BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                     AB 674


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          Date of Hearing:  April 27, 2015


                       ASSEMBLY COMMITTEE ON NATURAL RESOURCES


                                 Das Williams, Chair


          AB 674  
          (Mullin) - As Amended April 16, 2015


          SUBJECT:  Electricity:  distributed generation


          SUMMARY:  Exempts customer load served by "clean distributed  
          energy resources," as defined, from nonbypassable charges  
          imposed on investor-owned utility (IOU) customers, which fund  
          public purpose programs (including low-income assistance and  
          energy efficiency), energy crisis contracts, and nuclear  
          decommissioning costs.


          EXISTING LAW:  


          1)Requires every investor-owned utility (IOU) customer to pay  
            nonbypassable system benefits charges to fund programs  
            including rate assistance for low-income customers, energy  
            efficiency, and the Electric Program Investment Charge (EPIC).  
             Those charges also include the costs of bond repayments from  
            the energy crisis and nuclear decommissioning costs.

          2)Requires each IOU, not later than July 1, 2015, to submit to  
            the Public Utilities Commission (PUC) a distribution resources  
            plan proposal to identify optimal locations for the deployment  
            of distributed resources, including renewable generation  
            resources, energy efficiency, energy storage, electric  








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            vehicles, and demand response technologies.



          3)Requires the PUC to develop a standard contract or tariff,  
            which may include net energy metering (NEM), for eligible  
            customer-generators with a renewable electrical generation  
            facility that is a customer of a large IOU no later than  
            December 31, 2015.  NEM is generally limited to 1 megawatt  
            (MW).

          THIS BILL:


          1)Defines "clean distributed energy resource" as a generation  
            facility located on the customer site, up to 20 MW, sized to  
            meet the customer's electrical demand, and that either:


               a)     Uses non-renewable fuel (e.g., natural gas) and  
                 produces emissions of greenhouse gases (GHG) less than  
                 levels specified by the PUC for eligibility in the Self  
                 Generation Incentive Program and produces de minimis  
                 emissions of oxides of nitrogen (NOx) and sulfur oxides  
                 (SOx).


               b)     Is an eligible renewable energy resource pursuant to  
                 the Renewables Portfolio Standard (RPS) that will not  
                 otherwise be addressed in the PUC's implementation of a  
                 distribution resources plan or net energy metering.


          2)Requires the PUC, to the extent authorized by federal law and  
            by July 1, 2016, to require electrical corporations to modify  
            rate plans for those customers served by clean distributed  
            energy resources installed after January 1, 2016:










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               a)     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.


               b)     Initial reservation capacity based on a minimum of  
                 12 months of the clean distributed energy resource  
                 generation technology's historical 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)     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. 


               d)     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  








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                 onsite generation.


          3)Requires the California Energy Commission (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.
          FISCAL EFFECT:  Unknown


          COMMENTS:  


          1)Background.  IOUs are required to collect nonbypassable  
            charges to fund common system benefits and costs.  The largest  
            component of the charges affected by this bill is the public  
            purpose program charge, which funds state-mandated low-income  
            assistance, energy efficiency programs, and EPIC, which funds  
            energy technologies and research.  Smaller components are the  
            Department of Water Resources (DWR) bond charge, which  
            recovers the cost of bonds issued to finance power purchased  
            by DWR during the energy crisis, and nuclear decommissioning,  
            which provides for the funds required for site restoration  
            when the IOUs' nuclear power plants are removed from service.



            Some customer generation is exempt from nonbypassable charges  
            through existing programs, depending on the install date,  
            technology, and size.  For example, solar projects eligible  
            for NEM pay nonbypassable charges only on net consumption,  
            though NEM is only applicable up to 1 MW in most cases.  There  
            is no such existing exemption for the renewable and  
            non-renewable projects up to 20MW included in this bill.








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          2)Purpose of the bill.  According to the author:



          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 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  








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          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 ratepayers, improve energy reliability,  
          and reduce California's reliance on centralized, fossil-fueled  
          power plants.


            The primary effect of this bill is to give similar benefits as  
            NEM to projects that may not be eligible for NEM, such as very  
            large and/or gas-fueled projects.  Installation of distributed  
            generation may provide system benefits, including emission  
            benefits, but this is highly variable and dependent on  
            location, technology, and in-use performance.  Customer  
            generation is exempt from the RPS, reduces IOUs' RPS  
            procurement, and displaces grid sources, which vary in their  
            emissions rates between the IOUs, but are increasingly low  
            carbon over time due to RPS and other policies.  To the extent  
            this bill supports customers making long-term commitments to  
            natural gas, the author and the committee may wish to consider  
            whether that is consistent with the state's long term climate  
            and energy goals.


