BILL ANALYSIS �
AB 427
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Date of Hearing: January 13, 2014
ASSEMBLY COMMITTEE ON UTILITIES AND COMMERCE
Steven Bradford, Chair
AB 427 (Mullin) - As Amended: January 6, 2014
SUBJECT : Bottoming cycle waste heat recovery: nonbypassable
charge exemption
SUMMARY : This bill would exempt some electrical corporation
customers who use bottoming cycle waste heat recovery from all
nonbypassable charges. Specifically, this bill :
a)Defines "bottoming cycle waste heat recovery" as: the use of
waste heat from a commercial or industrial process to produce
electricity without consuming fuel to supplement the waste
heat and to supply electricity for onsite use without
exporting electricity to the electrical grid.
b)Provides an exemption from "nonbypassable charges" to up to
cumulative load of 200 megawatts (MW).
c)Excludes transferring those charges to residential customers
and any other customer that has an average monthly usage of
500 kilowatts or less.
d)Provides that customers receiving the exemption shall continue
to be responsible for charges related to receiving electrical
service.
EXISTING LAW :
1)Defines cogeneration as the sequential use of energy for the
production of electrical and useful thermal energy and
specifies that at least 5 percent of the facility's total
annual energy output shall be in the form of useful thermal
energy and where useful thermal energy follows power
production, the useful annual power output plus one-half the
useful annual thermal energy output equals not less than 42.5
percent of any natural gas and oil energy input. (Public
Utilities Code 216.6)
2)Provides that the cost of the competition transition charge
exemptions granted to members of the combined class of
customers other than residential and small commercial
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customers shall be recovered only from those customers.
(Public Utilities Code 330)
3)Authorizes allocation of costs for procurement contracts
entered into to meet local capacity needs and resource
adequacy. (Public Utilities Code 365.1)
4)Provides that each retail end-use customer should bear a fair
share of power purchases made by the Department of Water
Resources, as well as power purchase contract obligations
incurred as of January 1, 2003, and to prevent any shifting of
recoverable costs between customers. (Public Utilities Code
366.1(d)(1)
5)Established nonbypassable costs to be paid by all ratepayers:
Requires that the cost of divesting generation related assets,
nuclear settlements, and power purchase contracts that were
part of rates approved by the California Public Utilities
Commission (PUC) as of December 20, 1995 shall be recovered
from all customers on a nonbypassable basis, amortized over a
reasonable period of time. (Public Utilities Code 367)
6)Provides authorization for cost recovery through rates for
specified expenditures by electrical corporations prior to
1998 (Public Utilities Code 368)
7)Provides that nonbypassable charges will be applied to each
customer based on the amount of electricity purchased by the
customer from an electrical corporation or alternate supplier
of electricity, subject to changes in usage. (Public Utilities
Code 371(a)
8)Defines "change in usage" to generally mean changes occurring
in the normal course of business resulting from changes in
business cycles, termination of operations, departure from the
utility service territory, weather, reduced production,
modifications to production equipment or operations, changes
in production or manufacturing processes. (Public Utilities
Code 371(b)
9)Exempts fuel cell facilities and replacement of existing
cogeneration facilities from nonbypassable charges by
including them within the definition of change in usage.
(Public Utilities Code 371(b)
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10)Exempts specified cogeneration facilities placed in service
or committed to construction prior to December 20, 1995 from
specified nonbypassable charges. (Public Utilities Code 374)
11)Provides the following exemptions from nonbypassable charges
and provides that the costs of these exemptions be borne by
all ratepayers in the affected service area:
a) 110 megawatts of cogeneration serving irrigation
districts served by electrical corporations with specific
allocations to Merced Irrigation District and Castle Air
Force Base.
b) Irrigation districts, joint power authorities, and
publicly owned utility districts that were owned prior to
December 20, 1995.
c) A federal power marketing agency that existed as of
January 1, 1996, or its successor, from nonbypassable
charges.
d) A portion of the load at the University of California
campus in Yolo County not served by power from a federal
marketing agency provided that the power is used for the
facility load and not directly or indirectly for sale.
(Public Utilities Code 374)
1)Provides authorization for cost recovery to accommodate
implementation of direct access (Public Utilities Code 376)
2)Provides ratepayer funded incentives for projects the first 3
megawatts of up to $0.46/watt for qualified non-renewable
combined heat and power systems or up to $1.46/watt for fuel
cell combined heat and power or electric only fuel cells
through the Self Generation Incentive Program (SGIP). (Public
Utilities Code 379.6)
3)Allows the PUC commission to require an electrical corporation
to purchase from an eligible customer-generator, excess
electricity that is delivered to the grid that is generated by
a combined heat and power. (Public Utilities Code 2840)
FISCAL EFFECT : Unknown
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COMMENTS :
1)Author's Statement . According to the author, "The imposition
of nonbypassable charges on bottoming cycle waste heat
recovery is a barrier to investment in energy efficiency in
the form of bottoming cycle waste heat recovery; that barrier
should and can be removed with rate impacts that are lost in
the rounding."
