BILL ANALYSIS                                                                                                                                                                                                    



          SENATE COMMITTEE ON ENERGY, UTILITIES AND COMMUNICATIONS
                              Senator Ben Hueso, Chair
                                2015 - 2016  Regular 

          Bill No:          AB 1530           Hearing Date:     4/19/2016
           ----------------------------------------------------------------- 
          |Author:    |Levine                                               |
          |-----------+-----------------------------------------------------|
          |Version:   |9/4/2015    As Amended                               |
           ----------------------------------------------------------------- 
           ------------------------------------------------------------------ 
          |Urgency:   |No                     |Fiscal:      |Yes             |
           ------------------------------------------------------------------ 
           ----------------------------------------------------------------- 
          |Consultant:|Jay Dickenson                                        |
          |           |                                                     |
           ----------------------------------------------------------------- 
          
          SUBJECT: Electricity:  distributed generation

            DIGEST:  This bill excuses from certain fixed charges, otherwise  
          levied against all electricity used by customers of an  
          electrical corporation, the electricity used by customers who  
          use certain onsite generation technologies to produce that  
          electricity. 

          ANALYSIS:
          
          Existing law:
          
          1)Establishes the California Public Utilities Commission (CPUC)  
            and authorizes it to fix the rates of public utilities, such  
            as investor-owned electric utilities (IOUs) that provide  
            electricity service. (California Constitution Article 12.) 

          2)Establishes certain costs to be recovered customers of IOUs on  
            a nonbypassable basis.  (Public Resources Code 366.1(d)(1),  
            Public Utilities Code 367 and Public Utilities Code 379)
          
          3)Makes certain exemptions to the requirement to pay  
            nonbypassable charges.  (Public Utilities Code 374)

          4)Provides incentives for self-generation.  (Public Utilities  
            Code 379.6)

          5)Directs the CPUC to require each IOU to identify a separate  
            nonbypassable rate component to collect the revenues used to  
            fund several public purpose programs - energy efficiency;  
            public-interest research and development; and programs  








          AB 1530 (Levine)                                      PageB of?
          
            provided to low-income customers, such as targeted energy  
            efficiency services and the California Alternative Rates for  
            Energy (CARE) program.  (Public Utilities Code 381)
           
          6)Requires retail sellers of electricity - IOUs, community  
            choice aggregators (CCAs), and energy service providers (ESPs)  
            - and publicly owned utilities (POU) to increase purchases of  
            renewable energy such that at least 50 percent of retail sales  
            are procured from renewable energy resources by December 31,  
            2030. This is known as the Renewable Portfolio Standard (RPS).  
             (Public Utilities Code 399.11 et seq.) 

          7)Requires each IOU, by July 1, 2015, to submit to the CPUC a  
            distribution resources plan proposal to identify optimal  
            locations for the deployment of distributed resources.   
            (Public Utilities Code 769)

          8)Requires the CPUC to develop a standard contract or tariff,  
            which may include net energy metering (NEM), for eligible  
            customer-generators by December 31, 2015.  (Public Resources  
            Code 2827.1)

          9)Directs ARB to adopt a certification program and uniform  
            emission standards for electrical generation technologies,  
            such as distributed generation systems, that are exempt from  
            local air district permitting requirements.  (Health and  
            Safety Code 41514.9)

          This bill:

          1)Establishes the category "clean distributed energy resource"  
            (clean DER) to mean a facility  of 15 megawatts (MW) or less,  
            located on a customer's premises that generates electricity,  
            or electricity and useful heat, and sized to meet the  
            customer's onsite demand, and that meets, each year of  
            eligibility, either of the following criteria:

               a.     Meets a greenhouse gas (GHG) emission reduction  
                 standard, to be adopted by ARB in consultation with the  
                 California Energy Commission (CEC), and complies with  
                 ARB's nitrogen of oxides (NOx) regulatory standards for  
                 distributed generation.

               b.     Is a renewable energy resource under the RPS and  
                 will not otherwise be addressed in the CPUC's  









          AB 1530 (Levine)                                      PageC of?
          
                 implementation of the distributed resource planning  
                 process or revision of the rules regarding NEM.

