BILL ANALYSIS
AB 1348
Page 1
Date of Hearing: April 27, 2009
ASSEMBLY COMMITTEE ON UTILITIES AND COMMERCE
Felipe Fuentes, Chair
AB 1348 (Blakeslee) - As Amended: April 14, 2009
SUBJECT : Renewable energy resources: combined heat and power
systems.
SUMMARY : Changes the calculation of determining the percentage
of renewables a utility has to procure to meet its Renewables
Portfolio Standard (RPS) targets to accommodate for combined
heat and power (CHP) systems, and provides large CHP generators
a number of specific exemptions and permissions.
EXISTING LAW :
1)Enacts the Global Warming Act of 2006 (GHG Act), which creates
a statewide greenhouse gas (GHG) emission limit that would
reduce emissions by 25% by 2020, and requires the California
Air Resources Board (ARB) to adopt regulations requiring GHG
emission sources to monitor and report their emissions to the
ARB.
2)Requires each retail seller of electricity to increase its
total procurement of eligible renewable energy resources so
that 20% of its retail sales are procured from eligible
renewable energy resources no later than December 31, 2010.
3)Establishes the Waste Heat and Carbon Emissions Reduction Act
(CHP Act) that requires utilities to purchase the excess
CHP-generated electricity from facilities that are not more
than 20 megawatts (MW).
4)Requires an electrical corporation to first meet its unmet
resource needs through all available energy efficiency and
demand reduction resources that are cost-effective, reliable,
and feasible.
THIS BILL :
1)Makes various findings that state departments support and
jointly advocate new CHP applications.
2)Changes the RPS determination from a percentage of total
kilowatt hours (kWh) sold to retail end-use customers, to a
AB 1348
Page 2
percentage of total weighted kWh sold to retail end-use
customers.
3)Requires kWh generated by fossil fuels to be weighted linearly
based upon a rating of the emission of greenhouse gases (GHG)
per megawatthour (MWh) and designates a base point for the
calculation.
4)Requires the emissions of CHP facilities to be determined by
calculating the rate of emissions of GHG per British thermal
unit for an 85% boiler, multiplying the thermal output of the
CHP system by this rate, and subtracting the result from the
total emissions of greenhouse gases produced by the CHP
system. Requires this figure to be omitted from the
calculation to determine kWh generated by fossil fuels.
5)Creates a new Article in the Waste Heat and Carbon Emissions
Reduction Act that focuses on CHP systems with a generating
capacity of at least 20 MW.
6)States legislative intent to "support and facilitate" CHP
systems.
7)Requires the California Public Utilities Commission (PUC) to
credit electricity generated and used on-site by an eligible
CHP facility as "energy efficiency" for the purposes of its
procurement benchmark.
8)Prohibits the PUC from imposing departing load charges on CHP
systems that commence operation after January 1, 2010, or if
built prior to that date, increased the amount of electricity
generated as a result of efficiency improvements to meet the
generator's on-site electrical load.
9)Requires the PUC to adopt or maintain standby rates or charges
for facilities that are based on factual data and not assume
that forced outages of CHP systems will occur simultaneously
on multiple systems and/or periods of peak electrical system
demand.
10)Permits an eligible CHP generator (capacity of greater than
20 MW) to operate private electrical distribution facilities
to sell excess electricity to up to three other corporations
within a three-mile radius of the facility (also referred to
as "over-the-fence transactions"), without subjecting the
project to regulation as a public utility and provides other
AB 1348
Page 3
privileges that are provided to facilities of regulated
utilities, with specified exceptions. For those three other
corporations:
a) Prohibits the PUC from imposing departing-load charges.
b) Requires the PUC to adopt stand-by rates that are based
on specific assumptions.
FISCAL EFFECT : Unknown.
COMMENTS : According to the author, the purpose of this bill is
to make sure the PUC and ARB provide the right incentives for
utilities to choose low-GHG emitting resources when procuring
the non-renewable portion of their generation portfolio. The
author states that a 33% RPS under the current program does not
ensure that those emissions reductions will be achieved. The
ARB estimates of emissions reductions do not consider additional
emissions from fossil fuel peaker plants needed to firm
intermittent resources. The author's concern is that electrical
corporations may satisfy the electrical generation requirement
of a 33% RPS while falling well short of the anticipated
emissions reductions.
1) What is CHP : CHP is a two-step process. The first step
requires a generator powered by an internal combustion engine,
combustion turbine, or boiler. The most common fuels used to
run the generator include natural gas, biogas, biomass, ethanol,
methanol, propane, butane, and liquid or solid hydrocarbons.
The second step captures the heat from combustion that does not
become electric or mechanical energy. The heat lost is referred
to as "waste heat." CHP facilities use the waste heat for space
heating, water heating, or cooling and drying. Typical CHP
applications include schools, hospitals, universities, apartment
buildings, health clubs, oil refineries, or any industrial
company that requires electrical and thermal energy at the same
time.
All CHP systems are not created equally. According to the
California Energy Commission (CEC), CHP facilities range in size
from several kilowatts (kW) to 100 megawatts (MW). Some units
are inefficient, and some are more efficient. The efficiencies
of most distributed generation (DG) facilities (generation units
that are intended to offset the electrical need of that
facility) are determined by how much of the energy is actually
AB 1348
Page 4
useful. DG systems that produce only electric power will have
an electric efficiency in the range of 20% to 45%. CHP, by
adding heat recovery, increases the useful energy (by utilizing
the heat and power generated) and results in much higher total
fuel utilization.
