BILL ANALYSIS Ó 1 SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE ALEX PADILLA, CHAIR SB 771 - Kehoe Hearing Date: April 5, 2011 S As Amended: March 22, 2011 FISCAL B 7 7 1 DESCRIPTION Current law creates the California Alternative Energy and Advanced Transportation Financing Authority (CAEATFA) to provide bond financing for the development and commercialization of competitive advanced transportation technologies and facilities utilizing alternative methods and sources of energy. It is also authorized to approve a sales and use tax exemption on tangible personal property utilized for the design, manufacture, production, or assembly of advanced transportation technologies or alternative energy source products, components or systems. The sales and use tax exemption sunsets January 1, 2021. Current law defines, only for purpose of the CAEATFA, renewable energy to include fuel sources such as wind, solar and geothermal but also includes natural gas turbines and fuel cells. This bill expands the definition of renewable energy under CAEATFA to include landfill gas turbines, digester gas turbines, and microturbines. Current law defines eligible renewable resources for purposes of compliance with the Renewable Portfolio Standard and other renewable programs as those technologies that use specified fuel sources including digester and landfill gas. Current law requires the state's electrical utilities to develop a standard tariff (aka feed-in-tariff or FIT) to compensate a generator of eligible renewable resources up to a maximum of 3 megawatts (MW). This bill specifically categorizes as eligible under FIT "continuous clean renewable energy resources" which are defined as those technologies that utilize waste gases from landfills, digesters, or wastewater treatment facilities, produce electricity 8,000 hours a year, and have an emissions profile equivalent or better than the waste gas emission standards adopted by the State Air Resources Board that take effect on January 1, 2013. Current law creates the Emerging Renewables program which directs the California Energy Commission to fund incentives for small scale renewable technologies on the customer's side of the meter and includes wind and fuel cells. The program sunsets on January 1, 2012. This bill increases the size of projects eligible for the Emerging Renewables Program from 50 kW to 350 kW; exempts "continuous clean renewable energy resources" from the requirement that the resource offset the load on the customer's side of the meter and defines those resources as those that utilize waste gases from landfills, digesters, or wastewater treatment facilities, produce electricity 8,000 hours a year, and have an emissions profile equivalent or better than the waste gas emission standards adopted by the State Air Resources Board that take effect on January 1, 2013. BACKGROUND Feed-In-Tariff - These contracts present a simple mechanism for customers and generators who generate eligible renewable resources to sell power to a utility at predefined terms and conditions, without contract negotiations. The FIT operates as a "must take" contract in a utility's renewable portfolio. That is, if the power is generated the utility must take it at predefined terms and prices. The CPUC has implemented FITs for systems sized up to 1.5 MW and is in the process of implementing SB 32 (Negrete-McLeod, 2009) which expanded the eligible system size up to 3 MW for 10, 15, or 20 year contract periods. The program is a subset of the RPS program and relies on the same definition in law for eligible renewable resources. Emerging Renewables Program - The stated goal of this program is to foster the development of emerging renewable technologies and to use funds for a "multiyear, consumer-based program to foster the development of emerging renewable technologies in distributed applications" using "monetary rebates, buydowns, or equivalent incentives" to offset the costs of installing renewable generation on the customer's side of the meter. The program is funded from the Public Goods Charge a portion of which is directed to the Renewable Resources Trust Fund (RRTF). Approximately $51 million from the RRTF is allocated to the Emerging Renewables program each year which is administered by the California Energy Commission and now funds wind technologies on the customer's side of the meter. The Emerging Renewables program and its funding source, the RRTF, sunset January 1, 2012. The New Solar Homes Partnership (NSHP), a subset of the California Solar Initiative, which has a goal of installing 360 MW of solar photovoltaic on newly constructed homes, is also funded from the RRTF. California Alternative Energy and Advanced Transportation Financing Authority - CAEATFA was created in 1980 with an authorization of $200 million in revenue bonds to finance projects utilizing alternative sources of energy, such as cogeneration, wind and geothermal power. It was renamed in 1994 as currently titled and its charge expanded to include the financing of "advanced transportation" technologies. During the energy crisis of 2001, its authority was again expanded, this time to provide financial assistance to public power entities, independent generators, and others for new and renewable energy sources, and to develop clean distributed generation. CAEATFA's authority is broad but in practice it has not been utilized until recently. The State Treasurer has tried to reinvigorate the authority and has launched a sales and use tax exemption program to stimulate green manufacturing as authorized by SB 71 (Padilla, 2010). COMMENTS 1. Author's Purpose . The author cites a problem with renewable programs and opines that as new technologies evolve the renewable programs are not keeping pace leaving some technologies that serve renewable goals ineligible for specified programs particularly those that the author categorizes as "clean continuous renewable energy technologies." 