BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                    AB 1637


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          Date of Hearing:  August 30, 2016


                       ASSEMBLY COMMITTEE ON NATURAL RESOURCES


                                 Das Williams, Chair


          AB 1637  
          (Low) - As Amended August 18, 2016


          SUBJECT:  Energy:  greenhouse gas reduction


          SUMMARY:  Doubles the annual funding authorization for the  
          Self-Generation Incentive Program (SGIP), which permits the  
          Public Utilities Commission (PUC) to collect an additional $83  
          million/year from utility customers to fund payments to  
          distributed energy resources (DER) until 2019 ($249 million  
          total).


          Extends the net energy metering program for fuel cells (NEMFC)  
          for five years, increases the individual project cap from one  
          megawatt (MW) to five MW, increases the statewide cap of 500 MW  
          by subtracting existing facilities, and updates emission  
          standards applicable to each fuel cell participating in NEMFC.


          Specifically, this bill:  


          1)Doubles the funding authorized for SGIP for the program's  
            remaining three years.


          2)Extends the NEMFC program for five years, including fuel cells  








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            that commence operation on or before December 31, 2021.


             a)   Increases the individual project cap from one to five  
               MW.


             b)   Increases the statewide cap of 500MW by subtracting  
               projects installed as of January 1, 2017.


             c)   Requires eligible projects to comply with the Air  
               Resources Board (ARB) distributed generation certification  
               standards (establishing emission limits for oxides of  
               nitrogen and other criteria pollutants).


             d)   Requires ARB to establish and update greenhouse gas  
               (GHG) standards applicable each year to assure that each  
               eligible fuel cell reduces GHG emissions compared to the  
               electrical grid.  Fuel cells must continue to meet the  
               applicable annual standard during operation to maintain  
               eligibility for NEMFC.


          EXISTING LAW:  


          1)Authorizes the PUC to authorize investor-owned electric  
            utilities (IOUs) to collect up to $83 million per year from  
            their customers through distribution rates through 2019 to  
            fund SGIP.  Under SGIP, utilities provide ratepayer-funded  
            incentives for eligible DER, including advanced energy storage  
            and generation technologies that the PUC, in consultation with  
            ARB, determines will achieve reductions in GHG emissions.   
            Under a PUC decision adopted earlier this year, 75% of SGIP  
            funds are allocated to storage technologies.

          2)Requires each IOU, until January 1, 2017, to offer a NEM  








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            tariff for a customer who generates electricity using an  
            onsite fuel cell electrical generating facility not greater  
            than one MW until total installed fuel cell electrical  
            generation resources reaches the IOU's proportional share of  
            500 MW.  


          FISCAL EFFECT:  Unknown


          COMMENTS:  


          1)Author's statement:


               In 2001, the Legislature created SGIP as a peak load  
               reduction program in response to the energy crisis.  Since  
               then, the program has undergone several revisions and is  
               now an essential market development tool for customer sited  
               clean-energy technologies like energy storage and wind  
               energy.  The SGIP provides incentives for installation of  
               distributed energy resources that are located at a  
               customer's site and sized no larger than what is needed to  
               meet on-site energy needs.  The SGIP program has been  
               recently (in June of this year) reformed and will be much  
               more effective and accountable to ratepayers.  Most of the  
               incentives under the SGIP program will now be provided to  
               energy storage systems which are crucial to managing our  
               integration of electric vehicles and clean energy into the  
               power grid.  AB 1637 would double the amount of money the  
               PUC is authorized to require the IOUs to collect from  
               ratepayers through program's sunset in 2019.


               In 2003, the Legislature created the NEMFC program out of  
               recognition of the benefits associated with the increased  
               deployment of advanced fuel cell technology for clean  
               distributed energy generation.  This existing policy is set  








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               to expire at the end of 2016.  AB 1637 extends the 2016  
               sunset date for FC NEM by 5 years and expands the law to  
               enable larger fuel cell projects to be installed at  
               customer facilities while ensuring that stringent GHG  
               reduction requirements are met. 


               Continuing policies such as SGIP and NEMFC help achieve the  
               State's ambitious clean energy goals by reducing GHG  
               emissions and supporting renewable energy integration and  
               technological innovation.  The state's continued investment  
               in these technologies will complement the rest of the  
               state's suite of policies that drive clean energy  
               investments, create jobs, and protect our environment. 


