BILL ANALYSIS                                                                                                                                                                                                    



                                                                AB 796
                                                                Page  1

        CONCURRENCE IN SENATE AMENDMENTS
        AB 796 (Muratsuchi)
        As Amended  August 26, 2013
        2/3 vote.  Urgency
         
         ---------------------------------------------------------------------- 
        |ASSEMBLY: |     |(May 23, 2013)  |SENATE: |38-0 |(September 6, 2013)  |
         ---------------------------------------------------------------------- 
                               (vote not relevant)


         ------------------------------------------------------------------------ 
        |COMMITTEE VOTE:  |14-0 |(September 11,      |RECOMMENDATION: |concur    |
        |(U. & C.)        |     |2013)               |                |          |
         ------------------------------------------------------------------------ 

        Original Committee Reference:    U. & C.  

         SUMMARY  :  Requires the California Energy Commission (CEC) to  
        consider the effects of sea level rise on the proposed site and  
        related facility during the certification process.

         The Senate amendments  delete the Assembly version of this bill, and  
        instead extend eligibility for cogeneration natural gas rates to  
        fuel cells that become operational before January 1, 2016. 

         EXISTING LAW  extends eligibility for a specified natural gas rate  
        to qualified fuel cells generation facilities that become  
        operational before January 1, 2014.  (Public Utilities Code Section  
        379.8)

         FISCAL EFFECT  :  Unknown

         COMMENTS  :

         1)Background  . Current law requires that gas corporations provide a  
          rate for natural gas purchases for customers who operate a fuel  
          cell for on-site electricity generation if that fuel cell meets  
          certain criteria related to greenhouse gas and pollution  
          emissions. The rate is the same rate that merchant natural gas  
          generation facilities and cogeneration facilities receive.

         2)Should fuel cells receive this rate  ?  The Legislature mandated  
          (AB 1110 ( Fuentes), Chapter 508, Statutes of 2009) that certain  
          fuel cell models be eligible for natural gas at rates available  








                                                                AB 796
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          to cogeneration and electrical generation facilities. The  
          original argument to allow fuel cells to qualify for this gas  
          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). The original intent 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.

          Specifically, utility customers that purchase CHP fuel cell  
          models receive the benefit of this gas rate, but these same rates  
          were not offered to customers with non-CHP fuel cells.  By  
          qualifying the non-CHP fuel cells for the same rate, the playing  
          field was leveled.  

         3)Fuel cell emissions  .  This bill primarily impacts stationary fuel  
          cell technologies that generate power for large institutions or  
          facilities and use natural gas for fuel.  In comparison to  
          natural gas plants, fuel cells generate lower amounts of criteria  
          pollutants including nitrogen oxides (NOx), sulfur oxides (SOx),  
          and particulate matter.  However, all fuel cells that run on  
          natural gas continue to produce carbon dioxide (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  
          emissions.

          Fuel cells customers are eligible for a ratepayer funded  
          incentive called the Self Generation Incentive Program (SGIP).   
          The incentive is a maximum of $2.25 per watt of capacity.  One  
          fuel cell manufacturer has benefitted from approximately $250  
          million in incentives through this program since 2009.

          Fuel cell technologies that use natural gas generate CO2  
          emissions.  Depending on the efficiency of the fuel cell  
          technology, there can be emission reductions due to direct  
          displacement of grid based electricity, displacement of natural  
          gas burned in boilers, or by using recovered waste heat to run  
          chillers for cooling (thereby reducing electricity that would  
          otherwise have been provided from the electricity grid).  Some  
          fuel cells are electric only and do not capture waste heat for  
          other uses.

          The California Public Utilities Commission (PUC) published an  








                                                                AB 796
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          analysis of SGIP and found that electric-only fuel cells were the  
          only non-renewable technology that had a net-reducing effect on  
          GHG emissions for the SGIP in 2011, shown by a negative value in  
          the chart below (excerpted from the PUC's analysis).  Note that  
          this analysis is based on the SGIP program before it was amended  
          to focus on GHG reduction characteristics (SB 412 (Kehoe),  
          Chapter 182, Statutes of 2009).


