BILL ANALYSIS Ó
SENATE COMMITTEE ON ENERGY, UTILITIES AND COMMUNICATIONS
Senator Ben Hueso, Chair
2015 - 2016 Regular
Bill No: AB 1530 Hearing Date: 4/19/2016
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|Author: |Levine |
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|Version: |9/4/2015 As Amended |
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|Urgency: |No |Fiscal: |Yes |
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|Consultant:|Jay Dickenson |
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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
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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
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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
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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
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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
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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
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<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.
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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.
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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
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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
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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.
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