2. Positions of the Parties
SCE and PG&E filed comments in opposition to Capstone's Petition on April 4, 2002. Capstone filed a response on April 12, 2002.5 In the following sections, we summarize the parties' positions on the issues in dispute.
2.1 Incentive Level For Renewable-Fuel Microturbines
Capstone urges the Commission to include renewable-fuel micro-turbines in the Level 1 category of incentives, i.e., to offer the lesser of 50% of project costs or $4.50/watt to these technologies. Capstone provides three reasons why it believes that this level of incentive is justified. First, Capstone contends that converting landfill and digester gases into electricity using micro-turbine technology makes the cost of equipment for biomass and waste gas operations approximately two times more expensive than the equipment needed to use conventional fuels. Second, Capstone argues that micro-turbine systems operating on renewable fuel achieve very low emissions comparable with those of a fuel cell. Third, Capstone contends that there are fuel diversification benefits that arise from the use of biomass and waste gases. Offering the Level 1 incentive would, in Capstone's view, reduce the barriers to deployment and enable the benefits of this technology to be gained more rapidly.
PG&E and SCE oppose Capstone's request for Level 1 incentive treatment. They argue that Capstone provided no information on the equipment costs associated with renewable-fuel micro-turbines, or any comparison between those costs and the equipment costs associated with Level 1 technologies. SCE further argues that there is no evidence in the record to support a finding that micro-turbines utilizing landfill or digester gas offer "super clean" generation. In addition, PG&E contends that the reduction in fuel costs over the life of the project should offset all or a significant portion of the upfront capital costs to operate a renewable fuel. Moreover, according to PG&E, micro-turbines operating on renewable fuel already obtain advantageous treatment with regard to the efficiency requirement applied to Level 3 technologies. In PG&E's view, the Commission should undertake a comprehensive examination of the incentive structure for all technologies, based on the experience gained over the past then months of the program's operation, before creating a differential incentive category for renewable-fuel microturbines. Similarly, SCE recommends that the Commission defer consideration of this issue, at least until Energy Division has competed the tasks outlined in D.01-03-073.
2.2 Fuel-Switching
In D.01-03-073, the Commission sought assurance that a renewable facility that receives an incentive payment would not subsequently switch to fossil fuel. Capstone argues that the most effective way of dealing with this issue is by way of a fuel-use warranty. In particular, Capstone argues that facilities (both fuel cells and micro-turbines) that receive the renewable fuel incentive be required to provide a written warranty that they will operate using the renewable fuel for three consecutive years or the economic life of the facility, whichever is the shorter.
PG&E identifies several problems with Capstone's proposal. First, PG&E argues that the duration of Capstones' proposed warranty is inconsistent with the warranty period already required for Level 1 equipment quality and performance under the program, i.e., 5 years. Second, PG&E argues that the Commission needs to resolve between the project developer and project owner who will be making the warranty that the project will burn renewable fuel, and who will be entitled to or expected to enforce this warranty. In addition, PG&E argues that the Commission will need to resolve what the remedy will be if the promise to burn renewable fuel is breached. For similar reasons, SCE argues that a warranty is not adequate assurance that a facility will not switch to a non-renewable fuel.
