BILL ANALYSIS Ó
AB 674
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Date of Hearing: April 13, 2015
ASSEMBLY COMMITTEE ON UTILITIES AND COMMERCE
Anthony Rendon, Chair
AB 674
Mullin - As Amended April 6, 2015
SUBJECT: Electricity: distributed generation
SUMMARY: AB 674 establishes a definition of a "clean
distributed energy resource," and exempts those customers who
use a clean distributed energy resource from nonbypassable
charges for electricity generated on site. Specifically, this
bill:
a)Creates a definition for a "clean distributed energy resource"
that:
1) Produces carbon dioxide (CO2) emissions less than
the emissions of CO2 from a marginal generating unit
dispatched to meet the demand on the electric grid that
is avoided by the electricity generated by the clean
distributed energy resource, including accounting for
waste heat recovery where applicable and savings on
transmission and distribution losses.
2) Is sized to meet the electrical demand of, or use
the available waste heat of the customer that will be
served by the generating facility.
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3) Has an oxide of nitrogen (NOx) emissions rate,
including credit for waste heat recovery, when
applicable, that is less than or equal to 0.07 pounds per
megawatthour, or a lower NOx emissions rate that the
State Air Resources Board determines reflects the best
performance achieved in practice by existing electrical
generation technologies.
4) Uses an eligible renewable energy resource as
defined by the Renewable Portfolio Standard.
5) Is sized no larger than 20 megawatts (MW).
b)Requires the California Energy Commission (CEC) is to make the
determination of CO2 emissions for clean distributed energy
resources by January 1, 2016.
c) Requires the California Public Utilities Commission (CPUC) to
order electrical corporations to modify rate plans for those
customers who use clean distributed energy resources so that:
1) Nonbypassable charges are based on actual metered
consumption of electricity delivered to the customer
through the electrical corporation's transmission or
distribution system. All other charges are to be
assessed at the same rate as other customers who do not
use clean distributed energy resources.
2) Initial reservation capacity based on a minimum of
12 months of the clean distributed energy resource
generation technology's historical operation, the number,
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size, and outage diversity of the clean distributed
energy resource, and the annual average reduction of
customer load that could occur during an outage.
3) Electrical corporations are allowed to:
i. Adjust customer standby demand charges
after an initial 12-month period to reflect the
customer's actual standby demand, averaged over the
previous 12 months.
ii. Modify the reservation capacity once
every 12 months to reflect the customer's actual
average annual reservation capacity based on the
same criteria used to establish the initial
reservation capacity.
4) Calculation of actual average annual reservation
capacity excludes the customer's electrical demand served
by the electrical corporation within 24 hours following
an outage of the clean distributed energy resource
resulting from any event on the electrical corporation's
transmission or distribution grid that is outside of the
customer's control that requires the customer to reduce
onsite generation.
d)Requires the CEC to provide a report to the Legislature on the
impacts of these provisions, including the impacts on avoided
transmission and distribution costs, avoided energy losses,
wholesale electricity market prices, electricity costs to
ratepayers, air quality, emissions of greenhouse gases, job
creation, energy reliability, and the extent to which the
incentives contribute to achieving the state's distributed
generation and combined heat and power goals.
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EXISTING LAW:
1)Defines cogeneration as the sequential use of energy for the
production of electrical and useful thermal energy, and
specifies that at least 5 percent of the facility's total
annual energy output shall be in the form of useful thermal
energy and where useful thermal energy follows power
production, the useful annual power output plus one-half the
useful annual thermal energy output equals not less than 42.5
percent of any natural gas and oil energy input. (Public
Utilities Code 216.6)
2)Provides that the cost of the competition transition charge
exemptions granted to members of the combined class of
customers, other than residential and small commercial
customers, shall be recovered only from those customers.
