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
                                                                        
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                                      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