BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                     AB 674


                                                                    Page  1





          Date of Hearing:  May 27, 2015


                        ASSEMBLY COMMITTEE ON APPROPRIATIONS


                                 Jimmy Gomez, Chair


          AB  
          674 (Mullin) - As Amended May 5, 2015


           ----------------------------------------------------------------- 
          |Policy       |Utilities and Commerce         |Vote:|10 - 4       |
          |Committee:   |                               |     |             |
          |             |                               |     |             |
          |             |                               |     |             |
          |-------------+-------------------------------+-----+-------------|
          |             |Natural Resources              |     |8 - 1        |
          |             |                               |     |             |
          |             |                               |     |             |
          |-------------+-------------------------------+-----+-------------|
          |             |                               |     |             |
          |             |                               |     |             |
          |             |                               |     |             |
           ----------------------------------------------------------------- 


          Urgency:  No  State Mandated Local Program:  YesReimbursable:   
          No


          SUMMARY:


          This bill exempts customers served by clean distributed energy  
          sources from nonbypassable charges imposed on investor-owned  
          utility (IOU) customers to fund public purpose programs, energy  








                                                                     AB 674


                                                                    Page  2





          crisis contracts and nuclear decommissioning costs.   
          Specifically, 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), produces  
               GHG emissions less than the average emissions rate for  
               delivered electricity in the same service territory 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) not otherwise addressed  
               in the PUC's implementation of a distribution resources  
               plan or net energy metering.


          1)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, to reflect  
            the following:




             a)   Nonbypassable charges are based on the actual metered  
               consumption of electricity delivered to the customer  
               through the electrical corporation's transmission or  
               distribution system.  All other charges are assessed at the  
               same rate as other customers who do not use clean  
               distributed energy resources. The calculated total amount  








                                                                     AB 674


                                                                    Page  3





               of forgone nonbypassable charges must be fully recovered  
               from ratepayers in the same customer class. 
             b)   Initial reservation capacity is 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 resource, and the annual average  
               reduction of customer load that could occur during an  
               outage.  The calculation of actual annual reservation  
               capacity excludes the customer's use of electricity within  
               24 hours after an outage as specified.


             c)   Electrical corporations may adjust standby demand  
               charges and modify reservation capacities as specified 


          2)Requires the California Energy Commission (CEC) to provide a  
            report to the Legislature on the impacts of these provisions  
            as specified. Requires a clean distributed energy resource to  
            provide relevant data upon request to CEC and the State Air  
            Resources Board, and subjects the resource to onsite  
            inspections as specified.
           FISCAL EFFECT:


          1)Unknown cost shifts among ratepayers within the same customer  
            class.  Cost shifts may be offset by overall rate reductions  
            (special funds).


            This issue is a matter of debate between the proponents and  
            opponents of this bill.  Proponents, such as Bloom Energy,  
            point to a study by the Aspen Environmental Group that  
            compared potential cost-savings to potential cost shifts.  The  
            study found, from 2010 through 2013, distributed generation  
            would have provided enough economic benefit to other  
            ratepayers to more than offset the value of the shifted  
            utility fees.









                                                                     AB 674


                                                                    Page  4






            Opponents, such as Pacific Gas and Electric Company (PG&E),  
            assert the study is flawed and failed to capture the  
            complexity involved in the determination of energy prices.


          2)Increased contract costs of $450,000 (GF or special fund) in  
            fiscal year 2018-19 for CEC to prepare the report to the  
            Legislature.


          3) Absorbable PUC costs.


          COMMENTS:


          1)Purpose.  According to the author, customers who choose to  
            invest their own capital to install clean distributed  
            generation (DG) technologies must pay a number of  
            utility-imposed fees on the electricity they generate and  
            consume onsite.  The author states these charges are  
            equivalent to accessing an additional 75% to 100% sales tax on  
            clean DG equipment and make the installation of such equipment  
            prohibitively expensive and infeasible for residential,  
            commercial and industrial customers.


            According to the author, by exempting onsite clean DG from  
            nonbypassabe charges, this bill 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.












                                                                     AB 674


                                                                    Page  5






          2)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 Electric Program  
            Investment Charge (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 during the energy crisis, and site restoration  
            associated with nuclear decommissioning.





            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.


          3)Support and Opposition.  This bill is supported by dozens of  
            clean energy technology companies and other companies  
            interested in onsite distributed generation.  According to  
            supporters, this  bill removes utility-imposed fees charged to  
            customers of clean distributed generation for energy generated  
            and consumed on-site, and instead requires them to pay all  
            applicable fees based  only  on electricity purchased from a  
            utility through the grid.










                                                                     AB 674


                                                                    Page  6





            This bill is opposed by IOUs and ratepayer advocates.   
            According to the Office of Ratepayer this bill unfairly  
            burdens 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 this bill asserting it increases rates for some  
            customers for the benefit of others.  San Diego Gas and  
            Electric (SDG&E) is opposed to legislative mandates that  
            restrict the ability of the PUC to design and set rates.  
            Southern California Edison (SCE) raises similar concerns.











          Analysis Prepared by:Jennifer Galehouse / APPR. / (916)  
          319-2081