(Public Utilities Code 330)
5)Requires the CPUC to separate distribution cost recovery,
taking into account actual costs and benefits of distributed
energy resources, proportional to each class resulting in
tariff modifications granted to members of each customer class
may be recovered only from that class. (Public Utilities Code
353.13)
6)Authorizes allocation of costs for procurement contracts
entered into to meet local capacity needs and resource
adequacy. (Public Utilities Code 365.1)
7)Provides that each retail end-use customer should bear a fair
share of power purchase costs by the Department of Water
Resources, as well as power purchase contract obligations
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incurred as of January 1, 2003, and to prevent any shifting of
recoverable costs between customers. (Public Utilities Code
366.1(d)(1)
8)Established nonbypassable costs to be paid by all ratepayers:
Requires that the cost of divesting generation related assets,
nuclear settlements, and power purchase contracts that were
part of rates approved by the Public Utilities Commission as
of December 20, 1995, are to be recovered from all customers
on a nonbypassable basis, amortized over a reasonable period
of time. (Public Utilities Code 367)
9)Provides authorization for cost recovery through rates for
specified expenditures by electrical corporations prior to
1998. (Public Utilities Code 368)
10)Provides that nonbypassable charges will be applied to each
customer based on the amount of electricity purchased by the
customer from an electrical corporation or alternate supplier
of electricity, subject to changes in usage. (Public
Utilities Code 371(a)
11)Defines "change in usage" to generally mean changes occurring
in the normal course of business resulting from changes in
business cycles, termination of operations, departure from the
utility service territory, weather, reduced production,
modifications to production equipment or operations, changes
in production or manufacturing processes. (Public Utilities
Code 371(b)
12)Exempts fuel cell facilities and replacement of existing
cogeneration facilities from nonbypassable charges by
including them within the definition of change in usage.
(Public Utilities Code 371(b)
13)Exempts specified cogeneration facilities placed in service
or committed to construction prior to December 20, 1995, from
specified nonbypassable charges. (Public Utilities Code 374)
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14)Provides the following exemptions from nonbypassable charges
and provides that the costs of these exemptions be borne by
all ratepayers in the affected service area:
a) 110 megawatts of cogeneration serving irrigation
districts served by electrical corporations with specific
allocations to Merced Irrigation District and Castle Air
Force Base.
b) Irrigation districts, joint power authorities, and
publicly owned utility districts that were owned prior to
December 20, 1995.
c) A federal power marketing agency that existed as of
January 1, 1996, or its successor, from nonbypassable
charges.
d) A portion of the load at the University of California
campus in Yolo County not served by power from a federal
marketing agency, provided that the power is used for the
facility load and not directly or indirectly for sale.
(Public Utilities Code 374)
1)Requires the PUC to approve distributed generation resource
plans filed by electrical corporations no later than July 1,
2015. (Public Utilities Code 769)
2)Provides authorization for cost recovery to accommodate
implementation of direct access (Public Utilities Code 376)
3)Provides incentives for self-generation, including,
cogeneration technologies that meet specified performance and
emission requirements. (Public Utilities Code 379.6)
4)Specifies that "advanced electrical distribution generation
technologies" meet emission standards adopted by the State Air
Resources Control Board (ARB), produce de minimis emissions of
sulfur oxides and nitrogen oxides, meet greenhouse gas
emission performance standards, have a minimum efficiency of
45%, and is sized to meet onsite demand, uses renewable or
nonrenewable fuel. (Public Utilities Code 379.8(a)
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5)Provides that advanced electrical distribution technologies
qualify to pay the same rate for gas as that is no higher than
the rate paid for gas used in an electric plant located in the
same service area of an electric corporation and allows for
treatment of these technologies as cogeneration. (Public
Utilities Code 379.8 (b))
6)Provides that the CPUC must establish rates using cost
allocation principles that fairly and reasonably assign to
different customer classes the costs of providing service to
those customer classes, consistent with the policies of
affordability and conservation. (Public Utilities Code 739.6)
7)Provides that the surcharge assessed for natural gas used to
generate electricity by a nonutility facility must be the same
as the surcharge assessed for gas used to generate electricity
by the electric utility for that quantity of gas used to
generate electricity. Prohibits surcharges for electricity
for the sale of electricity from a cogeneration or nonutility
facility to an entity for resale to a retail customer.
(Public Utilities Code 6352)
FISCAL EFFECT: Unknown.