          2)Each eligible fuel cell must reduce GHG emissions compared to  
            electrical grid.  For NEMFC, this bill establishes more  
            stringent GHG standards to assure eligible projects remain  
            cleaner than the grid each year of operation.  The bill  
            establishes a new GHG standard, established by ARB, rather  
            than the existing PUC/SGIP standard, which is expected to be  
            lower than the existing standard at the outset, and get  
            progressively lower each year as the overall GHG emissions  
            from the grid decrease due to implementation of a 50%  
            Renewables Portfolio Standard, reduction of coal imports, and  
            other factors.  The bill's new GHG standard applies to  
            existing installed fuel cells, as well as future installed  
            fuel cells, requiring all NEMFC participants to meet annual  
            GHG reduction standards, to be adopted by ARB, to remain  
            eligible for NEMFC. 


          3)Has SGIP been reformed enough to justify doubling its budget?   
            As the author notes, SGIP has been "reformed" pursuant to SB  
            861, a 2014 budget trailer bill.  In 2015, the PUC adopted  
            more stringent GHG standards required by SB 861, as follows:
               a)     350 kilograms (kg)/Megawatts per hour (MWh) (down  
                 from 379 kg/MWh, the prior standard) as the maximum level  








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                 of CO2 emissions allowed for technologies participating  
                 in SGIP in 2016.

               b)     Decreased GHG emission factors for each successive  
                 program year to reflect the increasing renewable energy  
                 targets imposed by SB 350, with a final GHG threshold of  
                 337 kg/MWh in 2020.

            In June 2016, the PUC adopted additional changes to the  
            program, including the following:

               c)     Beginning in 2017, generation projects must use 10%  
                 biogas - this escalates up to 100% by 2020. 

               d)     Storage is allocated 75% of funds (15% carved out  
                 for residential projects).  Generating technologies are  
                 allocated the remaining 25% (40% carved out for renewable  
                 generation). 



               e)     A lottery will replace the first-come first-served  
                 system, with lottery done by budget category.  Energy  
                 storage projects paired with renewables or located in an  
                 Aliso Canyon-affected area will be given priority in the  
                 lottery.



               f)     A 20% developer cap replaces the previous 40%  
                 manufacturer cap.

            As promising as these changes may be, they have yet to be  
            fully implemented, much less evaluated.  In addition, the  
            recent round of SGIP funding (February 2016) was subject to  
            allegations of "hacking" and misconduct on the part of an  
            applicant who manipulated the online application process.   
            Finally, some aspects of the program design, including the  
            percentage allocation to storage and generation technologies  








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            and the developer cap, are based on the current level of  
            funding.  Doubling funding requires these elements of program  
            design be reevaluated.

          4)Greater data transparency is necessary for evaluation of SGIP  
            and NEMFC emissions performance.  The lack of  
            publicly-available in-use data on SGIP-funded projects makes  
            determining their actual reliability and emissions performance  
            difficult.  Since emissions performance is essential to  
            determine eligibility and measure the programs' performance,  
            it is critical that each eligible customer report in-use  
            emissions data to the PUC and ARB on a regular basis, and be  
            subject to on-site inspection to verify equipment operations  
            and performance, including capacity, thermal output, and  
            usage, in order to verify criteria pollutant and GHG emissions  
            performance.  This bill lacks provisions to assure that each  
            eligible customer has an obligation to report emissions data  
            to ARB which was included in the language previously approved  
            by this committee, which was later amended into AB 1530  
            (Levine).

          REGISTERED SUPPORT / OPPOSITION:




          Support


          Advanced Energy Economy
          Advanced Microgrid Solutions
          Asian Pacific Environmental Network
          Axiom Materials
          Berkeley City College
          Bloom Energy
          Brightline Defense Project
          California Energy Storage Alliance
          California Housing Partnership Corporation
          California Solar Energy Industries Association








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          Century Link
          Clean Power Campaign
          College of Alameda
          Core States Group
          County of Santa Cruz
          Doosan
          Equinix
          E2
          Fuel Cell & Hydrogen Energy Association
          Fuel Cell Energy
          GreenbergFarrow
          Green Charge Networks
          I & D Consulting
          Ice Energy
          Inova Diagnostics
          Jabil
          Johnson Matthey Fuel Cells
          Laney College
          LG
          Lodi Unified School District
          Merritt College
          Monterey Peninsula Unified School District
          National Fuel Cell Research Center
          NLine Energy
          Oak Park Unified School District
          Plug Power
          Primate Healthcare
          School Energy Coalition
          Sharp Laboratories of America
          Sierra Nevada
          Silicon Valley Leadership Group
          Solar City
          Stem
          Sunpower
          Tech Net
          Tread Stone Technologies, Inc.
          We O'Neil










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          Opposition


          Capstone Turbine Corporation
          Caterpillar, Inc.
          Cummins
          DE Solutions
          ETAGEN
          Solar Turbines
          Tecogen, Inc.


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