BILL ANALYSIS � 1
SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE
ALEX PADILLA, CHAIR
AB 864 - Huffman Hearing Date:
July 5, 2011 A
As Amended: April 28, 2011 FISCAL B
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DESCRIPTION
Current law authorizes the California Public Utilities
Commission (CPUC) to administer the Self-Generation Incentive
Program (SGIP) through 2015 and permits the CPUC to annually
collect $83 million from gas and electric ratepayers to fund the
program through 2011. The program is intended to provide
incentive payments for generation on the customer's side of the
meter for any distributed generation resources (DG) that the
CPUC determines will support the state's goals for reduction of
emissions of greenhouse gases. By CPUC decision, systems may be
sized up to 5 megawatts (MW) but incentives are paid up to 3 MW.
This bill expands the size of eligible facilities to 10 MW but
incentives would be paid for up to 5 MW. Incentives for
technologies greater than 3 MW in size would be based on a
declining schedule. The incentives could only be paid if the
technology meets cost-effectiveness tests developed by the CPUC
in a pending rulemaking.
BACKGROUND
SGIP History - During the 2000-01 energy crisis the CPUC was
directed by the Legislature to create a program of incentives
for renewable and super clean, gas-fired DG to reduce
electricity demand. As a result, the CPUC established the SGIP
in March 2001 which has offered rebates for installation of
technologies such as photovoltaics, wind, fuel cells, waste gas,
and ultra-clean and low emission gas-fired DG (combined heat and
power, CHP). Legislation adopted in 2004 eliminated CHP from
the program as of January 1, 2008. In 2006 photovoltaic
incentives were moved out of the SGIP to the California Solar
Initiative (CSI). Beginning in 2008 only fuel cell and wind
technologies, and storage if coupled with wind or fuel cells,
were eligible for incentives.
In 2009 (SB 412, Kehoe) the Legislature expanded the SGIP to
include any DG that help to achieve the state's greenhouse gas
reduction goals. The CPUC has not concluded its rulemaking to
implement SB 412. As a consequence wind and fuel cells continue
to be eligible. In the winter of 2010 it became apparent that
program funding could be depleted before the CPUC established
rules under SB 412 so program applications were suspended
January 1, 2011.
The CPUC rulemaking process continues and a proposed decision is
expected later this summer which would then have to go to the
full commission for approval. Consequently, implementation of
SB 412 is not expected until fall at the very earliest.
COMMENTS
1. Author's Purpose . According to the author, SGIP is an
important element of California's policy framework
supporting direct customer investment in distributed
renewable energy generation.
SGIP is one of the state's critical programs to promote
clean DG technologies that help California meet its
environmental targets without the impact of costly and
potentially environmentally harmful transmission lines.
This program has incentivized California commercial and
industrial entities that have a relatively large carbon
footprint to switch from running their operations on
status-quo dirty energy to clean energy solutions
manufactured in-state. Without SGIP, these entities would
not make this choice. Though originally envisioned as a
program to provide reduce peak load, the Legislature has
made important changes over the last several years to
maximize the program's benefits to the state so that now
the program is a major driver in helping to meet our GHG
reduction targets and promote in-state clean energy
manufacturing and investment.
Properly incentivizing the SGIP will encourage large energy
customers to take advantage of an existing program (which
they currently subsidize) and help lower the cost of
installing renewable energy. A successful adoption of
renewable power will lower a company's utility bill,
"green" their businesses and give them a competitive edge
against competing products/services, expand DG, and reduce
the total load for RPS compliance.
2. Technology Size . This bill is solely intended to modify
the size cap for eligible projects under the SGIP program
from a current, administratively imposed cap of 5 MW with
funding up to 3 MW, to a funding cap of 5 MW and project
size up to 10 MW. Current law does not limit the size of
eligible technologies. The CPUC currently has the
authority to take this program to the limits prescribed by
this bill. The CPUC opines that it has not "provided
incentives to SGIP projects above 3 MW since those projects
are usually more economical from the customer perspective
and are in less need of incentives."
3. Program Disruption . In 2009 the Legislature broadened
the SGIP (SB 412, Kehoe) to include any technologies
meeting the state's greenhouse gas reduction goals and
extended funding through 2011. The CPUC is in the final
stages of a rulemaking to implement that program. In the
meantime program applications have been suspended.
Although the bill expresses the intent of the Legislature
that a new proceeding not be opened, it's not clear that
the bill could be implemented without one particularly if
it wanted to ensure transparency in developing the rules.