          2)Direct CPUC to require each IOU to collect nonbypassable  
            charges from any customer served by clean DER based only on  
            the actual metered consumption of electricity delivered to the  
            customer through IOU's transmission or distribution grid, and  
            prohibits shifting of costs to customers in a different  
            customer class.

          3)Ends on December 31, 2020, the ability of a customer to newly  
            receive the rate treatment described in the preceding  
            paragraph. 

          Background

          CPUC levies nonbypassable charges to recover costs shared by all  
          IOU customers.  To provide electric service to their customers,  
          the IOUs face certain fixed costs and program costs.  These  
          costs include:

             "    Power purchase costs that occurred prior to energy  
               deregulation in 1996. 
             "    Bonds issued to finance a portion of the historic cost  
               of power purchased by the Department of Water Resources  
               (DWR) to serve electric customers.
             "    Electricity generation acquired prior to 2003, as well  
               as the costs of all generation resources acquired by the  
               utilities since they resumed procurement for their  
               customers in 2003.
             "    Funds required for site restoration when the IOUs'  
               nuclear power plants are removed from service. 
             "    Statutorily mandated low income, energy efficiency and  
               renewable generation programs.

          Following the energy market crisis early in this century, some  
          IOU customers were able to receive all or a portion of their  
          electric service from a source other than the IOU.  Generally,  
          those alternative sources of electricity were either "Electric  
          Service Providers" - a nonutility entity that provides electric  
          service using the IOU's transmission infrastructure - or an  
          electric generation facility installed on the customer's  
          premises, the output to be used by the customer.  This situation  
          resulting in concerns over "cost shifting," that is, the ability  
          of customers who receive electricity service from a provider or  









          AB 1530 (Levine)                                      PageD of?
          
          source other than the IOU to avoid paying fixed and program  
          costs for which all IOU customers had been responsible. 

          To avoid this cost shifting, the CPUC, acting according to  
          statutory authority, has authorized the IOUs to recover certain  
          fixed and program costs through a number of "nonbypassable"  
          charges, meaning charges that are paid by all customers in an  
          IOU service territory, regardless of the source of a given  
          customer's electricity.  The nonbypassable charges approved by  
          the CPUC are:

             "    Ongoing Competition Transition Charge: Recovers the cost  
               of qualifying facilities and power purchase agreements  
               executed prior to 1996 that are in excess of a market  
               benchmark determined by the CPUC. 
             "    DWR Bond Charge: Recovers the cost of bonds issued to  
               finance a portion of the historic cost of power purchased  
               by DWR to serve electric customers.
             "    Power Charge Indifference Adjustment (PCIA): Either a  
               charge or credit, intended to ensure that customers who  
               purchase electricity from nonutility suppliers pay their  
               share of cost for generation acquired prior to 2003, as  
               well as costs of all generation resources acquired by the  
               utilities since they resumed procurement for their  
               customers in January of 2003.
             "    Nuclear Decommissioning Charge: Provides the funds  
               required for site restoration when the IOU's nuclear power  
               plants are removed from service. 
             "    Public Purpose Program Charge: The source of funds for  
               low income, energy efficiency and renewable generation  
               programs. 

          It is therefore well-established state policy to require all IOU  
          customers, including customers who install onsite electric  
          generation facilities, to pay IOU fixed and program costs  
          through NBCs.  But, no matter how well established the policy,  
          there are exceptions.  

          Exemptions from nonbypassable charges generally reflect the  
          recognition that customers in the exempted class do not bear  
          responsibility for the costs to be recovered through the  
          nonbypassable charge.  For example, customers who began  
          receiving electric service from a provider other than an IOU  
          before February 1, 2001, and through September 20, 2001, are  
          exempt from paying the nonbypassable DWR bond charge.  This is  









          AB 1530 (Levine)                                      PageE of?
          
          because such a customer was not responsible for the costs  
          incurred by DWR during 2001.