2)What is bottoming cycle waste heat recovery? There are several
types of waste heat recovery (WHR). This bill is specific to
bottoming cycle WHR. In a bottoming cycle WHR facility, the
energy in the fuel first serves a thermal need, and then is
used for electricity generation. In this way, the site
increases the efficiency of its natural gas usage. This
technology is also referred to broadly as Combined Heat and
Power (CHP). The term CHP includes other types of WHR, in
addition to bottoming cycle WHR.
When a customer installs a WHR facility they are generating
electricity on-site using the excess heat available through
another process on site, such as a kiln used by a cement
manufacturer. The amount of electricity and natural gas used
on site could be the same as it was before the on-site
generator was placed in service. The use of the gas will be
more efficient because the otherwise unused waste heat from
gas combustion is used to produce electricity.
Performing a dual use with the same energy is important and
desirable. To the extent that a WHR facility generates
electricity without supplemental fuel, it improves the
efficient use of energy consumption on site, considering both
natural gas and electricity consumption. It does not
necessarily change usage nor reduce energy demand for either
natural gas or electricity. The sponsors of this bill note
that they have already implemented extensive energy efficiency
programs on their electricity usage. This would imply that
electricity consumption will not change as a result of adding
a WHR facility. With respect to natural gas usage, WHR
provides a more efficient use of gas, but also does not change
usage as the amount of thermal energy needed for the primary
usage (such as in a kiln) would not change.
According to Pacific Gas and Electric (PG&E) there are
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currently 61 MW of bottoming cycle WHR facilities in operation
in PG&E service area and approximately 32 megawatts of
potential new facilities. According to Southern California
Edison (SCE) there are currently 128.5 MW of these facilities
and potentially 14 MW of new facilities. Information on
existing and potential in San Diego Gas & Electric (SDG&E)
service areas is not known at this time.
3)What are Nonbypassable charges? Nonbypassable charges, also
sometimes called Departing Load Charges, are mandated customer
charges to be assessed on each kilowatt-hour of electricity
used by a customer. These charges provide funds for a variety
of purposes, including:
a) Public Purpose Program Charges fund a variety of
programs, including the California Alternate Rates for
Energy (CARE) low income rate assistance, the Energy
Savings Assistance program (energy efficiency retrofits for
low income households), Energy Efficiency Procurement, the
Electric Program Investment Charge authorized by the PUC,
and the Energy Data Center authorized by the PUC.
Since these charges are assessed based on the amount of
electricity used, large energy users will contribute a
proportionally larger amount to these programs. According
to California Large Energy Consumers Association (CLECA),
the 2012 cost of the CARE program in PG&E and SCE service
areas and the contribution of large energy users to support
these programs were:
For SCE: CARE Electric Costs were $346,208,897;
large industrial customer classes funded approximately
11.1% of these costs.
For PG&E, CARE Electric Program costs were
$603,588,209; large industrial customer classes funded
approximately 20.22% of these costs.
If large electricity consumers do not contribute to these
programs, the funding to support low income households will
come from other utility customers. Paradoxically, if
customers do not use much electricity, they also do not
contribute very much, proportionally, to support these
programs. Thus, it is the customers who use average or
higher amounts of electricity who contribute the majority
of the support for low-income programs.
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a) Other Nonbypassable Charges were authorized by statute
to address stranded investment during electricity
deregulation and market manipulation during the electricity
crisis. These charges are not considered nonbypassable
charges and, depending on the tariff (the customer's rate
schedule), they may or may not be assessed these charges:
Department of Water Resources Bond Charges (the Bond
charges will be paid in 2022)
Power Charge Indifference Adjustment
Competition Transition Charge
Nuclear Decommission Charge
Regulatory Asset Charge
Public Purpose Program
Energy Costs Recover Account
Current law provides some exemptions from these charges,
primarily related to contracts made prior to electricity
restructuring and customers utilizing fuel cells. In
addition, Net Energy Metered customers are also exempted
from remitting these charges.
1)Estimates on the Effect on Electricity Rates . According to the
sponsor, "If 250 MW of bottoming cycle waste heat recovery
generation were exempt from departing load charges as provided
by this bill, the average electric retail rate for large power
classes SCE and PG&E would increase by an estimated
$0.00049/kWh." [note that AB 427 limits the exemption to 200
MW].
