Bill Promoting Distributed Generation Advances

A state Assembly panel backed contentious legislation April 13 to incentivize distributed generation by eliminating a portion of the fees paid to utilities for businesses that decide to produce their own power.

The bill, AB 674 by Assemblymember Kevin Mullin (D-San Mateo), passed the Assembly Utilities & Commerce Committee 8-2. However, passage came only after the author accepted amendments to limit shifting the burden of the costs to other utility ratepayers.

Under current law, businesses that install self-generation equipment—like microturbines and fuel cells—must pay the fees on all the power they use, whether it comes from the grid or their own equipment.

Mullin’s bill would change that by requiring on-site generators to pay utility fees based solely on the power they draw from the grid.

The San Mateo Democrat told the committee that right now the charges constitute a major financial hurdle to the advance of distributed generation and undermine state environmental goals, from cleaning up urban smog to reducing greenhouse gases.

Supporters of the measure, including Capstone Turbines, Solar, and Bloom Energy, estimated that passing the bill could bring hundreds of MW of new distributed generation capacity, the equivalent of a major central power plant.

“The whole point of this bill,” Mullin said, “is to remove a barrier.” Right now, paying the fixed costs, according to Mullin, can double the cost of on-site generation.

Yet, Mullin admitted his bill would create stranded costs.

The fees at issue include those ratepayers pay to subsidize low-income energy utility customers and to fund energy efficiency programs, clean energy research and development, and decommissioning the state’s nuclear power plants, according to a Southern California Edison representative at the hearing.

Specifically, about two-thirds of the fees paid by ratepayers fund a variety of public purpose programs, like California Alternate Rates for Energy, which subsidize low-income customers, energy efficiency, and clean energy research. A bit less than a third of the fees go to paying off bonds issued by the state to buy electricity during California’s 2000-01 energy crisis. The remainder, or about 2 percent, goes to the nuclear decommissioning fund.

Opponents of the bill, which include investor-owned utilities and the Office of Ratepayers Advocates, said passing the measure would leave other ratepayers left holding the bag for the cost of these essential programs.

If on-site generators no longer have to pay these fees, Rebecca Lee of the Office of Ratepayer Advocates told lawmakers, it “will create a slippery slope.” As more customers make more of their own power, she explained, it will undermine “these programs that are important to social goals.”

In response, Mullin agreed to limit cost-shifting for the programs to customers in the same rate class as those who install distributed generation equipment, such as hospitals, manufacturers, and other businesses.

A representative of the California Large Energy Consumers Association estimated doing so would impose a cost increase of about a tenth of a cent per kWh. Despite that, the representative said, the association supports the bill.