          However, other exemptions from nonbypassable charges are meant  
          to encourage customer behavior, such as adoption of technology.   
          For example, a customer of an IOU with an onsite electricity  
          generation facility, such as rooftop solar panels, who  
          participates in the NEM program pays nonbypassable charges only  
          on the electricity the customer receives from the electric grid,  
          but not on the electricity generated by the 1st MW of the onsite  
          generation facility.   This treatment of electricity generated  
          by a NEM-eligible facility acts as a subsidy to encourage  
          installation of such facilities because of their renewable  
          attributes or their potential to reduce local emission or air  
          pollutants.

          Bill encourages installation of a new class of onsite  
          electricity generation facility.  In principal, this bill does  
          two things.  First, it creates a new class of distributed  
          electricity generation, which this bill dubs "clean distributed  
          energy resource," or clean DER.  Second, this bill encourages  
          the installation of such distributed electricity generation by  
          excusing customers who install clean DER from paying  
          nonbypassable charges on electricity produced by the clean DER.   
          The effect would be to shift the cost of investments and  
          programs funded by the nonbypassable charges onto other  
          customers in the same customer class who have not installed  
          clean DER.  The incentive effect would reinforce itself:   
          customers within a class who have not installed clean DER will  
          face increasingly greater costs for nonbypassable charges as the  
          pool of customers on whom costs can be shifted shrinks. 

          Bill proponents - mainly fuel cell companies and makers of other  
          distributed energy resources that hope to meet the bill's  
          definition of clean DER - contend it is in the public interest  
          to encourage installation of clean DER because of the  
          environmental benefits it can provide.  In addition to this  
          committee, AB 1530 is referred to the Senate Committee on  
          Environmental Quality.  Claims of environmental benefit are best  
          considered by Environmental Quality.  However, the purported  
          environmental benefits of clean DER are the rationale for  
          allowing the customers who install clean DER to bypass  
          nonbypassable charges.  This committee, therefore, needs to  
          attempt to assess the purported environmental benefits of clean  
          DER.  Unfortunately, assessing those potential environmental  









          AB 1530 (Levine)                                      PageF of?
          
          benefits of clean DER is not entirely straightforward, though it  
          is notable that no environmental organization, other than  
          Audubon California, has expressed to the committee its support  
          for bill.

          According to this bill, an onsite generation facility must meet  
          certain characteristics yearly to remain eligible as a clean  
          DER.  Specifically, clean DER must:

                 Be located on the customer's premises.
                 Generate electricity alone or electricity and useful  
               heat.
                 Be used to generate electricity for use onsite.
                 Have a nameplate rated generation capacity of 15 MW or  
               less.
                 Be sized to meet the electrical demand of, or use the  
               available waste heat of, the customer.

          Beyond these common criteria, this bill provides two distinct  
          categories of clean DER.  One category is familiar to the  
          Legislature - a renewable energy resource eligible under the  
          existing RPS program.  The second category of clean DER is less  
          familiar.  That is because it is uniquely applicable to the  
          provisions of this bill.  In addition, the characteristics of  
          this second category of clean DER are specific and complex.   
          Those characteristics are:

                 Complies with ARB's regulatory NOx emissions standards  
               for the distributed generation certification program.
                 Meets or exceeds the GHG emissions reduction standards  
               established by ARB, as required by this bill.

          This analysis considers each characteristic of nonrenewable  
          clean DER in turn.

          ARB's regulatory NOx emissions standards for the distributed  
          generation certification program are set forth in Title 17,  
          Section 94203 of the California Code of Regulations.  This bill  
          references this section of the regulatory code specifically.   
          Strangely, this bill references the standard for only one  
          emission, NOx.  The regulation, however, addresses several  
          additional types of emissions - carbon monoxide, volatile  
          organic compounds and particulate matter.  Should this committee  
          vote to approve this measure, the author may want to amend this  
          bill to state that nonrenewable clean DER must meet the entirety  









          AB 1530 (Levine)                                      PageG of?
          
          of Section 94203 of the California Code of Regulations.  

          Turning to the second characteristic of nonrenewable clean DER,  
          this bill requires a facility to meet or exceed the GHG  
          emissions reduction standards established by ARB, pursuant to  
          this bill.  To establish that GHG emissions reduction standard,  
          this bill directs ARB, in consultation with the CEC, to ensure  
          each clean DER reduces GHGs compared to electrical grid  
          resources, including renewable resources, that the clean DER  
          displaces, accounting for both procurement and displacement of  
          the electrical grid.  ARB is to complete this work by March 31,  
          2016, and update the schedule every three years, with standards  
          for each intervening year.  