          3)GHG standard does not assure significant GHG benefits.  This  
            bill requires non-renewable technologies to produce GHG  
            emissions less than the emission factor set by the PUC for  
            purposes of eligibility for the Self Generation Incentive  
            Program (SGIP).  The PUC set the SGIP GHG emission factor in  
            2011 using an estimate for avoided grid emissions to determine  
            eligibility.  Essentially, the PUC used a figure from ARB for  
            average statewide emissions for existing natural gas power  
            plants, deducted 20% to account for the RPS (which has since  
            been increased to 33%, with pending bills to increase to 50%),  
            and added 7.8% to adjust for avoided line losses.  The  
            resulting emissions rate (379 kilograms per megawatthour) is  
            comparable, though in some cases higher, than recently  
            permitted combined-cycle natural gas power plants.








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            The data and assumptions that the PUC used were outdated in  
            2011 and they have grown more outdated since.  The natural gas  
            plant data that the PUC used is now over 10 years old and more  
            recent data is available from ARB and U.S. EPA.  In addition,  
            using a statewide average doesn't provide an accurate baseline  
            because SGIP is not available in many areas of the state  
            served by publicly owned utilities and GHG emissions vary  
            between utilities.  Finally, GHG emissions from the grid will  
            continue to decline over the useful life of distributed  
            generation projects as the natural gas fleet becomes more  
            efficient and renewable energy increases to meet the 33% RPS  
            and beyond. 


            


            Last year, when the Legislature extended SGIP through 2020, it  
            directed the PUC to update the GHG emissions factor by July 1,  
            2015, based on the most recent data available to ARB for GHG  
            emissions for each IOU as well as current estimates of GHG  
            emissions over the useful life of the distributed energy  
            resource, including consideration of the effects of the RPS.   
            The purpose of this update is to account for newer,  
            IOU-specific data on GHG emissions and compare emissions of a  
            project over its useful life to the emissions of the IOU where  
            the project is located.  





            Because the updated SGIP GHG emission factor is unknown at  
            this time and is applicable only to projects installed in the  
            2015-2020 timeframe under SGIP, it is not a suitable standard  
            for this bill, which applies to a much broader range of  








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            projects in perpetuity.  





            To assure that eligible projects reflect a genuine GHG  
            emissions improvement over the long run, the author and the  
            committee may wish to consider amending the current language  
            (on page 4, lines 38-40) as follows:


               (A) Produces emissions of greenhouse gases that are less  
               than  the levels established by the commission pursuant to  
               paragraph (2) of subdivision (b) of Section 379.6  the  
               average emissions rate for delivered electricity reported  
               by the electrical corporation for the service territory in  
               which the project is located for the calendar year prior to  
               the year the facility is installed.


            To provide an ongoing mechanism to evaluate emissions  
            performance of eligible projects, the author and the committee  
            may wish to consider including the following provision:


               A clean distributed energy resource shall provide relevant  
               data to the commission and the State Air Resources Board,  
               upon request, and shall be subject to onsite inspection to  
               verify equipment operation and performance, including  
               capacity, thermal output, and usage to verify criteria air  
               pollutant and greenhouse gas emissions performance.


          REGISTERED SUPPORT / OPPOSITION:












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          Support


          Advanced Energy Economy


          Audubon California


          Bloom Energy


          California Large Energy Consumers Association


          Capstone Turbine Corporation


          Center for Sustainable Energy


          Cummins, Inc.


          DE Solutions, Inc.


          Doosan Fuel Cell America


          EtaGen, Inc.


          HRL Laboratories, LLC


          Holt of California










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          Inland Empire Foods, Inc.


          National Energy Solutions


          Park Bellevue Tower Community Association


          Pasteurization Technology Group


          Peterson CAT


          Qualcomm


          Regatta Solutions, Inc.


          Sierra Nevada Brewing Co.


          Solar Turbines


          TechNet


          Tecogen, Inc.


          Western Energy Systems




          Opposition








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          Pacific Gas and Electric Company


          San Diego Gas & Electric Company


          Southern California Edison


          The Utility Reform Network







          Analysis Prepared by:Lawrence Lingbloom / NAT. RES. / (916)  
          319-2092