According to the PUC, nonbypassable charges are equal to
$0.03/kilowatt-hour and in PG&E's service area the resulting
annual cost shift would be less than $8 million annually. The
PUC did not provide an estimate of the effect in SCE or SDG&E
service areas. They also point out the impact on rates depends
on the size of the group of customers who absorb the costs.
PG&E estimates the cost shift to other customers to be
approximately $26 million annually.
According to the Office of Ratepayer Advocates (ORA) the
revenue impact of AB 427 would be at about $44 million,
including transmission, based on a 74% load factor for the
Large Commercial and Industrial customers most likely to
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participate. They add that the exclusion of residential
customers as well as nonresidential below 500 kW, puts the
rate impact as about 0.034 cents per kWh. ORA adds that the
actual rate increase could be somewhat larger, given that some
small commercial and small agricultural customers would be
exempted.
ORA also points out that while each exemption allowed may not
independently result in a large percentage increase,
carve-outs for one segment may lead to carve-outs for another.
As the number of non-exempt customers dwindles, the rate
impacts quickly accelerate.
2)Economics of Combined Heat and Power Systems. According to an
analysis<1> published by the Clean Distributed Generation
Coalition in May 2013 the monetary value of the exemption for
various sizes of systems would be as follows:
------------------------------------------------------------
|Utility | 100 kW | 3,000 kW | 20 MW |
|------------+----------------+----------------+-------------|
|PG&E | $8,280 | $399,622 | $2,711,308 |
|------------+----------------+----------------+-------------|
|SCE | $6,696 | $340,453 | $2,273,570 |
|------------+----------------+----------------+-------------|
|SDG&E | $3,654 | $234,098 |$1,834,169 |
------------------------------------------------------------
Depending on the utility service area, a customer's investment
payback would be reduced by as much as 3 years if the monetary
value of the exemption were available to the customers. As a
result of the more attractive investment, more of these
systems would be more likely to be placed in service: "DLCs
[departing load charges] make up to 17% of a large CHP (20,000
kW) customer's retail bill and up to 23% of their avoidable
electricity costs. These costs reduce the potential savings
from new CHP investments by as much as 36%." The study
estimated that with this exemption the statewide cumulative
market would increase by 26% or 499 MW (from 1,885 MW to 2,385
MW).
--------------------------
<1> The Effect of Departing Load charges on the Costs and
Benefits of Combined Heat and Power, prepared for the California
Clean DG Coalition by ICF International, May 2013.
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Currently, AB 427 provides an exemption in perpetuity that
could result in accrual of incentives that exceed what is
needed to induce customers to utilize bottoming cycle WHR.
The author may wish to consider an amendment that would direct
the PUC to limit the total value of the exemption to no more
than what is needed to induce customers to utilize bottoming
cycle WHR, such as the amounts suggested in the analysis
commissioned by the Clean DG Coalition.
In addition, the author may wish to clarify that this
exemption applies to new WHR facilities rather than existing
systems to ensure that new projects are able to use the
available exemptions.
3)Positions in Support and Opposition.
Supporters of AB 427 argue that manufacturers in California
should be encouraged to maximize the use of bottoming cycle
WHR to meet statewide greenhouse gas emission goals, reduce
air pollution, and lower the cost of doing business to stay
competitive in California.
Opponents of AB 427 point out that bottoming cycle WHR already
receive financial support through the Self Generation
Incentive Program and that companies receiving these
exemptions will no longer contribute funds to support
low-income assistance and energy efficiency. The provision to
protect residential and small commercial customers from this
cost-shift will result in concentrating the cost shift to
medium sized customers, such as schools, hospitals,
universities, and prisons.
Other opponents point out that AB 427 would create a subsidy
for industrial ratepayers funded by small commercial and
industrial ratepayers.
4)Clarification of cost shifting language. The author may wish
to make the following clarifications to the cost shifting
language in the bill:
Specify 500 kilowatt rather than 500 kilowatt-hours as it is a
more common dividing line between small and large customers.
In addition, rather than stating that these customers should
pay their cost of service, it would be clearer to specify that
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these customers pay standby and demand charges, as specified
in the applicable tariff.
5)WHR included in definition of change in usage . WHR does not
necessarily result in a change in usage therefore its
inclusion in this section of statute is inaccurate. Another
section of AB 427 provides a definition of bottoming cycle
WHR.
The author may wish to amend the bill to remove bottoming
cycle waste heat recovery in the definition of change in
usage.