          So nonrenewable clean DER will be cleaner than the grid, and  
          stay cleaner than the grid, which itself is getting cleaner by  
          the year (or, by RPS compliance period, at least).  The policy  
          question for this committee, then, is whether the benefit of  
          this "clean DER" is sufficient to justify burdening other  
          customers with the cost of IOU investments and public purpose  
          programs.  

          It is difficult to estimate the magnitude of the cost shift this  
          bill would create, though it is likely to be minimal, at least  
          at first.  A customer with clean DER would pay no nonbypassable  
          charges on the electricity generated by the clean DER.  Each of  
          the nonbypassable charges is a fraction of a penny per kilowatt  
          hour.<1>  For a large individual customer, the nonbypassable  
          charges may total a significant dollar amount.  However, the  
          costs that would have been paid by that customer will be shifted  
          to the other customers in the same customer class.  Typically,  
          there are many IOU customers in a given class without clean DER  
          across which the costs of nonbypassable charges can be shifted.   
          Typically, but not always.  Pacific Corp, for example, is an IOU  
          that has fewer than 75,000 customers in California.  Should this  
          committee vote to approve this measure, the author may want to  
          amend this bill to limit its requirements to the three largest  
          IOUs.

          Class boundaries.  As mentioned above, this bill explicitly  
          restricts any cost shift caused by installation of clean DER to  
          "the same customer class."  Similarly, it explicitly prohibits  

          ---------------------------
          <1> For example, the nonbypassable charges levied by PG&E on its  
          customers range from $0.00049 for the Nuclear Decommissioning  
          charge to $0.013 for the Public Purpose Program charge.








          AB 1530 (Levine)                                      PageH of?
          
          the shift of any amount to "any other customer class."

          According to CPUC staff, it understands this bill's reference to  
          "customer class" to mean a few, broad customer classes, such as  
          residential, small commercial, medium commercial, large  
          commercial and industrial.  IOUs, however, have many customer  
          "classes."  The meaning of "class" as used here matters.  This  
          is because the fewer the customers in a given class, the fewer  
          customers there are to shoulder any cost shift resulting from  
          this bill.  It may be enough, for implementation purposes, that  
          the staff of the CPUC seems to understand what the author means  
          by "customer class."  Nonetheless, should this committee vote to  
          approve this measure, the author may wish to amend this bill to  
          better define what is meant by "customer class."

          Bill requires CPUC to promote the deployment of clean DER to  
          unknown effect.  In addition to the financial incentive for  
          clean DER installation, this bill seeks to promote clean DER  
          through the actions of state agencies.  This bill generally  
          directs the CPUC, in consultation with the CEC and ARB, to  
          promote the deployment of clean DER.  Specifically, this bill  
          requires CPUC to prioritize deployment of smart grids,  
          microgrids and reliable energy resources that reduce GHGs and  
          provide specific "cobenefits."  It is not clear what the CPUC's  
          prioritization of deployment of smart grids, etc., would mean in  
          practice.  Staff of the CPUC also expressed uncertainty of the  
          practical meaning of this requirement.  In any case, the CPUC is  
          actively pursuing regulatory actions related to distributed  
          energy resources.  And the CEC funds a variety of distributed  
          energy demonstration projects.  It is unclear what additional is  
          to be gained by requiring the CPUC to promote the deployment of  
          clean DER.  Should this committee vote to approve this measure,  
          the author may want to amend this bill to delete Public  
          Resources Code 354(c) in its entirety.

          Double-referred.  Should this bill be approved by this  
          committee, it has been referred to the Senate Committee on  
          Environmental Quality.

          Prior/Related Legislation
          
          AB 327 (Perea, Chapter 611, Statutes of 2013) required IOUs to  
          submit plans for deploying distributed energy resources to the  
          CPUC.










          AB 1530 (Levine)                                      PageI of?
          