           ------------------------------------------------------------- 
          |   Type   |  SGIP  | Baseline Emissions (Metric Tons |  GHG  |
          |          |Emission|        of CO2 per Year)         |Emissio|
          |          |   s    |                                 |  ns   |
          |          |(Metric |                                 |Impact |
          |          |Tons of |                                 |(Metric|
          |          |CO2 per |                                 |  Tons |
          |          | Year)  |                                 |of CO2 |
          |          |   A    |                                 |  per  |
          |          |        |                                 | Year) |
          |          |        |                                 | F=A-E |
          |          |        |                                 |       |
           ------------------------------------------------------------- 
          |----------+--------+--------+-------+-------+--------+-------|
          |          |        |Electric|Heating|Cooling| Total  |       |
          |          |        |  Power |       |       |Baseline|       |
          |          |        | Plant  |Service|Service|        |       |
          |          |        |   B    |   s   |   s   |E=B+C+D |       |
          |          |        |        |   C   |   D   |        |       |
          |----------+--------+--------+-------+-------+--------+-------|
          |FC - CHP  | 23,522 | 20,126 | 2,487 |  32   | 22,645 |  877  |
          |----------+--------+--------+-------+-------+--------+-------|
          |FC -      | 7,561  | 7,811  |   0   |   0   | 7,811  | -250  |
          |Elec.     |        |        |       |       |        |       |
          |----------+--------+--------+-------+-------+--------+-------|
          |FC - PEM  |  656   |  529   |  67   |   0   |  596   |  61   |
          |----------+--------+--------+-------+-------+--------+-------|
          |GT        |111,071 | 78,780 |12,218 | 2,002 | 93,000 |18,071 |
          |----------+--------+--------+-------+-------+--------+-------|
          |ICE       |157,237 |109,878 |33,038 | 2,861 |145,778 |11,459 |
          |----------+--------+--------+-------+-------+--------+-------|
          |MT        | 58,447 | 29,949 | 9,430 |  529  | 39,908 |18,539 |
          |----------+--------+--------+-------+-------+--------+-------|
          |Total     |358,495 |247,073 |57,240 | 5,425 |309,738 |48,756 |
          |          |        |        |       |       |        |       |
           ------------------------------------------------------------- 








                                                                AB 796
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          The current SGIP program requires that a product or a technology  
          must produce fewer GHG emissions than it avoids from the grid.   
          As California's electricity resource mix adds more renewable  
          generation it is likely that the baseline emissions shown above  
          will be lower, which may make it more difficult for fuel cell  
          technologies to achieve net GHG reductions.

         4)Is there a cost-shift ?  PG&E estimates that approximately $4  
          million per year is shifted to other ratepayers as a result of  
          providing this rate to fuel cell facilities.

          In addition to this discount on natural gas purchases, fuel cell  
          facilities are eligible for net metering credits as a result of  
          their electricity generation.  A report on the costs and benefits  
          of net energy metering is due by October 1, 2013, from the Public  
          Utilities Commission.

         5)Additional support for fuel cells .  In addition to the natural  
          gas rate and the net metering credits, fuel cells customers are  
          also exempted from responsibility to contribute to "nonbypassable  
          charges."  Nonbypassable charges include contributions to support  
          discounts for low income customers and incentives for customers  
          who make certain energy efficiency expenditures or acquire fuel  
          cells or renewable energy facilities. 

         6)Future extension of this statute should review total incentives  
          for this technology  .  If this statute is later proposed to be  
          extended, the Legislature should review the total incentives made  
          available and whether the statute has achieved its desired  
          results with respect to cost reductions and competitiveness in  
          the market for this technology.


         Analysis Prepared by  :    Susan Kateley / U. & C. / (916) 319-2083


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