COMMENTS:
1)Author's Statement. "California is a leader in clean energy
policy, with ambitious goals to improve air quality,
efficiency, reliability, and the economy. Clean onsite
distributed generation of electricity ("DG") is valuable as an
alternative to traditional centralized power plants. With
California's energy demand expected to double by 2050,
deployment of distributed generation technologies is an
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important piece of meeting the State's energy, climate, and
public health goals."
"Unfortunately, customers who choose to invest their own
capital to install clean DG technologies must pay a number of
utility-imposed fees on the electricity they generate and
consume onsite. These charges are equivalent to accessing an
additional 75 to 100% sales tax on clean DG equipment. The
fees make the installation of clean DG prohibitively expensive
and economically infeasible for residential, commercial, and
industrial customers in California."
"This bill would require customers with clean onsite
generation technologies to pay all applicable utility imposed
fees based only on electricity purchased from the grid. They
will continue to pay standby charges for transmission,
distribution, and grid maintenance, and they will continue to
pay commodity costs for the electricity they use. This policy
will enable more customers to invest their own capital to
purchase clean, onsite electricity generation technologies
that improve air quality, reduce energy costs for all
ratepayers, improve energy reliability, and reduce
California's reliance on centralized, fossil-fueled power
plants."
2)Legislative ratemaking. AB 674 would require the CPUC to
order electric corporations to modify rate plans so that users
of these technologies would be exempted from contributing,
through rates, for costs that the Legislature has previously
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required all ratepayers to pay. These charges are used to
support low income electric customers and to support energy
efficiency; renewable energy; self-generation; as well as
research, development and demonstration programs. In
addition, these charges are used to pay for costs associated
with the electricity crisis in the early 2000s.
Providing exemptions for a variety of good purposes has led to
many debates in the Legislature about cost-shifting and
whether one group of customer is or is not paying their fair
share of the cost of maintaining a safe, reliable, and
affordable electricity system.
Similarly, it is unclear the extent to which the exemptions
proposed in AB 674 will increase bills for other customers.
Current law limits cost recovery within a class of customers,
in this case, most likely commercial customers. Within
commercial customers are small and large business, schools,
and municipal government. It is unclear whether those
increases will create financial hardships for those customers.
The author may wish to amend the bill to require that, before
authorizing changes to rate plans for customers who use clean
distributed energy resources, the PUC shall make a finding
that the impact will not create a shift in costs to other
customers of an electrical corporation that are not offset by
a commensurate benefit to those other customers.
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3)Isn't the CPUC already doing this? AB 327, enacted in 2013,
requires electrical corporations by July 1, 2015, to submit to
the CPUC a distribution resources plan proposal to identify
optimal locations for the deployment of distributed resources.
The statute requires the CPUC to review each distribution
resources plan proposal submitted by an electrical corporation
and approve, or modify and approve, a distribution resources
plan for the corporation. The bill requires that any
electrical corporation spending on distribution infrastructure
necessary to accomplish the distribution resources plan be
proposed and considered as part of the next general rate case
for the corporation.
It is unclear why this new distributed generation program is
needed or how it would work with the distributed generation
plans that the CPUC will ultimately approve.
In addition, the CPUC authorized a pilot program exempting
bottoming-cycle combined heat and power (CHP) from
nonbypassable charges in October 14.<1> The CPUC's decision
granting this program did not make a determination on whether
or not CHP can be characterized as energy efficiency. The
pilot program could be expanded by the CPUC pending the
outcome of the pilot.
4)Reliability of Clean Distributed Energy Resources. The author
opines that existing and new technologies could become more
prevalent should AB 674 become law. According to the findings
and declarations, "clean onsite generation of electricity
yields multiple benefits, including increased electrical
---------------------------
<1>
http://docs.cpuc.ca.gov/PublishedDocs/Published/G000/M129/K228/12
9228024.pdf
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reliability and efficiency, reduced emissions of greenhouse
gases and oxides of nitrogen (NOx), and electrical grid
resiliency."