          AB 427 (Mullin, 2013) would have exempted bottoming cycle  
          combined heat and power from nonbypassable charges.  The bill  
          failed to pass the Assembly Committee on Utilities and Commerce.
          AB 365 (Mullin, 2013) was similar to AB 1530.  The bill passed  
          this committee on a vote of 7-2 but was held in Senate Committee  
          on Appropriations.
          
          FISCAL EFFECT:                 Appropriation:  No    Fiscal  
          Com.:             Yes          Local:          Yes


            SUPPORT:  

          TechNet (Source)
          Audubon California
          Bloom Energy
          Capstone
          Caterpillar
          CenturyLink
          DE Solutions
          Doosan Fuel Cell America
          Equinix
          EtaGen
          LG
          n2 Integrated Energy Solutions
          OHR Energy
          Prime Healthcare Services
          Silicon Valley Leadership Group
          Solar Turbines
          Tecogen
          Techni-Cast Corp.
          Verizon
          Western Energy Systems

          OPPOSITION:

          California Manufacturers & Technology Association, unless  
          amended
          San Diego Gas & Electric Company
          The Utility Reform Network

          ARGUMENTS IN SUPPORT:  According to the author:
          
               Existing law allows IOUS to assess certain nonbypassable  
               charges on electricity that is generated through clean  









          AB 1530 (Levine)                                      PageJ of?
          
               distributed generation equipment and consumed onsite of a  
               customer's premise.  Assessment of these nonbypassable  
               charges on clean distributed generation that is generated  
               and consumed onsite is equivalent to charging an additional  
               75-100 percent sales tax on the clean distributed  
               generation equipment.  These charges make the installation  
               of clean distributed generation prohibitively expensive and  
               economically infeasible for commercial and industrial  
               customers in California.  California is the only state  
               among those with high electricity costs and RPS mandates  
               (such as NY, MD, NJ, HI, VT, and CT) to allow utilities to  
               assess nonbypassable charges on electricity produced and  
               consumed onsite.  

               Assessing charges on electricity that is not drawn from the  
               grid but produced on site has stifled the market for clean  
               distributed generation, causing more and more reliance on  
               large centralized power plants that produce harmful health  
               and environmental impacts.  Existing law does protect  
               customers that generate onsite electricity using certain  
               clean distributed generation technologies through a "No  
               Use. No Fee." policy that prohibits IOUs from assessing  
               nonbypassable charges on the electricity generated onsite.   
                However, this policy only applies to the certain types of  
               clean distributed generation and is set to expire at the  
               end of 2016.  The expansive implementation of clean  
               distributed generation is beneficial for grid reliability  
               and resiliency, improves air quality, reduces GHG  
               emissions, reduces energy lost in transmission, reduces  
               impacts from transmission, and creates California jobs.

               AB 1530 would continue the current "No Use. No Fee." policy  
               that prohibits IOUs from assessing nonbypassable charges on  
               energy generated onsite by those certain clean distributed  
               generation technologies and expands this policy by creating  
               a technologically agnostic policy that allows other  
               qualified clean distributed generation to be included. This  
               bill would eliminate a barrier to investment in clean  
               distributed generation by requiring customers with clean,  
               onsite distributed generation technologies to pay all  
               applicable utility fees based only on the electricity they  
                                purchase from the grid, but not on electricity they  
               generate and consume onsite.  By expanding the current one  
               MW cap up to a 15 MW cap, the bill ensures that large  
               energy users - e.g., data centers, hospitals, universities  









          AB 1530 (Levine)                                      PageK of?
          
               and college campuses, retail stores, hospitals and  
               facilities and many others - can invest in clean onsite  
               energy.  AB 1530 promotes investment in distributed  
               generation technologies that improve air quality and energy  
               reliability and reduce California's reliance on large  
               centralized power plants.  
          
          ARGUMENTS IN OPPOSITION:    Opponents, such as the IOUs, argue  
          this bill unfairly shifts costs that are rightfully the  
          responsibility of all ratepayers; erodes the base financial  
          support for important public purpose programs; and violates the  
          principles of the state's clean energy laws by subsidizing  
          electricity sources that are dirtier than preferred energy  
          resources.
                                      -- END --