regularly exceeding 60%,
and where conditions of thermal load and site permit, may
achieve efficiencies exceeding 80%. Some systems have been shown
to reach efficiency levels in excess of 90%." According to the
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CEC, the combined thermal electrical efficiency of microturbines
in cogeneration applications can reach as high as 85% depending
on the heat process requirements. This committee may wish to
require eligible CHP facilities to exceed current ARB standards.
In addition, the author states that there are currently no state
incentives for small-scale CHP. According to the PUC, if
additional technologies were allowed to be eligible for SGIP
funds, they would not be limited by size.
4) The report we've all been waiting for: The Legislature has
been cautious about expanding eligible technologies until they
are satisfied that the program renders cost-effective benefits.
When the program was in its infancy, the Legislature required
the PUC to report on the cost-effectiveness of the SGIP. In
September 2005, the PUC issued the SGIP Preliminary Cost
Effectiveness Evaluation Report which measures the costs and
benefits of SGIP during 2004. The Report concluded that the
SGIP is cost-effective for participants only (owners and
operators of the generation facilities); however,
cost-effectiveness declines significantly when viewed from the
non-participant (all customer classes who don't or can't take
advantage of the program) and societal (all members of society)
perspective. The report calculated the benefit-cost ratios for
non-generators (the group that pays for it) "?are substantially
less than one." The non-participant or ratepayer evaluation
measured what happens to customer bills or rates due to changes
in utility revenues and operating costs caused by the program.
AB 2778 required the CEC, in consultation with the PUC and the
ARB, to perform a cost-benefit evaluation of providing ratepayer
funded subsidies to natural gas and fossil-fuel fired DG through
the SGIP, and to include recommendations for certain program
changes by November 1, 2008.
This report concluded that photovoltaics rendered the greatest
greenhouse gas reductions. It also concludes that, "The Energy
Commission believes that ultra-clean and low-emission DG
technologies using non-renewable and renewable fuels should be
reinstated, especially those technologies used in CHP
applications." In addition, the CEC states, "Eligibility for
the SGIP should be based on the overall efficiency and
performance of systems, regardless of fuel type." To follow up
with the recommendation, it concludes with, "the CPUC should
develop an incentive structure for SGIP projects that meet
specific targets for environmental, transmission and
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distribution, and economic benefits."
The ARB, and not the PUC, possesses expertise in greenhouse gas
reductions. Due to the ARB's list of greenhouse gas reductions
attributable to CHP, and the CEC's specific recommendation that
CHP in particular, should be reinstated in the SGIP, this
committee may wish to strike the provision that allows the PUC
to determine which resources will support state goals for the
reductions of emissions of greenhouse gases, and instead,
implement the recommendation in the CEC's Integrated Energy
Policy Report which recommends that CHP be included in the
existing list of eligible resources, and that the PUC be
required to develop an incentive structure for SGIP projects
that meet specific targets for environmental, transmission and
distribution, and economic benefits.
5) Ratepayers, the deep pocket: The utilities have been
collecting a surcharge for the SGIP and it has not been fully
expended. The current unexpended balance is about $200 million.
Although it has a substantial surplus, this bill would require
the PUC to continue collecting the surcharge through December
31, 2011, and require the PUC to administer the program until
all funds collected have been allocated as incentives. The PUC
budgeted for (or allowed the utilities to collect) $83 million
in 2008. To ensure the PUC doesn't require the collection of a
windfall amount in order to perpetuate the SGIP beyond demand
for the program, this committee may wish to authorize the
commission to collect not more than $83 million per year for the
program through December 31, 2011.
6) Public funds or funds from the public: State law requires
most expenditures derived from public revenues to be encumbered
within one year and liquidated in the following two years. If
the funds are not liquidated within the allotted time period,
they revert to the fund of origin to be reappropriated by the
Legislature. This is to ensure critical public funds are
expended for high-priority projects and programs with a
demonstrated need. To be consistent with state law for public
funds (although SGIP is considered "off-budget"), this committee
may wish to require the funds be liquidated by December 31,
2014, require any remaining funds to revert to ratepayers, and
permit the PUC to revert the funds using accounting mechanisms
which offset ratepayer costs.
REGISTERED SUPPORT / OPPOSITION :
Support
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BluePoint Energy, LLC
California Baptist University
California Clean DG Coalition (CCDC)
California Manufacturers & Technology Association (CMTA)
California Public Utilities Commission (CPUC)
California State Pipe Trades
Capstone Turbine Corporation
Caterpillar California Council
DE Solutions
Engine Manufacturers Association (EMA)
EPS Corp
Hawthorne Machinery Co.
Holt of California
Industrial Environmental Association
Nong Shim Foods, Inc.
Northstar Power
Onsite Energy
Pierce College
QUALCOMM
Quinn Power Systems
Regatta Solutions
Sacramento Municipal Utility District (SMUD)
SDP Energy
Sempra Energy
Solar Turbines
Tecogen
Water & Energy Management Co., Inc.
Opposition
None on file.
Analysis Prepared by : Gina Adams / U. & C. / (916) 319-2083