California currently provides incentives for these and similar
technologies, primarily through the Self-Generation Incentive
Program (SGIP). SGIP was established in 2000 and continues to
provide incentives as a result of statutory extensions. SGIP
was recently extended by the Legislature with some
modifications to address concerns over performance, emissions,
and achieving ratepayer benefits.
As a result of recent evaluations of the SGIP program, a
number of deficiencies in the reliability of self-generation
have been revealed. For example, a CPUC investigation<2> on
combined heat and power (CHP) performance in 2010 found that
CHP projects experienced increased time spent not operating,
reductions in output when operating, and decreases in
electrical efficiency and thermal heat recovery over time.
The investigation further found that unexpected levels of
maintenance and economic complexity have dampened participant
satisfaction. It is unclear whether the current reliability
of SGIP projects are the same, better, or worse than what was
reported in 2010. The 2012 SGIP evaluation report could not
find operational information on 26% of the projects and
another 22% of the projects either were decommissioned or
offline.
--------------------------
<2>
SGIP Incentive Program, Combined Heat and Power Performance
Investigati"
http://www.cpuc.ca.gov/NR/rdonlyres/594FEE2F-B37A-4F9D-B04A-B38A4
DFBF689/0/SGIP_CHP_Performance_Investigation_FINAL_2010_04_01.pdf
, April 2010
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In addition, it is important to understand that the economics
of operating a self-generation facility using natural gas.
The difference between the cost of a purchased kilowatt-hour
(kWh) of electricity and the cost of natural gas to generate a
kWh is known as spark spread. With a high spark spread,
system owners may lower their overall costs by buying natural
gas to run their systems. When spark spread is low, owners
may decide to curtail operation of the system and instead
purchase electricity from the utility to meet electrical
demands and natural gas to meet on-site thermal energy needs.
While this is understandable and smart from a business
perspective, the operator's decision not to operate based on
spark spread may cause increased load on the electric grid
when gas prices are higher and thereby increase energy costs
for ratepayers who are not participating in the program.
The author may wish to specify a minimum reliability
requirement to ensure that the benefits to the electricity
system are realized and require performance reporting to the
CPUC verify that facilities are providing benefits consistent
with the statute.
5)Location.
As written, AB 674 would provide exemptions for projects
located where vendors and customers want them, which is not
necessarily where they could provide ratepayer benefits, i.e.,
where there is high peak demand coincident with the project's
ability to reduce the sites need for electricity from the
grid, relieve transmission congestion, or other ratepayer
benefits.
The author may wish to specify that the PUC shall establish
requirements that the clean distributed energy resources be
located in areas where there are benefits to the transmission
and distribution system.
6)Definition of Clean Distributed Energy Resource. In other
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code sections distributed energy resources have similar
definitions which may be "cleaner" than the definition of the
clean resource proposed in AB 674. For example, Public
Utilities Code 379.8 defines "advanced electrical distribution
technology" as one that produces de minimis emissions of
sulfur oxides and nitrogen oxides. AB 674 defines clean
distributed energy resources as having "oxide of nitrogen
(NOx) emissions rate, including credit for waste heat
recovery, when applicable, that is less than or equal to 0.07
pounds per megawatthour, or a lower NOx emissions rate that
the State Air Resources Board determines reflects the best
performance achieved in practice by existing electrical
generation technologies." AB 674 does not specify a limit of
sulfur oxide emissions.
Similarly, the limitation on GHG emissions is different from
what is specified in Section 379.6 of the Public Resources
Code for the self-generation incentive program (SGIP). SGIP
statute limits the GHG emission factor to a level that is
determined by the CPUC, in consultation with ARB that will
result in GHG emission reductions. Conversely, AB 674
specifies that allowed GHG emissions are less than the
emissions of CO2 from a marginal generating unit dispatched to
meet the demand on the electric grid that is avoided by the
electricity generated by the clean distributed energy
resource.
It is not clear why there is a need to have inconsistent
definitions of distributed energy resources in the statute.
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It is also not clear what technologies would be considered
clean in these definitions.
The author may wish to consider an amendment which specifies a
definition of clean distributed energy resources that is
cleaner than other definitions of distributed energy resource
that are already in statute with respect to GHG emissions,
nitrous oxide emissions, and sulfur oxide emissions.
