BILL ANALYSIS Ó AB 674 Page 1 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 AB 674 Page 2 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: AB 674 Page 3 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 AB 674 Page 4 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. AB 674 Page 5 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 AB 674 Page 6 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. AB 674 Page 7 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 AB 674 Page 8 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 thanthe levels established by the commission pursuant to paragraph (2) of subdivision (b) of Section 379.6the 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: AB 674 Page 9 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 AB 674 Page 10 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 AB 674 Page 11 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