BILL ANALYSIS                                                                                                                                                                                                              1

                                 ALEX PADILLA, CHAIR

          AB 796 -  Muratsuchi                                   Hearing  
          Date:  August 30, 2013          A
          As Amended:              August 26, 2013          FISCAL/Urgency  

           Current law  mandates that every electrical corporation provide  
          for net energy metering for eligible fuel cell customers. The  
          tariff is available to customers until the cumulative rated  
          capacity of those receiving the tariff reaches its proportionate  
          share of 500 megawatts capacity based on the ratio of the  
          corporation's peak demand compared to the total statewide peak  
          demand. The California Public Utilities Commission (CPUC) may  
          raise the limitation in order to promote the growth of the fuel  
          cell market. (PUC 2827.10)

           Current law  defines "advanced electrical distributed generation  
          technology" (fuel cells) and establishes eligibility for the  
          same natural gas fuel rates as cogeneration technology. Only  
          facilities that are first operational at a site before January  
          1, 2014 qualify for the specified rates. (PUC 379.8) 

           This bill  extends eligibility for cogeneration natural gas rates  
          to fuel cells that become operational before January 1, 2016. 

          What is a Fuel Cell? - Fuel cells use an electrochemical  
          reaction to produce electricity from fuels such as hydrogen,  
          natural gas, or biogas. The majority of stationary fuel cells  
          that are currently deployed use natural gas. Unlike a typical  
          natural gas power plant, the fuel cell does not burn or combust  
          the gas in the process of producing electricity. This process  
          significantly reduces some the emissions of fuel cells compared  


          to combustion generation. The primary reductions occur for  
          nitrogen oxide (NOx) and sulfur oxide (SOx) compounds, which  
          contribute to acid rain, that are produced during the generation  
          of electricity. However, a fuel cell using natural gas continues  
          to produce carbon dioxide (CO2) as a waste product, which is a  
          greenhouse gas (GHG).

          Fuel Cells in PG&E Territory - The Legislature mandated (AB  
          1110, Fuentes, 2009) that certain fuel cell models be eligible  
          for natural gas at rates available to cogeneration and  
          electrical generation facilities. At that time the special rate  
          was offered by other gas utilities but not by Pacific Gas &  
          Electric (PG&E) which refers to this rate as the "G-EG" rate.  
          The original argument to allow fuel cells to qualify for the  
          G-EG rate was based on the reasoning that fuel cells are an  
          efficient method of electrical production, but certain models do  
          not qualify as cogeneration technologies, also known as  
          combined-heat-and-power (CHP). While CHP technologies recycle  
          the waste heat from the primary cycle in a secondary process to  
          provide heating for the facility, some fuel cells do not. These  
          non-CHP models of fuel cells recycle excess heat internally to  
          increase the efficiency of electricity production, but this does  
          not qualify as cogeneration since the excess heat is not used  
          for a separate heating purpose. 

          According to PG&E there are 69 individual customer fuel cell  
          units providing 35 megawatts (MW) of capacity within their  
          territory that benefit from the G-EG rate for natural gas. Most  
          of these customers use non-CHP fuel cell models produced by  
          Bloom Energy, who reports that the CO2 emission rates from their  
          fuel cells are 738-886 pounds (lbs) of CO2 per megawatt-hour  
          (MWh) of electricity produced. This is comparable to some of the  
          more modern and efficient natural gas plants. The Bloom Energy  
          models recycle excess heat internally, so do not qualify as  
          cogeneration. PG&E reports that these customers have received a  
          total annual natural gas subsidy of $4.7 million. Bloom Energy  
          has additional fuel cells outside of PG&E territory.

          Greenhouse Gas Emissions - An analysis from the National Fuel  
          Cell Research Center (NFCRC) at University of California, Irvine  


          found that fuel cells produce 980-1080 lbs CO2/MWh.<1> The fuel  
          cell emission rate can be compared to that of the average  
          natural gas-fired generator in California, which produces  
          960-980 lbs CO2/MWh, according to the NFCRC analysis. 

          Directed Biogas - The Legislature took steps to develop the  
          biogas market last year (AB 2196, Chesbro, 2012) and expand its  
          eligibility as a fuel source under the Renewables Portfolio  
          Standard. The bill clarified that biogas procured under  
          contracts for electrical generation on-site, off-site via a  
          dedicated pipeline, or off-site via a common carrier pipeline  
          that flows within the state or toward the generation site would  
          be eligible for RPS credit. Assembly Bill 1900 (Gatto, 2012)  
          further directed the CPUC to develop standards for biogas that  
          is injected into common carrier pipelines in order to ensure the  
          health and safety of the public and the pipelines. The CPUC was  
          also directed to adopt programs that promote the use of biogas  
          within the state. 

              1.   Author's Purpose  . Non-CHP fuel cell models that are  
               installed after the end of this year will no longer qualify  
               for the G-EG rate. The author argues the program has been  
               successful for customers using non-CHP fuel cells to  
               provide on-site electricity by reducing their fuel costs.  
               Therefore, the author argues that the program should be  
               extended to a January 1, 2016 sunset.  
               The original intention for the statute was to balance the  
               market for all models and manufacturers of fuel cells by  
               granting them all the same rates for natural gas, even  
               though some models do not operate in a CHP mode.  
               Specifically, utility customers that purchase CHP fuel cell  
               models receive the benefit of the G-EG rate, but these same  
               rates were not offered to customers with non-CHP fuel  
               cells. By qualifying the non-CHP fuel cells for the G-EG  
               rate, the playing field was leveled.  

          <1>Build-Up of Distributed Fuel Cell Value in California: 2011  
          Update, NFCRC, UC Irvine  


              2.   Are Fuel Cells Clean  ? This bill primarily impacts  
               stationary fuel cell technologies that generate power for  
               large institutions or facilities and use natural gas for  
               fuel.  (Fuel cells utilizing biogas are eligible under the  
               RPS program and not affected by this bill.) In comparison  
               to natural gas plants, fuel cells generate lower amounts of  
               criteria pollutants including NOx, SOx, and particulate  
               matter. However, all fuel cells that run on natural gas  
               continue to produce CO2 emissions at levels similar to a  
               natural gas plant. The benefits from an emissions  
               standpoint of non-CHP fuel cells are the de minimis NOx,  
               SOx, and particulate matter emissions, not the CO2  

               Many programs have been established to incent clean  
               generation and transportation technologies in an effort to  
               reach California's aggressive GHG reduction goals. The  
               special gas rate required under current law and extended by  
               this bill does not further those goals.  These fuel cells  
               have fewer criteria pollutants than natural gas combustion  
               generators, but do little to reduce the state's GHG  
               emissions. Additionally the Legislature has directed the  
               CPUC to take the steps necessary to develop a market for  
               biogas.  The incentive to utilize natural gas to power fuel  
               cells extended by this bill is not consistent with those  
               goals. Moreover, the cost shift to other ratepayers for the  
               incentive is reported by PG&E to be $4.7 million annually  
               for existing fuel cells. That number would grow under the  
               provisions of this bill.

                                    ASSEMBLY VOTES
          Previous votes are irrelevant, because this is a new bill.





           National Fuel Cell Research Center


           None on file

          Kyle Hiner 
          AB 796 Analysis
          Hearing Date:  August 30, 2013