The CEC states that CHP efficiencies can range from 50% to 90%,
depending on the primary fuel source used. The U.S. Combined
Heat and Power Association states that under common
circumstances, CHP systems will achieve efficiencies exceeding
70%. "CHP systems achieving efficiencies exceeding 80% are
frequent, and some systems have been shown to reach levels in
excess of 90%."
2) The State's Energy Policy : The State's energy policy is
transitioning away from reliance on natural gas toward more
diverse sources of energy. SB 107 (Simitian), Chapter 464,
Statutes of 2006, requires the investor-owned utilities to
purchase at least 20% of their electricity from clean in-state
renewable sources by 2010. SB 1368 (Perata), Chapter 598,
Statutes of 2006, requires all electric utilities to purchase
only clean electricity from sources that meet or exceed the
emission levels of a natural gas-fired combined-cycle power
plant, even if it's imported. SB 1 (Murray/Levine), Chapter
132, Statutes of 2006, requires $3.3 billion dollars in solar
energy investments over the next 10 years. Also, SB 1037
(Kehoe), Chapter 366, Statutes of 2005, requires the utilities
to use energy efficiency measures to meet its load, prior to any
other means of generation.
AB 1613 (Blakeslee), Chapter 713, Statutes of 2007, authorized
the PUC to require an electrical corporation to purchase excess
electricity from eligible customer-generators using CHP systems
under 20 MW and that meet specific performance and emissions
criteria. (This bill would apply to systems over 20 MW.)
Efforts are underway to increase the RPS to 33% by 2020 (AB 64,
Krekorian; SB 14, Simitian; SB 805, Wright). This bill seems to
focus on the other 67%. Many "baseload" or reliable and often
fossil-fueled generators are needed to firm the intermittency of
renewable generators. This bill is intended to ensure that
these firming resources, as well as the other 67% of the
utilities' portfolios, do not counteract or contradict GHG
reduction goals. As such, AB 1348 provides an evaluation
methodology that would include a nexus between non-renewable
procurement and GHG reduction goals.
AB 1348
Page 5
3) Government controlled markets, or competitive markets : AB
1890 (Brulte) Chapter 854, Statutes of 1996, deregulated the
wholesale electricity markets. The intent was to allow for
competition that would bring prices down.
The author stated that he intends to use the competitive market
philosophy to provide the right incentives to reduce GHG
emissions for fossil-fuel fired generation. The author intends
to impose a valuation methodology that would provide the right
incentives for utilities to procure lower GHG-emitting resources
when purchasing the non-renewable portion of their portfolios.
Current law requires a "least-cost, best-fit" evaluation to be
applied to renewable energy purchases. This bill intends to
have the PUC and ARB apply a "least-emissions, best-fit"
evaluation for the non-renewable generation. However, the very
prescriptive language in the bill may or may not achieve that
goal.
This bill contains language that requires kWh generated by
fossil fuels to be weighted linearly based upon a rating of the
emission of GHG per MWh and designates a base point for the
calculation. The author's objective is to ensure that when a
utility is making procurement decisions for the non-renewable
power it must purchase after it has meet its 20% RPS
obligations, the utility does not purchase resources that result
in a higher overall carbon footprint. The objective of the
author is clear, but the language in the bill requires a
detailed explanation that is not evident. The complexity and
rigidity of the language could cause uncertainty to the PUC when
trying to implement the author's intent.
If effective "least-emissions, best-fit" language can be
accurately drafted for this bill, the preferential treatment,
such as the energy-efficiency inclusion, departing load, standby
charges, and over-the-fence transactions, may not be needed.
These preferences seem to run contrary to the "competitive
market" approach that this bill is attempting to encourage. In
addition, some of the preferential treatments provided in this
bill are the subject of lengthy debate on how to implement such
provisions without shifting costs to bundled-service customers.
Those rigorous debates should continue. However, prior to
including them in statute now, the debates should render
thoughtful solutions, instead of imposing them in statute
without adequate evaluation.
AB 1348
Page 6
4) Least emissions, but at what cost : One variable missing in
the calculation to determine the optimal mix of the
non-renewable generation portfolio is cost. The RPS includes a
type of price cap or a benchmark price and it would be
reasonable to include one for non-renewable generators that emit
GHG. Regulators should be aware of how much each marginal
reduction in GHG will cost ratepayers, and at what point costs
outweigh the benefits. As such, the calculation should reflect
more of a "least-emissions, least-cost, best-fit" evaluation.
The committee and the author may wish to consider amending the
bill to strike the specific ratemaking language and instead
state clear legislative directives to the PUC on how the PUC
should account for high and low carbon emitted resources at just
and reasonable prices to capture the true goals and intent of
the author.
In addition, the committee and author may wish to strike the
energy-efficiency section, and the departing load, standby
charges, and over-the-fence transaction provisions of the bill
that impose non-market based preferential treatment to CHP
generators.
REGISTERED SUPPORT / OPPOSITION :
Support
California Manufacturers and Technology Association (CMTA)
Western States Petroleum Association (WSPA) (if amended)
Opposition
None on file.
Analysis Prepared by : Gina Adams / U. & C. / (916) 319-2083