2. Background

"Self-generation" refers to distributed generation technologies (micro-turbines, small gas turbines, wind turbines, photovoltaics, fuel cells, and internal combustion engines) installed on the customer's side of the utility meter that provide electricity for either a portion or all of that customer's electric load. Under the program adopted in D.01-03-073, as modified by subsequent decisions, financial incentives are provided to three different categories (or levels) of distribution technologies:

Level 1: The lesser of 50% of project costs or $4.50/watt for photovoltaics, wind turbines and fuel cells operating on renewable fuels;

Level 2: The lesser of 40% of project costs or $2.50/watt for fuel cells operating on non-renewable fuel and utilizing sufficient waste heat recovery; and

Level 3: The lesser of 30% of project costs or $1.00/watt for micro-turbines, internal combustion engines and small gas turbines operating on non-renewable fuel that both utilize sufficient waste heat recovery and meet reliability criteria. For these same technologies operating on renewable fuel: The lesser of 40% of project costs or $1.50/watt.

The Commission authorized combined annual budgets of $125 million for the self-generation programs administered by Pacific Gas and Electric Company (PG&E), Southern California Gas Company (SoCal), Southern California Edison Company (SCE), and San Diego Regional Energy Office (SDREO) over a four-year period.² The program was officially launched on June 29, 2001.

On April 24, 2002, Mafi-Trench filed a Petition requesting that the Commission permit turbo-expanders to qualify for the Level 1 incentive payments under the program. In its Petition, Mafi-Trench argued that turbo-expanders represent a "super clean" resource because there are no emissions resulting from the pressure drop that enables the technology to produce electrical power. Therefore, Mafi-Trench argued that this technology should be eligible for the higher incentives offered under Level 1.

In D.03-01-006, we denied Mafi-Trench's Petition without prejudice. We stated that turbo-generators could be considered eligible for Level 3 non-renewable incentives, depending on the efficiency of turbo-expander generation and project costs.³ We deferred final consideration of this issue pending the receipt and consideration of Mafi-Trench's responses to the following questions:

1. What are the installed system costs (on a dollar per kilowatt basis), both average costs and with project examples included?

2. What is the market potential for the application of this technology to recovery waste heat for the production of electrical power, both in terms of customer classes and total potential in California?

3. How would this application aid in peak load reduction and what is an average expected generation profile?

4. What efficiency does electrical power production from turbo-expanders achieve considering total inputs, including those required to produce the pressure differential in the first place, and what is the total energy use for compression stations in California?

5. How would this application meet the waste heat recovery and reliability requirements for Level 3 incentives, assuming it was eligible for incentives under that category?

6. How could this application be monitored to ensure that the turbo-expanders are used for electrical production and not a different industrial process once they are installed?

Mafi-Trench submitted a response to these questions on December 12, 2002, as part of its comments on the draft decision. In August 2003, Energy Division submitted its recommendations to the assigned ALJ and Assigned Commissioner in the form of a five-page report. By ruling dated August 6, 2003, the ALJ issued Energy Division's report for comment. No comments were filed in response.

Energy Division's report, which includes a summary of Mafi-Trench's December 12, 2002 response, is presented in Attachment 1.