2. Apples & Oranges . The foundation of the RPS and other programs that promote the use of non-fossil fuels is the fuel source used to generate the renewable electricity. The specific technology is secondary and not generally specified in statute. For instance, landfill and digester gases are eligible resources but the turbines that use the gas are not specified. A critical reason that the technology is not usually specified is because some, such as microturbines, can use renewable or fossil fuels to create electricity. Additionally, technologies that use these fuel sources do change and there are many. It is not necessary to call out a specific technology in statute for which the fuel source is already an eligible renewable resource for purposes of the RPS program. 3. Feed-in-Tariff . Several programs are created in statute and specifically rely on the RPS definition of eligible renewable resources to define program eligibility. One such program is the FIT program which relies on the RPS definition for the fuel sources eligible for the pricing contract established. This bill deviates from the standard definition of eligible renewable resources and calls out one technology, made by one company, which operates at specified capacity and emissions levels, to be eligible for the FIT. By specifying this technology in the FIT, would that mean that the technology and its fuel source are no longer RPS eligible? Moreover, by including specified capacity and emissions levels for landfill and waste gas under the FIT, the bill may be interpreted to eliminate other technologies that use the same fuel sources and are already eligible under the program. The technology defined in this bill is already RPS eligible based on the fuel it uses (landfill or digester gas) and therefore already eligible for the FIT, in fact the company sponsoring this bill currently has four RPS power purchase agreements contracts with Southern California Edison. The author and committee may wish to consider eliminating this section of the bill because the purpose of calling out one technology in the FIT is not clear, is unnecessary, and could obfuscate the definition of eligible renewable resource under the RPS program. 4. Emerging Renewable Resources Program . In practice this program currently funds small scale technologies using one fuel source - wind - that are below 30 kW and used to offset a customer's load also referred as being on the customer's side of the meter. The Emerging Renewables program sunsets at the end of this year and, based on testimony heard by the committee at its March 29th hearing on the Public Goods Charge, the program has outlived its utility. The committee also heard that the program, which draws from the same fund as the NSHP, may lack sufficient funding to meet current and pending legislative mandates. In effect this bill would make one technology, sized up to 350 kW and beyond the scope of the program, eligible for a subsidy for a generation technology that will not go on the customer's side of the meter as required by the current program that will also sunset simultaneously with the effective date of the bill. This provision of the bill is inconsistent with the intent of the program and also subsidizes a technology that is already RPS eligible for a company that has four power purchase agreements with an electric utility. The foundation of generation procurement for electrical generation - renewable or otherwise - is competitive bidding. There are no direct external subsidies at the state level for RPS technologies or any other generation contacts.<1> Moreover, the bill includes specific emissions and capacity standards that it does not appear any other technology can meet and therefore appears to only benefit one company to the exclusion of all other technologies that use the same fuel source, are currently RPS eligible, but may not be able to meet an emissions standard set by CARB that doesn't take affect for two more years and is not applicable to local air quality districts unless specifically adopted by ------------------------- <1> Biomass and solar thermal facilities with contracts that predate 1996 do receive a subsidy under the Existing Renewables Program the authorization for which will expire January 1, 2010. those districts. The author and committee may wish to consider striking this provision because this program sunsets and the defined technology is not consistent with the purpose of the Emerging Renewables program. 5. Double Referral . Should this bill be approved by the committee, it should be re-referred to the Senate Committee on Environmental Quality for its consideration. POSITIONS Sponsor: Clean Power Campaign Support: Flex Energy, Inc. Humboldt Waste Management Authority Oppose: None on file Kellie Smith SB 771 Analysis Hearing Date: April 5, 2011