Should this bill take effect, the CPUC reports that it
"will likely adopt a decision?this summer �implementing SB
412] and changes proposed by this bill could require the
CPUC to immediately reopen a SGIP proceeding...The new
proceeding would create more uncertainty for potential
customer generators wishing to participate in the program
and would create added administrative costs for the CPUC."
4. Cost-Effectiveness Limits . In an attempt to limit
payments for technologies at a size cap where the value to
the ratepayer ceases to exist, the Assembly restricted the
increased size caps in this bill to technologies that have
been deemed cost effective using the methodology in a cost
effectiveness study undertaken by the CPUC for its current
rulemaking to implement SB 412.
The question is appropriate but there is more work to be
done. The study done by the CPUC did not look at the cost
effectiveness of any technologies sized over 3 MW as
proposed by this bill. Consequently that study would have
to be revisited.
Cost effectiveness is a complicated undertaking, is
appropriate, but has yet to be fully developed by the CPUC.
It has considered the cost effectiveness of SGIP to the
participating customer who would receive the subsidy. It
also considered cost effectiveness to ratepayers or society
as a whole but didn't compare that cost to using those same
ratepayer dollars to achieve other green goals. The study
considered the cost of the technology compared to its
benefits and included factors such as avoided transmission
and distribution, line losses, and avoided purchases of
energy. However, it didn't then compare those ratepayer
costs to the benefits of using those ratepayer dollars for
another program; it compared the costs to the cost/benefit
of not making the investment to determine eligibility under
SGIP as it was charged to do. Would a $100 million
ratepayer investment in the SGIP be as beneficial to
ratepayers as $100 million invested in energy efficiency or
in meeting the state's 33% RPS goals with increased
generation on the wholesale side of the meter? The answer
is unknown.
5. Market Maturity . The issue of cost-effectiveness gets
to the heart of a question of the necessity of subsidies
for technologies of any size but particularly those which
can achieve economies of scale when sized up to 10 MW and
bring costs down to below the market rate for natural gas.
Analyses done by the CPUC for technologies much smaller in
size show that the payback is ranging from four to nine
years. If a participant can install technology on their
side of the meter which pays for itself in just a few years
but provides free electricity for up to 20 years and
longer, is ratepayer money needed to support that project?
The CPUC opines that it has not "provided incentives to
SGIP projects above the 3 MW since those projects are
usually more economical from the customer perspective and
are in less need of incentives."
As renewable and efficient technologies for the customer's
side of the meter have come to the market, it has been
assumed that the installation was cost-prohibitive for
customers. The market is changing, technologies are
maturing, and the committee should consider to what degree
those incentives payments continue to be needed.
6. Sufficient Funding . Under current law the CPUC is only
authorized to collect surcharges from ratepayers for the
program through this year. The program budget is $100
million.
Finally, there is only $100 million left in the SGIP
program. Even if related legislation before the committee
today is adopted funding would only increase to $185
million. Yet funding projects up to 5 MW in size could eat
up limited funding.
7. Little or No RPS Impact . Generation on the customer's
side of the meter does not count toward the state's 33% RPS
goal.
8. Ratepayer Impact . This bill would not increase program
funding and the CPUC reports that its costs would be
absorbable for implementation.
9. Related Legislation .
AB 1150 (V.M. Perez, 2011) extends SGIP collections
for an additional year through 2012. Status: Set for
hearing in Senate Energy, Utilities & Communications
Committee July 5, 2011.
AB 228 (Huffman, 2010) proposed to expand the net
energy metering cap from 5% to 6% and allocated the
increase to large commercial or industrial customers.
Suggested committee amendments expanded feed-in-tariff
eligibility to 5MW and permitted SGIP and other
eligibility. Status: Refused passage in Senate Energy,
Utilities & Communications Committee, 0-1, June, 2010.
ASSEMBLY VOTES
Assembly Floor (74-0)
Assembly Appropriations Committee (16-0)
Assembly Utilities and Commerce Committee
(13-0)
POSITIONS
Sponsor:
California Large Energy Consumers Association
Environment California
Support:
California Business Properties Association
California Conference of Carpenters
California Manufacturers & Technology Association
California State Council of Laborers
San Francisco Public Utilities Commission
Sonoma County Water Agency
South Coast Air Quality Management District
Oppose:
California Public Utilities Commission
San Diego Gas & Electric Company
Southern California Edison (unless amended)
Kellie Smith
AB 864 Analysis
Hearing Date: July 5, 2011