7)Additional amendments.
AB 674 includes new language in proposed 354 (c) (1)(I) which
states, "The extent to which the incentives provided pursuant
to this section contribute to achieving the state's
distributed generation and combined heat and power goals."
Currently, there is no statutory requirement for the state to
meet distributed generation and combined heat and power goals.
Measures have been introduced to implement goals made in the
Governor's 2015 Inaugural address, which included goals for
increased use of distributed energy resources to meet
California climate goals.
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The author may wish to consider striking this paragraph.
AB 674 uses the phrase "reservation capacity" in Sections
354(b) (2)(A), (B), (C).
The author may wish to consider changing this to "reserve
capacity" to reflect typical nomenclature in rate plans.
8)Prior Legislation.
2013: AB 327 (Perea) requires electrical corporations to
submit plans for deploying distributed energy resources and
for the PUC to approve those plans. Chaptered.
2013: AB 427 (Mullin) would exempt bottoming cycle combined
heat and power from DLCs. Failed in Assembly Utilities and
Commerce Committee.
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2014: AB 365 (Mullin) proposed finding and declarations
related to clean onsite generation and nonbypassable charges.
Failed in the Senate.
2014: AB 2441 (Mullin) would create a pilot program to exempt
up to 500 MW of "clean on-site generation" (as defined) from
departing load charges. Failed in the Senate.
2014: AB 2649 (Mullin) would specify that departing load
charges applied to military facilities would be calculated
based on generation delivered through the meter to the
military facility. Failed in the Senate.
9)Suggested Amendments.
354. (a) As used in this section, "clean distributed energy
resource" means a facility that is located on the customer's
premises and generates electricity, or electricity and useful
heat, where the electricity generated is used for a purpose
described in paragraph (1) or (2) of subdivision (b) of
Section 218, and that meets either of the following
requirements:
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(1) It meets all of the following criteria:
(A) Produces emission of carbon dioxide (CO2) at a rate per
megawatthour, accounting for waste heat recovery, where
applicable, and savings on transmission and distribution
losses, that is less than the emissions of CO2 from the
marginal generating unit dispatched to meet the demand on the
electrical grid that is avoided by the electricity generated
by the clean distributed energy resource, as determined by the
Energy Commission as of January 30, 2016. Produces greenhouse
gas emission that are less than that which is determined by
the commission pursuant to Section 379.6(b)(2).
(B) Has an oxide of nitrogen (NOx) emissions rate, including
credit for waste heat recovery, when applicable, that is less
than or equal to 0.07 pounds per megawatthour, or a lower NOx
emissions rate that the State Air Resources Board determines
reflects the best performance achieved in practice by existing
electrical generation technologies pursuant to Section 41514.9
of the Health and Safety Code. Produces nitrous oxide and
sulfur dioxide emissions that are less than allowed for
advanced distributed energy resources as specified in Section
379.8.
(C) Has a nameplate rated generation capacity of 20 megawatts
or less.
(D) Is sized to meet the electrical demand of, or use the
available waste heat of, the customer that will be served by
the generating facility.
(2) It is an "eligible renewable energy resource" pursuant to
the California Renewables Portfolio Standard Program (Article
16 (commencing with Section 399.11)), has a nameplate rated
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generation capacity of 20 megawatts or less, is sized to meet
the electrical demand of the customer that will be served by
the generating facility, and will not otherwise be addressed
in the commission's implementation of Section 769 or 2827.1.
(b) To the extent authorized by federal law, by July 1, 2016,
the commission shall require each electrical corporation to do
the following for customers served by clean distributed energy
resources installed after January 1, 2016 the commission
analyzes rate impacts and make a finding that the impact will
not create a shift in costs to other customers of an
electrical corporation that are not offset by a commensurate
benefit to those other customers, specifies a minimum
reliability requirement to ensure that benefits to the
electricity system are realized, and specifies optimal
location requirements:
(1) Collect all applicable nonbypassable charges fixed,
implemented, administered, or imposed by the commission based
only on the actual metered consumption of electricity
delivered to the customer through the electrical corporation's
transmission or distribution system. All charges shall be at
the same rate per kilowatthour as paid by other customers that
do not employ a clean distributed energy resource under the
electrical corporation's applicable rate schedule.
