3. Energy Division Recommendations

Per our request in D.01-03-073, Energy Division has reported back to us on the issues we need to consider before expanding the program to renewable-fuel micro-turbines. To summarize, Energy Division recommends that the Commission:

a. Adopt the following definition of a "renewable fuel":

A renewable fuel is a non-fossil fuel resource other than those defined as conventional in Section 2805 of the Public Utilities Code, that can be categorized as one of the following: solar, wind, biomass, digester gas, or landfill gas. A facility utilizing a renewable fuel may not use more than 25 percent fossil fuel annually, as determined on a total energy input basis for the calendar year.

b. Offer the lesser of 40 percent of project costs or $1.50/Watt to combustion technologies operating on a renewable fuel, under a new incentive Level 3-R.

c. Clarify the definition of project costs for the purpose of calculating self-generation incentives, as follows:

--technologies using a renewable fuel may include fuel cleanup equipment in calculating project costs.




--equipment required to produce a usable fuel from organic material does not qualify as fuel cleanup equipment and therefore is not an eligible project cost.




--fuel cleanup and processing equipment for waste gases derived from fossil fuel drilling operations are not eligible project costs.

d. Require applicants for Level 3-R systems to submit an affidavit stating that the unit will comply with the program renewable fuel requirements for the duration of the incentive program (i.e., December 31, 2004) at minimum.

e. Require applicants for Level 3-R systems (and Level 1 fuel cells) to demonstrate an adequate flow rate of renewable fuel to produce electricity at the self-generation unit's rated capacity. Direct the program administrators to develop an appropriate methodology and verification process for this purpose.

f. Waive the waste heat recovery requirement for Level 3-R technologies (and fuel cells) operating on a renewable fuel.

g. Waive the reliability requirement for Level 3-R technologies (and fuel cells) operating on a renewable fuel.

h. Clarify that the annual program evaluation should include compliance monitoring for renewable fuel use.

i. Clarify that Level 3-R is a subsection of Level 3 technologies for the purpose of applying the Commission's adopted fund-shifting rules.

Energy Division's complete report and detailed recommendations are attached to this decision. (See Attachment 1.)