6)Summary of Suggested amendments . For purposes of AB 427, the
author may wish to consider the following amendments:
1) A cap on the total amount of funds provided for each
customer that is no greater than the amount necessary to
provide the economic incentive to invest in a bottoming
cycling WHR facility, as determined by the PUC.
2) Clarification that the exemption is provided for new
bottoming cycling waste heat recovery systems placed in
service after this law takes effect (January 1, 2015).
3) Remove bottoming cycle WHR language from the definition
of change in usage.
4) Clarify the average 500 kilowatt-hours per month and
instead state: 500 kilowatts of monthly demand. This will
exempt most small businesses from paying additional costs
due to this bill and leave the exemption for all
residential customers unchanged.
5) Clarify that these customers will be responsible for
standby and demand charges as well as charges to support
programs that include the California Solar Initiative, the
New Solar Home Partnership, and the Self Generation
Incentive Program.
6) The PUC should also maintain on its website the
cumulative amount of charges avoided by the exemption and
annual rate impacts on customers that are not exempted from
these charges.
Specifically, the proposed amendments are:
371. (a) Except as provided in Sections 372 and 374, the
uneconomic costs provided in Sections 367, 368, 375, and 376
shall be applied to each customer based on the amount of
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electricity purchased by the customer from an electrical
corporation or alternate supplier of electricity, subject to
changes in usage occurring in the normal course of business.
(b) (1) Changes in usage occurring in the normal course of
business are those resulting from changes in business cycles,
termination of operations, departure from the utility service
territory, weather, reduced production, modifications to
production equipment or operations, changes in production or
manufacturing processes, fuel switching, including
installation of fuel cells, enhancement or increased
efficiency of equipment or performance of existing
self-cogeneration equipment, the production of electricity
using bottoming cycle waste heat recovery , replacement of
existing cogeneration equipment with new power generation
equipment of similar size as described in paragraph (1) of
subdivision (a) of Section 372, installation of demand-side
management equipment or facilities, energy conservation
efforts, or other similar factors.
(c)(1) (2) For the purposes of this section, "bottoming cycle
waste heat recovery" means the use of waste heat from a
commercial or industrial process to produce electricity
without consuming fuel to supplement the waste heat and to
supply electricity for onsite use without exporting
electricity to the electrical grid.
(c) (1) Except as provided in paragraph (2), changes in usage
occurring in the normal course of business as described in
subdivision (b) are exempt from all nonbypassable charges
approved by the commission.
(2) For electricity produced using bottoming cycle waste heat
recovery placed in service after January 1, 2015 , the
exemption specified in paragraph ( 1 a ) applies only also to the
cumulative total of 200 megawatts of load within all service
areas of electrical corporations.
(d) A nonbypassable charge avoided pursuant to subdivision (c)
as a result of the use of electricity produced using bottoming
cycle waste heat recovery shall not be recovered from
residential ratepayers and commercial ratepayers with an
average monthly usage demand of 500 kilowatthours kilowatts of
electricity or less.
(e) The commission shall establish a monetary limit on the
total funds provided by this exemption for each customer
utilizing a bottom cycling waste heat recovery system as
defined by (c)(1). The fund limit shall be sufficient to
induce acquisition of bottom cycling waste heat recovery
systems but be no greater than the amount necessary to provide
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the economic incentive to invest in a bottom cycling waste
heat recovery system, as determined by the commission.
( f e ) The commission shall ensure that customers exempt from
the nonbypassable charges pursuant to subdivision (c) pay
their cost of receiving service standby and demand charges as
specified from an the applicable tariff of the electrical
corporation. In addition, these customers shall continue pay
program investment charges to support programs that include
California Solar Initiative and New Solar Home Partnership
authorized pursuant to 25780 of the Public Resources Code, and
the Self Generation Incentive Program authorized pursuant to
379.6 of the Public Utilities Code.
(f) This section does not exempt or alter the obligation of a
customer to comply with Chapter 5 (commencing with Section
119075) of Part 15 of Division 104 of the Health and Safety
Code. Nothing in this section shall be construed as a
limitation on the ability of residential customers to alter
their pattern of electricity purchases by activities on the
customer side of the meter.
(g) The PUC shall also publish on its Internet website the
cumulative amount of charges avoided by the exemption and
annual rate impacts on customers that are not exempted from
these charges.
REGISTERED SUPPORT / OPPOSITION :
Support
California Manufacturers & Technology Association (CMTA)
Environmental Defense Fund (EDF)
Opposition
Coalition of California Utility Employees (CCUE)
Office of Ratepayer Advocates (ORA)
Pacific Gas and Electric Company (PG&E)
Analysis Prepared by : Susan Kateley / U. & C. / (916)
319-2083