(2) (A) Calculate a reservation reserve capacity for standby
service, if applicable, based on the capacity needed by an
electrical corporation to serve a customer's electrical demand
during an outage of the clean distributed energy resource
providing electric service for that customer.
(B) Initial reservation reserve capacity shall be established
by the customer for a minimum of 12 months based on the clean
distributed energy resource generation technology's historical
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operation, the number, size, and outage diversity of the clean
distributed energy resource, and the annual average reduction
of customer load that could occur during an outage.
(C) If after the initial 12-month period, the electrical
corporation reasonably determines that the reservation reserve
capacity does not reflect the customer's actual standby demand
averaged over the previous 12 months, the electrical
corporation shall modify the reservation reserve capacity once
every 12 months to reflect the customer's actual average
annual reservation reserve capacity based on the same criteria
used to establish the initial reservation reserve capacity.
Calculation of actual average annual reservation reserve
capacity shall exclude the customer's electrical demand served
by the electrical corporation within 24 hours following an
outage of the clean distributed energy resource resulting from
any event on the electrical corporation's transmission or
distribution grid that is outside of the customer's control
that requires the customer to reduce onsite generation.
(c) The commission shall specify a minimum reliability
requirement to ensure that the benefits to the electricity
system are realized and require performance reporting by
customers to verify that facilities are providing benefits
consistent with the statute.
(d) (1) By July 1, 2021, the Energy Commission, in
consultation with the commission, shall report on the impacts
of this section to the Legislature and the relevant policy
committees of the Legislature in regard to all of the
following:
(A) Avoided transmission and distribution costs.
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(B) Avoided energy losses.
(C) Wholesale electricity market prices.
(D) Electricity costs to ratepayers.
(E) Air quality.
(F) Emissions of greenhouse gases.
(G) Job creation.
(H) Energy reliability.
(I) The extent to which the incentives provided pursuant to
this section contribute to achieving the state's distributed
generation and combined heat and power goals.
(2) The report to be submitted to the Legislature pursuant to
this subdivision shall be submitted in compliance with Section
9795 of the Government Code.
(3) The requirement for submitting a report pursuant to this
subdivision is inoperative on July 1, 2025, pursuant to
Section 10231.5 of the Government Code.
10)Support and Opposition.
According to supporters, AB 674 "removes utility-imposed fees
charged to customers of clean distributed generation for
energy generated and consumed on-site, and instead requires
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them to pay all applicable fees based only on electricity
purchased from a utility through the grid."
The California Manufacturers and Technology Association
supports AB 674 if amended to provide include customers who
installed clean distributed energy resources prior to January
1, 2016.
According to the Office of Ratepayer advocates, AB 674,
"?would unfairly burden other utility customers with paying
for the resulting revenue shortfall. It would also set a
precedent for other customers groups to seek similar
exemptions to nonbypassable charges."
PG&E opposes AB 674 because it increases rates for some
customers for the benefit of others and raise concerns about
the definition of clean generation.
SDG&E opposes AB 674 on the basis that this is legislative
mandates on rate design and restrict the CPUC from setting
rates and would allow power that is not as clean as
utility-provided electricity to qualify for the exemption. SCE
raises a similar concern that the type of generation that
would receive an exemption from charges would not be as clean
as utility-provided electricity.
REGISTERED SUPPORT / OPPOSITION:
Support
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Bloom Energy
California Large Energy Consumers Association
California Manufacturers & Technology Association (if amended)
Capstone Turbine Corporation
Caterpillar Inc.
Doosan Corporation
DE Solutions, Inc.
EtaGen Inc.
Peterson CAT
Qualcomm
TechNet
Western Energy Systems
Opposition
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California Coalition of Utility Employees (CCUE)
California State Association of Electrical Workers Office of
Ratepayer Advocates
Pacific Gas & Electric
San Diego Gas & Electric
Southern California Edison
Analysis Prepared by:Sue Kateley / U. & C. / (916) 319-2083